What changed in this filing

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Item 9A. Controls and Procedures

2023-03-29 compared with 2022-02-28 · 463 added, 391 removed, 763 unchanged (53% of the section changed)

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Our management is responsible for establishing and maintaining adequate internal control over financial reporting.

Internal control over financial reporting, as defined in rules promulgated under the Exchange Act, is a process designed

by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer and affected by our Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of Consolidated Financial Statements for external purposes in accordance with GAAP.

Internal control over financial reporting, as defined in rules promulgated under the Exchange Act, is a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer and affected by our Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of Consolidated Financial Statements for external purposes in accordance with GAAP.

Internal control over financial reporting includes those policies and procedures that:

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Director (1)(3)

Senior Vice President and General Manager of EMEA Region at PTC Therapeutics;

Former SVP, Head of International at PTC Therapeutics;

previously Chief Operating Officer at Gentium GmbH;

previously Regional VP Commercial Operations at Biogen Idec

Khalid Islam, Zug, Switzerland

Khalid Islam, Lugano, Switzerland

Chairman of Board, Director (1)

Founder/co-founder of Sirius Healthcare Partners GMbH;

Founder and Chairman of Gain Therapeutics ;

previously Chairman and CEO of Gentium S.p.A.;

previously CEO of Arpida AG

Jodi Cook, Pennsylvania, USA,

Cook, PhD South Carolina, USA,

Director (2)(3)

Former SVP, Head of Gene Therapy Strategy PTC Therapeutics, Inc, Former COO Agilis Biotherapeutics, Former Assistant Professor of Audiology Mayo Clinic

CEO of Skylark Bio Inc, Former SVP, Head of Gene Therapy Strategy PTC Therapeutics, Inc, Former COO Agilis Biotherapeutics, Former Assistant Professor of Audiology Mayo Clinic

September 2019

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Prior to 1999, he held various positions at Pharmacia & Upjohn and Farmitalia Carlo Erba SpA, an Italian pharmaceutical company.

He currently serves on the Board of Naicons and previously was Board member of Soligenix, Lee’s Pharmaceuticals, Exelead and Gentium.

He currently serves on the Board of Leadiant Biosciences Inc and Limited;

advisor and biotech champion at Indaco Ventures Partners SGR.

Previously was a Board member of Gentium, Exelead, Soligenix, Lee’s Pharmaceuticals and Naicons.

Brughera earned his degree in veterinary medicine from the University of Milan and is a European Registered Toxicologist.

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Haigh has been a director of Fennec since April 2014.

Haigh has been Senior Vice President and Head of International Operations at PTC Therapeutics since September 2014.

Haigh retired from PTC Therapeutics on Dec 31 st 2022, his last role at PTC was Senior Vice President and Head of International, he joined the company in 2014 as Head of EMEA and built the company’s international organization.

Previously Mr.

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Prior to joining Gentium, Mr.

Haigh served as Regional VP Commercial Operations at Biogen Idec where he managed several affiliates and also the global distributor business and prior to that was the General Manager of Amgen Nordis and Portugal.

He served as the Executive Vice President of Global Marketing and Corporate Planning at EUSA Pharma and joined EUSA from Amgen where he led the international oncology franchise.

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since April 28, 2014.

He received a Bachelor of Arts with Honors in Economic History from Huddersfield Polytechnic, West Yorkshire, England and a Diploma in Marketing from the Institute of Marketing.

He received a Bachelor of Arts with Honors in Economic History from Huddersfield Polytechnic, West Yorkshire, England, a Diploma in Marketing from the Institute of Marketing and a Diploma in Company Direction from the Institute od Directors.

As a result of these and other professional experiences, Mr.

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He is an advisor to the venture group Kurma Biofund (Paris).

He is a founder/co-founder of Sirius Healthcare Partners GmbH (Zurich), PrevAbr LLC (D.C.), BioAim LLC (L.A.) & Life Sciences Management GmbH (Zug).

Islam is Board Chair at Minoryx Therapeutics (Spain) and Gain Therapeutics (Switzerland), a public company.

He currently serves on the board of Processa Pharmaceuticals (PCSA), which is publicly traded.

In the past, he has served on the Board of Directors of Immunomedics (USA), Pcovery Aps (Copenhagen), Adenium Aps (Copenhagen), C10 Pharma AS (Oslo), Karolinska Development (Sweden) and MolMed S.p.A.

He is a founder/co-founder of Gain Therapeutics Inc.

(GANX), Sirius Healthcare Partners GmbH (Zurich), PrevAbr LLC (D.C.), BioAim LLC (L.A.) & Life Sciences Management GmbH (Zug).

Islam is Board Chair at Minoryx Therapeutics (Spain) and Gain Therapeutics Inc.

(GANX), a public company.

In the past, he has served on the Board of Directors of Immunomedics (USA), Processa Pahramacueticals (PCSA), Pcovery Aps (Denmark), Adenium Aps (Denmark), C10 Pharma AS (Norway), Karolinska Development (KDEV, Sweden) and MolMed S.p.A.

(MLMI, Italy).

Islam’s extensive international pharmaceutical expertise in transitioning companies from development to production strengthens the Board’s collective qualifications, skills and experience.

Cook has been a director of Fennec since September 2019.

Cook is currently CEO of Skylark Bio Inc, an early-stage Company working on gene therapy for genetic disorders.

Cook previously served as SVP and Head of Gene Therapy Strategy at PTC Therapeutics from August 2018 until February 2020.

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Code of Ethics

In February 2004, our Board adopted a Mandate of the Board of Directors, Corporate Governance Guidelines and a Code of Business Conduct and Ethics (the “Conduct and Ethics Code”) applicable to all of our officers, directors and employees.

We are committed to adhering to applicable legal requirements and maintaining the highest standards of conduct and integrity.

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Andrade and Ms.

Goel of 300,000, 250,000 and 250,000 and 75,000, 100,000 and 125,000, and 75,000, 100,000 and 25,000 options, respectively, on December 20, 2021, June 2, 2021 and May 15, 2020, at an exercise price of $4.08, $7.53 and $6.93 per common share, respectively.

Goel of 300,000, 250,000 and 75,000, 100,000 and 75,000, 100,000 options, respectively, on December 20, 2021 and June 2, 2021, at an exercise price of $4.08 and $7.53 per common share, respectively.

On December 20, 2021, Mr.

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Goel were also awarded 37,500 Restricted Share Units each.

The December 20, 2021 awards and grants to the executives all vest conditionally upon FDA approval of

PEDMARK TM in calendar year 2022.

The December 20, 2021 awards and grants to the executives all vested conditionally upon FDA approval of PEDMARK ® in calendar year 2022 with executive still employed at the Company.

All option grants expire 10 years after grant date.

The June, 2021 and May, 2020 grants vest in the following manner:

The June, 2021 grants vest in the following manner:

one-third of these options shall vest and may be exercised one year after the grant date (the “Vesting Commencement Date”).

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The initial term of the agreement was for one year and the agreement automatically extends for additional one-year periods unless terminated by either party in accordance with the agreement.

Effective January 1, 2022, Mr.

Raykov’s current salary is $458,402 per year.

Effective December 31, 2022, Mr.

Raykov’s salary is $513,400 per year.

Robert Andrade

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Andrade severance compensation equal to six months of salary.

Effective January 1, 2022, Mr.

Andrade’s current salary is $332,075 per year.

Effective December 31, 2022, Mr.

Andrade’s salary is $371,914 per year.

Goel commenced employment with us in September 2019.

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(1) Change of control payments are calculated based on the two-year annualized average salary plus cash bonus as calculated as of December 31, 2022.

In addition to the payments above, an incentive plan has been established pursuant to which, upon completion of a change in control transaction, 1% of the transaction value (up to a maximum of $2,000,000) be set aside and paid to key personnel upon completion of such change in control transaction, with 50% of such incentive pool being payable to the CEO and the balance to other key personnel as determined by the CEO in consultation with the Compensation Committee.

In addition to the payments above, an incentive plan has been established pursuant to which, upon completion of a change in control transaction prior to December 31, 2023, 1% of the transaction value up to $350 million and 1.25% of the transaction value in excess of $350 million up to $400 million and 1.5% of transaction value in excess of $400 million,

with 50% of such incentive pool being payable to the CEO, 30% to the CFO and the balance to other key personnel as determined by the CEO in consultation with the Compensation Committee.

Equity Grants, Exercises and Holdings

The following table sets forth information concerning the number and value of unexercised restricted share units and options held by each Named Executive Officer as of December 31, 2021.

All executive awards, with the exception of those expiring 04/04/2029, 09/09/2029, 05/15/2030 and 06/02/2031, vest and are exercisable immediately.

Grants expiring 12/20/2031 will vest immediately upon FDA approval of PEDMARK TM if that approval occurs in 2022 and the

Named Executive Officer is still employed by us at that time.

If those conditions are not met, those grants will be forfeited.

The following table sets forth information concerning the number and value of unexercised options held by each Named Executive Officer as of December 31, 2022.

All executive awards, with the exception of those expiring 05/15/2030 and 06/02/2031, are exercisable immediately.

Grants expiring 12/20/2031 fully vested upon FDA approval of PEDMARK ® .

Our current stock option plan provides for equity awards and grants denominated in US and CAD dollars.

Number of Restricted Share Units

Number of Options

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We believe that granting of options to the non-executive directors serves three primary purposes:

(1) to recognize the

significant time and effort commitments of being a member of our Board;

(1) to recognize the significant time and effort commitments of being a member of our Board;

(2) to provide long-term incentives for future efforts since the value of the options is directly dependent on our market valuation;

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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table sets forth information regarding our common shares beneficially owned as of February 25, 2022 by:

The following table sets forth information regarding our common shares beneficially owned as of March 27, 2023 by:

(i) each of our officers and directors;

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Sonic Fund II, LP.

(1) For purposes of this table “beneficial ownership” is determined in accordance with Rule 13d-3 under the Exchange Act, pursuant to which a person or group of persons is deemed to have “beneficial ownership” of any common shares that such person or group has the right to acquire within 60 days after February 25, 2022.

For purposes of computing the percentage of outstanding common shares held by each person or group of persons named above, any shares that such person or group has the right to acquire within 60 days after February 25, 2022 are deemed outstanding but are not deemed to be outstanding for purposes of computing the percentage ownership of any other person or group.

As of February 25, 2022 there were 26,013,519 common shares issued and outstanding.

For purposes of computing the percentage of outstanding common shares held by each person or group of persons named above, any shares that such person or group has the right to acquire within 60 days after March 27, 2023 are deemed outstanding but are not deemed to be outstanding for purposes of computing the percentage ownership of any other person or group.

As of March 27, 2023 there were 26,411,520 common shares issued and outstanding.

(2) Southpoint Capital Advisors, LP, 623 Fifth Avenue, Suite 2503, New York, New York 10022.

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Lawrence Kam holds voting and investment power over the shares held by Sonic Fund II, LP.

(5) Avaro Capital Advisors, LLC, 110 Greene Street, Suite 800, New York, NY 10012.

Scott Epstein holds voting and investment power over the shares owned by Avoro Capital Advisors, LLC.

Equity Compensation Plan Information

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Exhibits and Financial Statement Schedules

(a) The following documents are included as part of this Annual Report filed on Form 10-K:

(a) The following documents are included as part of this Annual Report:

Financial Statements – See Index to Financial Statements on page F-1.

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Exhibit 10.1 to the form 8-K of the Company filed September 9, 2019

First Closing of Financing Transaction, dated August 22, 2022, by and between Fennec Pharmaceuticals Inc.

and Petrichor Opportunities Fund I LP

Exhibit 4.1 to the form 8-K of the Company filed August 22, 2022

Second Closing of Financing Transaction, dated September 23, 2022, by and between Fennec Pharmaceuticals Inc.

and Petrichor Opportunities Fund I LP

Exhibit 4.1 to the form 8-K of the Company filed September 26, 2022

Share Registration Agreement, dated as of December 1, 2022, between Fennec Pharmaceuticals, Inc.

and Petrichor Opportunities Fund I LP

Exhibit 4.5 to the Form S-3 of the Company filed December 1, 2022

Letter Regarding Change in Certifying Accountant

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Chief Executive Officer and Director

February 28, 2022

March 29, 2023

We, the undersigned directors and officers of Fennec Pharmaceuticals Inc., do hereby constitute and appoint Rostislav Raykov, as our true and lawful attorney-in-fact and agent with power of substitution, to do any and all acts and things in our name and behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which such attorney-in-fact and agent may deem necessary or advisable to enable said corporation to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this Annual Report on Form 10-K, including specifically but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments hereto;

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Chief Executive Officer

February 28, 2022

March 29, 2023

Rostislav Raykov

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Chief Financial Officer

February 28, 2022

March 29, 2023

Robert Andrade

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/s/ Adrian J.

February 28, 2022

March 29, 2023

/s/ Marco Brughera

February 28, 2022

March 29, 2023

Marco Brughera

/s/ Jodi Cook

February 28, 2022

March 29, 2023

FENNEC PHARMACEUTICALS INC.

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Report of Independent Registered Public Accounting Firm

Bookmark not defined.

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Shareholders’ (Deficit) Equity

Consolidated Statements of Cash Flows

Consolidated Statements of Shareholders’ Equity

Notes to the Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors and

To the Shareholders and Board of Directors

Fennec Pharmaceuticals Inc.

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We have audited the accompanying consolidated balance sheets of Fennec Pharmaceuticals Inc.

and subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

and subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of operations, shareholders’ (deficit) equity, and cash flows for each of the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2022 and 2021, and the consolidated results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.

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We conducted our audits in accordance with the standards of the PCAOB and Canadian generally accepted auditing standards.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which they relate.

Fair Value of Stock Options – Refer to Note 4 to the Consolidated Financial Statements

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (Continued)

Estimated Product Discounts and Allowances

Critical Audit Matter Description

The Company uses the Black-Scholes option-pricing model to estimate the fair value of its stock options.

The Black-Scholes option-pricing model involves the use of significant estimates, including the following:

● Expected dividend yield;

● Risk-free interest rate;

● Expected share price volatility;

● Expected life of the award.

Given the significant estimates involved in estimating the fair value of stock options, the related audit effort in evaluating management’s estimates in determining the fair value of stock options was extensive and required a high degree of auditor judgment.

As discussed in Note 2 to the consolidated financial statements, the Company recognizes revenues at the net sales price, which includes estimates of variable consideration for which reserves are established primarily from rebates, chargebacks, discounts, returns and other allowances (the “allowances”).

The estimation of these allowances is an important factor in the determination of net sales price and requires subjective management assumptions.

Allowances totaled approximately $234,000 for the year ended December 31, 2022, and such amounts were recorded as reductions to trade receivables or accrued expenses as of December 31, 2022, depending on the nature of the contract and the related settlement.

How the Critical Audit Matter was Addressed in the Audit

We obtained an understanding over the Company’s process to estimate the fair value of stock options, including how the Company develops each of the estimates required to utilize the Black-Scholes option-pricing model.

We applied the following audit procedures related to testing the Company’s estimates utilized in the Black-Scholes option-pricing model:

● We performed a look-back at the Company’s previously issued dividends, noting there were none.

We inquired with management of the Company who informed us that no future dividends were currently anticipated.

● We compared the Company’s risk-free interest rate used to the comparable United States treasury yield for a term comparable to the stock options’ expected term.

● We recalculated the Company’s historical share price volatility for a term comparable to the stock options’ expected term.

● We recalculated the expected term of stock options granted to employees and non-employee directors using the simplified method, whereby, the expected term equals the average of the vesting term and the original contractual term of the option.

Auditing the Company’s estimated allowances was complex and judgmental because the estimates involve subjective management assumptions about the product’s end users at the time of product distribution.

Reductions to gross product revenue are sensitive to changes in management’s assumptions.

Furthermore, PEDMARK® is the Company’s first commercial product, and as a result, management does not have Company-specific historical experience to make those estimates and relies on industry data and any known trends in making those estimates.

To test the allowances, our audit procedures included, among others:

◾ Through inquiry and observation, we obtained an understanding of the significant management assumptions supporting each potentially significant component of the allowances, including the nature of each allowance and the related percentage estimated by management.

◾ We assessed the methodologies used to determine the allowances and tested estimated percentages by corroborating the underlying data used to develop the estimate, which included the completeness and accuracy of such data.

Our testing included comparing key assumptions used to calculate the allowances to external data, customer contracts, and payment data.

◾ We evaluated information subsequent to the balance sheet date to determine whether there was any new information that would require adjustment to the previously recorded allowances.

/s/ Haskell & White LLP

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Irvine, California

February 28, 2022

March 29, 2023

Fennec Pharmaceuticals Inc.

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Cash and cash equivalents

Accounts receivable, net

Prepaid expenses

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Non-current assets

Deferred issuance cost, net amortization

Deferred issuance cost, net of amortization

Total non-current assets

Liabilities and Shareholders’ Equity

Liabilities and shareholders’ (deficit) equity

Current liabilities:

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Commitments and Contingencies (Note 7)

Shareholders’ equity:

Shareholders’ (deficit) equity:

Common stock, no par value;

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Accumulated other comprehensive income

Total shareholders’ equity

Total liabilities and shareholders’ equity

Total shareholders’ (deficit) equity

Total liabilities and shareholders’ (deficit) equity

(The accompanying notes are an integral part of these consolidated financial statements)

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dollars and shares in thousands, except per share information)

PEDMARK product sales, net

Cost of products sold

Operating expenses:

Research and development

Selling and marketing

General and administrative

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Amortization expense

Unrealized (loss)/gain on securities

Unrealized loss on securities

Interest income

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Fennec Pharmaceuticals Inc.

Consolidated Statements of Shareholders’ (Deficit) Equity

dollars and shares in thousands)

Comprehensive

Stockholders’

Number (Note 6)

(Deficit) Equity

Balance at December 31, 2020

Stock options issued to consultants

Stock options issued to employees

Exercise of stock options

Balance at December 31, 2021

Stock options issued to consultants

Stock options issued to employees

Warrants issued in connection with term loan

Exercise of stock options

Restricted stock release

Balance at December 31, 2022

(The accompanying notes are an integral part of these consolidated financial statements)

Fennec Pharmaceuticals Inc.

Consolidated Statements of Cash Flows

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Changes in operating assets and liabilities:

Accounts receivable, net

Prepaid expenses

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Issuance of shares, options exercise

Issuance of shares, net of issuance costs

Proceeds from long-term debt

Long term debt paid

Debt discount

Cash paid for taxes on restricted share release

Capitalized deferred issuance costs

Net cash provided by financing activities

(Decrease)/increase in cash and cash equivalents

Cash and cash equivalents - Beginning of period

Cash and cash equivalents - End of period

Increase/(decrease) in cash and cash equivalents

Cash and cash equivalents - Beginning of year

Cash and cash equivalents - End of year

Non-cash investing and financing activities:

Financed insurance policy

(The accompanying notes are an integral part of these consolidated financial statements)

Fennec Pharmaceuticals Inc.

Consolidated Statements of Shareholders’ Equity

dollars and shares in thousands)

Comprehensive

Stockholders’

Number (Note 6)

Balance at December 31, 2019

Stock options issued to consultants

Stock options issued to employees

Issuance of securities

Exercise of stock options

Balance at December 31, 2020

Stock options issued to consultants

Stock options issued to employees

Exercise of stock options

Balance at December 31, 2021

Warrants issued in connection with term loan

(The accompanying notes are an integral part of these consolidated financial statements)

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(“Oxiquant”) and Fennec Pharmaceuticals, Inc., both Delaware corporations, and Cadherin Biomedical Inc.

(“CBI”), a Canadian corporation and Fennec Pharmaceuticals (EU) Limited (“Fennec Limited”), collectively referred to herein as the “Company,” is a biopharmaceutical company with one FDA approved product developed to reduce the risk of ototoxicity associated with cisplatin in pediatric patients one month of age and older with localized, non-metastatic solid tumors.

With the exception of Fennec Pharmaceuticals, Inc., all subsidiaries are inactive.

These 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 year ended December 31, 2021, the Company incurred a loss from operations of $ 17,223 and still has not earned any significant revenue in its history from the commercial sale of its product candidate.

During the year ended December 31, 2022, the Company incurred a net loss from operations of $ 23,714 .

At December 31, 2022, it had an accumulated deficit of $ 203,200 and had experienced negative cash flows from operating activities in the amount of $ 18,058 for the year ended December 31, 2022.

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 $ 34,100 ($ 32,189 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 $ 12.5 million to the Company, to be made available upon New Drug Application ("NDA") approval of PEDMARKTM by no later than September 30, 2020.

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 was 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 had a maturity date of October 1, 2023.

In connection with the facility, Fennec granted Bridge Bank a warrant to purchase up to 39,130 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 25, 2020, Fennec entered into an amendment to the Loan and Security Agreement with Bridge Bank.

This amendment provided Fennec with an $ 18.0 million debt facility comprised of two term loans.

Term Loan A consisted of $ 12.5 million to be funded upon NDA approval of PEDMARK TM by no later than December 31, 2020 and Term Loan B consists of $ 5.5 million to be funded upon the occurrence of a revenue event in 2021.

The interest-only period for the facility had 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, would either be 2.13 % of the Loan B amount in cash, or the Company could 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 remaining portions of the loan fee and the value of the warrants.

On August 1, 2022, the Company entered into a Securities Purchase Agreement (the “SPA”) with Petrichor Opportunities Fund I LP (the “Investor”) in connection with the issuance of up to $ 45,000 of senior secured floating rate convertible notes (the “Notes”), issuable in multiple tranches (the “Note Financing”).

On August 19, 2022, the Company closed on the initial tranche of $ 5,000 (the “First Closing Note”) which has an Initial Conversion Price equal to $ 8.11 per share, which was calculated based on a 20 % premium of the 5 -day volume weighted average price of the Company’s common shares as traded on the Nasdaq Capital Market (the “VWAP”) immediately prior to the announcement of the Securities Purchase Agreement (“SPA”) dated August 1, 2022.

In connection with the first closing, the Company repaid in full its secured indebtedness with Bridge Bank in the amount of $ 5,000 .

On September 23, 2022, the Company closed on the second tranche of the Note Financing in the amount of $ 20,000 (the “Second Closing Note”), which has an Initial Conversion Price equal to $ 7.89 per share, which was calculated based on a 20 % premium of the 5 -day VWAP immediately prior to September 20, 2022, which was the date the Company obtained FDA approval of PEDMARK ® .

Subsequent to the funding of the Second Closing Note, and before December 31, 2023, the Company may draw up to $ 20,000 of additional financing under the SPA, in one or more tranches of $ 10,000 upon mutual agreement of the Company and the Investor (the “Subsequent Closing Notes”).

The Subsequent Closing Notes will be convertible at a price per share equal to $ 7.89 per share, which price is calculated on the same basis as for the Second Closing Note.

A commitment fee of 2.0 % of the Notes was payable under the SPA.

Half of such fee was paid by the issuance on the first closing of warrants to purchase 55,498 Fennec common shares (“First Closing Warrant”) and half was payable in cash or warrants of 55,498 Fennec common shares (“Second Closing Warrant”), at our election, on the second closing.

The warrants are exercisable at a price per share of $ 8.11 and will have a term of five years from the date of the grant.

The Company elected to have all the commitment fee of the Notes payable in warrants.

The Company believes current funds, which include funds from the First Closing Note and the Second Closing Note, provide sufficient funding for the Company to carry out its planned activities, including the continuation of commercialization efforts for at least the next twelve months of PEDMARK ® .

Fennec Pharmaceuticals Inc.

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dollars and shares in thousands, except per share information)

On June 24, 2021, the Company entered into a second amendment to the Bridge Bank Loan and Security Agreement.

This amendment provides Fennec with a $ 20,000 debt facility comprised of three term loans.

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

Term Loan B consists of $ 7,500 that would be funded upon NDA approval of PEDMARK TM not later than January 31, 2022.

Term Loan C consists of $ 7,500 to be funded upon the occurrence the Company achieving consolidated trailing six-month revenues of $ 11,000 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 other conditions are met.

On January 27, 2022, the Company entered into a third amendment to the Bridge Bank Loan and Security Agreement extending the outside date to receive NDA approval of PEDMARK TM to September 30, 2022.

Among other customary events of default, failure to obtain NDA approval by September 30, 2022 constitutes an event of default under the Bridge Bank Loan and Security Agreement, upon which Bridge Bank may declare the entire balance of the facility immediately due and payable.

Although Bridge Bank has previously extended the deadline to receive NDA approval, there is no assurance that it will do so again if the NDA is not approved by the current September 30, 2022 deadline.

The proceeds from the loan will to be used for working capital purposes and to fund general business requirements in accordance with the terms of the Loan and Security Agreement.

On August 10, 2020, the Company received a CRL from the FDA regarding its 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 again 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.

On November 29, 2021, the Company received a second CRL from the FDA regarding its NDA for PEDMARK TM .

In the CRL, the FDA identifies deficiencies required to be resolved by the manufacturer prior to approval of the NDA.

The Company plans to resubmit the NDA in the first quarter of 2022.

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.

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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 consolidated financial statements and the reported amounts of revenue and expense during the reporting period.

Significant estimates include the valuation of stock-based compensation.

Significant estimates include revenue recognition, allowance against trade receivables, measurement of stock-based compensation and estimates of the Company’s capital requirement over the next twelve months from the date of issuance of the consolidated financial statements.

Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash equivalents consist of highly liquid investments with original maturities at the date of purchase of three months or less.

Segment and Geographic Information

Operating segments are defined as components of an enterprise engaging in business activities for which discrete financial information is available and regularly reviewed by the chief operating decision maker in deciding how to allocate resources and in assessing performance.

The Company views its operations and manages its business in one operating segment principally in the United States.

As of December 31, 2022 and 2021, the Company has no net assets located outside of the United States.

Stock-Based Compensation

Under the Company’s stock-based compensation programs, the Company periodically grants stock options and restricted stock to employees, directors and consultants.

The Company also issues shares under an employee stock purchase plan.

The fair value of each award is recognized in the Company’s statements of operations over the requisite service period for such award.

The Company uses the Black-Scholes option pricing model to value stock option awards without market conditions, which requires the Company to make certain assumptions regarding the expected volatility of its common stock price, the expected term of the option grants, the risk-free interest rate and the dividend yield with respect to its common stock.

The Company calculates volatility using its historical stock price data.

Due to the lack of the Company’s own historical data, the Company elected to use the “simplified” method for “plain vanilla” options to estimate the expected term of the Company’s stock option grants.

Under this approach, the weighted-average expected life is presumed to be the average of the vesting term and the contractual term of the option.

The risk-free interest rate used for each grant is based on the United States Treasury yield curve in effect at the time of grant for instruments with a similar expected life.

The Company utilizes a dividend yield of zero based on the fact that the Company has never paid cash dividends and at present, has intention to pay cash dividends.

Inventories are valued under a standard costing methodology on a first-in, first-out basis and are stated at the lower of cost or net realizable value.

The Company capitalizes inventory costs related to products to be sold in the ordinary course of business.

The Company makes a determination of capitalizing inventory costs for a product based on, among other factors, status of regulatory approval, information regarding safety, efficacy and expectations relating to commercial sales and recoverability of costs.

Capitalized costs of inventories mainly include third party manufacturing, logistics and distribution

Fennec Pharmaceuticals Inc.

1 unchanged sentence

dollars and shares in thousands, except per share information)

The Company assesses recoverability of inventory each reporting period to determine any write down to net realizable value resulting from excess or obsolete inventories.

The manufacturing costs for PEDMARK ® prior to regulatory approval were not capitalized as inventory but were expensed as research and development costs.

The Company expensed pre-launch inventory as it could not reasonably anticipate FDA approval of PEDMARK ® .

Revenue Recognition

Under Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, the Company recognizes revenue when its customers obtain control of promised goods or services, in an amount that reflects the consideration which the Company determines it expects to receive in exchange for those goods or services.

To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps:

(i) identify the contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize revenue when (or as) the Company satisfies its performance obligation(s).

As part of the accounting for these arrangements, the Company must make significant judgments, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each performance obligation.

Net Product Revenue

On September 20, 2022, the FDA approved PEDMARK ® in the United States to reduce the risk of ototoxicity associated with cisplatin in pediatric patients one month of age and older with localized, non-metastatic solid tumors.

PEDMARK ® became commercially available on October 17, 2022.

PEDMARK ® is the Company’s first commercial product.

The Company sells its products principally through the following specialty distributors:

Amerisource Specialty Distribution (“ASD”), McKesson Plasma and Biologics, McKesson Specialty and Cardinal Health Specialty (collectively the "Customers"

and each a "Customer").

These Customers subsequently resell the Company’s products to health care providers and patients.

In addition to distribution agreements with Customers, the Company enters into arrangements with health care providers and payors that provide for government-mandated and/or privately- negotiated rebates, chargebacks and discounts with respect to the purchase of the Company’s products.

Revenues from product sales are recognized when the Customer obtains control of the Company’s product, which occurs at a point in time, typically upon delivery to the Customer.

Product Sales Discounts and Allowances

The Company records revenues from product sales at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established primarily from discounts, chargebacks, rebates, co-pay assistance, returns and other allowances that are offered within contracts between the Company and its Customers, health care providers, payors and other indirect customers relating to the sales of its products.

These reserves are based on the amounts to be claimed on the related sales and are classified as a contra-asset or a current liability.

Where appropriate, these estimates take into consideration a range of possible outcomes that are probability-weighted for relevant factors such as current contractual and statutory requirements, specific known market events and trends, industry data, forecasted Customer buying and payment patterns, and the Company’s historical experience that will develop over time as PEDMARK ® is the Company’s first commercial product.

Overall, these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of its contracts.

The amount of variable consideration that is included in the transaction price may be constrained, and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period.

Actual amounts of consideration ultimately received may differ from the Company’s estimates.

If actual results in the future vary from the Company’s estimates, the Company will adjust these estimates, which would affect net product revenues and earnings in the period such variances become known.

Chargebacks are discounts that occur when contracted customers purchase directly from a specialty distributor.

Contracted customers, which currently consist of Public Health Service institutions and Federal government entities purchasing via the Federal Supply Schedule, generally purchase the product at a discounted price.

The specialty distributor, in turn, charges back to the Company the difference between the price initially paid by the specialty distributor

Fennec Pharmaceuticals Inc.

Notes to the Consolidated Financial Statements

dollars and shares in thousands, except per share information)

and the discounted price paid to the specialty distributor by its contracted customer.

The allowance for chargebacks is based on actual chargebacks received and an estimate of sales by the specialty distributor to its contracted customers.

Discounts for Prompt Payment:

The Customers receive a discount of 0.65 % for prompt payment.

The Company expects its Customers will earn 100 % of their prompt payment discounts and, therefore, the Company deducts the full amount of these discounts from total product sales when revenues are recognized.

Allowances for rebates include mandated discounts under the Medicaid Drug Rebate Program and other government programs.

Rebate amounts owed after the final dispensing of the product to a benefit plan participant are based upon contractual agreements or legal requirements with public sector benefit providers, such as Medicaid.

The allowance for rebates is based on statutory or contractual discount rates and expected utilization.

The Company’s estimates for the expected utilization of rebates are based on Customer and payer data received from the specialty distributors and historical utilization rates that will develop over time as PEDMARK ® is the Company’s first commercial product.

Rebates are generally invoiced by the payor and paid in arrears, such that the accrual balance consists of an estimate of the amount expected to be incurred for the current quarter’s shipments to the Customers, plus an accrual balance for known prior quarters’ unpaid rebates.

If actual future rebates vary from estimates, the Company may need to adjust its accruals, which would affect net product revenues in the period of adjustment.

Co-payment Assistance:

Patients who have commercial insurance and meet certain eligibility requirements may receive co-payment assistance.

The Company accrues a liability for co-payment assistance based on actual program participation and estimates of program redemption using Customer data provided by the third party that administers the copay program.

Other Customer Credits:

The Company pays fees to its Customers for account management, data management and other administrative services.

To the extent the services received are distinct from the sale of products to its Customers, the Company classifies these payments in selling, general and administrative expenses in its Consolidated Statements of Operations.

The following table summarizes net product revenues for PEDMARK ® in the United States earned in the years ended December 31, 2022 and 2021, respectively:

Product revenues:

Gross product revenues

Discounts and allowances

Net product revenues

The following table summarizes the percentage of total product revenues for PEDMARK ® in the United States by any Customer who individually accounted for 10 % or more of total product revenues earned in the years ended December 31, 2022 and 2021, respectively:

Cardinal Health Specialty

The activities and ending allowance balances for each significant category of discounts and allowances for PEDMARK ® (which constitute variable consideration) for the year ended December 31, 2022 were as follows:

Fennec Pharmaceuticals Inc.

Notes to the Consolidated Financial Statements

dollars and shares in thousands, except per share information)

Rebates, Customer

Discounts for

Prompt Pay and

Other Allowances

Balance at December 31, 2021

Provision related to sales made in:

Current period

Prior periods

Payments and customer credits issued

Balance at December 31 2022

The allowances for chargebacks, fees due to Customers, rebates and discounts for prompt payment are recorded as a contra-asset to accounts receivable, while Medicaid rebates and return allowances are in accrued liabilities in the accompanying Consolidated Balance Sheets.

Trade Receivables

The Company records gross trade receivables at the time of product sale to its Customers.

Amounts estimated for the associated chargebacks, cash discounts for prompt payment and any allowances for credit losses are booked as a reserve against accounts receivable and reduction of revenue.

The Company considers its historical losses, if any, to estimate credit losses.

The Customers are specialty distributors, and accordingly, the Company considers the risk of potential credit losses to be low.

Cost of Products Sold

Cost of products sold is related to the Company's product revenues for PEDMARK ® and consists primarily of product production costs associated with finished goods inventory and royalty ( 1 % of net sales), payments the Company is required to pay to Oregon Health & Science University (“OHSU”) on all net sales of PEDMARK ® .

Cost of products sold also consists of shipping and other third-party logistics and distribution costs for the Company’s product.

The Company considered regulatory approval of its product candidate to be uncertain and product manufactured prior to regulatory approval could not have been sold unless regulatory approval was obtained.

As such, the manufacturing costs for PEDMARK ® incurred prior to regulatory approval were not capitalized as inventory but were expensed as research and development costs.

After FDA approval in September 2022, the Company had various lots of PEDMARK ® in various stages of production in connection with the fourth quarter product launch.

As of December 31, 2022, the Company capitalized approximately $ 0.6 million of costs as inventory on the Consolidated Balance Sheet.

Of the items capitalized, $ 0.4 million was capitalized as work in process, $ 0.2 million was capitalized into finished goods, with $ 0.1 million of that being reclassified to cost of product sold.

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.

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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.

Fennec Pharmaceuticals Inc.

Notes to the Consolidated Financial Statements

dollars and shares in thousands, except per share information)

Financial Instruments

Financial instruments recognized on the balance sheets at December 31, 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 December 31, 2022 and December 31, 2021 consist of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and term loans, the carrying values of which approximate fair value due to their relatively short time to maturity or interest rates that approximate market interest rates.

The Company does not hold or issue financial instruments for trading.

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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.

The Company has chosen to avoid investments of a trading or speculative nature to preserve cash.

Common Shares and Warrants

The Company has 0.04 million warrants with a weighted average strike price of $ 6.80 outstanding to purchase common shares that were denominated in United States dollars (“USD”).

The Company's revenue is generated through sales of intellectual property ("IP").

For periods when the Company has generated revenue, the revenue recognized under each of the Company’s arrangements during those periods 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, 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

Fennec Pharmaceuticals Inc.

Notes to the Consolidated Financial Statements

dollars and shares in thousands, except per share information)

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.

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 December 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 December 31, 2021 or 2020.

Contract liabilities

The Company did not have a contract liability as of December 31, 2021 or 2020.

Revenue arrangements

In May 2016, Fennec sold its rights to the drug 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 Fennec’s rights in Eniluracil.

In addition, the agreement did not call for any additional good or service beyond the transfer of Fennec’s rights in Eniluracil and related assets (e.g.

"all information and know-how", documentation, etc.).

Fennec Pharmaceuticals Inc.

Notes to the Consolidated Financial Statements

dollars and shares in thousands, except per share information)

In August 2020, Elion entered into a license agreement with Processa Pharmaceuticals, Inc.

(“Processa”) for Eniluracil.

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 million and (ii) Processa's shares being listed on NASDAQ.

Upon satisfying the "Condition Precedent"

Elion was entitled to receive $ 100,000 in cash and 825,000 in shares of Processa of which the Company is entitled to 5 %.

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 Restricted Shares

2nd Year Anniversary of Effective Date

100 Restricted Shares

1st Patient in Dose Confirmation Study

100 Restricted Shares

NDA Submission

300 Restricted Shares

1st FDA Approval in US

2nd FDA Approval in US

1st Regulatory Approval Outside US

2nd Regulatory Approval Outside US

The Company notes that the above payments are conditioned upon the “Condition Precedent” and thus even the restricted shares that are due only upon the passage of time are in fact variable.

However, once the “Condition Precedent” occurred only the passage of time must occur in order for the 1 st and 2 nd Year Anniversary payments to become due and as such the Company must conclude as of the date the “Condition Precedent” is satisfied that the 1 st and 2 nd Year Anniversary milestone payments are also probable of coming to fruition and thus should be included in the transaction price during the 4 th quarter of 2020 along with the aforementioned “Condition Precedent” payments.

The arrangement with Elion contains consideration that is variable based on the customer’s achievement of certain 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 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 October 30, 2020 milestone.

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 0 % and then 20 % 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 consolidated statement of operations.

During the year ended December 31, 2021, the Company reported $ 25 in unrealized loss on the fair value of the underlying Processa shares.

There is a total unrealized gain on the Processa shares of $ 75 since inception.

The Company has 0.2 million warrants with a weighted average strike price of $ 7.71 outstanding to purchase common shares that were denominated in United States dollars (“USD”) and have a weighted average life of 5.05 years.

Research and Development Costs and Investment Tax Credits

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Development costs, including drug substance costs, clinical study expenses and regulatory expenses are expensed as incurred.

Fennec Pharmaceuticals Inc.

Notes to the Consolidated Financial Statements

dollars and shares in thousands, except per share information)

Investment tax credits, which are earned as a result of qualifying research and development expenditures, are recognized when the expenditures are made and their realization is reasonably assured.

They are applied to reduce related capital costs and research and development expenses in the year recognized.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to credit risk primarily consist of cash and cash equivalents, and accounts receivable.

The Company maintains deposits in highly-rated, federally-insured financial institutions in excess of federally insured limits.

The Company’s investment strategy is focused on capital preservation.

The Company invests in instruments that meet the high credit quality standards outlined in the Company’s investment policy.

This policy also limits the amount of credit exposure to any one issue or type of instrument.

The Company’s trade receivables, includes amounts billed to Customers for product sales of PEDMARK ® .

The Customers are a limited group of specialty distributors, and accordingly, the Company considers the risk of potential credit losses to be low.

The Company accounts for income taxes using the asset and liability method to compute the differences between the tax basis of assets and liabilities and the related financial amounts, using currently enacted tax rates.

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Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount that more likely than not will be realized.

As of December 31, 2021, we maintained a full valuation allowance against our deferred tax assets.

The provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740-10, Uncertainty in Income Taxes, address the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements.

Under ASC 740-10, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position.

As of December 31, 2022, and 2021, we maintained a full valuation allowance against our deferred tax assets.

The provisions of the Financial Accounting Standards Board (“FASB”) ASC 740-10, Uncertainty in Income Taxes, address the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements.

Under ASC 740-10, we may recognize the tax benefit from an uncertain tax position only if it is

Fennec Pharmaceuticals Inc.

Notes to the Consolidated Financial Statements

dollars and shares in thousands, except per share information)

more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position.

Foreign Currency Translation

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Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the year.

Diluted net earnings per share is computed using the same method, except the weighted average number of common shares outstanding includes convertible debentures, stock options and warrants, if dilutive, as determined using the if-converted method and treasury methods.

Accordingly, warrants to purchase 0.04 million of our common shares and options to purchase 4.3 million of our common shares at December 31, 2021, were not included in earnings per share.

Diluted net loss per share is computed using the same method, except the weighted average number of common shares outstanding includes convertible debentures, stock options and warrants, if dilutive, as determined using the if-converted method and treasury methods.

Accordingly, warrants to purchase 0.2 million of our common shares and options to purchase 4.5 million of our common shares at December 31, 2022, were not included in loss per share.

Such options would have an antidilutive effect.

In 2020, warrants to purchase 0.04 million of our common shares and options to purchase 3.0 million common shares were excluded from the computation of earnings per share as their inclusion would have been antidilutive.

In 2021, warrants to purchase 0.04 million of our common shares and options to purchase 4.3 million common shares were excluded from the computation of loss per share as their inclusion would have been antidilutive.

Recent 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 consolidated financial statements.

In May 2021, the FASB issued Accounting Standards Update ("ASU") 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40).

This ASU provides measurement guidance for a modification, or an exchange of a freestanding equity classified written call option that is not within the scope of another Topic.

The Company adopted the ASU as of January 1, 2022 and its adoption did not have a significant impact on the Company's consolidated financial statements.

The Company will apply the amendments prospectively to modifications or exchanges occurring on or after January 1, 2022.

In June 2016, the FASB issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments – Credit Losses (Topic 326) and subsequently related amendments (ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-10, ASU 2019-11 and ASU 2022-02).

This guidance replaces the existing incurred loss impairment guidance and establishes a single allowance framework for financial assets carried at amortized cost based on expected credit losses.

The estimate of expected credit losses requires the incorporation of historical information, current conditions, and reasonable and supportable forecasts.

This ASU will be effective for the quarter ended March 31, 2023.

The Company is evaluating the effect the adoption of this ASU will have on the consolidated financial statements.

In August 2020, the FASB issued Accounting Standards Update (“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).

The new standard eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity's own equity.

The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity's own equity.

This ASU will be effective for the year ended December 31, 2024.

The Company is currently evaluating the effect the adoption of this ASU will have on the consolidated financial statements.

In June 2022, the FASB issued Accounting Standards Update ("ASU") 2022-03, Fair Value Measurement (Topic 820):

Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, which (1) clarifies the guidance in Topic 820 on the fair value measurement of an equity security that is subject to contractual restrictions that prohibit the sale of an equity security and (2) requires specific disclosures related to such an equity security.

This ASU will be effective for the year ended December 31, 2024.

The Company is currently evaluating the effect the adoption of this ASU will have on the consolidated financial statements.

Fennec Pharmaceuticals Inc.

Notes to the Consolidated Financial Statements

dollars and shares in thousands, except per share information)

Loss per Share

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Basic loss per common share is computed by dividing net loss attributable to common shareholders by the weighted average number of common shares outstanding during the period.

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

Fennec Pharmaceuticals Inc.

Notes to the Consolidated Financial Statements

dollars and shares in thousands, except per share information)

potentially dilutive impact of common shares equivalents (e.g.

Diluted loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the period, plus the potentially dilutive impact of common shares equivalents (e.g.

stock options and warrants).

1 unchanged sentence

The following table sets forth the computation of basic and diluted net loss per share (in thousands except per share data):

December 31, 2021

December 31, 2020

Year Ended December 31,

Weighted-average common shares, basic

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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 (in thousands):

December 31, 2021

December 31, 2020

Year Ended December 31,

Options to purchase common shares

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dollar grants.

A summary of the stock option transactions, for both the Canadian and U.S.

A summary of the stock option transactions, U.S.

dollar grants, for the years ended December 31, 2022 and 2021 is below.

Summary of $CAD Option Activity

Share Prices Reported in $CAD

(in thousands)

Outstanding and exercisable at December 31, 2019

Outstanding and exercisable at December 31, 2020

Outstanding and exercisable at December 31, 2021

There are no outstanding $CAD denominated options.

Fennec Pharmaceuticals Inc.

15 unchanged sentences

Stock compensation expense for the fiscal years ended December 31, 2022 and 2021 was $ 4.2 million and $ 4.0 million, respectively.

These amounts have been included in the general and administrative expenses for the respective periods.

These amounts have been included in general and administrative expenses for the respective periods.

The weighted average fair value per share of options granted and or vested during the fiscal years ended December 31, 2022 and 2021 was $ 5.43 and $ 5.93 , respectively.

1 unchanged sentence

The intrinsic value of options exercised during the fiscal year ended December 31, 2022 was $ 1.81 million.

Of the 658 options issued in December 2021, 140 have standard vesting.

There were 68 options awarded to various contractors.

These 68 options were fully vested on the grant date of the award.

There were 450 options awarded to our CEO, CFO and CCO.

These options are performance-based and will vest, only upon FDA approval of our NDA.

That FDA approval must occur in calendar year 2022 and the executives must still be employed by the Company.

Currently, the Company has not recognized any expense associated with these performance-based awards.

We will evaluate the probability of NDA approval at each balance sheet date and revise our expense extimate accordingly.

The fair value of all options vested during the fiscal year ended December 31, 2021 was $ 0.5 million.The fair values of options granted in fiscal years ended December 31, 2021 and 2020 were estimated on the date the options were granted based on the Black-Scholes option-pricing model, using the following weighted average assumptions for all options with a ten-year expiration:

The fair value of all options vested during the fiscal year ended December 31, 2022 was $ 3.8 million.

The fair values of options granted in fiscal years ended December 31, 2022 and 2021 were estimated on the date the options were granted based on the Black-Scholes option-pricing model, using the following weighted average assumptions for all options with a ten-year expiration:

Year Ended December 31, 2022

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The Plan allows for the issuance of restricted share units (“RSUs”).

The following is a summary of RSU activity for the periods ended December 31, 2021 and 2020.

The following is a summary of RSU activity for the years ended December 31, 2022 and 2021.

All granted RSUs are denominated in U.S.

Prior to June 2021, there

Prior to June 2021, there was no activity involving RSUs.

Of the 219 RSUs awarded, 86 were forfeited in fiscal year 2022 and 98 were released from restriction.

The Company recognized $ 0.3 million in RSU expense for the year ended December 31, 2022 and $ 0.1 million for the same period in 2021.

Standard vesting of RSUs is 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.

There were 26 RSUs awarded to employees with standard vesting released from restriction in 2022.

The Compensation Committee may also award RSUs with alternative

Fennec Pharmaceuticals Inc.

1 unchanged sentence

dollars and shares in thousands, except per share information)

was no activity involving RSUs.

Of the 219 RSUs granted and outstanding , 0 are vested.

The Company recognized $ 0.1 million in RSU expense for the year ended December 31, 2021.

Standard vesting of RSUs is 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 Compensation Committee may also award RSUs with alternative vesting.

Of the 219 RSUs issued in 2021, 110 have standard vesting.

There were 34 RSUs awarded to various contractors.

These 34 RSUs will fully vest on the first anniversary date of the award.

There were 75 RSUs awarded to our CFO and CCO.

These RSUs are performance-based and will vest, only upon FDA approval of our NDA.

That FDA approval must occur in calendar year 2022 and the executives must still be employed by the Company.

Currently, the Company has not recognized any expense associated with these performance-based awards.

We will evaluate the probability of NDA approval at each balance sheet date and revise our expense extimate accordingly.

There were 34 RSUs awarded to various contractors which were released from restriction in 2022 on the one year anniversary of the award.

There were 38 RSUs awarded to our CFO which conditionally released from restriction upon FDA approval of PEDMARK ® in 2022.

The Company recognized all of the expense associated with this release upon FDA approval of PEDMARK ® .

Number of Restricted

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Unobservable inputs that are not corroborated by market data.

Financial assets and liabilities are classified in their entirety within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement.

The Company measures the fair value of its Processa common shares by taking into consideration valuations obtained from public financial markets.

The Company uses Yahoo Finance to obtain share price data and Oanda for foreign currency pricing services to estimate fair value.

These inputs include reported trades of and broker- dealer quotes on the same or similar securities, issuer credit spreads, benchmark securities and other observable inputs.

As of December 31, 2022, the Company had financial assets valued based on Level 1 inputs consisting of cash and cash equivalents and had financial assets based on Level 2 inputs consisting of Processa common shares.

During the year ended December 31, 2022, the Company did not have any transfers of financial assets between Levels 1 and 2.

Fennec Pharmaceuticals Inc.

Notes to the Consolidated Financial Statements

dollars and shares in thousands, except per share information)

Assets/Liabilities Measured at Fair Value on a Recurring Basis

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(2) The Company received 41 restricted common shares of Processa (PSCA).

The share restriction will expire in three tranches:

The share restriction expired in three tranches:

50 % , 25 % and 25 % at the 6 , 9 and 12 month intervals, respectively from October 30, 2020.

Fennec Pharmaceuticals Inc.

Notes to the Consolidated Financial Statements

dollars and shares in thousands, except per share information)

At October 30, 2020 PSCA shares were trading at $ 4.11 per share.

The Company applied a 20 % liquidity discount to the shares and will mark to market at each balance sheet date .

As of December 31, 2022, the restrictions have expired.

Stockholders’ Equity

2 unchanged sentences

Warrants to Purchase Common Shares

At December 31, 2021, the Company had 39,130 warrants outstanding to purchase common shares at an exercise price of $ 6.80 .

At December 31, 2022, the Company had 150 warrants outstanding to purchase common shares at a weighted average exercise price of $ 7.71 .

The following table summarized our warrant activity for the fiscal years ended December 31, 2022 and 2021.

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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 PEDMARK TM and their use in oncology (the "

OHSU Agreement").

Oregon Health & Science University (“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 PEDMARK TM 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.

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 PEDMARK ® 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

Fennec Pharmaceuticals Inc.

Notes to the Consolidated Financial Statements

dollars and shares in thousands, except per share information)

products, royalty rate from sublicensing of the licensed technology and the fee payable upon the regulatory approval of a licensed product.

Certain milestone payments are due upon FDA approval and achievement of sufficient positive EBITDA over a specified period.

PEDMARK ® received FDA approval in September 2022, however at this time, due to significant uncertainty surrounding timing and magnitude of certain milestones, the Company has only recorded a royalty liability associated with net revenue.

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.

The Company now has a licensed product with regulatory approval that is covered by the Orphan Drug Designation, the parties amended the term of the agreement.

Sodium thiosulfate is currently protected by methods of use patents that the Company exclusively licensed from OHSU that expired in Europe in 2021 and that expire in the United States in 2038.

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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.

Fennec Pharmaceuticals Inc.

Notes to the Consolidated Financial Statements

dollars and shares in thousands, except per share information)

The Company had accrued approximately $ 15 ( 1 % net sales) in royalty expense to OHSU at December 31, 2022.

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

The operating lease has payments of $ 0.4 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 .

The Company was required to pay a security deposit of $ 2 , 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.

Securities Class Action Suit

Chapman et al.

On September 2, 2020, a putative class action lawsuit, Chapman v.

Fennec Pharmaceuticals Inc., was filed against us, our Chief Executive Officer, Rostislav Raykov, and our Chief Financial Officer, Robert Andrade, in the United States District Court for the Middle District of North Carolina.

The complaint alleged that prior to our August 10, 2020 receipt of a CRL from the FDA concerning our NDA for PEDMARK TM , we made materially false or misleading statements and failed to disclose material facts about the status of our PEDMARK TM manufacturing facility, the facility’s compliance with cGMP, and the impact its status and compliance would have on regulatory approval for PEDMARK TM .

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 ® , defendants made materially false or misleading statements and failed to disclose material facts about our third-party PEDMARK ® product manufacturing facility and the impact the facility would have on regulatory approval for PEDMARK ® .

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 10, 2018 through August 10, 2020, makes allegations similar to those in the original complaint, and claims the defendants violated Section 10(b) of the Exchange Act.

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

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

On April 16, 2021, we and the other defendants filed a reply brief in support of the motion.

On December 16, 2021, the Magistrate Judge on the motion entered an order recommending that our motion to dismiss be compliant.

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

The parties are currently awaiting a decision from the U.S.

District Court Judge as to whether it will accept the Magistrate Judge’s recommendation.

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

We cannot predict the outcome of this suit.

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

We have not recorded a liability as of December 31, 2021, because we believe a potential loss is not probable or reasonably estimable given the preliminary nature of the proceedings.

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, lead 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, lead 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.

Fennec Pharmaceuticals Inc.

Notes to the Consolidated Financial Statements

dollars and shares in thousands, except per share information)

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

In his proposed second amended complaint, lead plaintiff seeks to add allegations stemming from the receipt of a second CRL following our resubmission of our NDA for PEDMARK ® , 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.

On May 4, 2022, lead plaintiff submitted a reply in support of his motion.

On September 27, 2022, defendants filed a request for judicial notice regarding the FDA’s press release announcing that it has approved PEDMARK ® .

On October 18, 2022, lead plaintiff filed his opposition to request for judicial notice.

On October 21, 2022, defendants filed a reply in support of the request for judicial notice.

On February 15, 2023, the Magistrate Judge recommended the motion for post judgment relief be denied.

Lead plaintiff filed no timely objection to the recommendation, and on March 2, 2023, the U.S.

District Court Judge issued an order adopting the Magistrate Judge’s recommendation, denying the motion for post judgment relief, and entering judgment for defendants.

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 December 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 against the Company and its CEO and CFO in the United States District Court for the Middle District of North Carolina, captioned Fisher v.

Fennec Pharmaceuticals et al.

1:22-cv-115 (M.D.N.C.).

The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Exchange Act by making materially false and misleading statements or omissions regarding the status of its PEDMARK TM 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 Complete Response Letter for a subsequent NDA for PEDMARK TM .

The complaint seeks an unspecified amount of compensatory damages and other relief on behalf of persons who purchased the Company’s common stock from May 28, 2021 and November 26, 2021.

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

We cannot predict the outcome of this suit.

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

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 ® product manufacturing facility, the facility’s compliance with cGMP, and the impact its status and compliance would have on regulatory approval for PEDMARK ® in the period leading up to the Company’s November 29, 2021 receipt of a CRL for a subsequent NDA for PEDMARK ® .

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 and on May 9, 2022, the court appointed him as lead plaintiff.

On June 23, 2022, lead plaintiff filed an amended complaint.

The amended complaint asserts the same putative class period from May 28, 2021 through November 28, 2021, is brought against the same defendants and makes allegations similar to those in the original complaint.

On August 5, 2022, defendants filed a motion to dismiss the amended complaint.

On August 26, 2022, lead plaintiff filed an opposition to the motion to dismiss.

On September 9, 2022, defendants filed a reply in support of the motion to dismiss.

On September 27, 2022, defendants filed a request for judicial notice regarding the FDA’s press release announcing that it approved PEDMARK ® On September 30, 2022, lead plaintiff filed an opposition to the request for judicial notice.

On October 6, 2022, defendants filed a reply in support of the request for judicial notice.

On October 12, 2022, the U.S.

District Court Judge issued a memorandum opinion and order dismissing the amended complaint in its entirety and with prejudice, and on October 14, 2022, entered judgment.

Lead plaintiff had until November 14, 2022 to file a notice of appeal and did not file a notice of appeal.

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.

As discussed above under the heading “Business – Overview – Product Candidate,”

Inter Partes Review (IPR) Challenges

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

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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.

We filed preliminary responses to the petitions in February 2022, and thereafter, the PTAB has three months to decide whether to institute IPR proceedings.

If the PTAB institutes one or both reviews, the final written decision(s) will be due about one year after the PTAB’s

Fennec Pharmaceuticals Inc.

1 unchanged sentence

dollars and shares in thousands, except per share information)

decision to institute IPR proceedings, and following additional submissions by the parties.

Any appeals of a PTAB decision would delay any final outcome.

10,596,190 (“US ‘190 Patent”), 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 Patent”), which relates to an anhydrous form of STS and its method of manufacture, which is the active pharmaceutical ingredient in our PEDMARK ® product.

The US ‘190 Patent was issued on March 24, 2020.

The US ‘363 Patent was issued on October 6, 2020.

On January 11, 2022, OHSU filed a Request for Supplemental Examination of US ‘190 Patent (Control No.

96.000,390) 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 issued a Supplemental Examination Certificate, identified a Substantial New Question (“SNQ”) on the patentability of the US ‘190 Patent claims, and ordered a Reexamination of US ‘190 Patent on March 9, 2022.

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

On August 12, 2022, OHSU filed a Motion to Amend the single claim of the US ‘190 Patent in the IPR to focus on the treatment of medulloblastoma.

On December 5, 2022, OHSU filed a Revised Motion to Amend the single claim of the US ‘190 Patent.

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

Further, in May 2022, the PTAB granted Hope Medical’s Petition to Institute the IPR against the ‘363 Patent.

During the ‘363 Patent IPR, we disclaimed the ‘363 Patent claims directed to the anhydrous morphic form of STS, and filed a Motion to Amend the remaining method of manufacture claims.

On December 14, 2022, we filed a Revised Motion to Amend the remaining claims in the ‘363 Patent.

We expect a decision in the ‘363 IPR in May 2023, which can be appealed by the losing party.

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

However, we are unable to predict the outcome of these petitions, and an invalidation of one or both of these patents may have a material adverse effect on our ability to protect our rights in PEDMARK™ beyond periods of 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.

On January 11, 2022, our licensor OHSU filed a Request for Supplemental Examination of US ‘190 requesting the consideration by 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 USPTO 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.

We are unable to predict the outcome of the ex parte reexamination.

If the USPTO does not uphold the ‘190 claim as granted or in amended form, our ability to protect our PEDMARK TM product beyond periods of 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”) may be adversely affected.

However, we are unable to predict the outcome of Hope’s IPR petitions, or the Reexamination.

While we now have, or will shortly receive, additional U.S.

patents that cover PEDMARK ® over the IPR challenged patents, an invalidation of our patents covering PEDMARK ® could have a material adverse effect on our ability to protect our rights in PEDMARK ® beyond periods of marketing exclusivity for PEDMARK ® possible in the United States under Orphan Drug Designation and in Europe under European Market Exclusivity for Pediatric Use (“PUMA”).

CIPLA ANDA Litigation

On December 1, 2022, we received a letter dated November 30, 2022, notifying us that CIPLA Ltd.

and CIPLA USA (“CIPLA”) submitted to the FDA an ANDA (ANDA No.

218028) for a generic version of PEDMARK ® (sodium thiosulfate solution) that contains Paragraph IV Certifications on two of our patents covering PEDMARK ® :

the OHSU licensed US ‘190 Patent, expiration date January 2038;

and our US 11,291,728 Patent, expiration date July 2039.

On January 6, 2023, we received a letter dated January 5, 2023, notifying us that CIPLA submitted to the FDA a Paragraph IV Certification on our newly issued US 11,510,984 Patent.

These patents are listed in FDA’s list of Approved Drug Products with Therapeutic Equivalence Evaluations, commonly referred to as the Orange Book, for PEDMARK ® .

The certifications allege these patents are invalid or will not be infringed by the manufacture, use, or sale of CIPLA’s sodium thiosulfate solution.

Under the Food and Drug Cosmetic Act, as amended by the Drug Price Competition and Patent Term Restoration Act of 1984, as amended, after receipt of a valid Paragraph IV notice, the Company may bring a patent infringement suit in a federal district court against CIPLA within 45 days from the receipt of the Notice Letter and if such a suit is commenced within the 45 -day period, the Company is entitled to a 30 month stay on the FDA’s ability to give final approval to any proposed products that reference PEDMARK ® .

In addition to the 30 -month stay, because we have received Orphan Drug Exclusivity, the FDA may not approve CIPLA’s ANDA for at least 7 years from PEDMARK ® ’s FDA approval date of September 20, 2022.

On January 10, 2023, we filed suit against the CIPLA entities in the United States District Court for the District of New Jersey (Case No.

3:23-cv-00123), for infringement of the ‘190 Patent and the ‘728 Patent.

The suit is ongoing.

Fennec Pharmaceuticals Inc.

Notes to the Consolidated Financial Statements

dollars and shares in thousands, except per share information)

Executive Severance

3 unchanged sentences

Andrade a one -time severance payment equal to six months of salary (currently $ 186 ).

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 (currently $ 192 ).

Goel tendered her resignation in January 2022.

On June 24, 2021, the Company announced it had negotiated a second amendment to the Bridge Bank Loan and Security Agreement with Bridge Bank.

This amendment provides Fennec with a $ 20,000 debt facility comprised of three term loans.

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 PEDMARKTM in the U.S.

Term Loan C consists of $ 7,500 million to be funded upon the occurrence the Company achieving consolidated trailing six-month revenues of $ 11,000 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.

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 PEDMARKTM, if approved by the FDA.

On June 24, 2021, the Company drew $ 5,000 from Term Loan A.

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.

Employee Benefit Plan

In May 2021, the Company established the Fennec Pharmaceuticals, Inc.

401(k) Plan (the “401(k) Plan”) for its employees, which is designed to be qualified under Section 401(k) of the Code.

Eligible employees are permitted to contribute to the 401(k) Plan within statutory and 401(k) Plan limits.

As of December 31, 2022 the Company does not offer matching contributions.

On August 1, 2022, the Company entered into the SPA with the Investor in connection with the issuance of up to $ 45,000 of Notes, issuable in multiple tranches.

On August 19, 2022, the Company closed on the initial tranche of $ 5,000 , which has an Initial Conversion Price equal to $ 8.11 per share, which was calculated based on a 20 % premium of the 5 -day VWAP immediately prior to the announcement of the SPA.

In connection with the first closing, the Company repaid in full its secured indebtedness with Bridge Bank in the amount of $ 5,000 .

The Notes become due on the maturity date, which is August 19, 2027.

On September 23, 2022, the Company closed on the second tranche of the Note Financing in the amount of $ 20,000 , which has an Initial Conversion Price equal to $ 7.89 per share, which was calculated based on a 20 % premium of the 5 -day VWAP immediately prior to the Second Closing Trigger.

The Subsequent Closing Notes will be convertible at a price per share equal to $ 7.89 per share, which price is calculated on the same basis as for the Second Closing Note.

A commitment fee of 2.0 % of the Notes is payable under the SPA.

Half of such fee was paid by the issuance on the first closing of warrants to purchase 55,498 Fennec common shares and half was payable in cash or warrants of 55,498 Fennec common shares, at our election, on the second closing.

The Company chose to issue warrants to satisfy the payable on both the first and second closing.

The warrants are exercisable at a price per share of $ 8.11 and respectively, and both have a maturity date of August 19, 2027.

Cash interest on outstanding principal shall accrue at a rate of prime, plus 4.5 % per annum, from the date of funding (11% as of December 31, 2022).

Cash interest is due on the first business day of each calendar quarter (“Interest Date”).

Payment-in-kind (“PIK”) interest will commence on funding date and accrue at a rate of 3.5 % per annum.

PIK interest will stop accruing on August 24, 2024.

Any accrued PIK interest shall remain outstanding and be payable on each Interest Date and be added to the outstanding principal amount.

The Company has accrued $ 0.26 in PIK interest and has classified the PIK interest in long-term liabilities.

The SPA notes are convertible into fully paid, non-assessable share of common shares at any point after their issuance dates and before the maturity date.

Any amount of the SPA notes may be converted into common shares so long as it does not create partial shares.

The conversion rate is determined by dividing the conversion amount by the conversion price.

Provisions of the PSA create legal, valid and enforceable liens on, and security interests in, all of the Company’s and each of its subsidiaries assets.

Aggregate annual payments due on the SPA as of December 31, 2022, are as follows (in thousands):

Years Ending December 31,

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 December 31, 2021 are as follows (in thousands):

Years Ending December 31,

Total future payments

1 unchanged sentence

Total term loan, net of debt discount

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.

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.

Events of default include, but are not limited to, a payment default, 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.

Debt issuance costs amounting to $ 55 securing access to Term Loans A, B and C were paid in cash to Bridge Bank on June 24, 2021.

This amount was capitalized and is being amortized over the access period of the Term Loans.

Upon drawing Term Loan A, the Company recorded a debt discount of $ 14 , reducing the capitalized amount by the same amount.

The debt discount is being amortized over the life of Term Loan A.

Subsequent Events

Officer Resignation

On January 31, 2022, our Chief Commercial Officer, Ms.

Goel resigned.

Her resignation was voluntary and no severance was paid.

The Company has added to its commercial team since the resignation of Ms.

Bridge Bank Loan Facility

On January 27, 2022, the Company entered into a third amendment to the Bridge Bank Loan and Security Agreement extending the outside date to receive NDA approval of PEDMARK TM to September 30, 2022.

Please refer to Note 1, for a more complete discussion of this amendment.

Class Action Suit

On February 9, 2022, plaintiff Jeffrey D.

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

Fennec Pharmaceuticals et al.

1:22-cv-115 (M.D.N.C.).

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

Debt issuance costs of $ 175 were paid in cash for legal fees and to the Investor in 2022 and warrants valued at $ 441 were granted the Investor to secure access to the SPA.

These amounts were capitalized and are being amortized over the access period of the SPA.

Upon drawing tranche 1 and tranche 2, the Company recorded a debt discount of $ 314 , which was based on a pro-rata allocation of the issue costs to secure the SPA, reducing the capitalized amount by the same amount.

The debt discount is being amortized over the life of the SPA.

The Company operates in both U.S.

1 unchanged sentence

Its income is subject to varying rates of tax and losses incurred in one jurisdiction cannot be used to offset income taxes payable in another.

A reconciliation of the

Fennec Pharmaceuticals Inc.

Notes to the Consolidated Financial Statements

dollars and shares in thousands, except per share information)

combined Canadian federal and provincial income tax rate with the Company’s effective tax rate is as follows (in thousands except for percentage rates):

Domestic (loss)/gain

A reconciliation of the combined Canadian federal and provincial income tax rate with the Company’s effective tax rate is as follows (in thousands except for percentage rates):

Domestic loss

Loss before income taxes

Expected statutory rate (recovery)

Expected statutory rate

Expected provision for (recovery of) income tax

6 unchanged sentences

Provision for income taxes

The Canadian statutory come tax rate of 26.0 percent is comprised of federal income tax at approximately 15.0 percent and provincial income tax at approximately 11.0 percent.

The Canadian statutory income tax rate of 26.5 percent is comprised of federal income tax at approximately 15.0 percent and provincial income tax at approximately 11.5 percent.

Fennec Pharmaceuticals Inc.

Notes to the Consolidated Financial Statements

dollars and shares in thousands, except per share information)

The primary temporary differences which gave rise to future income taxes (recovery) at December 31, 2022 and December 31, 2021:

4 unchanged sentences

Share issue costs

Accrued expenses

Fixed and intangible assets

Debt discount

valuation allowance

Net future tax assets

Subsequent Events

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

Tax Cuts and Jobs Act

3 unchanged sentences

In December 2017, in accordance with the SEC Staff Accounting Bulletin (“SAB”) 118–Income Tax Accounting Implications of the TCJA, the Company recorded tax effects on a provisional basis based on a reasonable estimate.

The TCJA did not have a material impact on the Company's financial statements because its deferred temporary differences are fully offset by a valuation allowance and the Company does not have any offshore earnings from which to record the

During 2018, the Company completed its analysis under SAB 118 and no additional tax effects due to rate-remeasurement were required to be recorded.

There are no current income taxes owed, nor are any income taxes expected to be owed in the near term.

At December 31, 2022, the Company has unclaimed Scientific Research and Experimental Development ("SR&ED") expenditures, income

Fennec Pharmaceuticals Inc.

1 unchanged sentence

dollars and shares in thousands, except per share information)

mandatory transition tax.

During 2018, the Company completed its analysis under SAB 118 and no additional tax effects due to rate-remeasurement were required to be recorded.

On March 27, 2020 the US government enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) which includes numerous modifications to income tax provisions, including a limitation on business interest expense and net operating loss provisions and the acceleration of alternative minimum tax credits.

Given the Company’s history of losses, the CARES Act did not have a material impact on its tax provision.

There are no current income taxes owed, nor are any income taxes expected to be owed in the near term.

At December 31, 2021 the Company has unclaimed Scientific Research and Experimental Development ("SR&ED") expenditures, income tax loss carry-forwards and non-refundable investment tax credits.

tax loss carry-forwards and non-refundable investment tax credits.

The unclaimed amounts and their expiry dates are as listed below:

4 unchanged sentences

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-K

Item 9A. Controls and Procedures