FENNEC PHARMACEUTICALS INC. 10-Q

Item 1. Financial Statements Fennec Pharmaceuticals Inc. Condensed Consolidated Balance Sheets (U.S. Dollars and shares in thousands) March 31, 2021 December 31, (unaudited) 2020 Assets Current assets: Cash and cash equivalents $ 26,751 $ 30,344 Prepaid expenses 619 797 Other current assets 455 276 Total current assets 27,825 31,417 Total assets $ 27,825 $ 31,417 Liabilities and stockholders' equity Current liabilities: Accounts payable $ 2,508 $ 1,571 Accrued liabilities 384 776 Total current liabilities 2,892 2,347 Commitments and Contingencies (Note 6) Stockholders' equity: Common stock, no par value; unlimited shares authorized; 26,003 shares issued and outstanding (2020-26,003) 140,733 140,733 Additional paid-in capital 49,830 49,234 Accumulated deficit (166,873 ) (162,140 ) Accumulated other comprehensive income 1,243 1,243 Total stockholders’ equity 24,933 29,070 Total liabilities and stockholders’ equity $ 27,825 $ 31,417 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 March 31, March 31, 2021 2020 Revenue $ - $ - Operating expenses: Research and development 2,416 1,393 General and administrative 2,507 2,442 Total operating expenses 4,923 3,835 Loss from operations (4,923 ) (3,835 ) Other (expense) income: Unrealized gain on securities 182 - Other (loss) (8 ) (9 ) Amortization expense - (17 ) Interest income 16 35 Total other income, net 190 9 Net loss $ (4,733 ) $ (3,826 ) Basic net loss per common share $ (0.18 ) $ (0.19 ) Diluted net loss per common share $ (0.18 ) $ (0.19 ) Weighted-average number of common shares outstanding, basic 26,003 19,896 Weighted-average number of common shares outstanding, diluted 26,003 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 March 31, March 31, 2021 2020 Cash flows used in: Operating activities: Net loss $ (4,733 ) $ (3,826 ) Adjustments to reconcile net loss to net cash used in operating activities: Amortization of deferred issuance cost - 17 Unrealized gain on securities (182 ) - Stock-based compensation - employees 587 391 Stock-based compensation - contractors 9 21 Changes in operating assets and liabilities: Prepaid assets 178 6 Other current assets 3 6 Accounts payable 937 63 Accrued liabilities (392 ) (427 ) Net cash used in operating activities (3,593 ) (3,749 ) Decrease in cash and cash equivalents (3,593 ) (3,749 ) Cash and cash equivalents - Beginning of period 30,344 13,650 Cash and cash equivalents - End of period $ 26,751 $ 9,901 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 Months Ended March 31, 2021 and 2020 (U.S. dollars and shares in thousands) (Unaudited) Accumulated Additional Other Total Common Stock Paid-in Accumulated Comprehensive Stockholders' Number (Note 4) Amount Capital Deficit Income Equity Balance at December 31, 2020 26,003 $ 140,733 $ 49,234 $ (162,140 ) $ 1,243 $ 29,070 Stock options issued to employees - - 587 - - 587 Stock options issued to contractors - - 9 - - 9 Net loss - - - (4,733 ) - (4,733 ) Balance at March 31, 2021 26,003 $ 140,733 $ 49,830 $ (166,873 ) $ 1,243 $ 24,933 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 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 6 Fennec Pharmaceuticals Inc. Notes to the Unaudited Interim Condensed Consolidated Financial Statements (U.S. dollars and shares in thousands, except per share information) 1. Nature of Business and Going Concern Fennec Pharmaceuticals Inc., a British Columbia corporation (“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 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. 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 months ended March 31, 2021, the Company incurred a loss from operations of $4,923. At March 31, 2021, the Company had an accumulated deficit of $166,900 million and had experienced negative cash flows from operating activities during the three months ended March 31, 2021 in the amount of $3,593. 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 were $34,100 ($32,189 net of commissions, fees and issue costs). 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 (“Bridge Bank”), pursuant to which Bridge Bank agreed to loan $12,500 to Fennec Pharmaceuticals, Inc., to be made available upon New Drug Application (“NDA”) approval of PEDMARK TM by the U.S. Food and Drug Administration (“FDA”) no later than September 30, 2020. The Loan and Security Agreement was amended on June 26, 2020 to increase the total potential amount of the loan to $18,000 and to extend the outside date to receive NDA approval of PEDMARK TM to December 31, 2020. In connection with this facility, the Company issued Bridge Bank a warrant to purchase up to 39,000 of the Company’s common shares at an exercise price of $6.80 per share, with an exercise period of ten years from the date of issuance subject to certain early termination conditions . Under Accounting Standards Codification ("ASC") 470-50, Modifications and Extinguishments, the amendment to the facility 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 receipt of the FDA’s Complete Response Letter (“CRL”) in August 2020, which identified deficiencies in the third-party manufacturing facility that manufactures PEDMARK TM on the Company’s behalf, the Company decided to fully amortize the remaining portions of the loan fee and the value of the warrants. The Loan and Security Agreement expired on December 31, 2020 as a result of the Company not obtaining NDA approval of PEDMARK TM by that date, with no amounts advanced under the facility prior to its termination. The warrant issued to Bridge Bank remains outstanding notwithstanding termination of the facility. The Company believes the funds raised in its May 2020 public offering provide sufficient funding for the Company to carry out its planned activities, including NDA resubmission and, if approved, 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. 7 Fennec Pharmaceuticals Inc. Notes to the Unaudited Interim Condensed Consolidated Financial Statements (U.S. dollars and shares in thousands, except per share information) 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, 2020. 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, 2020. 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 March 31, 2021 and to state fairly the results for the periods presented. The most significant estimates utilized during the quarter ended March 31, 2021 included estimates necessary to value grants of stock options to employees and various contractors, disclosed in Note 4. New accounting pronouncements In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848). In this ASU, the FASB refines the scope of Topic 848 to clarify that certain optional expedients and exceptions therein for contract modifications and hedge accounting apply to contracts that are affected by the discounting transition. Specifically, modifications related to reference rate reform would not be considered an event that requires reassessment of previous accounting conclusions. The ASU also amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. The amendments in the ASU are effective immediately for all entities. Entities may choose to apply the amendments retrospectively as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively to new modifications from any date within an interim period that includes or is subsequent to January 7, 2021, up to the date that financial statements are available to be issued. The Company chose to apply amendments prospectively and concluded after evaluation that ASU 2021-01 has no significant effect on our condensed consolidated 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 March 31, 2021, the Company had $26,751 in cash, savings and money market accounts ($30,344 at December 31, 2020). At March 31, 2021, the Company held $668 in cash of which $34 (as presented in U.S. dollars) was in Canadian dollars ($45 at December 31, 2020 as presented in U.S. dollars). At March 31, 2021, the Company held $26,083 in money market investments. Money market investments typically have minimal risks. While the Company has not experienced any loss or write-down of its money market investments, the amounts it holds in money market accounts are substantially above the $250,000 amount insured by the FDIC and may lose value. Financial instruments Financial instruments recognized on the balance sheets at March 31, 2021 and December 31, 2020 consist of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, the carrying values of which approximate fair value due to their relatively short time to maturity. The Company does not hold or issue financial instruments for trading. 8 Fennec Pharmaceuticals Inc. Notes to the Unaudited Interim Condensed Consolidated Financial Statements (U.S. dollars and shares in thousands, except per share information) The Company’s 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, when made, are made in U.S. or Canadian 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 risks are primarily the opportunity cost of the conservative nature of the allowable investments. As the main purpose of the Company is research and development, the Company has chosen to avoid investments of a trading or speculative nature. Revenue The Company's revenue is generated through sales of intellectual property (“IP”). The Company generates its revenue through one segment and the revenue recognized under each of the Company's arrangements during the current period is described below. The terms of these agreements may contain multiple promised goods or services or optional goods and services, including licenses to product candidates, referred to as exclusive licenses, as well as research and development activities to be performed by the Company on behalf of the collaboration partner related to the licensed product candidates. Revenue recognition Revenue is recognized when control of the promised goods or services are transferred to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for transferring those goods or providing services. The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. When determining whether the customer has obtained control of the goods or services, the Company considers the point at which the customer may benefit from the goods or services. For sale of IP to, revenue is recognized upon grant or transfer of the IP, as the Company's IP is considered functional in nature. Performance obligations A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The Company's contracts may contain multiple performance obligations if a promise to transfer goods or services is separately identifiable from other promises in a contract and, therefore, is considered distinct. For contracts with multiple performance obligations, the Company determines the standalone selling price of each performance obligation and allocates the total transaction price using the relative selling price basis. The Company recognizes performance obligations based on their nature. Significant payment terms The Company’s revenue arrangements include payments to the Company of one or more of the following: a non-refundable, upfront payment; milestone payments and royalties on commercial sales of IP product candidates, if any. To date, the Company has received upfront payments and several milestone payments but has not received any license or option fees or earned royalty revenue as a result of product sales. Under ASC 606, the Company estimates the amount of consideration to which it will be entitled in exchange for satisfying performance obligations. Based on the Company’s current contracts, variable consideration primarily exists in the following forms: development and regulatory milestones, royalties and sales-based milestones. The Company utilizes the "most likely amount" variable consideration method for estimating development and regulatory milestone consideration to include in the transaction price. The Company only includes an amount of variable consideration in the transaction price to the extent it is probable that a significant reversal in the cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The Company refers to this as the variable consideration constraint. 9 Fennec Pharmaceuticals Inc. Notes to the Unaudited Interim Condensed Consolidated Financial Statements (U.S. dollars and shares in thousands, except per share information) Due to the uncertainty associated with the occurrence of the underlying events which would trigger development and regulatory milestone consideration under its revenue arrangements, with the exception of certain initial conditions precedent milestones , the Company has concluded the variable consideration associated with all development and regulatory milestones to be fully constrained as of the ASC 606 transition date and as of March 31, 2021, and therefore has not included such consideration in the transaction price for any of its revenue arrangements. The Company will reassess this conclusion at each subsequent reporting period and will only include amounts associated with regulatory or development milestones in the transaction price when, or if, the variable consideration is determined to be released from the constraint. In accordance with ASC 606, the Company is required to adjust the transaction price for the effects of the time value of money if the timing of payments agreed to by the parties to the contract, explicitly or implicitly, provides the Company or its customer with a significant benefit of financing the transfer of goods or services. The Company concluded that its licensing and collaboration arrangements do not contain a significant financing component because the payment structure of its agreements arise from reasons other than providing a significant benefit of financing. Contract assets The Company did not have a contract asset as of March 31, 2021 or December 31, 2020. Contract liabilities The Company did not have a contract liability as of March 31, 2021 or December 31, 2020. Revenue arrangements Elion In May 2016, the Company sold Eniluracil to Elion Oncology, LLC (“Elion”). The agreement called for $40,000 in cash and 5% royalties to be paid to Fennec for any income derived from the sale of Eniluracil. The agreement was for the sale, not license of IP. In addition, the agreement did not call for any additional good or service beyond the transfer of IP and related assets (e.g. “all information and know-how”, documentation, etc.). In August 2020, Elion entered into a license agreement with Processa Pharmaceuticals, Inc. (“Processa”). The license agreement called for equity and cash upon satisfying the Condition Precedent, along with development and regulatory milestone payments, Sales Milestone Payments, and Product Royalties. The grant of the license was conditioned upon the “Condition Precedent” which was defined as (i) Processa’s closing of a public offering by October 30, 2020 in which Processa raised at least $15M and (ii) Processa’s shares being listed on NASDAQ. Upon satisfying the Condition Precedent, which occurred in October 2020, Elion was entitled to receive $100,000 in cash and 825,000 in shares of Processa of which the Company is entitled to 5%. As a result, in January 2021, the Company received $5,000 in cash and 41,250 restricted shares of Processa common shares. The agreement between Elion and Processa entitles Elion to the payments outlined in the table below. Fennec would be eligible to receive 5% of the following based on future milestone events: Milestone Event Milestone Payment ($) 1st Year Anniversary of Effective Date 100,000 Restricted Shares 2nd Year Anniversary of Effective Date 100,000 Restricted Shares 1st Patient in Dose Confirmation Study 100,000 Restricted Shares NDA Submission 300,000 Restricted Shares 1st FDA Approval in US $5,000,000 2nd FDA Approval in US $3,000,000 1st Regulatory Approval Outside US $2,000,000 2nd Regulatory Approval Outside US $2,000,000 Since the Condition Precedent was achieved, and only the passage of time must occur in order for the 1 st and 2 nd Year Anniversary payments to become due, the Company concluded the 1 st and 2 nd Year Anniversary milestone payments are also probable of coming to fruition and thus were included in the transaction price during the 4 th quarter of 2020 along with the aforementioned Condition Precedent payments. 10 Fennec Pharmaceuticals Inc. Notes to the Unaudited Interim Condensed Consolidated Financial Statements (U.S. dollars and shares in thousands, except per share information) The arrangement with Elion contains consideration that is variable based on the Processa’s achievement of the above referenced development and regulatory milestones. The next milestone payment the Company may be entitled to receive is 5,000 restricted shares for 1 st patient in Dose Confirmation Study and then another 15,000 restricted shares for the NDA submission. These are considered variable consideration that is fully constrained due to the uncertainty associated with the achievement of the development milestone. The considerations related to royalties (first and second FDA approval in US and first and second regulatory approval outside of US) are also variable consideration that are fully constrained in accordance with the royalty recognition constraint. The variable consideration related to royalties will be recognized in the period the products are sold by Processa and the Company has a present right to payment. The Company recognized $0.2 million in revenue associated with the aforementioned cash and shares it became entitled to for the year ended December 31, 2020. Due to the one year lockup provision on the Processa shares, the Company deemed it reasonable to apply a liquidity discount of 20% to the valuation of the shares associated with the achievement of the Condition Precedent. Shares associated with the one- and two-year anniversary milestones had a 30% and 40% liquidity discount applied to their fair market valuations. Recognizing the passage of time, the Company adjusted its liquidity discount to the original shares of 15% and then 25 and 30% for the one- and two-year anniversary tranches. Subsequent changes to the fair value of the underlying securities are recognized as unrealized gains or losses on marketable equity securities within the consolidated statement of operations and comprehensive loss. During the quarter ended March 31, 2021, the Company reported $182 in unrealized gain on the fair value of the underlying Processa shares. 3. Loss 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 March 31, 2021 2020 Numerator: Net (loss) $ (4,733 ) $ (3,826 ) Denominator: Weighted-average common shares, basic 26,003 19,896 Dilutive effect of stock options - - Dilutive effect of warrants - - Incremental dilutive shares - - Weighted-average common shares, dilutive 26,003 19,896 Net (loss) per share, basic and diluted $ (0.18 ) $ (0.19 ) 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 March 31, 2021 2020 Options to purchase common stock 2,952 3,088 Warrants to purchase common stock 39 39 11 Fennec Pharmaceuticals Inc. Notes to the Unaudited Interim Condensed Consolidated Financial Statements (U.S. dollars and shares in thousands, except per share information) 4. Stockholders' Equity Authorized capital stock The Company’s authorized capital stock consists of an unlimited number of common shares, no par value per share. Warrants to Purchase Common Stock During the three months ended March 31, 2021 and 2020, there were no warrants issued or exercised. Outstanding warrants have a weighted average life of 7.85 years on March 31, 2021. The following tables detail the Company’s warrant activity for the three months ended March 31, 2021 and 2020, respectively: Investor Warrants Common Shares Issuable Upon Exercise of Outstanding Warrants Weighted-Average Exercise Price $USD Outstanding December 31, 2020 39 6.80 Issued - - Outstanding March 31, 2021 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, 2019 39 6.80 Issued - - Outstanding March 31, 2020 39 6.80 Total 39 6.80 Stock option plan Equity Incentive Plan The Compensation Committee of the Board of Directors administers the Company’s equity incentive plan (the “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 under the Plan, together with the Company’s prior stock option plan, is twenty-five percent (25%) of the total number of issued and outstanding common shares. Based upon the current shares outstanding, a maximum of 6,501 shares of common stock are authorized for issuance pursuant to stock options or other equity awards granted 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 from option awards for the three month periods ended March 31, 2021 and 2020. Three Months Ended March 31, 2021 2020 Contractor options expense recognized $ 9 $ 21 Employee options expense recognized 587 391 Total option expense recognized $ 596 $ 412 Stock option activity The following is a summary of option activity for the three months ended March 31, 2021 and 2020 for stock options denominated in U.S. and Canadian dollars. As of August 2020, there were no Canadian denominated options outstanding. Number of Weighted-Average US Denominated Options Options (thousands) Exercise Price $USD Outstanding December 31, 2020 2,952 $ 4.82 Granted - - Exercised - - Outstanding at March 31, 2021 2,952 $ 4.82 12 Fennec Pharmaceuticals Inc. Notes to the Unaudited Interim Condensed Consolidated Financial Statements (U.S. dollars and shares in thousands, except per share information) Number of Weighted-Average Exercise US Denominated Options Options (thousands) Price $USD and $CAD Outstanding December 31, 2019 3,088 $ 3.59 (1) Granted - - Exercised - - Outstanding at March 31, 2020 3,088 $ 3.56 (2) 1. Figure represents 2,440 US denominated with a weighted average price of $4.05, and 648 $CAD denominated options with a weighted average price of $1.87 translated at $CAD/$USD 0.768174. 2. Figure represents 2,440 US denominated with a weighted average price of $4.05, and 648 $CAD denominated options with a weighted average price of $1.72 translated at $CAD/$USD 0.70978. During the three month periods ended March 31, 2021 and 2020, there was no US denominated option activity. Of the 2,952 options granted and outstanding at March 31, 2021, 2,154 are fully vested and exercisable. 5. Fair Value Measurements The Company has adopted ASC 820 the Fair Value Measurements and Disclosure Topic of the FASB. This Topic applies to certain assets and liabilities that are being measured and reported on a fair value basis. The Fair value Measurements 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. Quoted Price in Active Market for Identical Instruments Significant Other Observable Inputs Significant Unobservable Inputs Level 1 Level 2 Level 3 Total 2021 2020 2021 2020 2021 2020 2021 2020 Assets Cash and cash equivalents $ 668 (1) $ 678 (1) $ 26,083 $ 29,666 $ - $ - $ 26,751 $ 30,344 Processa common shares - - 182 (2) - - 182 - (1) The Company held approximately, $668 in cash as of March 31, 2021, of which approximately, $34 was in Canadian funds (translated into U.S. dollars). As of December 31, 2020, the Company held approximately $347 of which approximately $45 was in Canadian funds (translated into U.S. dollars). (2) The Company received 41,250 restricted common shares of Processa (PSCA). The share restriction will expire in three tranches: 50%, 25% and 25% at the 6, 9 and 12 month intervals, respectively from October 30, 2020. At October 30, 2020 Processa shares were trading at $4.11 per share. The Company originally applied a 20%, 30% and 40% liquidity discount to the shares and will mark to market at each balance sheet date. 13 Fennec Pharmaceuticals Inc. Notes to the Unaudited Interim Condensed Consolidated Financial Statements (U.S. dollars and shares in thousands, except per share information) 6. Commitments and Contingencies Oregon Health & Science University Agreement On February 20, 2013, Fennec entered into a new exclusive license agreement with Oregon Health & Science University (“OHSU”) for exclusive worldwide license rights to intellectual property directed to thiol-based compounds, including PEDMARK TM , 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. Securities Class Action Suit Following the FDA’s CRL regarding our 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 December 20, 2018 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 its 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 ($442,900 as of March 31, 2021). 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 six months of salary ($160,423 as of March 31, 2021). 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 ($92,700 as of March 31, 2021). 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 $1,441. 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 terminates on July 31, 2020, thereafter the lease may continue on a month-to-month basis with either party being able to terminate the agreement by providing one months' advance written notice of termination. 14 Fennec Pharmaceuticals Inc. Notes to the Unaudited Interim Condensed Consolidated Financial Statements (U.S. dollars and shares in thousands, except per share information) COVID-19 Our operations may be affected by the ongoing COVID-19 pandemic. The ultimate disruption which may be caused by the outbreak is uncertain; however, it may result in a material adverse impact on our financial position, operations and cash flows. Possible effects may include, but are not limited to, disruption to our product launch which includes the ability of sales reps to communicate with oncologists, absenteeism in our labor workforce, unavailability of products and supplies used in operations, and a decline in value of our assets, including inventories, property and equipment, and marketable securities. COVID-19 has not had a material effect on our operations to date as we have 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. 7. Subsequent Events Management has evaluated subsequent events through the date of this filing and concluded there are no events of significance which require disclosure. 15