10-Q
1
tm2029552d1_10q.htm
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30,
2020
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from____ to
____
Commission File Number: 001-32295
FENNEC PHARMACEUTICALS INC.
(Exact Name of Registrant as Specified
in Its Charter)
British Columbia, Canada
(State or Other Jurisdiction of
Incorporation or Organization
20-0442384
(I.R.S. Employer
Identification No.)
PO Box 13628, 68 TW Alexander Drive
Research Triangle Park, North Carolina
(Address of Principal Executive Offices)
27709
(Zip Code)
Registrant's Telephone Number, Including
Area Code: (919) 636-4530
Securities registered pursuant to Section 12(b) of
the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which
registered
Common Shares, no par value
FENC
Nasdaq Capital Market
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES x NO ¨
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).
Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions
of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging
growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
¨
Accelerated Filer
¨
Non-Accelerated Filer
x
Smaller reporting company
x
Emerging growth company
¨
If an emerging growth company, indicate
by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicated by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x
As of November 11, 2020, there were 25,809,684 shares of
Fennec Pharmaceuticals Inc. common stock outstanding.
TABLE OF CONTENTS
Page
PART I: FINANCIAL INFORMATION
3
Item 1. Condensed Consolidated Financial Statements
3
Condensed Consolidated Balance Sheets as of September 30, 2020 (Unaudited) and December 31,
2019
3
Condensed Consolidated Statements of Operations (Unaudited) for the Three and Nine-months
Ended September 30, 2020 and 2019
4
Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three and Nine-months
Ended September 30, 2020 and 2019
5
Condensed Consolidated Statements of Stockholders' Equity (Unaudited) for the Three and Nine-months
Ended September 30, 2020 and 2019
6
Notes to the Condensed Consolidated Financial Statements
7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
16
Item 3. Quantitative and Qualitative Disclosures about Market Risk
25
Item 4. Controls and Procedures
25
PART II: OTHER INFORMATION
26
Item 1. Legal Proceedings
26
Item 1A. Risk Factors
26
Item 2. Recent Sales of Unregistered Securities
29
Item 3. Default Upon Senior Securities
29
Item 4. Mine Safety Disclosure
29
Item 5. Other Information
29
Item 6. Exhibits
30
Signatures
31
2
PART 1: FINANCIAL INFORMATION
Item 1. Financial Statements
Fennec Pharmaceuticals Inc.
Condensed Consolidated Balance Sheets
(U.S. Dollars and shares in thousands)
September 30, 2020
December 31,
(unaudited)
2019
Assets
Current assets:
Cash and cash equivalents
$ 33,166
$ 13,650
Prepaid expenses
900
226
Other current assets
4
8
Total current assets
34,070
13,884
Non-current assets:
Deferred issuance costs
466
326
Accumulated amortization of deferred issuance costs
(466 )
(64 )
Total non-current assets:
-
262
Total assets
$ 34,070
$ 14,146
Liabilities and stockholders' equity
Current liabilities:
Accounts payable
$ 2,684
$ 1,612
Accrued liabilities
201
659
Total current liabilities
2,885
2,271
Commitments and Contingencies (Note 6)
Stockholders' equity:
Common stock, no par value; unlimited shares authorized; 25,810 shares issued and outstanding (2019-19,896)
139,732
106,392
Additional paid-in capital
49,112
48,271
Accumulated deficit
(158,902 )
(144,031 )
Accumulated other comprehensive income
1,243
1,243
Total stockholders’ equity
31,185
11,875
Total liabilities and stockholders’ equity
$ 34,070
$ 14,146
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
3
Fennec Pharmaceuticals
Inc.
Condensed Consolidated Statements of
Operations
(U.S. Dollars and shares in thousands,
except per share amounts)
(Unaudited)
Three Months Ended
Nine Months Ended
September 30,
September 30,
September 30,
September 30,
2020
2019
2020
2019
Revenue
$ -
$ -
$ -
$ -
Operating expenses:
Research and development
1,368
795
3,882
4,435
General and administrative
4,491
1,068
10,657
4,921
Loss from operations
(5,859 )
(1,863 )
(14,539 )
(9,356 )
Other (expense) income :
Other (loss)/gain
(8 )
1
(4 )
(9 )
Amortization expense
(355 )
(17 )
(402 )
(46 )
Interest income and other
22
70
74
246
Total other income/(expense), net
(341 )
54
(332 )
191
Net loss
$ (6,200 )
$ (1,809 )
$ (14,871 )
$ (9,165 )
Basic net loss per common share
$ (0.24 )
$ (0.09 )
$ (0.64 )
$ (0.46 )
Diluted net loss per common share
$ (0.24 )
$ (0.09 )
$ (0.64 )
$ (0.46 )
Weighted-average number of common shares
outstanding, basic
25,598
19,896
22,969
19,896
Weighted-average number of common shares
outstanding, diluted
25,598
19,896
22,969
19,896
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
4
Fennec Pharmaceuticals Inc.
Condensed Consolidated Statements of
Cash Flows
(U.S. Dollars in thousands)
(Unaudited)
Three Months Ended
Nine Months Ended
September 30,
September 30,
September 30,
September 30,
2020
2019
2020
2019
Cash flows used in:
Operating activities:
Net loss
$ (6,200 )
$ (1,809 )
$ (14,871 )
$ (9,165 )
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of deferred issuance cost
355
17
402
46
Stock-based compensation - contractors
21
21
63
395
Stock-based compensation - employees
1,238
314
2,151
2,204
Changes in operating assets and liabilities:
Prepaid assets
(734 )
(331 )
(674 )
(219 )
Other current assets
-
1
4
1
Accounts payable
(71 )
(440 )
1,072
(244 )
Accrued liabilities
(55 )
(8 )
(458 )
(488 )
Net cash used in operating activities
(5,446 )
(2,235 )
(12,311 )
(7,470 )
Financing activities:
Issuance of shares, net of issuance cost
-
-
31,967
-
Capitalized deferred issuance cost
(117 )
-
(140 )
(71 )
Net cash (used in)/provided by financing activities
(117 )
-
31,827
(71 )
(Decrease)/increase in cash and cash equivalents
(5,563 )
(2,235 )
19,516
(7,541 )
Cash and cash equivalents - Beginning of period
38,729
17,475
13,650
22,781
Cash and cash equivalents - End of period
$ 33,166
$ 15,240
$ 33,166
$ 15,240
Non-cash deferred issuance cost (warrant value)
$ -
$ -
$ -
$ 255
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
5
Fennec Pharmaceuticals Inc.
Condensed
Consolidated Statements of Stockholders' Equity
Three and Nine-months Ended September 30,
2020 and 2019
(U.S. dollars and shares in thousands)
(Unaudited)
Accumulated
Additional
Other
Total
Common Stock
Paid-in
Accumulated
Comprehensive
Stockholders’
Number (Note 5)
Amount
Capital
Deficit
Income
Equity
Balance at December 31, 2019
19,896
$ 106,392
$ 48,271
$ (144,031 )
$ 1,243
$ 11,875
Stock options issued to employees
-
-
391
-
-
391
Stock options issued to contractors
-
-
21
-
-
21
Net loss
-
-
-
(3,826 )
-
(3,826 )
Balance at March 31, 2020
19,896
106,392
48,683
(147,857 )
1,243
8,461
Stock options issued to employees
-
-
522
-
-
522
Stock options issued to contractors
-
-
21
-
-
21
Issuance of securities
5,460
31,967
-
-
-
31,967
Net loss
-
-
-
(4,845 )
-
(4,845 )
Balance at June 30, 2020
25,356
138,359
49,226
(152,702 )
1,243
36,126
Stock options issued to employees
-
-
1,238
-
-
1,238
Stock options issued to contractors
-
-
21
-
-
21
Exercise of options
454
1,373
(1,373 )
-
-
-
Net loss
-
-
-
(6,200 )
-
(6,200 )
Balance at September 30, 2020
25,810
$ 139,732
$ 49,112
$ (158,902 )
$ 1,243
$ 31,185
Balance at December 31, 2018
19,896
$ 106,392
$ 44,934
$ (131,256 )
$ 1,243
$ 21,313
Stock options issued to employees
-
-
221
-
-
221
Stock options issued to contractors
-
-
43
-
-
43
Warrants issued to consultants
-
-
255
-
-
255
Net loss
-
-
-
(2,626 )
-
(2,626 )
Balance at March 31, 2019
19,896
106,392
45,453
(133,882 )
1,243
19,206
Stock options issued to employees
-
-
1,669
-
-
1,669
Stock options issued to contractors
-
-
331
-
-
331
Net loss
-
-
-
(4,730 )
-
(4,730 )
Balance at June 30, 2019
19,896
106,392
47,453
(138,612 )
1,243
16,476
Stock options issued to employees
-
-
314
-
-
314
Stock options issued to contractors
-
-
21
-
-
21
Net loss
-
-
-
(1,809 )
-
(1,809 )
Balance at September 30, 2019
18,896
$ 106,392
$ 47,788
$ (140,421 )
$ 1,243
$ 15,002
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
6
Fennec Pharmaceuticals Inc.
Notes to Unaudited Condensed Consolidated
Financial Statements
September 30, 2020
(All dollar amounts shown in thousands)
1. Nature of Business and Going Concern
Fennec Pharmaceuticals Inc. (“Fennec,”
the “Company,” “we,” “us,” or “our”) is a biopharmaceutical company focused on
the development of PEDMARK TM (a unique formulation of sodium thiosulfate) for the prevention of platinum-induced ototoxicity
in pediatric cancer patients. We incorporated under the Canada Business Corporations Act (“CBCA”) in September 1996.
Effective on August 25, 2011, the Company continued from the CBCA to the Business Corporations Act (British Columbia) (the
“Continuance”). The Continuance was approved by our shareholders at our June 2011 Annual and Special Meeting and
by resolution of the Board of Directors on August 10, 2011. We have four wholly-owned subsidiaries: Oxiquant, Inc. and
Fennec Pharmaceuticals, Inc., both Delaware corporations, Cadherin Biomedical Inc., a Canadian company and Fennec Pharmaceuticals
(EU) Limited (“Fennec Limited”), an Ireland company formed in 2018. With the exception of Fennec Pharmaceuticals, Inc.,
all subsidiaries are inactive.
These unaudited interim condensed consolidated
financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America
(“US GAAP”) that are applicable to a going concern which contemplates that the Company will continue in operation for
the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of business.
During the three and nine-months ended
September 30, 2020, the Company incurred a loss from operations of $5,859 and $14,539, respectively. At September 30, 2020, the
Company had an accumulated deficit of $158,902 and had experienced negative cash flows from operating activities during the three
and nine-months ended September 30, 2020 in the amount of $5,446 and $12,311, respectively.
On May 5, 2020, the Company announced
the completion of an underwritten public offering of 4,800,000 common shares at a public offering price of $6.25 per share. In
addition, Fennec issued an additional 660,204 common shares in connection with the partial exercise of the underwriters’
over-allotment option. The approximate total gross proceeds from the offering was $31,967 ($34,100 net of commissions, fees and
issue costs).
On February 1, 2019, Fennec entered
into a Loan and Security Agreement with Bridge Bank, a division of Western Alliance Bank, an Arizona corporation, pursuant to which
the Bank agreed to loan $12,500 to the Company, to be made available upon New Drug Application (NDA) approval of PEDMARK by no
later than September 30, 2020. The proceeds from the loan will be used for working capital purposes and to fund general business
requirements in accordance with the terms of the Loan and Security Agreement. Interest under the Term Loans shall bear interest,
on the outstanding daily balance thereof, at a floating per annum rate equal to the Effective Interest Rate (as defined in the
Loan and Security Agreement) which is equal to the sum of the Prime Rate published in the Wall Street Journal (currently 3.25%)
plus one percent (1.00%). The debt facility is to have interest-only monthly payments due for the first eighteen months from the
funding date and then monthly principal and interest payments are due through the remainder of the term which has a maturity date
of October 1, 2023. In connection with the facility, Fennec granted Bridge Bank a warrant to purchase up to 39 common shares
at an exercise price of $6.80 per common share, for a term of ten years from the date of issuance, subject to early termination
under certain conditions.
On June 26, 2020, Fennec announced
an amendment to the Loan and Security Agreement with Bridge Bank. This amendment provides Fennec with an $18,000 debt facility
comprised of two term loans. Term Loan A consists of $12,500 to be funded upon New Drug Application NDA approval of PEDMARK TM
in the U.S. to be made available upon NDA approval of PEDMARK by no later than December 31, 2020 and Term Loan B consists
of $5,500 to be funded upon the occurrence of a revenue event in 2021. The interest-only period for the facility has the
ability to be extended from 18 months to 24 months from the funding of Term Loan A, provided that Term Loan B is funded, and certain
conditions are met. The fee in connection with Loan B, can either be 2.13% of the Loan B amount in cash, or the Company can issue
a warrant with a value equal to 3.25% of the Loan B amount. On August 6, 2020, the Company paid cash for the extended facility.
These statements reflect that fee being settled with cash instead of a warrant. Under Accounting Standards Codification ("ASC")
470-50, Modifications and Extinguishments, the amendment was considered a modification. As such, the Company had been amortizing
the loan fee and the value of the warrant over the remainder of the loan term. Following the receipt of the U.S. Food and Drug
Administration’s (FDA) Complete Response Letter (CRL), management decided to fully amortize the remining portions of the
loan fee and the value of the warrants.
7
Fennec Pharmaceuticals Inc.
Notes to Unaudited Condensed Consolidated
Financial Statements
September 30, 2020
(All dollar amounts shown in thousands)
On August 10, 2020, the Company received a CRL from the FDA
regarding its New Drug Application (NDA) for PEDMARK TM . According to the CRL, after recent completion of a pre-approval
inspection of the manufacturing facility of our drug product manufacturer, the FDA identified deficiencies that are required to
be resolved prior to the approval of PEDMARK TM . Importantly, no clinical safety or efficacy issues were identified during
the review and there is no requirement for further clinical data. The Company plans to work closely with the third-party drug manufacturer
and the FDA to fully address the CRL and plan to resubmit the NDA for PEDMARK TM as quickly as possible. As a result
of the FDA’s CRL the anticipated product launch did not occur as of September 30, 2020 and thus the Bridge Bank Term Loan
A has not yet been funded. The Company does not believe it will receive FDA approval by December 31, 2020 and thus has fully amortized
the deferred asset associated with Term Loan A. Furthermore, the Company believes the delay in approval will mean it will not be
able to meet the revenue target to fund Term Loan B. As such, the deferred asset associated with Term Loan B has been expensed.
The Company is currently in negotiations with Bridge Bank to receive an extension on both Term Loan A and B.
The Company believes the funds raised in
the public offering which closed in May 2020, provides sufficient funding for the Company to carry-out its planned activities
including potential NDA approval and the commencement of commercialization efforts for at least the next twelve months as it continues
its strategic development of PEDMARK TM .
These financial statements do not reflect
the potentially material adjustments in the carrying values of assets and liabilities, the reported expenses, and the balance sheet
classifications used, that would be necessary if the going concern assumption were not appropriate.
2. Significant Accounting Policies
Basis of presentation
The accompanying unaudited interim condensed
consolidated financial statements have been prepared in accordance with US GAAP and are the responsibility of the Company’s
management. These unaudited interim condensed consolidated financial statements do not include all of the information and notes
required by US GAAP for annual financial statements. Accordingly, these unaudited interim condensed consolidated financial statements
should be read in conjunction with the Company's audited consolidated financial statements and notes filed with the Securities
and Exchange Commission (“SEC”) in the Company's Annual Report on Form 10-K for the year ended December 31,
2019. The Company's accounting policies are consistent with those presented in the audited consolidated financial statements included
in the Annual Report on Form 10-K for the year ended December 31, 2019. These unaudited interim condensed consolidated
financial statements have been prepared in U.S. dollars. All amounts presented are in thousands except for per share amounts.
Use of estimates
The preparation of financial statements
in conformity with US GAAP requires management to make estimates and assumptions that impact the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the date of the interim condensed consolidated financial
statements and the reported amounts of expense during the reporting period. Actual results could differ from those estimates.
In the opinion of management, these unaudited
interim condensed consolidated financial statements include all adjustments, which are normal and recurring in nature, necessary
for the fair presentation of the Company’s financial position at September 30, 2020 and to state fairly the results
for the periods presented. The most significant estimates utilized during the quarter ended September 30, 2020 included estimates
necessary to value grants of stock options to employees and various contractors, disclosed in Note 4.
8
Fennec Pharmaceuticals Inc.
Notes to Unaudited Condensed Consolidated
Financial Statements
September 30, 2020
(All dollar amounts shown in thousands)
New accounting pronouncements
In August 2018, the FASB issued ASU
2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement.
ASU 2018-13 removes certain disclosures, modifies certain disclosures and adds additional disclosures. The ASU was effective
for us on January 1, 2020, and interim periods within that fiscal year. Certain disclosures in ASU 2018-13 would need to be
applied on a retrospective basis and others on a prospective basis. The Company concluded after evaluation, that the impact of
ASU 2018-13 on our consolidated financial statements and disclosures was de minimis.
In August 2020, FASB issued ASU 2020-06, Debt—Debt
with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic
815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which, among other things, provides
guidance on how to account for contracts on an entity’s own equity. This ASU simplifies the accounting for certain financial
instruments with characteristics of liabilities and equity. Specifically, the ASU eliminated the need for the Company to assess
whether a contract on the entity’s own equity (1) permits settlement in unregistered shares, (2) whether counterparty
rights rank higher than shareholder’s rights, and (3) whether collateral is required. In addition, the ASU requires
incremental disclosure related to contracts on the entity’s own equity and clarifies the treatment of certain financial instruments
accounted for under this ASU on earnings per share. This ASU may be applied on a full retrospective of modified retrospective basis.
This ASU is effective January 1, 2022 and interim periods presented. Early adoption of the ASU is permitted by the Company
effective January 1, 2021. The Company is in the process of assessing the adoption of the ASU on the Company’s financial
statements.
Cash and cash equivalents
Cash equivalents consist of highly liquid
investments with original maturities at the date of purchase of three months or less. The Company places its cash and cash equivalents
in investments held by highly rated financial institutions in accordance with its investment policy designed to protect the principal
investment. At September 30, 2020, the Company had $33,166 in cash, savings and money market accounts ($13,650 at December 31,
2019). At September 30, 2020, the Company held $19 in cash of which $11 (as presented in U.S. dollars) was in Canadian dollars
($24 at December 31, 2019 as presented in U.S. dollars). At September 30, 2020, the Company held $33,147 in money
market investments. Money market investments typically have minimal risks. The Company has not experienced any loss or write-down
of its money market investments since inception.
3. Earnings per Share
Earnings per common share is presented
under two formats: basic earnings per common share and diluted earnings per common share. Basic earnings per common share is computed
by dividing net income attributable to common shareholders by the weighted average number of common shares outstanding during the
period. Diluted earnings per common share is computed by dividing net income by the weighted average number of common shares outstanding
during the period, plus the potentially dilutive impact of common stock equivalents (i.e. stock options and warrants). Dilutive
common share equivalents consist of the incremental common shares issuable upon exercise of stock options and warrants. The following
table sets forth the computation of basic and diluted net loss per share:
Three Months Ended September 30,
Nine-month Ended September 30,
2020
2019
2020
2019
Numerator:
Net (loss)
$ (6,200 )
$ (1,809 )
$ (14,871 )
$ (9,165 )
Denominator:
Weighted-average common shares, basic
25,598
19,896
22,969
19,896
Dilutive effect of stock options
-
-
-
-
Dilutive effect of warrants
-
-
-
-
Incremental dilutive shares
-
-
-
-
Weighted-average common shares, dilutive
25,598
19,896
22,969
19,896
Net (loss) per share, basic and diluted
$ (0.24 )
$ (0.09 )
$ (0.64 )
$ (0.46 )
9
Fennec Pharmaceuticals Inc.
Notes to Unaudited Condensed Consolidated
Financial Statements
September 30, 2020
(All dollar amounts shown in thousands)
The following outstanding options and warrants
were excluded from the computation of basic and diluted net loss per share for the periods presented because including them would
have had an anti-dilutive effect:
Three Months Ended September 30,
Nine-month Ended September 30,
2020
2019
2020
2019
Options to purchase common stock
3,095
3,018
3,095
3,018
Warrants to purchase common stock
39
39
39
39
4. Stockholders' Equity
Authorized capital stock
The Company’s authorized capital
stock consists of an unlimited number of shares of no-par common stock.
Warrants to
Purchase Common Stock
During the three and nine-months ended
September 30, 2020, there were no warrants issued or exercised. During the three and nine-months ended September 30,
2019, the Company issued warrants to purchase common stock priced in U.S. dollars with a weighted average price of $6.80. These
warrants have not been exercised and have weighted average remaining life of 8.58 years as of September 30, 2020. The following
table details the Company’s warrant activity from December 31, 2019:
Investor Warrants
Common Shares Issuable Upon
Exercise of Outstanding Warrants
Weighted-Average
Exercise Price $USD
Outstanding December 31, 2019
39
6.80
Issued
-
-
Outstanding March 31, 2020
39
6.80
Issued
-
-
Outstanding June 30, 2020
39
6.80
Issued
-
-
Outstanding September 30, 2020
39
6.80
Total
39
6.80
Investor Warrants
Common Shares Issuable Upon
Exercise of Outstanding Warrants
Weighted-Average
Exercise Price $USD
Outstanding December 31, 2018
-
-
Issued
39
6.80
Outstanding March 31, 2019
39
6.80
Issued
-
-
Outstanding June 30, 2019
39
6.80
Issued
-
-
Outstanding September 30, 2019
39
6.80
Total
39
6.80
The value of warrants issued was estimated
using the Black-Scholes option pricing model using the following assumptions in the table below. The expected volatility was determined
using historical volatility of our stock based on the contractual life of the award.
10
Fennec Pharmaceuticals Inc.
Notes to Unaudited Condensed Consolidated
Financial Statements
September 30, 2020
(All dollar amounts shown in thousands)
Valuation Assumptions
Black-Scholes Model Assumptions
February 1, 2019
Expected dividend
0.00 %
Risk free rate
2.70 %
Expected volatility
179 %
Expected life
10 years
Stock option plan
On June 22, 2020, shareholders of
the Company approved a resolution adopting the Equity Incentive Plan (the “Plan”). This Plan replaces the Amended and
Restated Stock Option Plan passed by shareholders in 2019. The Plan expands the types of instruments which may be issued as incentive
compensation to employees, directors and designated contractors. In addition to stock options, the Plan may also issue: stock appreciation
rights, restricted stock awards, restricted stock units, unrestricted stock awards, cash-based awards and dividend equivalent rights.
The Company believes this Plan gives it the ability to align incentives with strategic objectives.
The Compensation Committee of the Board
of Directors administers the Company’s Plan. The Compensation Committee designates eligible participants to be included
under the Plan and approves the number of options to be granted from time to time under the Plan. Currently, the maximum number
of option shares issuable is twenty-five percent (25%) of the total number of issued and outstanding shares of common stock. Based
upon the current shares outstanding, a maximum of 6,452 options are authorized for issuance under the Plan. For all options
issued under the Plan, the exercise price is the fair value of the underlying shares on the date of grant. All options vest
within three years or less and are exercisable for a period of ten years from the date of grant. The Plan allows the issuance
of Canadian and U.S. dollar grants. The table below outlines recognized contractor and employee expense for the three and
nine-month periods ended September 30, 2020 and 2019.
Three Months Ended September 30,
Nine-month Ended September 30,
2020
2019
2020
2019
Contractor options expense recognized
$ 21
$ 21
$ 63
$ 395
Employee options expense recognized
1,238
314
2,151
2,204
Total option expense recognized
$ 1,259
$ 335
$ 2,214
$ 2,599
Stock option activity
The following is a summary of option activity
for each of the quarterly periods in fiscal year 2020 for stock options denominated in U.S. dollars:
Number of
Weighted-Average
US Denominated Options
Options (thousands)
Exercise Price $USD
Outstanding December 31, 2019
2,440
$ 3.59
Granted
-
-
Outstanding at March 31, 2020
2,440
$ 3.59
Granted
475
6.97
Outstanding at June 30, 2020
2,915
$ 4.52
Granted
180
6.17
Outstanding at September 30, 2020
3,095
$ 4.62
During the three-month period ended September 30,
2020, there were 180 US denominated options issued. For the nine months ended September 30, 2020 there were 655 options issued.
Of the 3,095 US denominated options granted and outstanding at September 30, 2020, 2,230 are fully vested and exercisable.
The following is a summary of option activity
for each of the quarterly periods in fiscal year 2019 for stock options denominated in U.S. dollars:
Number of
Weighted-Average
US Denominated Options
Options (thousands)
Exercise Price $USD
Outstanding December 31, 2018
1,850
$
3.80
Granted
-
-
Outstanding at March 31, 2019
1,850
$
3.80
Granted
345
4.69
Outstanding at June 30, 2019
2,195
$
3.94
Granted
175
4.74
Outstanding at September 30, 2019
2,370
$
4.00
11
Fennec Pharmaceuticals Inc.
Notes to Unaudited Condensed Consolidated
Financial Statements
September 30, 2020
(All dollar amounts shown in thousands)
The following is a summary of option activity
for the three and nine-month periods ended September 30, 2020 for stock options denominated in Canadian dollars:
Number of
Weighted-Average
Canadian Denominated Options
Options (thousands)
Exercise Price $CAD
Outstanding December 31, 2019
648
$ 2.43
Granted
-
-
Outstanding at March 31, 2020
648
$ 2.43
Granted
-
-
Outstanding at June 30, 2020
648
$ 2.43
Exercised
(648 )
2.43
Outstanding at September 30, 2020
-
-
For the three and nine-month periods ended
September 30, 2020, there was no issuance activity related to Canadian dollar denominated options. During the period ended
September 30, 2020, all 648 outstanding options denominated in Canadian dollars were fully exercised pursuant to a cashless
exercise. As a result, the Company did not receive any cash and issued 454 shares.
The following is a summary of option activity
for the three and nine-month periods ended September 30, 2019 for stock options denominated in Canadian dollars:
Number of
Weighted-Average
Canadian Denominated Options
Options (thousands)
Exercise Price $CAD
Outstanding December 31, 2018
648
$ 2.43
Granted
-
-
Outstanding at March 31, 2019
648
$ 2.43
Granted
-
-
Outstanding at June 30, 2019
648
$ 2.43
Granted
-
-
Outstanding at September 30, 2019
648
$ 2.43
Valuation assumptions
The value of options granted were estimated
using the Black-Scholes option pricing model using the following assumptions in the table below. The expected volatility was determined
using historical volatility of our stock based on the contractual life of the award. There were 180 options issued during the three
months ended September 30, 2020, (175 for the same period in 2019). Assumptions for the valuation of the option grants are
described in the table below:
Three Months Ended September 30,
Black-Scholes Model Assumptions
2020
2019
Expected dividend
0.00 %
0.00 %
Risk free rate
0.69 %
1.63 %
Expected volatility
141 %
151 %
Expected life
10 years
10 years
12
Fennec Pharmaceuticals Inc.
Notes to Unaudited Condensed Consolidated
Financial Statements
September 30, 2020
(All dollar amounts shown in thousands)
5.
Fair Value Measurements
The Company adopted the Fair Value Measurements
and Disclosure Topic of the FASB in 2011. This Topic applies to certain assets and liabilities that are being measured and reported
on a fair value basis. The Topic defines fair value, establishes a framework for measuring fair value in accordance with US GAAP,
and expands disclosure about fair value measurements. This Topic enables the reader of the financial statements to assess the
inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information
used to determine fair values. The Topic requires that financial assets and liabilities carried at fair value be classified and
disclosed in one of the following three categories:
Level 1: Quoted market prices in active
markets for identical assets or liabilities.
Level 2: Observable market-based inputs
or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not
corroborated by market data.
Fair Value Measurement at September 30, 2020 and December 31, 2019
(in thousands)
Quoted Price in Active
Market for Identical
Instruments
Significant Other
Observable Inputs
Significant
Unobservable Inputs
Level 1
Level 2
Level 3
Total
2020
2019
2020
2019
2020
2019
2020
2019
Assets
Cash and cash equivalents
19 (1)
347 (1)
33,147 (2)
13,303 (2)
-
-
33,166
13,650
(1)
The Company held approximately $19 in cash as of September 30, 2020, of which approximately $11 was in Canadian funds (translated into U.S. dollars). As of December 31, 2019, the Company held approximately $347 in cash of which approximately $30 was in Canadian funds (translated into U.S. dollars).
(2)
These amounts are held in a Money Market account.
6.
Commitments and Contingencies
Oregon Health & Science University
Agreement
On February 20, 2013, Fennec entered
into a new exclusive license agreement with OHSU for exclusive worldwide license rights to intellectual property directed to thiol-based
compounds, including sodium thiosulfate and their use in oncology (the "OHSU Agreement"). OHSU will receive certain
milestone payments, royalty on net sales for licensed products and a royalty on any consideration received from sublicensing of
the licensed technology.
On May 18, 2015, Fennec negotiated
an amendment ("Amendment 1") to the OHSU Agreement, which expands Fennec’s exclusive license to include the use
of N-acetylcysteine as a standalone therapy and/or in combination with sodium thiosulfate for the prevention of ototoxicity induced
by chemotherapeutic agents to treat cancers. Further, Amendment 1 adjusts select milestone payments entered in the OHSU Agreement
including but not limited to the royalty rate on net sales for licensed products, royalty rate from sublicensing of the licensed
technology and the fee payable upon the regulatory approval of a licensed product.
The term of the OHSU Agreement as amended
by Amendment 1 expires on the date of the last to expire claim(s) covered in the patents licensed to Fennec or 8 years, whichever
is later. In the event a licensed product obtains regulatory approval and is covered by the Orphan Drug Designation, the parties
will in good faith amend the term of the agreement. Sodium thiosulfate is currently protected by methods of use patents that the
Company exclusively licensed from OHSU that expire in Europe in 2021 and that expire in the United States in 2038. The OHSU Agreement
is terminable by either Fennec or OHSU in the event of a material breach of the agreement by either party after 45 days prior written
notice. Fennec also has the right to terminate the OHSU Agreement at any time upon 60 days prior written notice and payment of
all fees due to OHSU under the OHSU Agreement.
13
Fennec Pharmaceuticals Inc.
Notes to Unaudited Condensed Consolidated
Financial Statements
September 30, 2020
(All dollar amounts shown in thousands)
Class Action Suit
Following the U.S. Food and Drug Administration’s (FDA’s)
Complete Response Letter (CRL) regarding its New Drug Application (NDA) for PEDMARK TM as described in Note 1, a putative
lawsuit was filed against us purportedly on behalf of purchasers of the Company’s securities between February 11, 2020 and August
10, 2020. The lawsuit seeks to recover damages for Fennec investors under federal securities laws. While we believe that
the lawsuit is without merit and intend to vigorously defend against it, the lawsuit is in its early stages and no assessment can
be made as to their likely outcome or whether the outcome will be material to us. This litigation, and any other securities class actions that
may be brought against us, could result in substantial costs and a diversion of our management’s attention and resources.
Executive Severance
In the event of his termination with us
other than for cause, we will be obligated to pay Mr. Raykov a one-time severance payment equal to twelve months of salary
(as of November 5, 2020, $430,000). In the event of his termination with us other than for cause, we will be obligated to
pay Mr. Andrade a one-time severance payment equal to nine-months of salary (as of November 5, 2020, $155,875). In the
event of her termination with us other than for cause, we will be obligated to pay Ms. Goel a one-time severance payment equal
to three months of salary (as of November 5, 2020, $90,000)
Leases
We have an operating lease in Research
Triangle Park, North Carolina utilizing small space within a commercial building. The operating lease has payments of $400 per
month with no scheduled increases. This operating lease is terminable with 30 days’ notice and has no penalties or contingent
payments due.
On January 23, 2020, the Company entered into an
Office Service Agreement (the “Office Service Agreement”) with Regus to lease office space at in Hoboken,
New Jersey. Per the terms of the Office Service Agreement, the monthly rent payments are $1,150. The Company was required to pay
a security deposit of $2,300, which is the equivalent to two months of rent. The Office Service Agreement commenced
on January 27, 2020 and terminated on July 31, 2020, where it automatically renewed for a successive period equal to
the original term. Either party is able to terminate the agreement by providing no less than three months' advance written
notice of termination.
COVID-19
The Company’s operations may be affected
by the recent and ongoing outbreak of the coronavirus disease 2019 (COVID-19) which was declared a pandemic by the World Health
Organization in March 2020. The ultimate disruption which may be caused by the outbreak is uncertain; however, it may result
in a material adverse impact on the Company’s financial position, operations and cash flows. Possible effects may include,
but are not limited to, disruption to the Company’s product launch which includes the ability of sales reps to communicate
with oncologists, absenteeism in the Company’s labor workforce, unavailability of products and supplies used in operations,
and a decline in value of assets held by the Company, including inventories, property and equipment, and marketable securities.
COVID-19 has not had a material effect on the Company’s operations to date as the Company has historically had a workforce
which works remotely, preparations for product launch have been under the assumption of a virtual launch and product supplies have
not been impacted.
Loan Security Agreement
On February 1, 2019, the Company’s
wholly owned subsidiary Fennec Pharmaceuticals Inc. entered into a Loan and Security Agreement (the “Loan and Security Agreement”)
with Bridge Bank, a division of Western Alliance Bank, an Arizona corporation (the “Bank”), pursuant to which the Bank
agreed to loan $12,500 to Fennec Pharmaceuticals, Inc., to be made available upon NDA approval of PEDMARK by no later than
September 30, 2020. The proceeds from the loan will be used for working capital purposes and to fund general business requirements
in accordance with the terms of the Loan and Security Agreement. Interest under the Term Loans shall bear interest, on the outstanding
daily balance thereof, at a floating per annum rate equal to the Effective Interest Rate (as defined in the Loan and Security Agreement)
which is equal to the sum of the Prime Rate published in the Wall Street Journal (currently 3.25%) plus one percent (1.00%). The
debt facility is to have interest-only monthly payments due for the first eighteen months from the funding date and then monthly
principal and interest payments are due through the remainder of the term which has a maturity date of October 1, 2023. In
connection with the facility, Fennec granted Bridge Bank a warrant to purchase up to 39 common shares at an exercise price of $6.80
per common share, for a term of ten years from the date of issuance, subject to early termination under certain conditions.
14
Fennec Pharmaceuticals Inc.
Notes to Unaudited Condensed Consolidated
Financial Statements
September 30, 2020
(All dollar amounts shown in thousands)
On June 26, 2020, Fennec announced
an amendment to the Loan and Security Agreement with Bridge Bank. This amendment provides Fennec with an $18,000 debt facility
comprised of two term loans. Term Loan A consists of $12,500 to be funded upon NDA approval of PEDMARK TM in the U.S.
by no later than December 31, 2020 and Term Loan B consists of $5,500 to be funded upon the occurrence of a revenue event
in 2021. The interest-only period for the facility has the ability to be extended from 18 months to 24 months from the funding
of Term Loan A, provided that Term Loan B is funded, and certain conditions are met. Under Accounting Standards Codification ("ASC")
470-50, Modifications and Extinguishments, the amendment was considered a modification. As such, the Company had been amortizing
the loan fee and the value of the warrant over the remainder of the loan term. Following the receipt of the FDA’s CRL, management
decided to fully amortize the remining portions of the loan fee and the value of the warrants.
The combined value of the granted warrants
and the associated costs to secure the loan facility (approximately $466 thousand) were capitalized on the balance sheet as a long-term
asset. As a result of the CRL and delays with FDA approval and product launch, the Company does not believe it will meet the conditions
to fund Term Loan A or B and thus has fully amortized all remaining unamortized value associated with the deferred issuance costs.
During the quarter ended September 30, 2020, the Company recorded amortization expense of roughly $355 and a total of $466
has been amortized as of September 30, 2020.
7.
Subsequent Events
S-3 Registration and At The Market Facility
On October 30, 2020, the Company
filed a S-3 registration of common shares (File No. 333-249775) pursuant to which the Company may offer from time to time,
shares of our common stock having an aggregate offering price of up to $90.0 million. Under the Sales Agreement, the Company
may sell shares by any method permitted by law and deemed to be an “at-the-market” offering as defined in
Rule 415 promulgated under the Securities Act, as amended, including sales made directly on the NASDAQ, on any other
existing trading market for our common stock or to or through a market maker. The S-3 (File No. 333-249775) was declared
effective on November 10, 2020.
Further, on October 30, 2020, the
Company entered into an At The Market Offering Agreement (the “Agreement”) with H.C. Wainwright & Co., LLC
(“HCW”), pursuant to which the Company may sell and issue its common shares (the “Shares”) from time to
time through HCW, as the Company’s sales agent (the “ATM Offering”). The Company has no obligation to sell any
of the Shares, and may at any time suspend offers under the Agreement or terminate the Agreement. The Shares will be offered and
sold pursuant to the Company’s shelf registration statement on Form S-3 (File No. 333-221093), which was declared
effective on November 3, 2017. As of the date of this filing, there have been no such sales.
15
Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations
CAUTIONARY STATEMENT
The discussion below contains forward-looking
statements regarding our financial condition and our results of operations that are based upon our annual consolidated financial
statements, which have been prepared in accordance with generally accepted accounting principles within the United States, or U.S.
GAAP, and applicable U.S. Securities and Exchange Commission, or SEC, regulations for financial information. The preparation
of these financial statements requires our management to make estimates and judgments that affect the reported amounts of assets,
liabilities, income and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates on
an ongoing basis. Our estimates are based on historical experience and on various other assumptions that we believe to be
reasonable.
Overview
Lead Product
Candidate PEDMARK TM
The following
is our only lead product candidate in the clinical stage of development:
· PEDMARK TM (a unique formulation of sodium thiosulfate ) – PEDMARK has announced
results of two Phase 3 clinical trials for the prevention of cisplatin induced hearing loss, or ototoxicity in children including
the pivotal Phase 3 study SIOPEL 6 , “A Multicentre Open Label Randomised Phase 3 Trial of the Efficacy of Sodium Thiosulfate
in Reducing Ototoxicity in Patients Receiving Cisplatin Chemotherapy for Standard Risk Hepatoblastoma,” and the proof of
concept Phase 3 study “A Randomized Phase 3 Study of Sodium Thiosulfate for the Prevention of Cisplatin-Induced
Ototoxicity in Children”. COG ACCL0431 final results were published in the Lancet Oncology in 2016. SIOPEL 6 final results
were published in the New England Journal of Medicine in June 2018.
We continue to focus the Company’s
resources on the development of PEDMARK TM .
We have licensed from OHSU intellectual
property rights for the use of PEDMARK TM as a chemoprotectant, and are developing PEDMARK TM as a protectant
against the hearing loss often caused by platinum-based anti-cancer agents in children. Preclinical and clinical studies conducted
by OHSU and others have indicated that PEDMARK TM can effectively reduce the incidence of hearing loss caused by platinum-based
anti-cancer agents.
Hearing loss among children receiving platinum-based
chemotherapy is frequent, permanent and often severely disabling. The incidence of hearing loss in these children depends upon
the dose and duration of chemotherapy, and many of these children require lifelong hearing aids. There is currently no established
preventive agent for this hearing loss and only expensive, technically difficult and sub-optimal cochlear (inner ear) implants
have been shown to provide some benefit. In addition, adults undergoing chemotherapy for several common malignancies, including
ovarian cancer, testicular cancer, and particularly head and neck cancer and brain cancer, often receive intensive platinum-based
therapy and may experience severe, irreversible hearing loss, particularly in the high frequencies.
The Company estimates in the U.S. and Europe that
over 10,000 children with solid tumors are treated with platinum agents. The vast majority of these newly diagnosed tumors
are localized and classified as low to intermediate risk in nature. These localized cancers may have overall survival rates of
greater than 80%, further emphasizing the importance of quality of life after treatment. The incidence of hearing loss in these
children depends upon the dose and duration of chemotherapy, and many of these children require lifelong hearing aids. There is
currently no established preventive agent for this hearing loss and only expensive, technically difficult and sub-optimal cochlear
(inner ear) implants have been shown to provide some benefit. Infants and young children at critical stages of development lack
speech language development and literacy, and older children and adolescents lack speech language development and literacy, and
older children and adolescents lack social-emotional development and educational achievement.
We initiated our rolling New Drug
Application (NDA) for PEDMARK TM for the prevention of ototoxicity induced by cisplatin chemotherapy patients 1
month to < 18 years of age with localized, non-metastatic, solid tumors in December 2018. Fennec announced that it has
submitted full completion of the NDA in February 2020. On April 13, 2020 Fennec announced that the U.S. Food and Drug
Administration (“FDA”) had accepted for filing and granted Priority Review for Fennec’s New Drug
Application for PEDMARK. The FDA set a Prescription Drug Fee Act (PDUFA) target action date of August 10, 2020 for the
completion of the FDA’s review. On August 10, 2020 the Company announced that it received a Complete Response Letter
(CRL) from the FDA regarding its NDA for PEDMARK. Further, subsequent to the CRL the Company is pleased with the recent
constructive and collaborative Type A meeting with the FDA and plans to work closely with the third-party drug manufacturer
and the FDA to fully address the CRL and plans to resubmit the NDA for PEDMARK TM as quickly as possible.
Importantly, no clinical safety or efficacy issues were identified during the review and there is no requirement for further
clinical data.
16
In March 2018, PEDMARK TM received Breakthrough
Therapy and Fast Track designations from the FDA. Further, PEDMARK TM has received Orphan Drug Designation in the US
in this setting.
In August 2018, the Pediatric Committee
(PDCO) of the European Medicines Agency (EMA) accepted our pediatric investigation plan (PIP) for sodium thiosulfate with the trade
name Pedmarqsi for the condition of the prevention of platinum-induced hearing loss. An accepted PIP is a prerequisite for filing
a Marketing Authorization Application (MAA) for any new medicinal product in Europe. The indication targeted by the Company’s
PIP is for the prevention of platinum-induced ototoxic hearing loss for standard risk hepatoblastoma (SR-HB). Additional tumor
types of the proposed indication will be subject to the Committee for Medicinal Products for Human Use (CHMP) assessment at the
time of the MAA. No deferred clinical studies were required in the positive opinion given by PDCO. The Company was also advised
that sodium thiosulfate (tradename to be determined) is eligible for submission of an application for a Pediatric Use Marketing
Authorization (PUMA). Therefore, this decision allows Fennec to proceed with the submission of a PUMA in the European Union
(EU) with incentives of automatic access to the centralized procedure and up to 10 years of data and market protection The PUMA
is a dedicated marketing authorization covering the indication and appropriate formulation for medicines developed exclusively
for use in the pediatric population and provides data and market protection up to 10 years. In February 2020, Fennec announced
that it has submitted a MAA for the prevention of ototoxicity induced by cisplatin chemotherapy patients 1 month to < 18 years
of age with localized, non-metastatic, solid tumors.
SIOPEL 6
In October 2007, we announced that
our collaborative partner, the International Childhood Liver Tumour Strategy Group, known as SIOPEL, a multi-disciplinary group
of specialists under the umbrella of the International Society of Pediatric Oncology, had launched a randomized Phase 3 clinical
trial SIOPEL 6 to investigate whether sodium thiosulfate reduces hearing loss in standard risk hepatoblastoma (liver) cancer patients
receiving cisplatin as a monotherapy.
The study was initiated in October 2007
initially in the United Kingdom and completed enrollment at the end of 2014. 52 sites from 11 countries, enrolled 109 evaluable
patients. Under the terms of our agreement, SIOPEL conducts and funds all clinical activities and Fennec provides drug, drug distribution
and pharmacovigilance, or safety monitoring, for the study. SIOPEL 6 was completed in December 2014 and the final results
of SIOPEL 6 were published in The New England Journal of Medicine in June 2018.
The primary objectives of SIOPEL 6 are:
· To assess the efficacy of sodium thiosulfate to reduce the hearing impairment caused by cisplatin
· To carefully monitor any potential impact of sodium thiosulfate on response to cisplatin and survival
SIOPEL 6 - Results
Background
/ Objectives:
Background: Bilateral
high-frequency hearing loss is a serious permanent side-effect of cisplatin therapy; particularly debilitating when occurring in
young children. Sodium thiosulfate has been shown to reduce cisplatin induced hearing loss. SIOPEL 6 is a Phase 3 randomized trial
to assess the efficacy of sodium thiosulfate in reducing ototoxicity in young children treated with cisplatin (Cis) for SR-HB.
17
Design / Methods:
Methods: Newly
diagnosed patients with SR-HB, defined as tumour limited to PRETEXT I, II or III, no portal or hepatic vein involvement, no
intra-abdominal extrahepatic disease, AFP >100ng/ml and no metastases, were randomized to Cis or Cis+Sodium thiosulfate (STS)
for 4 preoperative and 2 postoperative courses. Cisplatin 80mg/m2 was administered over 6 hours, STS 20g/m2 was administered intravenously
over 15 minutes exactly 6 hours after stopping cisplatin. Tumour response was assessed after 2 and 4 preoperative cycles with
serum AFP and liver imaging. In case of progressive disease (PD), sodium thiosulfate was to be stopped and doxorubicin 60mg/m2
combined with cisplatin. The primary endpoint is centrally reviewed absolute hearing threshold, at the age of ≥3.5 years
by pure tone audiometry.
Results:
One hundred and
nine randomized patients (52 Cisplatin only ("Cis") and 57 Cis+STS) are evaluable. The combination of Cis+STS was generally
well tolerated. With a follow up time of 52 months for the patients the three-year Event Free Survival ("EFS") for Cis
is 78.8% Cisplatin and 82.1% for the Cis + STS. The three-year Overall Survival ("OS") is 92.3% for Cis and 98.2% for
Cis + STS. Treatment failure defined as Progressive Disease ("PD") at 4 cycles was equivalent in both arms. Among the
first 101 evaluable patients, hearing loss occurred in 29/46=63.0% under Cis and in 18/55=33.0% under Cis +STS, corresponding to
a relative risk of 0.52(P=0.002).
Conclusions:
This randomized
Phase 3 trial in SR-HB of cisplatin versus cisplatin plus sodium thiosulfate shows that the addition of sodium thiosulfate significantly
reduces the incidence of cisplatin-induced hearing loss without any evidence of tumor protection.
COG ACCL0431
In March 2008, we announced the activation
of a Phase 3 trial with sodium thiosulfate to prevent hearing loss in children receiving cisplatin-based chemotherapy in collaboration
with the Children’s Oncology Group (“COG ACCL0431”). The goal of this Phase 3 study was to evaluate in a multi-centered,
randomized trial whether sodium thiosulfate is an effective and safe means of preventing hearing loss in children receiving cisplatin-based
chemotherapy for newly diagnosed germ cell, liver (hepatoblastoma), brain (medulloblastoma), nerve tissue (neuroblastoma) or bone
(osteosarcoma) cancers. Eligible children, one to eighteen years of age, who were to receive cisplatin according to their disease-specific
regimen and, upon enrollment in this study, were randomized to receive sodium thiosulfate or not. Efficacy of sodium thiosulfate
was determined through comparison of hearing sensitivity at follow-up relative to baseline measurements using standard audiometric
techniques. The Children’s Oncology Group is responsible for funding the clinical activities for the study and we are responsible
for providing the drug, drug distribution and pharmacovigilance, or safety monitoring, for the study. The trial completed enrollment
of 131 pediatric patients in the first quarter of 2012. The final results of COG ACCL0431 were published in Lancet Oncology
in December 2016.
18
COG ACCL0431 - Results
COG Study ACCL0431, “A Randomized
Phase 3 Study of Sodium Thiosulfate for the Prevention of Cisplatin-Induced Ototoxicity in Children,” finished enrollment
of 131 patients of which 126 were eligible patients in Q1 2012. The patients had been previously diagnosed with childhood cancers.
The primary endpoint was to evaluate the
efficacy of sodium thiosulfate for prevention of hearing loss in children receiving cisplatin chemotherapy (hypothesis: 50% relative
reduction in hearing loss).
Secondary endpoints included:
· Compare change in mean hearing thresholds
· Compare incidence of other Grade 3/4 toxicities (renal and hematological)
· Monitor Event Free Survival (EFS) and Overall Survival (OS) in two groups
126 eligible subjects were enrolled with
germ cell tumor (32), osteosarcoma (3029), neuroblastoma (26), medulloblastoma/pnet (26), hepatoblastoma (7) or other (5).
Of these, 104 subjects (64 male and 29 <5 years old) were evaluable for the primary endpoint.
Subjects were randomized either to no treatment
(control) or treatment with sodium thiosulfate 16 grams/m2 IV over 15 minutes, 6 hours after each cisplatin dose. Hearing was measured
using standard audiometry for age and data were reviewed centrally using American Speech-Language-Hearing Association criteria.
The proportion of subjects with hearing
loss assessed at 4 weeks post the final cisplatin dose (primary endpoint).
· The proportion of hearing loss for sodium thiosulfate vs. Control was 28.6% (14/49) vs. 56.4% (31/55),
respectively (p=0.004).
· In a predefined subgroup of patients less than 5 years old with 29 eligible subjects: sodium thiosulfate
vs. Control was 21.4% (3/14) vs. 73.3% (11/15), respectively (p=0.005)
Conclusions:
· Sodium thiosulfate protects against cisplatin-induced hearing loss in children across a heterogeneous
range of tumor types with even stronger efficacy in the protocol predefined subgroup of patients under five years old and is not
associated with serious adverse events attributed to its use.
· Further potential clinical use will be informed by the final results of SIOPEL 6 study.
Capital Funding
We have not received and do not expect
to have significant revenues from our product candidate until we are either able to sell our product candidate after obtaining
applicable regulatory approvals or we establish collaborations that provide us with up-front payments, licensing fees, milestone
payments, royalties or other revenue.
We generated a net loss of approximately
$14,874 for the nine-months ended September 30, 2020 and a net loss of $9,165 for the nine-months ended September 30,
2019. As of September 30, 2020, our accumulated deficit was approximately $158,902 ($144,031 at December 31, 2019).
On May 5, 2020, the Company announced
the completion of an underwritten public offering of 4.8 million common shares at a public offering price of $6.25 per share. In
addition, Fennec issued an additional 0.66 million common shares in connection with the partial exercise of the underwriters’
over-allotment option. The approximate total gross proceeds from the offering was $34,100 ($31,967 net of commissions, fees and
issue costs).
On June 26, 2020, Fennec announced
an amendment to the Loan and Security Agreement with Bridge Bank. This amendment provides Fennec with an $18,000 debt
facility comprised of two term loans. Term Loan A consists of $12,500 to be funded upon NDA approval of PEDMARK TM in
the U.S. by no later than December 31, 2020 and Term Loan B consists of $5,500 to be funded upon the occurrence of a revenue
event in 2021. The interest-only period for the facility has the ability to be extended from 18 months to 24 months from
the funding of Term Loan A, provided that Term Loan B is funded, and certain conditions are met. Under Accounting Standards Codification
(“ASC”) 470-50, Modifications and Extinguishments, the amendment was considered a modification. As such, the Company
is amortizing the loan fee and the value of the warrant over the remainder of the loan term. The Company intends to use the proceeds
from the loans to provide working capital for commercialization activities for PEDMARK TM upon NDA approval.
19
On August 10, 2020, the Company received a Complete Response
Letter (CRL) from the U.S. Food and Drug Administration (FDA) regarding its New Drug Application (NDA) for PEDMARK TM .
According to the CRL, after recent completion of a pre-approval inspection of the manufacturing facility of our drug product manufacturer,
the FDA identified deficiencies that are required to be resolved prior to the approval of PEDMARK TM . Importantly, no
clinical safety or efficacy issues were identified during the review and there is no requirement for further clinical data. The
Company plans to work closely with the third-party drug manufacturer and the FDA to fully address the CRL and plan to resubmit
the NDA for PEDMARK TM as quickly as possible. As a result of the FDA’s CRL the anticipated product launch did
not occur as of September 30, 2020 and thus the Bridge Bank Term Loan A has not yet been funded. The Company does not believe it
will receive FDA approval by December 31, 2020 and thus has fully impaired the deferred asset associated with Term Loan A. Furthermore,
the Company believes the delay in approval will mean it will not be able to meet the revenue target to fund Term Loan B. As such,
the deferred asset associated with Term Loan B has been expensed. The Company is currently in negotiations with Bridge Bank to
receive an extension on both Term Loan A and B.
We believe that our cash and cash equivalents
as of September 30, 2020, which totaled $33,166 will be sufficient to meet our cash requirements through the at least the
next twelve months. Our projections of our capital requirements are subject to substantial uncertainty. More capital
than we anticipated may be required thereafter. To finance our continuing operations, we may need to raise substantial additional
funds through either the sale of additional equity, the issuance of debt, the establishment of collaborations that provide us with
funding, the out-license or sale of certain aspects of our intellectual property portfolio or from other sources. Given
current economic conditions, we might not be able to raise the necessary capital, or such funding may not be available on financially
acceptable terms if at all. If we cannot obtain adequate funding in the future, we might be required to further delay, scale
back or eliminate certain research and development studies, consider business combinations or even shut down some, or all, of our
operations.
Our operating expenses will depend on many
factors, including the progress of our drug development efforts and efficiency of our operations and current resources. Our research
and development expenses, which include expenses associated with our clinical trials, drug manufacturing to support clinical programs,
salaries for research and development personnel, stock-based compensation, consulting fees, sponsored research costs, toxicology
studies, license fees, milestone payments, and other fees and costs related to the development of our product candidate, will depend
on the availability of financial resources, the results of our clinical trials and any directives from regulatory agencies, which
are difficult to predict. Our general and administration expenses include expenses associated with the compensation of employees,
stock-based compensation, professional fees, consulting fees, insurance and other administrative matters associated in support
of our drug development programs.
20
Results of Operations
Three months ended September 30, 2020 versus three months
ended September 30, 2019:
Three Months
Three Months
Ended
Ended
In thousands of U.S. Dollars
September 30,
2020
%
September 30,
2019
%
Change
Operating expenses:
Research and development
$ 1,368
23 %
$ 795
43 %
$ 573
General and administrative
4,491
77 %
1,068
57 %
3,423
Total operating expenses
5,859
100 %
1,863
100 %
3,996
Loss from operations
(5,859 )
(1,863 )
(3,996 )
Other (loss)/gain
(8 )
1
(9 )
Amortization expense
(355 )
(17 )
(338 )
Interest income and other
22
70
(48 )
Net loss
$ (6,200 )
$ (1,809 )
$ (4,391 )
Research and development expenses increased by $573 for the
three months ended September 30, 2020 over the same period in 2019 as the Company’s activities increased after the CRL from
the FDA related to manufacturing and regulatory. General and administrative expenses increased by $3,423 over same period in 2019
being driven mainly by the pre-commercialization efforts, non-cash equity remuneration and added headcount.
Other (loss)/gain was driven mainly by
fluctuations in its foreign currency transactions. The Company has vendors that transact in Euros, Great British Pounds and Canadian
Dollars. There was an increase of $338 in amortization expense for the three months ended September 30, 2020 over the same
period in 2019. This increase is mainly as a result of recognizing the complete impairment of both sections of the Term Loan Agreement
on the balance sheet. Amortization expense is a non-cash expense and relates to amortization of the deferred issuance cost of
the loan facilities with Bridge Bank. Amortization expense was $355 and $17 for the three months ended September 30, 2020
and 2019, respectively. Interest income was $48 lower for the three months ended September 30, 2020 over the same period
in 2019. This was driven mainly by a sharp decrease in interest rates for the three months ended September 30, 2020 over
the same period in 2019.
21
Nine Months
Nine Months
Ended
Ended
In thousands of U.S. Dollars
September 30,
2020
%
September 30,
2019
%
Change
Operating expenses:
Research and development
$ 3,882
27 %
$ 4,435
47 %
$ (553 )
General and administrative
10,657
73 %
4,921
53 %
5,736
Total operating expenses
14,539
100 %
9,356
100 %
5,183
Loss from operations
(14,539 )
(9,356 )
(5,183 )
Other (loss)/gain
(4 )
(9 )
5
Amortization expense
(402 )
(46 )
(356 )
Interest income and other
74
246
(172 )
Net loss
$ (14,871 )
$ (9,165 )
$ (5,706 )
Total research and development expenses
were down by $553 for the nine-month period ended September 30, 2020 over the same period in 2019. This decrease relates primarily
to the shift from research and development to pre-commercialization and product launch efforts for PEDMARK TM which took
place in the first nine months of 2020. The increase in pre-commercialization and product launch efforts are reflected in the general
and administrative cost increase of $5,736 over the prior year in the same period in 2019. A large portion of this increase were
from sales and marketing expenses which were up approximately $4,600 over the same period in 2019 as the Company prepared for product
launch. Salary and benefit expenses were up by approximately $600 over same period in 2019. Items such as legal fees, consulting
fees and investor relations accounted for an increase of $500.
Other (loss)/gain increased by $5 for
the nine-months ended September 30, 2020 over the same period in 2019. For the nine-month period ended September 30,
2020 the Company recognized an increase of $356 in amortization expense on the deferred issuance cost associated with the loan
facilities arranged with Bridge Bank over the same period in 2019. This increase was primarily due to the decision to fully amortize
the remaining balance of the loan facility asset after the Company decided it would not be able to meet the conditions of the
loan facility. Presently, the Company is in negotiations with Bridge Bank to extend the dates associated with funding the facility.
Interest income was down sharply $172 over the same period in 2019, due to lower interest rates and lower average deposits.
Quarterly
Information
The following table presents selected
condensed financial data for each of the last eight quarters through September 30, 2020, as prepared under US GAAP (U.S.
dollars in thousands, except per share information):
Period
Net (Loss)/Income for the
Period
Basic Net (Loss)/Income
per
Common Share
Diluted Net (Loss)/Income
per
Common Share
December 31, 2018
(2,984
)
(0.15
)
(0.15
)
March 31, 2019
(2,626
)
(0.13
)
(0.13
)
June 30, 2019
(4,730
)
(0.24
)
(0.24
)
September 30, 2019
(1,809
)
(0.09
)
(0.09
)
December 31, 2019
(3,610
)
(0.18
)
(0.18
)
March 31, 2020
(3,826
)
(0.19
)
(0.19
)
June 30, 2020
(4,845
)
(0.21
)
(0.21
)
September 30, 2020
(6,200
)
(0.24
)
(0.24
)
22
Liquidity and Capital Resources
U.S. Dollars in thousands
Selected Asset and Liability Data:
September 30, 2020
December 31, 2019
Cash and cash equivalents
$
33,166
$
13,650
Other current assets
904
234
Current liabilities
2,885
2,271
Working capital (1)
31,185
11,613
(1) [Current assets – current liabilities]
Selected equity:
Common stock
188,844
154,663
Accumulated deficit
(158,902
)
(144,031
)
Stockholders’ equity
31,185
11,875
Cash and cash equivalents were $33,166
on September 30, 2020 and $13,650 at December 31, 2019. The increase in cash and cash equivalents between September 30,
2020 and December 31, 2019, is the result of the $34,100 (gross proceeds) equity financing completed in May 2020. These
cash inflows were offset by expenses related to our pre-commercialization expenses of PEDMARK TM and general and administrative
expenses. The decrease in other current assets between September 30, 2020 and December 31, 2019 relates to the amortization
of pre-paid Nasdaq annual listing fees and pre-paid Director’s and Officer’s Insurance.
Current liabilities increased primarily
due to manufacturing and pre-commercialization activities associated with production and marketing of PEDMARK TM and
related regulatory expenses.
Working capital increased between December 31,
2019 and September 30, 2020 by $19,572. The increase was primarily as a result of the May 2020 financing. These cash
inflows were offset by expenses related to our pre-commercialization activities of PEDMARK TM and general and administrative
expenses.
The following table illustrates a summary
of cash flow data for the three and nine-month periods of September 30, 2020 and 2019:
Dollar and shares in thousands
Three Months Ended September 30,
Nine-month Ended September 30,
Selected cash flow data:
2020
2019
2020
2019
Net cash used in operating activities
$
(5,446
)
$
(2,235
)
$
(12,311
)
$
(7,470
)
Net cash provided by investing activities
-
-
-
-
Net cash (used in)/provided by financing activities
(117
)
-
31,827
(71
)
(Decrease)/increase in cash and cash equivalents
$
(5,563
)
$
(2,235
)
$
19,516
$
(7,541
)
Net cash used in operating activities
for the three and nine-months ended September 30, 2020 was $5,446 and $12,311, respectively. This is compared to $2,235 and
$7,470 during the same periods in 2019. These increases in cash outlays relate to the pre-commercialization activities of PEDMARK TM
and regulatory submission activities relating to the NDA. The Company increased cash balances by $31,967 from a public financing
which it completed in May of 2020.
We continue to pursue various strategic
alternatives including collaborations with other pharmaceutical and biotechnology companies. Our projections of further capital
requirements are subject to substantial uncertainty. Our working capital requirements may fluctuate in future periods depending
upon numerous factors, including: our ability to obtain additional financial resources; our ability to enter into collaborations
that provide us with up-front payments, milestones or other payments; results of our research and development activities; progress
or lack of progress in our preclinical studies or clinical trials; unfavorable toxicology in our clinical programs, our drug substance
requirements to support clinical programs; change in the focus, direction, or costs of our research and development programs;
headcount expense; the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing our patent claims;
competitive and technological advances; the potential need to develop, acquire or license new technologies and products; our business
development activities; new regulatory requirements implemented by regulatory authorities; the timing and outcome of any regulatory
review process; and commercialization activities, if any.
23
Outstanding Share Information
The outstanding share data for our Company as of September 30,
2020 and December 31, 2019 was as follows (in thousands):
September 30, 2020
December 31, 2019
Change
Common shares
25,810
19,896
5,914
Warrants
39
39
-
Stock options
3,095
3,088
7
Total
28,944
23,023
5,921
Financial Instruments
We invest excess cash and cash equivalents
in high credit quality investments held by financial institutions in accordance with our investment policy designed to protect
the principal investment. At September 30, 2020, we had approximately $33,166 in cash accounts ($33,147 in money market accounts,
and $19 in checking accounts). We have not experienced any loss or write down of our money market investments since inception.
Our investment policy is to manage investments
to achieve, in the order of importance, the financial objectives of preservation of principal, liquidity and return on investment.
Investments may be made in U.S. or Canadian obligations and bank securities, commercial paper of U.S. or Canadian industrial companies,
utilities, financial institutions and consumer loan companies, and securities of foreign banks provided the obligations are guaranteed
or carry ratings appropriate to the policy. Securities must have a minimum Dun & Bradstreet rating of A for bonds or
R1 low for commercial paper. The policy also provides for investment limits on concentrations of securities by issuer and maximum-weighted
average time to maturity of twelve months. This policy applies to all of our financial resources.
The policy risks are primarily the opportunity
cost of the conservative nature of the allowable investments. As our main purpose is research and development, we have chosen
to avoid investments of a trading or speculative nature.
Off-Balance Sheet Arrangements
Since our inception, we have not had any
material off-balance sheet arrangements. In addition, we do not engage in trading activities involving non-exchange traded contracts.
As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in
such activities.
Research and Development
Our research and development efforts have
been focused on the development of PEDMARK TM since 2013.
We have established relationships with
contract research organizations, universities, and other institutions, which we utilize to perform many of the day-to-day activities
associated with our drug development. Where possible, we have sought to include leading scientific investigators and advisors
to enhance our internal capabilities. Research and development issues are reviewed internally by our executive management and
supporting scientific team.
Research and
development expenses for the three-months ended September 30, 2020 and 2019 were $1,368 and $795, respectively and for the
nine-months then ended, $3,882 and $4,435, respectively. For the three-months ended September 30, 2020 the Company has decreased
its research and development expenses related to PEDMARK TM as the Company’s efforts have shifted to pre-commercialization
activities with some continued regulatory expenses associated with the rolling NDA submission of PEDMARK TM .
24
Our product candidate still requires significant,
time-consuming and costly research and development, testing and regulatory clearances. In developing our product candidate, we
are subject to risks of failure that are inherent in the development of products based on innovative technologies. For example,
it is possible that our product candidate will be ineffective or toxic or will otherwise fail to receive the necessary regulatory
clearances. There is a risk that our product candidate will be uneconomical to manufacture or market or will not achieve market
acceptance. There is also a risk that third parties may hold proprietary rights that preclude us from marketing our product candidate
or that others will market a superior or equivalent product. As a result of these factors, we are unable to accurately estimate
the nature, timing and future costs necessary to complete the development of this product candidate. In addition, we are unable
to reasonably estimate the period when material net cash inflows could commence from the sale, licensing or commercialization
of such product candidate, if ever.
Critical Accounting Policies and Estimates
The preparation of financial statements
in conformity with US GAAP requires management to make estimates that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. These estimates are based on assumptions and judgments that may be affected by commercial,
economic and other factors. Actual results could differ from these estimates.
Our accounting policies are materially
consistent with those presented in our annual consolidated financial statements included in our Annual Report on Form 10-K
for the year ended December 31, 2019.
Item 3. Quantitative
and Qualitative Disclosures about Market Risk
Money Market Investments
We maintain an investment portfolio consisting
of U.S. or Canadian obligations and bank securities and money market investments in compliance with our investment policy. We
do not hold any mortgaged-backed investments in our investment portfolio. Securities must have a minimum Dun & Bradstreet
rating of A for bonds or R1 low for commercial paper. The policy also provides for investment limits on concentrations of securities
by issuer and maximum-weighted average time to maturity of twelve months. This policy applies to all of our financial resources.
At September 30, 2020, we had $33,166
in money market investments and savings accounts as compared to $13,303 at December 31, 2019; these investments typically
have minimal risk. The financial markets had been volatile resulting in concerns regarding the recoverability of money market
investments, but those conditions have stabilized. We have not experienced any loss or write down of our money market investments
since inception.
Our investment policy is to manage investments
to achieve, in the order of importance, the financial objectives of preservation of principal, liquidity and return on investment.
Investments may be made in U.S. or Canadian obligations and bank securities, commercial paper of U.S. or Canadian industrial companies,
utilities, financial institutions and consumer loan companies, and securities of foreign banks provided the obligations are guaranteed
or carry ratings appropriate to the policy. Securities must have a minimum Dun & Bradstreet rating of A for bonds or
R1 low for commercial paper. The policy also provides for investment limits on concentrations of securities by issuer and maximum-weighted
average time to maturity of twelve months. This policy applies to all of our financial resources.
Foreign Currency Exposure
We are subject to foreign currency risks
as we purchase goods and services which are denominated in Canadian dollars. To date, we have not employed the use of derivative
instruments; however, we do hold Canadian dollars which we use to pay vendors in Canada and other corporate obligations. At
September 30, 2020, the Company held approximately $14 thousand Canadian dollars ($11 thousand as presented to U.S. dollars).
At December 31, 2019, the Company held approximately $30 thousand Canadian dollars ($24 thousand as presented into U.S. dollars).
Item 4. Controls
and Procedures
(a) Evaluation
of Disclosure Controls and Procedures .
We maintain "disclosure controls
and procedures," as such term is defined in Rule 13a-15(e) under the Exchange Act, that are designed to ensure
that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated
and communicated to our management, our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes
that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls
and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible
disclosure controls and procedures. Based on this evaluation at the end of the period covered by this Quarterly Report on Form 10-Q,
our Chief Executive Officer and our Chief Financial Officer, have concluded that our disclosure controls and procedures were effective
at the reasonable assurance level as of September 30, 2020.
25
(b) Changes
in Internal Control over Financial Reporting
There have been no changes in our internal
control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the
period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially
affect our internal control over financial reporting.
PART II: OTHER INFORMATION
Item 1. Legal
Proceedings.
In addition, on September 2, 2020,
a putative class action lawsuit, Chapman v. Fennec Pharmaceuticals Inc., was filed against the Company, Rostislav Raykov and Robert
Andrade, in the United States District Court for the Middle District of North Carolina. The complaint alleges that prior to the
receipt of the Complete Response Letter from the FDA, Fennec made materially false and misleading statements or omissions and
failed to disclose material adverse facts about Fennec’s business operations and prospects. The Company believes that the
suit is without merit and intends to defend itself vigorously. Defendants are not required to respond to the lawsuit until the
court appoints a lead plaintiff and a post-appointment complaint is filed or designated. The Company has not recorded a liability
as of September 30, 2020 because a potential loss is not probable or reasonably estimable given the preliminary nature of
the proceedings.
Item 1A. Risk
Factors.
Our Annual Report on Form 10-K for
the fiscal year ended December 31, 2019, filed with the SEC on February 14, 2020 (the “Annual Report”),
includes a detailed discussion of our risk factors under the heading “PART I, Item 1A – Risk Factors.”
You should carefully consider the risk factors discussed in our Annual Report, as well as other information in this quarterly
report. Any of these risks could cause our business, financial condition, results of operations and future growth prospects to
suffer. We are not aware of any material changes from the risk factors previously disclosed.
Should the
clinical development process be successfully completed, our ability to derive revenues from the sale of therapeutics will depend
upon our first obtaining FDA as well as foreign regulatory approvals, all of which are subject to a number of unique risks and
uncertainties.
Even if we
are able to demonstrate the safety and efficacy of our product candidate in clinical trials, if we fail to gain timely
approval to commercialize PEDMARK from the FDA and other foreign regulatory authorities, we will be unable to generate the
revenues we will need to build our business. The FDA or comparable regulatory authorities in other countries may delay, limit
or deny approval of PEDMARK for various reasons. For example, such authorities may disagree with the design, scope or
implementation of our clinical trials; or with our interpretation of data from our preclinical studies or clinical trials; or
may otherwise take the position that PEDMARK fails to meet the requirements and standards for regulatory approval. There are
numerous FDA personnel assigned to review different aspects of a NDA, and uncertainties can be presented by their ability to
exercise judgment and discretion during the review process. During the course of review, the FDA may request or require
additional preclinical, clinical, chemistry, manufacturing, and control ( “ CMC ” ),
or other data and information, and the development and provision of these data and information may be time consuming and
expensive. Regulatory approvals may not be granted on a timely basis, if at all, and even if and when they are granted, they
may not cover all the indications for which we seek approval. On February 10, 2020, we submitted a New Drug Application
( “ NDA ” )
to the FDA for PEDMARK for the prevention of ototoxicity associated with cisplatin chemotherapy in pediatric patients ≥1
month to 18 years of age with localized, non-metastatic, solid tumors. On April 10, 2020, we received notification from
the FDA that the NDA was accepted for filing and the original application was granted Priority Review with a PDUFA target
action date of August 10, 2020. On August 10, 2020, we received a Complete Response Letter ( “ CRL ” ).
According to the CRL, after recent completion of a pre-approval inspection of the manufacturing facility of our drug product
manufacturer, the FDA identified deficiencies resulting in a Form 483, which is a list of conditions or practices that
are required to be resolved prior to the approval of PEDMARK™. The Company has developed a detailed plan
and has dedicated, and continues to commit, significant resources to addressing the CRL, while, in parallel, working with our
third-party drug product manufacturer to be ready for re-inspection by the FDA. If the FDA determines that these actions were
not sufficient, or based on the re-inspection FDA officials do not recommend approval relative to the drug product
manufacturing facility, or if information deemed necessary by the FDA cannot be provided as part of our NDA submission or
during the review period as deemed appropriate on a timely basis, such events could further delay the progress of our NDA and
could require additional Company actions that cannot be completed during the review period which may adversely impact our
business. Further, while we may develop a product candidate with the intention of addressing a large, unmet medical need, the
FDA may only approve the use of the drug for indications affecting a relatively small number of patients, thus greatly
reducing the market size and our potential revenues. The approvals may also contain significant limitations in the form of
warnings, precautions or contraindications with respect to conditions of use, which could further narrow the size of the
market. In certain countries, even if the health regulatory authorities approve a drug, it cannot be marketed until pricing
for the drug is also approved. Finally, even after approval can be obtained, we may be required to recall or withdraw a
product as a result of newly discovered safety or efficacy concerns, either of which would have a materially adverse effect
on our business and results of operations.
26
Although historically
we have been a research and development company, we currently plan to commercialize our lead product candidate internally rather
than license such asset. There can be no assurance that we will be successful in developing and expanding commercial operations
or balancing our research and development activities with our commercialization activities.
We have historically
been engaged primarily in research and development activities, but plan to commercialize our lead product candidate, PEDMARK,
ourselves. There can be no assurance that we will be able to successfully manage the balance of our research and development operations
with our planned commercialization activities. Potential investors should be aware of the problems, delays, expenses and difficulties
frequently encountered by companies balancing development of product candidates, which can include problems such as unanticipated
issues relating to clinical trials and receipt of approvals from the FDA and foreign regulatory bodies, with commercialization
efforts, which can include problems relating to managing manufacturing and supply, reimbursement, marketing problems and additional
costs. Our product candidate may require significant additional research and clinical trials, and we will need to overcome significant
regulatory burdens prior to commercialization in the United States and other countries. In addition, we may be required to spend
significant funds on building out our commercial operations. There can be no assurance that after the expenditure of substantial
funds and efforts, we will successfully develop and commercialize PEDMARK, generate any significant revenues or ever achieve and
maintain a substantial level of sales of our product.
We are the target of securities litigation, which may
be costly and time-consuming to defend.
Following periods of market volatility
in the price of a company’s securities or the reporting of unfavorable news, security purchasers have often instituted class
action litigation. This risk is especially relevant for us because pharmaceutical companies like us have experienced significant
stock price volatility in recent years. Moreover, we were named in a putative securities class action complaint as a result of
the decline in our stock price following the August 10, 2020 announcement that we had received a Complete Response Letter
from the FDA regarding our NDA for PEDMARK™. See Item 1 under Legal Proceedings to our unaudited condensed consolidated
financial statements included in this report. Regardless of the outcome, we could incur substantial legal costs and our management’s
attention could be diverted from the operation of our business, causing our business to suffer.
27
There are
limitations on the liability of our directors, and we may have to indemnify our officers and directors in certain instances.
Our
certificate of incorporation limits, to the maximum extent permitted under British Columbia law, the personal liability of our
directors for monetary damages for breach of their fiduciary duties as directors. Our bylaws provide that we will indemnify our
officers and directors and may indemnify our employees and other agents to the fullest extent permitted by law. These provisions
may be in some respects broader than the specific indemnification provisions under British Columbia law. The indemnification provisions
may require us, among other things, to indemnify such officers and directors against certain liabilities that may arise by reason
of their status or service as directors or officers (other than liabilities arising from willful misconduct of a culpable nature),
to advance their expenses incurred as a result of certain proceedings against them as to which they could be indemnified and to
obtain directors ’ and officers ’
insurance.
We
believe that our limitation of officer and director liability assists us to attract and retain qualified employees and directors.
However, in the event an officer, a director or the board of directors commits an act that may legally be indemnified under British
Columbia law, we will be responsible to pay for such officer(s) or director(s) legal defense and potentially any damages
resulting there from. Furthermore, the limitation on director liability may reduce the likelihood of derivative litigation against
directors and may discourage or deter stockholders from instituting litigation against directors for breach of their fiduciary
duties, even though such an action, if successful, might benefit our stockholders and us. Given the difficult environment and
potential for incurring liabilities currently facing directors of publicly-held corporations, we believe that director indemnification
is in our and our stockholders ’ best interests because it
enhances our ability to attract and retain highly qualified directors and reduce a possible deterrent to entrepreneurial decision-making.
Nevertheless,
limitations of director liability may be viewed as limiting the rights of stockholders, and the broad scope of the indemnification
provisions contained in our certificate of incorporation and bylaws could result in increased expenses. Our board of directors
believes, however, that these provisions will provide a better balancing of the legal obligations of, and protections for, directors
and will contribute positively to the quality and stability of our corporate governance. Our board of directors has concluded
that the benefit to stockholders of improved corporate governance outweighs any possible adverse effects on stockholders of reducing
the exposure of directors to liability and broadened indemnification rights.
Our business and operations may be
materially and adversely affected by the recent coronavirus outbreak.
In December 2019, a novel strain
of coronavirus was reported to have surfaced in Wuhan, China and has since spread to other parts of the world, including the United
States and Europe. In March 2020, the World Health Organization declared the outbreak a pandemic. The coronavirus pandemic
is affecting the United States and global economies. If the outbreak continues to spread, it may affect our operations and those
of third parties on which we rely in a number of ways, including causing disruptions in the supply of our product candidate, the
pending regulatory approval process and the conduct of current and planned preclinical and clinical studies. We may need to limit
operations or implement limitations and may experience limitations in employee resources. There are risks that the coronavirus
may be more difficult to contain if the outbreak reaches a larger population or broader geography, in which case the risks described
herein could be elevated significantly. The extent to which the coronavirus impacts our results will depend on future developments,
including, without limitation, new information that may emerge concerning the severity of the coronavirus and the actions to contain
the coronavirus or treat its impact, all of which are highly uncertain and cannot be predicted.
28
Additionally, while the duration of and
the potential economic impact caused by the coronavirus pandemic are difficult to assess or predict, the impact of the coronavirus
on the global financial markets may reduce our ability to access capital, which could negatively impact our short-term and long-term
liquidity and our ability to complete our regulatory submissions and clinical studies on a timely basis, or at all. For instance,
our regulatory submissions may be temporarily delayed or paused, and the operations of our contracted third parties may be significantly
delayed as well. The ultimate impact of the coronavirus pandemic is highly uncertain and subject to change. We do not yet know
the full extent of potential delays or impacts on our business, financing or preclinical and clinical trial activities or the
global economy as a whole. However, these effects could have a material impact on our liquidity, capital resources, operations
and business and those of the third parties on which we rely.
Natural disasters, epidemic or pandemic
disease outbreaks, trade wars, political unrest or other events could disrupt our business or operations or those of our development
partners, manufacturers, regulators or other third parties with whom we conduct business now or in the future.
A wide variety of events beyond our control,
including natural disasters, epidemic or pandemic disease outbreaks (such as the recent novel coronavirus outbreak), trade wars,
political unrest or other events, could disrupt our business or operations or those of our manufacturers, regulatory authorities,
or other third parties with whom we conduct business. These events may cause businesses and government agencies to be shut down,
supply chains to be interrupted, slowed, or rendered inoperable, and individuals to become ill, quarantined, or otherwise unable
to work and/or travel due to health reasons or governmental restrictions. For example, many states recently ordered most businesses
closed, mandating work-from-home arrangements where feasible, in response to the coronavirus pandemic. These limitations could
negatively affect our business operations and continuity, and could negatively impact our development timelines and ability to
timely perform basic business functions, including, without limitation, making SEC filings and preparing financial reports. If
our operations or those of third parties with whom we conduct business are impaired or curtailed as a result of these events,
the development and commercialization of our products and product candidate could be impaired or halted, which could have a material
adverse impact on our business.
Item 2. Recent
Sales of Unregistered Securities.
None
Item 3. Default
Upon Senior Securities.
None.
Item 4. Mine Safety Disclosure.
Not applicable.
Item 5. Other Information.
None.
29
Item 6. Exhibits
Exhibit
No.
Description
31.1
Certification of Chief Executive Officer of the Company in accordance with Section 302 of the Sarbanes-Oxley Act
of 2002 (filed herewith).
31.2
Certification of Chief Financial Officer of the Company in accordance with Section 302 of the Sarbanes-Oxley Act
of 2002 (filed herewith).
32.1
Certification of Chief Executive Officer and Chief Financial Officer of the Company in accordance with Section 906
of the Sarbanes-Oxley Act of 2002 (filed herewith).
99.1
Press Release for Quarter Ended September 30, 2020 (filed herewith).
101.1
Interactive Data File
30
SIGNATURES
Pursuant to requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Fennec Pharmaceuticals Inc.
Date: November 16, 2020
By:
/s/ Rostislav
Raykov
Rostislav Raykov
Chief Executive Officer
(principal executive officer)
Date: November 16, 2020
By:
/s/ Robert Andrade
Robert Andrade
Chief Financial Officer
(principal financial and chief accounting officer)
31
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.