What changed in this filing

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Item 1. Financial Statements

2022-05-12 compared with 2021-11-10 · 193 added, 182 removed, 333 unchanged (53% of the section changed)

3 unchanged sentences

Dollars and shares in thousands)

September 30, 2021

March 31, 2022

Current assets

4 unchanged sentences

Non-current assets

Deferred issuance cost

Deferred issuance cost (amortization)

Deferred issuance cost, net of amortization

Total non-current assets

Liabilities and Shareholders’ Equity

Liabilities and Stockholders’ Equity

Current liabilities:

1 unchanged sentence

Accrued liabilities

Current portion of long-term debt

Total current liabilities

4 unchanged sentences

Commitments and Contingencies (Note 6)

Shareholders’ equity:

Stockholders’ equity:

Common stock, no par value;

4 unchanged sentences

Accumulated other comprehensive income

Total shareholders’ equity

Total liabilities and shareholders’ equity

Total stockholders’ equity

Total liabilities and stockholders’ equity

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Operating expenses:

2 unchanged sentences

Loss from operations

Other income/(expense):

Other income/(loss)

Other (expense)/income

Unrealized foreign exchange loss

Amortization expense

Unrealized gain on securities

Unrealized (loss)/gain on securities

Interest income

10 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Cash flows (used in) provided by:

1 unchanged sentence

Adjustments to reconcile net loss to net cash used in operating activities:

Amortization of deferred issuance costs

Unrealized (gain) on securities

Stock-based compensation - contractors

Amortization of debt access fees

Amortization of debt discount

Unrealized loss/(gain) on securities

Stock-based compensation - consultants

Stock-based compensation - employees

6 unchanged sentences

Issuance of shares, options exercise

Issuance of shares, net of issuance costs

Proceeds from long-term debt

Debt discount

Capitalized deferred issuance costs

Net cash (used in)/provided by financing activities

(Decrease)/increase in cash and cash equivalents

Net cash provided by financing activities

Decrease in cash and cash equivalents

Cash and cash equivalents - Beginning of period

Cash and cash equivalents - End of period

Non-cash investing and financing activities:

Deferred issuance cost (warrant value)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

1 unchanged sentence

Condensed Consolidated Statements of Stockholders’ Equity

Three and Nine Months Ended September 30, 2021 and 2020

Three Months Ended March 31, 2022 and 2021

dollars and shares in thousands)

4 unchanged sentences

Stock options issued to contractors

Stock option exercise

Balance at March 31, 2022

Stock options issued to employees

Exercise of options

Balance at June 30, 2021

Stock options issued to employees

Balance at September 30, 2021

Comprehensive

4 unchanged sentences

Balance at March 31, 2021

Stock options issued to consultants

Stock options issued to employees

Issuance of securities

Balance at June 30, 2020

Stock options issued to employees

Stock options issued to contractors

Exercise of options

Balance at September 30, 2020

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

10 unchanged sentences

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, 2021, the Company incurred a loss from operations of $ 4,173 and $ 13,016 , respectively.

At September 30, 2021, the Company had an accumulated deficit of $ 175,059 and had experienced negative cash flows from operating activities during the three and nine months ended September 30, 2021 in the amounts of $ 2,958 and $ 10,977 , respectively.

On May 5, 2020, the Company announced the completion of an underwritten public offering of 4,800 common shares at a public offering price of $ 6.25 per share.

In addition, Fennec issued an additional 660 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 ($ 31,967 net of commissions, fees and issue costs).

During the three months ended March 31, 2022, the Company incurred a loss from operations of $ 3,546 .

At March 31, 2022, the Company had an accumulated deficit of $ 183,182 and had experienced negative cash flows from operating activities during the three months ended March 31, 2022 in the amount of $ 2,856 .

On February 1, 2019, the Company’s wholly owned subsidiary Fennec Pharmaceuticals, Inc, entered into a Loan and Security Agreement (the “Bridge Bank 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.

9 unchanged sentences

Term Loan A consists of $ 5,000 , which was funded upon closing.

Term Loan B consists of $ 7,500 to be funded upon NDA approval of PEDMARK TM in the U.S.

Term Loan B consists of $ 7,500 to be funded upon NDA approval of PEDMARK TM (the “Approval Event”) in the U.S.

Term Loan C consists of $ 7,500 to be funded upon the Company achieving consolidated trailing six-month revenues of $ 11 million on or before December 31, 2022.

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 B, provided that Term Loan C is funded, and certain conditions are met.

On January 31, 2022, the Company announced a third amendment to the Bridge Bank Loan and Security Agreement.

This amendment redefines certain definitions in the agreement.

The term “Resubmission Event” is the resubmission by Fennec for final NDA approval from the U.S.

Food and Drug Administration for PEDMARK on or before March 31, 2022.

Fennec did achieve the Resubmission Event on March 24, 2022.

The “Approval Event” is the receipt of the final NDA approval by Fennec from the U.S.

Food and Drug Administration for PEDMARK TM on or before September 30, 2022.

The Company intends to use the proceeds from the loans to provide working capital for commercial readiness activities prior to NDA approval as well as commercialization activities for PEDMARK TM , if approved by the FDA.

2 unchanged sentences

dollars and shares in thousands, except per share information)

The Company believes the funds raised in its May 2020 public offering, along with the funds from the Bridge Bank Loan and Security Agreement, provide sufficient funding for the Company to carry out its planned activities, including, if PEDMARK TM is approved by the FDA, 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.

The Company believes current funds, along with the funds from the Bridge Bank Loan and Security Agreement, provide sufficient funding for the Company to carry out its planned activities, including, if PEDMARK TM is approved by the FDA, the commencement of commercialization efforts, for at least the next twelve months as it continues its strategic development of PEDMARK TM .

Significant Accounting Policies

12 unchanged sentences

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, 2021 and to state fairly the results for the periods presented.

The most significant estimates utilized during the three and nine months ended September 30, 2021 include estimates necessary to value grants of stock options to employees and various contractors, as disclosed in Note 4.

Fennec Pharmaceuticals Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

dollars and shares in thousands, except per share information)

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, 2022 and to state fairly the results for the periods presented.

The most significant estimates utilized during the three months ended March 31, 2022 include estimates necessary to value grants of stock options to employees and various contractors, as 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 its condensed consolidated financial statements.

The Company did not adopt any new accounting pronouncements during the quarter ended March 31, 2022.

Cash and cash equivalents

1 unchanged sentence

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, 2021, the Company had $ 24,335 in cash, savings and money market accounts ($ 30,344 at December 31, 2020).

At September 30, 2021, the Company held $ 428 in cash of which $ 37 (as presented in U.S.

At March 31, 2022, the Company had $ 18,259 in cash, savings and money market accounts ($ 21,100 at December 31, 2021).

At March 31, 2022, the Company held $ 131 in cash of which $ 39 (as presented in U.S.

dollars) was in Canadian dollars ($ 34 at December 31, 2021 as presented in U.S.

At September 30, 2021, the Company held $ 23,907 in money market investments.

At March 31, 2022, the Company held $ 18,128 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 amount insured by the FDIC and may lose value.

While the Company has not experienced any loss or write-down of its money

Fennec Pharmaceuticals Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

dollars and shares in thousands, except per share information)

market investments, the amounts it holds in money market accounts are substantially above the $ 250 amount insured by the FDIC and may lose value.

Financial instruments

Financial instruments recognized on the balance sheets at September 30, 2021 and December 31, 2020 consist of cash and cash equivalents, accounts payable, accrued liabilities and long term debt, the carrying values of which approximate fair value due to their relatively short time to maturity.

Financial instruments recognized on the balance sheets at March 31, 2022 and December 31, 2021 consist of cash and cash equivalents, accounts payable, accrued liabilities and current portion of long-term debt, 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.

10 unchanged sentences

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.

Fennec Pharmaceuticals Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

dollars and shares in thousands, except per share information)

Revenue recognition

9 unchanged sentences

The Company recognizes performance obligations based on their nature.

Fennec Pharmaceuticals Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

dollars and shares in thousands, except per share information)

Significant payment terms

10 unchanged sentences

The Company refers to this as the variable consideration constraint.

Due to the uncertainty associated with the occurrence of any 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 September 30, 2021, and therefore has not included such consideration in the transaction price for any of its revenue arrangements.

Due to the uncertainty associated with the occurrence of any 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 March 31, 2022, 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.

The Company adjusts 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.

Fennec Pharmaceuticals Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

dollars and shares in thousands, except per share information)

a significant financing component because the payment structure of its agreements arise from reasons other than providing a significant benefit of financing.

In relation to the royalties from the sale of Eniluracil to Elion (described under “Revenue arrangements” below), 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 any contract assets as of September 30, 2021 or December 31, 2020.

The Company did not have any contract assets as of March 31, 2022 or December 31, 2021.

Contract liabilities

The Company did not have any contract liabilities as of September 30, 2021 or December 31, 2020.

The Company did not have any contract liabilities as of March 31, 2022 or December 31, 2021.

Revenue arrangements

7 unchanged sentences

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 $ 15,000 and (ii) Processa’s shares being listed on NASDAQ.

The grant of the license was conditioned upon the

Fennec Pharmaceuticals Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

dollars and shares in thousands, except per share information)

“Condition Precedent” which was defined as (i) Processa’s closing of a public offering by October 30, 2020 in which Processa raised at least $ 15,000 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 in cash and 825 in shares of Processa of which the Company is entitled to 5 %.

As a result, in January 2021, the Company received $ 5 in cash and 41 restricted shares of Processa common shares.

The event which triggered the receipt of cash and shares occurred in October of 2020.

The revenue for this event was recognized in the fourth quarter ended December 31, 2020.

The agreement between Elion and Processa entitles Elion to the payments outlined in the table below.

16 unchanged sentences

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 restricted shares for 1 st patient in Dose Confirmation Study and then another 15 restricted shares for the NDA

Fennec Pharmaceuticals Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

dollars and shares in thousands, except per share information)

The next milestone payment the Company may be entitled to receive is 5 restricted shares for 1 st patient in Dose Confirmation Study and then another 15 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.

6 unchanged sentences

Recognizing the passage of time, the Company adjusted its liquidity discount to the original shares of 0 % and then 15 % and 25 % 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 condensed consolidated statement of operations.

During the quarter ended September 30, 2021, the Company reported $ 39 in unrealized gain on the fair value of the underlying Processa shares.

There is a total unrealized gain on the Processa shares of $ 137 for the nine months ended September 30, 2021.

During the quarter ended March 31, 2022, the Company reported $ 91 in unrealized loss on the fair value of the underlying Processa shares.

Net loss over the life of the Processa shares was $ 17 at March 31, 2022.

Loss per Share

2 unchanged sentences

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.

Diluted earnings per common share is computed by dividing net income by the weighted average number of common shares outstanding during the period, plus

Fennec Pharmaceuticals Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

dollars and shares in thousands, except per share information)

the potentially dilutive impact of common stock equivalents (i.e.

stock options and warrants).

1 unchanged sentence

The following table sets forth the computation of basic and diluted net loss per share:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Weighted-average common shares, basic

5 unchanged sentences

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 Months Ended September 30,

Three Months Ended March 31,

Options to purchase common shares

Warrants to purchase common shares

Fennec Pharmaceuticals Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

dollars and shares in thousands, except per share information)

Stockholders’ Equity

2 unchanged sentences

Warrants to Purchase Common Stock

During the three and nine-months ended September 30, 2021 and 2020, there were no warrants issued or exercised.

Outstanding warrants have a weighted average life of 7.35 years on September 30, 2021.

The following tables detail the Company’s warrant activity for the three and nine months ended September 30, 2021 and 2020, respectively:

Common Shares

Issuable Upon Exercise

of Outstanding

Weighted-Average

Investor Warrants

Exercise Price $USD

Outstanding December 31, 2020

Outstanding March 31, 2021

Outstanding June 30, 2021

Outstanding September 30, 2021

During the three months ended March 31, 2022 and 2021, there were no warrants issued or exercised.

Outstanding warrants have a weighted average life of 6.85 years on March 31, 2022.

The following tables detail the Company’s warrant activity for the three months ended March 31, 2022 and 2021, respectively:

Common Shares

6 unchanged sentences

Outstanding March 31, 2022

Outstanding June 30, 2020

Outstanding September 30, 2020

Stock option plan

Equity Incentive Plan

1 unchanged sentence

The Compensation Committee designates eligible participants to be included under the Plan and approves the number of equity instruments to be granted from time to time under the Plan.

Currently, the maximum number of equity instruments 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 6,502 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

Currently, the maximum number of equity instruments issuable under the Plan, together with the Company’s prior stock option plan, is twenty-five percent ( 25 %) of the total

Fennec Pharmaceuticals Inc.

1 unchanged sentence

dollars and shares in thousands, except per share information)

the issuance of Canadian and U.S.

number of issued and outstanding common shares.

Based upon the current shares outstanding, a maximum of 6,510 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 equity awards for the three and nine months period ended September 30, 2021 and 2020.

Three Months Ended September 30,

Nine Months Ended September 30,

The table below outlines recognized contractor and employee expense from equity awards for the three month period ended March 31, 2022 and 2021.

Three Months Ended March 31,

Contractor options expense recognized

2 unchanged sentences

Stock Option Activity

The following is a summary of option activity for the three and nine months ended September 30, 2021, and 2020 for stock options denominated in U.S.

The following is a summary of option activity for the three months ended March 31, 2022, and 2021 for stock options denominated in U.S.

Since August of 2020, there have been no Canadian denominated options outstanding.

5 unchanged sentences

Outstanding at March 31, 2022

Outstanding and exercisable at June 30, 2021

Outstanding at September 30, 2021

During the three-month period ended September 30, 2021, there were no grants or exercises of U.S.

denominated options.

Of the 4,051 U.S.

denominated options granted and outstanding at September 30, 2021, 2,586 are fully vested and exercisable.

The following is a summary of option activity for each of the quarterly periods in fiscal year 2020 for stock options denominated in Canadian dollars:

Weighted-Average

CAD Denominated Options

Options (thousands)

Exercise Price $USD

Outstanding at December 31, 2019

Outstanding at March 31, 2020

Outstanding and exercisable at June 30, 2020

Outstanding at September 30, 2020

The value of options 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.

Fennec Pharmaceuticals Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

dollars and shares in thousands, except per share information)

denominated options granted and outstanding at March 31, 2022, 2,769 are fully vested and exercisable.

The value of options issued was estimated using the Black-Scholes option pricing model using the assumptions in the table below.

The expected volatility was determined using historical volatility of our stock based on the expected term of the award.

Valuation Assumptions

Black-Scholes Model Assumptions

June 30, 2021

March 31, 2022

Expected dividend

5 unchanged sentences

The Plan allows for the issuance of restricted share units (“RSU’s”).

The following is a summary of RSU activity for the three and nine months ended September 30, 2021, for RSU’s denominated in U.S.

Prior to June 2021, there was no activity involving RSU’s.

Of the 55 RSU’s granted and outstanding, 0 are vested.

All RSU’s vest over three years with 1/3 vesting on the first anniversary date of the grant and then 1/24 on the last day of each subsequent month.

The following is a summary of RSU activity for the three months ended March 31, 2022, for RSU’s denominated in U.S.

Prior to June 2021, there was no activity

Fennec Pharmaceuticals Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

dollars and shares in thousands, except per share information)

involving RSU’s.

As of March 31, 2022, none of the awarded RSU’s are vested.

During the quarter ended March 31, 2022, there were no RSU’s awarded and 88 were forfeited by terminated employees.

All RSU’s vest over one to three years .

Number of Restricted

US Denominated RSU's

US Denominated RSUs

Share Units (thousands)

1 unchanged sentence

Outstanding at March 31, 2022

Outstanding at June 30, 2021

Outstanding at September 30, 2021

The value of RSU’s issued was estimated using the share price on the date of the grant multiplied by the number of shares granted.

The Company then applies a liquidity discount to the value to recognize the passage of time over the vesting period.

The value of RSU’s issued was estimated using the share price on the date of the award multiplied by the number of shares granted.

Fair Value Measurements

8 unchanged sentences

Unobservable inputs that are not corroborated by market data.

Fennec Pharmaceuticals Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

dollars and shares in thousands, except per share information)

Fair Value Measurement at September 30, 2021 and December 31, 2020

Fair Value Measurement at March 31, 2022 and December 31, 2021

(in thousands)

6 unchanged sentences

Processa common shares

The Company held approximately $ 428 in cash as of September 30, 2021, of which approximately $ 37 was in Canadian funds (translated into U.S.

The Company held approximately $ 131 in cash as of March 31, 2022, of which approximately $ 39 was in Canadian funds (translated into U.S.

As of December 31, 2021, the Company held approximately $ 82 in cash of which approximately $ 34 was in Canadian funds (translated into U.S.

The Company received 41 restricted common shares of Processa (NASDAQ:PCSA).

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.

The Company holds 41 unrestricted and 5 restricted common shares of Processa (NASDAQ:PCSA).

The restriction on the 5 shares will expire on October 20, 2022.

The Company expects to receive another 5 restricted common shares of Processa on October 20, 2022 and will become unrestricted one year after receipt.

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.

The Company will also adjust the liquidity discounts being applied to the share valuation to appropriately reflect the passage of time.

Valuation of the shares at March 31, 2022 had a 0 %, 15 % and 25 % liquidity discount applied to the 41 , 5 and 5 share tranches, respectively.

Fennec Pharmaceuticals Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

dollars and shares in thousands, except per share information)

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”).

On February 20, 2013, Fennec entered into an 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.

Further, Amendment 1 adjusts select milestone payments 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.

Sodium thiosulfate is currently protected by methods of use patents that the Company exclusively licensed from OHSU 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.

1 unchanged sentence

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.

Fennec Pharmaceuticals Inc.

On September 3, 2020, plaintiff Jim Chapman filed a putative federal securities class action lawsuit against the Company, our Chief Executive Officer, Rostislav Raykov, and Chief Financial Officer, Robert Andrade, in the United States District Court for the Middle District of North Carolina, captioned Chapman v.

Fennec Pharmaceuticals Inc.

et al ., Case No.

1:20-cv-00812.

The complaint alleged that prior to our August 10, 2020 receipt of a CRL from the FDA concerning our NDA for PEDMARK TM , defendants made materially false or misleading statements and failed to disclose material facts about our third-party PEDMARK TM product manufacturing facility and the impact the facility would have on regulatory approval for PEDMARK TM .

On December 3, 2020, the court appointed a lead plaintiff to represent the putative class.

On February 1, 2021, the lead plaintiff filed an amended complaint.

The amended complaint added members of our Board of Directors as defendants, asserts a putative class period from December 20, 2018 through August 10, 2020, makes allegations similar to those in the original complaint, claims the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, and seeks an unspecified amount of compensatory damages and attorneys’ fees and costs.

On March 3, 2021, defendants filed a motion to dismiss the amended complaint.

On April 2, 2021, plaintiff filed an opposition to the motion to dismiss.

On April 16, 2021, defendants filed a reply in support of the motion to dismiss, and on December 16, 2021, the Magistrate Judge entered an order recommending that defendants’ motion to dismiss be granted in its entirety.

On January 24, 2022, plaintiff filed objections to the Magistrate Judge’s recommendation, and defendants filed their response on February 3, 2022.

On March 2, 2022, the U.S.

District Court Judge adopted the Magistrate Judge’s order and recommendation and entered an order and judgment dismissing the amended complaint with prejudice.

On March 30, 2022, plaintiff filed a motion for post judgment relief, seeking leave to file a second amended complaint.

In his proposed second amended complaint, plaintiff seeks to add allegations stemming from the receipt of a second CRL following our resubmission of our NDA for PEDMARK TM , which we received on November 29, 2021, among other things.

Defendants filed an opposition to plaintiff’s motion for post judgment relief on April 20, 2022.

Plaintiff submitted a reply in support of his motion in early May 2022.

Fennec Pharmaceuticals Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

dollars and shares in thousands, except per share information)

We believe that this lawsuit is without merit and intend to defend it vigorously.

We cannot predict the outcome of this lawsuit.

Failure by us to obtain a favorable resolution of the lawsuit could have a material adverse effect on our business, results of operations, and financial condition.

We have not recorded a liability as of March 31, 2022, because we believe a potential loss is not probable or reasonably estimable given the nature of the proceedings and our success so far by obtaining a dismissal with prejudice of the amended complaint.

Fennec Pharmaceuticals Inc.

On February 9, 2022, plaintiff Jeffrey D.

Fisher filed a putative federal securities class action lawsuit against the Company and our CEO and CFO in the United States District Court for the Middle District of North Carolina, captioned Fisher v.

Fennec Pharmaceuticals Inc.

1:22-cv-00115.

The complaint asserts a putative class period from May 28, 2021 through November 28, 2021, and alleges that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 by making materially false and misleading statements or omissions regarding the status of our third-party PEDMARK TM product manufacturing facility, the facility’s compliance with cGMP, and the impact its status and compliance would have on regulatory approval for PEDMARK TM in the period leading up to the Company’s November 29, 2021 receipt of a CRL for a subsequent NDA for PEDMARK TM .

The complaint seeks an unspecified amount of damages and attorneys’ fees and costs.

On April 11, 2022, plaintiff Jeffrey D.

Fisher filed a motion to be appointed lead plaintiff and represent the putative class.

In early May 2022, the Court appointed Fisher as lead plaintiff.

We believe that the lawsuit is without merit and intend to defend it vigorously.

We cannot predict the outcome of this lawsuit.

Failure by us to obtain a favorable resolution of the lawsuit could have a material adverse effect on our business, results of operations, and financial condition.

Hope Medical Enterprises, Inc.

On October 29, 2021, Hope Medical Enterprises, Inc.

(“Hope”) filed two petitions for inter partes review (“IPR”) with the Patent Trial and Appeal Board (“PTAB”) of the USPTO.

In its petitions, Hope seeks to invalidate our U.S.

10,596,190 (“US ‘190”), which is exclusively in-licensed from Oregon Health & Science University (“OHSU”) and relates to a method of using our PEDMARK™ product, and our U.S.

10,792,363 (“US ’363”), which relates to an anhydrous form of STS, which is the active pharmaceutical ingredient in our PEDMARK™ product.

US ‘190 was issued on March 24, 2020.

US ‘363 was issued on October 6, 2020.

On January 11, 2022, our licensor OHSU filed a Request for Supplemental Examination of US ‘190 requesting the consideration by the Central Re-examination Unit (“CRU”) of the USPTO of certain prior art references, including references cited by Hope in its Petition for IPR that are relevant to the granted claim of the patent.

On January 28, 2022, the CRU found that the cited references constitute a substantial new question of patentability and ordered an ex parte reexamination of the single US ‘190 claim of pursuant to 35 U.S.C.

On March 11, 2022, the CRU issued a substantive Office Action.

We filed a preliminary response to Hope’s Request for IPR of the ‘190 Patent in February 2022, requesting that the ‘190 IPR be denied on the basis that the CRU is already reviewing the relevant issues in the Supplemental Examination Proceeding and is further advanced than PTAB in its consideration.

On May 9, the PTAB granted Hope Medical’s Petition to Institute the IPR against the ‘190 patent and a stayed the Supplemental Examination pending the result of the ‘190 IPR.

We expect a decision in the ‘190 IPR in May 2023, which can be appealed by the losing party.

Separately, the PTAB has until mid-May 2022 to decide whether to institute the ‘363 IPR.

In February and April 2022, the USPTO issued Notices of Allowance to Fennec for two additional patents that cover the PEDMARK TM pharmaceutical formulation.

We expect these two additional U.S.

patents to issue in mid-2022 and will be listed in the FDA’s Orange Book on approval of PEDMARK TM .

These patents will expire in 2039, unless held invalid or unenforceable by a court or final jurisdiction.

We plan to vigorously defend our intellectual property rights related to PEDMARK™.

However, we are unable to predict the outcome of Hope’s IPR petitions, or the Supplemental Examination, and an invalidation of one or both of the ‘190 and ‘363 patents may have a material adverse effect on our ability to protect our rights in PEDMARK™ beyond periods of

Fennec Pharmaceuticals Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

dollars and shares in thousands, except per share information)

marketing exclusivity for PEDMARK TM possible in the United States under Orphan Drug Designation and in Europe under European Market Exclusivity for Pediatric Use (“PUMA”).

We obtained U.S.

Orphan Drug Designation for the use of PEDMARK TM in the prevention of platinum-induced ototoxicity in pediatric patients in 2004.

We plan to pursue PUMA upon approval of the MAA, which would allow for 10 years of market exclusivity upon PUMA approval.

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 as of September 30, 2021).

Raykov a one-time severance payment equal to twelve months of salary ($ 458 as of March 31, 2022).

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 as of September 30, 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 six months of salary ($ 184 as of September 30, 2021).

Andrade a one-time severance payment equal to six months of salary ($ 166 as of March 31, 2022).

In the event of her termination with us other than for cause, we would have been obligated to pay Ms.

Goel a one-time severance payment equal to six months of salary ($ 192 ).

Goel tendered her resignation in January of 2022.

Goel’s resignation was voluntary and there is no severance owed.

We have an operating lease in Research Triangle Park, North Carolina utilizing small space within a commercial building.

6 unchanged sentences

Our operations may be affected by the ongoing COVID-19 pandemic.

The ultimate disruption which may be caused by the outbreak is uncertain;

The ultimate disruption that 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.

10 unchanged sentences

Term Loan A matures on July 1, 2025.

Payments are for interest only through February 1, 2023.

The Company shall make equal monthly payments of principal, together with applicable interest, following the interest only period until the maturity date.

Interest shall accrue on the outstanding balance at a rate of 1 % above prime as published by the Wall Street Journal on the first day of each month.

The Company is obligated to maintain a cash balance greater or equal to three times its monthly cash burn as calculated on the last date of the immediately preceding month.

Payments are for interest only through December 31, 2022.

The Company shall make equal monthly payments of principal, together

Fennec Pharmaceuticals Inc.

1 unchanged sentence

dollars and shares in thousands, except per share information)

Aggregate annual payments due on Term Loan A as of September 30, 2021 are as follows (in thousands):

with applicable interest, following the interest only period until the maturity date.

Interest shall accrue on the outstanding balance at a rate of 1 % above prime as published by the Wall Street Journal on the first day of each month.

The Company is obligated to maintain a cash balance greater or equal to three times its monthly cash burn as calculated on the last date of the immediately preceding month.

If Company fails to maintain the aforementioned cash balance, the bank can call the full amount of loan outstanding.

Collateral for Term Loan A, B and C shall not include any copyrights, patents, trademarks, servicemarks and applications

therefor, now owned or hereafter acquired, or any claims for damages by way of any past, present, and future infringement

of any of the foregoing (collectively, the “Intellectual Property”);

provided, however, that the Collateral shall include all accounts and general intangibles that consist of rights to payment and proceeds from the sale, licensing or disposition of all or any part, or rights in the foregoing (the “Rights to Payment”).

Notwithstanding the foregoing, if a judicial authority

(including a U.S.

Bankruptcy Court) holds that a security interest in the underlying Intellectual Property is necessary to have a security interest in the Rights to Payment, then the Collateral shall automatically, and effective as of the Effective Date, include the Intellectual Property to the extent necessary to permit perfection of Bank’s security interest in the Rights to Payment.

Aggregate annual payments due on Term Loan A as of March 31, 2022 are as follows (in thousands):

Years Ending December 31,

3 unchanged sentences

In the event of default or change of control, all unpaid principal and all accrued and unpaid interest amounts (if any) become immediately due and payable including the prepayment fee.

Events of default include, but are not limited to, a payment default, a material adverse change, and insolvency.

Events of default include, but are not limited to, a payment default, failure to achieve Approval Event before September 30, 2022, a material adverse change, and insolvency.

The Bridge Bank facility is secured by all of the Company’s assets, including all capital stock held by the Company.

4 unchanged sentences

Subsequent Events

Management has evaluated subsequent events through the date of this filing and concluded there are no events of significance which require disclosure.

Prescription Drug User Fee Act (“PDUFA”) Date Announced

On April 27, 2022, Fennec announced the FDA had set a PDUFA date of September 23, 2022.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements