What changed in this filing

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Item 1. Financial Statements

2024-05-14 compared with 2023-11-09 · 321 added, 357 removed, 327 unchanged (67% of the section changed)

3 unchanged sentences

Dollars and shares in thousands)

September 30,

March 31, 2024

March 31, 2023

Current assets

5 unchanged sentences

Non-current assets

ROU asset non-current

Deferred issuance costs, net of amortization

Other non-current assets, net of amortization

Total non-current assets

Liabilities and stockholders’ deficit

Liabilities and stockholders’ equity/(deficit)

Current liabilities:

2 unchanged sentences

Operating lease liability - current

Contract liability - Norgine

Total current liabilities

Non-current liabilities

Long-term liabilities

Debt discount

Operating lease liability - net of current portion

Total non-current liabilities

Contract liability - long-term

Total long-term liabilities

Total liabilities

Commitments and contingencies (Note 6)

Stockholders’ deficit:

Stockholders’ equity/(deficit):

Common stock, no par value;

4 unchanged sentences

Accumulated other comprehensive income

Total stockholders’ deficit

Total liabilities and holders’ deficit

Total stockholders’ equity/(deficit)

Total liabilities and stockholders’ equity/(deficit)

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

3 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

PEDMARK product sales, net

Cost of products sold

Licensing revenue

Total revenue

Operating expenses:

Cost of product sales

Research and development

2 unchanged sentences

Total operating expenses

Loss from operations

Net income/(loss) from operations

Other (expense)/income

Realized foreign exchange (loss)/gain

Unrealized foreign exchange (loss)/gain

Amortization expense

3 unchanged sentences

Total other expense

Basic net loss per common share

Diluted net loss per common share

Net income/(loss) from operations

Basic net income/(loss) per common share

Diluted net income/(loss) per common share

Weighted-average number of common shares outstanding basic

2 unchanged sentences

Fennec Pharmaceuticals Inc.

Condensed Consolidated Statements of Stockholders’ Equity

Three and Nine Months Ended September 30, 2023, and 2022

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

Three Months Ended March 31, 2024 and 2023

dollars and shares in thousands)

6 unchanged sentences

Balance at March 31, 2024

Stock-based compensation - employees

Stock option exercise

Restricted stock release

Balance at June 30, 2023

Stock-based compensation - employees

Stock option exercise

Restricted stock release

Balance at September 30, 2023

Comprehensive

2 unchanged sentences

Stock-based compensation - employees

Stock-based compensation - consultants

Stock option exercise

1 unchanged sentence

Balance at March 31, 2023

Stock-based compensation - employees

Stock-based compensation - consultants

Stock option exercise

Restricted stock release

Balance at June 30, 2022

Stock-based compensation - employees

Stock-based compensation - consultants

Warrants issued to creditor

Stock option exercise

Restricted stock release

Balance at September 30, 2022

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

2 unchanged sentences

Dollars in thousands)

Nine Months Ended

September 30,

Cash flows (used in) provided by:

Three Months Ended

Cash flows provided by (used in):

Operating activities:

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

Amortization of debt access fees

Net income/(loss)

Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:

Amortization of Norgine asset

Amortization of debt discount

Amortization of debt access fees

Unrealized loss on securities

Stock-based compensation - consultants

Stock-based compensation - employees

2 unchanged sentences

Prepaid expenses

Other current assets

Accounts payable

Accrued liabilities and PIK interest

Net cash used in operating activities

Accrued liabilities

Contract liability - Norgine

Net cash provided by/(used in) operating activities

Financing activities:

Long-term debt

Long-term debt paid

Issuance of shares, options exercise

Cash paid for taxes on restricted share release

Capitalized deferred issuance costs

Net cash provided by financing activities

Deferred issuance costs

Net cash (used in)/provided by financing activities

Increase/(decrease) in cash and cash equivalents

2 unchanged sentences

Non-cash investing and financing activities:

Capitalized lease asset

Warrants issued for long-term debt

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

Supplemental disclosures of cash flow information:

Non-cash investing and financing activities:

Financed insurance policy

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

Fennec Pharmaceuticals Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

Notes to the Consolidated Financial Statements

dollars and shares in thousands, except per share information)

Nature of Business and Going Concern

Fennec Pharmaceuticals Inc., a corporation existing under the laws of British Columbia (“Fennec,” the “Company,” “we,” “us,” or “our”), was originally formed under the name Adherex Technologies Inc.

Nature of Business and Liquidity

Fennec Pharmaceuticals Inc.

(“Fennec,” “the Company,” “we,” “us,” or “our”) was originally formed as a British Columbia corporation under the name Adherex Technologies Inc.

and subsequently changed its name on September 3, 2014.

Fennec is a commercial stage specialty pharmaceutical company with one U.S.

Food and Drug Administration (“FDA”) approved and European Commission approved product , PEDMARK ® , 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.

The Company has four wholly owned subsidiaries:

Oxiquant, Inc.

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

(“CBI”), a Canadian corporation, and Fennec Pharmaceuticals (EU) Limited (“Fennec Limited”), an Ireland company, collectively referred to herein as the “Company.” With the exception of Fennec Pharmaceuticals, Inc.

and Fennec Pharmaceuticals (EU) all subsidiaries are inactive.

Fennec, together with its wholly owned subsidiaries Oxiquant, Inc.

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

(“CBI”), a Canadian corporation and Fennec Pharmaceuticals (EU) Limited, an Irish Private Company Limited by Shares (“Fennec Limited”), collectively referred to herein as the “Company,” is a biopharmaceutical company with one U.S.

Food and Drug Administration (“FDA”) approved product, PEDMARK ® , 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., and Fennec Limited, all subsidiaries are inactive.

These unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) that are applicable to a going concern which contemplates that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of business.

During the three and nine months ended September 30, 2023, the Company incurred a loss from operations of $ 1,017 and $ 10,953 , respectively.

At September 30, 2023, it had an accumulated deficit of $ 216,563 and had experienced negative cash flows from operating activities during the nine months ended September 30, 2023, in the amount of $ 12,283 .

During the three months ended March 31, 2024, the Company earned net income from operations of $ 13,743 .

On March 31, 2024, it had an accumulated deficit of $ 206,408 and had experienced positive cash flows from operating activities in the amount of $ 39,047 for the period ended March 31, 2024.

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 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 SPA.

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 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 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”).

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 ® .

The SPA provided that subsequent to the funding of the Second Closing Note, and before December 31, 2023, the Company could 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 approximately 0.05 Fennec common shares (“First Closing Warrant”) and half was payable in cash or warrants of approximately 0.05 Fennec common shares (“Second Closing Warrant”), at the Company’s 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 of PEDMARK ® in the United States and preparation for commercialization of PEDMARK ® outside of the United States, for at least the next twelve months.

Fennec Pharmaceuticals Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

dollars and shares in thousands, except per share information)

A commitment fee of 2.0 % of the Notes was payable under the SPA, which was paid by the Company issuing the Investor warrants to purchase 110,996 of the Company’s common shares (one half issued at the first closing and the other half issued at the second closing).The warrants are exercisable at a price per share of $ 8.11 and have a term of five years from the date of the grant.

On December 4, 2023, the Company closed a third tranche under the SPA in the amount of $ 5,000,000 and issued the Investor a Note in the same amount (the “Third Closing Note”).

and the Third Closing Note is convertible at a price equal to $ 7.89 per share, calculated as a 20 % premium of the 5 -day volume weighted average price of the Company’s common shares as traded on the Nasdaq Capital Market immediately prior to September 20, 2022, which was the date the Company obtained FDA approval of PEDMARK ® .

Also on December 4, 2023, the Company entered into a First Amendment to the Securities Purchase Agreement (the “SPA Amendment”) with the Investor, which, among other things, extends the period that the Company may draw the remaining $ 15,000,000 under the SPA from December 31, 2023, to December 31, 2024.

Subsequent draws are subject to mutual agreement of the Company and the Investor and will be represented by Notes that will also be convertible at a price equal to $ 7.89 per share.

On March 17, 2024, the Company announced it had entered into an exclusive licensing agreement with Norgine Pharma UK Limited (“Norgine”) to commercialize PEDMARQSI ® (EU brand name for PEDMARK ® ) in Europe, New Zealand and Australia.

The licensing agreement provided Fennec with approximately $ 43.2 million up front and may provide Fennec with up to approximately $ 230 million in milestone and royalty payments in the future.

The Company believes current funds provide sufficient funding for the Company to carry out its planned activities, including the continuation of commercialization efforts of PEDMARK ® , for at least the next twelve months.

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.

Significant Accounting Policies

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with US GAAP and are the responsibility of the Company’s management.

These unaudited interim condensed consolidated financial statements do not include all of the information and notes required by US GAAP for annual financial statements.

Accordingly, these unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited condensed consolidated financial statements and notes filed with the Securities and Exchange Commission (“SEC”) in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S.

GAAP and are the responsibility of the Company’s management.

These unaudited interim condensed consolidated financial statements do not include all of the information and notes required by U.S.

GAAP for annual financial statements.

Accordingly, these unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes filed with the Securities and Exchange Commission (“SEC”) in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

The Company’s accounting policies are consistent with those presented in the audited consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2023.

1 unchanged sentence

All amounts presented are in thousands except for per share amounts.

The results of operations for the three and nine months ended September 30, 2023, are not necessarily indicative of results to be expected for the full fiscal year.

Use of Estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that impact the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenue and expense during the reporting period.

Significant estimates include product sales discounts and allowances, 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.

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.

1 unchanged sentence

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 September 30, 2023, the Company had an operating lease in Ireland.

The Company views its operations and manages its business in one operating segment

principally in the United States.

As of March 31, 2024, the Company had an operating lease in Ireland.

This is the only asset 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 units to employees, directors, and consultants.

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.

5 unchanged sentences

The Company utilizes a dividend yield of zero based on the fact that the Company has never paid cash dividends and, at present, has no intention to pay cash dividends.

Fennec Pharmaceuticals Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

dollars and shares in thousands, except per share information)

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, information regarding safety, efficacy and expectations relating to commercial sales and recoverability of costs.

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 costs.

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

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.

4 unchanged sentences

(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 and estimating the amount of variable consideration to include in the transaction price.

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.

License Agreements

The Company generates revenue from license or similar agreements with pharmaceutical companies for the commercialization of our product.

Such agreements may include the transfer of intellectual property rights in the form of licenses.

Payments made by the customers may include non-refundable upfront fees, payments based upon the achievement of defined milestones, and royalties on sales of product.

If a license to the Company's intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes the transaction price allocated to the license as revenue upon transfer of control of the license.

All other promised goods or services in the agreement are evaluated to determine if they are distinct.

If they are not distinct, they are combined with other promised goods or services to create a bundle of promised goods or services that is distinct.

Optional future services where any additional consideration paid to us reflects their standalone selling prices do not provide the customer with a material right and, therefore, are not considered performance obligations.

If optional future services are priced in a manner which provides the customer with a significant or incremental discount, they are material rights, and are accounted for as separate performance obligations.

Contingent milestones at contract inception are estimated at the amount which is not probable of a material reversal and included in the transaction price using the most likely amount method.

Milestone payments that are not within the Company's control, such as regulatory approvals, are not considered probable of being achieved until those approvals are received and therefore the variable consideration is constrained.

The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied.

At the end of each reporting period, the Company re-evaluates the probability of achieving development or sales-based milestone payments that may not be subject to a material reversal and, if necessary, adjust the estimate of the overall transaction price.

Any such adjustments are recorded on a cumulative catch-up basis, which would affect license and other revenue, as well as earnings, in the period of adjustment.

For arrangements that include sales-based royalties, including sales-based milestone payments, and a license of intellectual property that is deemed to be the predominant item to which the royalties relate, revenue is recognized at the later of when the related sales occur or when the performance obligation to which some or all of the royalties have been allocated has been satisfied (or partially satisfied).

Costs to Obtain Contract

As the majority of the Company's contracts are short-term in nature, sales commissions are generally expensed when incurred as the amortization period would have been less than one year.

These costs are recorded within selling and marketing expense in the consolidated statements of operations.

For contracts that extend beyond one year, the incremental expense recognition matches the recognition of related revenue.

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 in the United States on October 17, 2022.

PEDMARK ® became commercially available on October 17, 2022.

PEDMARK ® is the Company’s first commercial product.

The Company sells its product 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”).

Further, the Company sells directly to other customers without the use of specialty distributors.

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

In addition to distribution agreements with Customers, the Company enters 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.

These specialty distributors 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.

The amount of revenue recognized is net of these discounts in an amount equal to the cash expected to be collected.

Product Sales Discounts and Allowances

4 unchanged sentences

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

Fennec Pharmaceuticals Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

dollars and shares in thousands, except per share information)

is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period.

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

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.

4 unchanged sentences

Discounts for Prompt Payment:

Customers receive a discount of 0.65 % 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.

2 unchanged sentences

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 payor data received from the specialty distributors and historical utilization rates that will develop over time, as PEDMARK ® is the Company’s first commercial product.

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.

3 unchanged sentences

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.

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

Other Customer Credits:

The Company pays fees to certain of 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 and marketing, general and administrative expenses in its Condensed Consolidated Statements of Operations.

The following table summarizes net product revenues for PEDMARK ® in the United States and abroad earned during the three and nine months ended September 30, 2023 and 2022, respectively:

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 and marketing expenses in its condensed consolidated statements of operations.

Distribution and Other Fees:

The Company pays distribution and other fees to certain customers in connection with the sales of PEDMARK ® .

The Company records distribution and other fees paid to its customers as a reduction of revenue, unless the payment is for a distinct good or service from the customer and the Company can reasonably estimate the fair value of the goods or services received.

If both conditions are met, the Company records the consideration paid to the customer as an operating expense.

These costs are typically known at the time of sale, resulting in minimal adjustments subsequent to the period of sale.

The following table summarizes net product revenues for PEDMARK ® in the United States earned in the three months ended March 31, 2024 and 2023, respectively:

Three Months Ended

Nine Months Ended

September 30,

Product revenues:

2 unchanged sentences

Net product revenues

Fennec Pharmaceuticals Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

dollars and shares in thousands, except per share information)

The following table summarizes the percentage of total product revenues for PEDMARK ® in the United States and abroad by Customers who individually accounted for 10 % or more of total product revenues earned in the three and nine months ended September 30, 2023, and 2022, respectively:

Three Months Ended

Nine Months Ended

September 30,

Specialty Distributors

Subtotal-Specialty Distributors

Direct Customers

The activities and ending allowance balances for each significant category of discounts and allowances for PEDMARK ® (which constitute variable consideration) for the nine months ended September 30, 2023, was as follows:

For the three months ended March 31, 2024 and 2023, the Company had three distributors that each represented more than 10% of net sales.

The activities and ending allowance balances for each significant category of discounts and allowances for PEDMARK ® (which constitute variable consideration) for the three months ended March 31, 2024, was as follows:

Rebates, Customer

8 unchanged sentences

Balance at March 31, 2024

Provision related to sales made in:

Current period

Prior periods

Payments and customer credits issued

Balance at June 30, 2023

Provision related to sales made in:

Current period

Prior periods

Payments and customer credits issued

Balance at September 30, 2023

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 Condensed Consolidated Balance Sheets.

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

2 unchanged sentences

The Company determines its allowance methodology by pooling receivable balances at the customer level.

The Company considers various factors, including loss history, individual credit risk associated to each Customer, and the current and future condition of the general economy.

The Company considers various factors, including loss history, individual credit risk associated with each customer, and the current and future condition of the general economy.

These credit risk factors are monitored on a quarterly basis and updated as necessary.

To the extent that any individual debtor is identified whose credit quality has deteriorated, the Company establishes allowances based on the individual risk

Fennec Pharmaceuticals Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

dollars and shares in thousands, except per share information)

characteristics of such a Customer.

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

It is the policy of the Company to reserve 1% of its net sales to non-specialty distributors, as such the Company had an immaterial balance in allowance for doubtful accounts as of September 30, 2023.

To the extent that any individual debtor is identified whose credit quality has deteriorated, the Company establishes allowances based on the individual risk characteristics of such a customer.

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

Sales abroad to non-specialty distributors have the potential for losses.

It is the policy of the Company to use a sliding scale to establish a reserve of its gross sales to non-specialty distributors, based on aging category.

The Company had a balance in allowance for credit losses of $ 1,103 as of March 31, 2024.

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 royalties ( 1 % of net sales) the Company is required to pay to Oregon Health & Science University (“OHSU”) on all net sales of PEDMARK ® .

The cost of products sold also consists of shipping and other third party logistics and distribution costs for PEDMARK ® .

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 payments ( 1 % of net sales) 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 PEDMARK ® .

The Company considered regulatory approval of PEDMARK ® 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 product launch.

As of September 30, 2023, the Company capitalized approximately $ 1.8 million of costs as inventory on the Condensed Consolidated Balance Sheet.

Of the items capitalized, $ 0.1 million was capitalized as raw materials, $ 0.9 million was capitalized as work in process, $ 0.8 million was capitalized into finished goods, with $ 0.6 million being reclassified to cost of products sold.

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

As of March 31, 2024, the Company capitalized approximately $ 2,064 of costs as inventory on the condensed consolidated balance sheet.

Of the items capitalized, $ 774 was capitalized as work in process and raw materials, $ 1,290 was capitalized into finished goods, $ 550 of that being reclassified to cost of product sold.

Cash and Cash Equivalents

1 unchanged sentence

The Company places its cash and cash equivalents in investments held by highly rated financial institutions in accordance with its investment policy designed to protect the principal investment.

At September 30, 2023, the Company had $ 12,399 in cash, savings and money market accounts ($ 23,774 at December 31, 2022).

At September 30, 2023, the Company held $ 2,007 in cash of which $ 488 (as presented in U.S.

dollars) was in Canadian dollars ($ 34 at December 31, 2022 as presented in U.S.

At September 30, 2023, the Company held $ 10,392 in money market investments.

As of March 31, 2024, the Company had $ 51,184 in cash, savings and money market accounts ($ 13,269 at December 31, 2023).

As of March 31, 2024, the Company held $ 1,314 in cash of which $ 363 (as presented in U.S.

dollars) was held in foreign currencies ($ 570 at December 31, 2023 as presented in U.S.

As of March 31, 2024, the Company held $ 49,870 in money market investments.

Money market investments typically have minimal risks.

1 unchanged sentence

Financial Instruments

Financial instruments recognized on the balance sheets at September 30, 2023 and December 31, 2022 consist of cash and cash equivalents, accounts receivable, accounts payable 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.

Financial instruments recognized on the balance sheets at March 31, 2024 and December 31, 2023 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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Securities must have a minimum Dun & Bradstreet rating of A for bonds or R1 low for commercial paper.

Fennec Pharmaceuticals Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

dollars and shares in thousands, except per share information)

The policy risks are primarily the opportunity cost of the conservative nature of the allowable investments.

Until the company is cash flow positive from operations, 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

As of March 31, 2024, the Company has 0.2 million warrants with a weighted average strike price of $ 7.71 outstanding to purchase common shares that have a weighted average life of 3.80 years.

Research and Development Costs and Investment Tax Credits

9 unchanged sentences

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

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

The Customers are a limited group of specialty distributors and select customers abroad, with substantial financial resources, and accordingly, the Company considers the risk of potential credit losses to be low.

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

In the U.S., 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 also sells to a select group of global distributors.

distributors are established companies and although the Company regards credit losses with these distributors to be remote, it does recognize the potential for credit losses with this group.

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.

1 unchanged sentence

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

As of September 30, 2023, we maintained a full valuation allowance against our deferred tax assets.

The provisions of the 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.

As of March 31, 2024, 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, the Company 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.

2 unchanged sentences

All gains and losses from currency transactions are included in results of operations.

New Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments.” This ASU replaces the incurred loss impairment methodology in current US GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information for credit loss estimates on certain types of financial instruments, including trade receivables.

In addition, new disclosures are required.

The ASU, as subsequently amended, is effective for the Company for fiscal years

Fennec Pharmaceuticals Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

dollars and shares in thousands, except per share information)

beginning after December 15, 2022, as the Company is a smaller reporting company as defined in Item 10(f)(1) of Regulation S-K.

We adopted ASU 2016-13 on January 1, 2023.

Based on the composition of the Company’s accounts receivable, the adoption of this standard did not have a material impact on the Company’s consolidated financial statements or disclosures.

Specifically, the Company’s estimate of expected credit losses as of September 30, 2023, using its expected credit loss evaluation process, resulted in no adjustments to the provision for credit losses and no cumulative effect adjustment to accumulated deficit on the adoption date of the standard.

In July 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-03 to amend various SEC paragraphs in the Accounting Standards Codification to primarily reflect the issuance of SEC Staff Accounting Bulletin No.

2023-03, “Presentation of Financial Statements (Topic 205), Income Statement-Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation-Stock Compensation (Topic 718):

Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No.

120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280-General Revision of Regulation S-X:

Income or Loss Applicable to Common Stock.” ASU 2023-03 amends the ASC for SEC updates pursuant to SEC Staff Accounting Bulletin No.

SEC Staff Announcement at the March 24, 2022 Emerging Issues Task Force (“EITF”) Meeting;

and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 - General Revision of Regulation S-X:

Income or Loss Applicable to Common Stock.

These updates were immediately effective and did not have a material impact on our financial statements.

In October 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-06 to amend various SEC paragraphs in the Accounting Standards Codification to primarily reflect SEC Release No.

33-10532, Disclosure Update and Simplification.

ASU 2023-06 amends disclosure guidance over an entity’s accounting policy related to derivative instruments, material prior period adjustments upon a change in a reporting entity, earnings-per-share, encumbered assets, unused lines of credit and unfunded commitments, and liquidation preferences of preferred stock.

The amendments are effective prospectively on the date each individual amendment is effectively removed from Regulation S-X or Regulation S-K.

Loss Per Share

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 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 5.0 million of our common shares at September 30, 2023, were not included in loss per share.

Such instruments would have an antidilutive effect.

During the same period in 2022, 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 anti dilutive

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:

Nine Months Ended September 30,

Net Income/(Loss) Per Share

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

Diluted net income/(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 116 of our common shares, restricted share units to purchase 214 of our common shares, convertible notes convertible into 2,968 of our common shares and options to purchase 1,702 of our common shares at March 31, 2024, were not included in earnings per share.

Such warrants, options and convertible notes would have an antidilutive effect.

In 2023, warrants to purchase 150 of our common shares, convertible notes convertible into 3,127 of our common shares and options to purchase 5,032 common shares were excluded from the computation of loss per share as their inclusion would have been antidilutive.

Recent Accounting Pronouncements

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) No.

2023-09, “Income Taxes (Topic 740 ):

Improvements to Income Tax Disclosures,” which improves the transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information in the effective tax rate reconciliation and income taxes paid disaggregated by jurisdiction.

This guidance will be effective for the annual periods beginning the year ended December 31, 2025.

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

On March 21, 2024, the FASB issued Accounting Standards Update (ASU) 2024-01, Compensation-Stock Compensation (Topic 718):

Scope Application of Profits Interest and Similar Awards , which provides illustrative guidance to help entities determine whether profits interest and similar awards should be accounted for as share-based payment arrangements within the scope of FASB Accounting Standards Codification (FASB ASC) 718, Compensation-Stock Compensation.

The Company believes that ASU 2024-01 will not have a material impact on the Company’s condensed consolidated financial statements.

Income/(loss) per Share

Income/(loss) per common share is presented under two formats:

basic income/(loss) per common share and diluted income/(loss) per common share.

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

convertible debt, stock options and warrants).

Dilutive common share equivalents consist of the incremental common shares issuable upon exercise of convertible debt, stock options and warrants.

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

Three Months Ended March 31,

Net income/(loss)

Weighted-average common shares, basic

Dilutive effect of stock options

Dilutive effect of restricted share units

Dilutive effect of warrants

Dilutive effect of convertible debt

Incremental dilutive shares

Weighted-average common shares, diluted

Net income/(loss) per share, basic and diluted

The following outstanding convertible debt, options and warrants were excluded from the computation of basic and diluted net income/(loss) per share for the periods presented because including them would have had an anti-dilutive effect:

Three Months Ended March 31,

Options to purchase common shares

Convertible debt to purchase common shares

Restricted share units to purchase common shares

Warrants to purchase common shares

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The Company’s authorized capital stock consists of an unlimited number of common shares, no par value per share.

Fennec Pharmaceuticals Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

dollars and shares in thousands, except per share information)

Warrants to Purchase Common Stock

During the three and nine months ended September 30, 2023 and 2022, there were no warrants issued or exercised .

The company has 150 outstanding warrants have a weighted average life of 4.30 years, and a weighted average strike price of $ 7.79 , on September 30, 2023.

During the three months ended March 31, 2024, and 2023, there were no warrants issued or exercised.

Outstanding warrants have a weighted average life of 3.80 years on March 31, 2024.

The following tables detail the Company’s warrant activity for the three months ended March 31, 2024, and 2023, respectively:

Common Shares

Issuable Upon Exercise

of Outstanding

Weighted-Average

Investor Warrants

Exercise Price

Outstanding December 31, 2023

Outstanding March 31, 2024

Common Shares

Issuable Upon Exercise

of Outstanding

Weighted-Average

Investor Warrants

Exercise Price

Outstanding December 31, 2022

Outstanding March 31, 2023

Equity Incentive Plan

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

Based upon the current shares outstanding, a maximum of 6,658 shares of common stock are authorized for issuance pursuant to stock options or other equity awards granted under the Plan.

Based upon shares outstanding as of March 31, 2024, a maximum of 6,776 shares of common stock are authorized for issuance pursuant to stock options or other equity awards granted under the Plan.

For all options issued under the Plan, the exercise price is the fair value of the underlying shares on the date of grant.

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dollar grants.

The table below outlines recognized contractor and employee expense from equity awards for the three and nine month periods ended September 30, 2023 and 2022.

Three Months Ended

Nine Months Ended

September 30,

Contractor options expense recognized

The table below outlines recognized employee expense from equity awards for the three-month period ended March 31, 2024, and 2023.

Three Months Ended March 31,

Employee options expense recognized

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Stock Option Activity

The following is a summary of option activity for the three and nine months ended September 30, 2023 for stock options denominated in U.S.

The following is a summary of option activity for the three months ended March 31, 2024, and 2023.

Weighted-Average

Options (thousands)

Exercise Price $USD

Exercise Price

Outstanding at December 31, 2023

Outstanding at March 31, 2024

Outstanding at June 30, 2023

Outstanding at September 30, 2023

Fennec Pharmaceuticals Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

dollars and shares in thousands, except per share information)

Of the 5,005 U.S.

denominated options granted and outstanding at September 30, 2023, 3,932 are fully vested and exercisable.

Weighted-Average

Options (thousands)

Exercise Price

Outstanding at December 31, 2022

Outstanding at March 31, 2023

Of the 4,768 options granted and outstanding at March 31, 2024, 3,857 are fully vested and exercisable.

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

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

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

Valuation Assumptions

Black-Scholes Model Assumptions

September 30, 2023

March 31, 2024

Expected dividend

Risk free rate

3.56 - 5.12 %

Expected volatility

Expected life

1.5 - 6.0 years

Restricted Share Units Activity

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

The following is a summary of RSU activity for the three and nine months ended September 30, 2023.

During the three and nine months ended September 30, 2023, there were 32 and 36 RSU’s released from restriction, respectively.

During the three and nine months ended September 30, 2023, there were 84 and 101 RSUs forfeited by departing employees.

RSUs vesting vary from one to three years .

Restricted Share

The following is a summary of RSU activity for the three months ended March 31, 2024, and 2023.

During the three months ended March 31, 2024, 17 RSUs were awarded, 21 were released from restriction and none were forfeited.

For the same period in 2023, 264 RSUs were awarded, 1 was released from restriction and none were forfeited.

The Company recognized $ 0.3 million in RSU expense for the three months ended March 31, 2024, and $ 0.03 million for the same period in 2023.

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.

Number of Restricted

RSUs Current Year

Units (thousands)

Share Units (thousands)

Outstanding at December 31, 2023

Outstanding at March 31, 2024

Outstanding at June 30, 2023

Outstanding at September 30, 2023

The value of RSUs issued was estimated using the share price on the date of the award multiplied by the number of common shares granted.

Number of Restricted

RSUs Past Year

Share Units (thousands)

Outstanding at December 31, 2022

Outstanding at March 31, 2023

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

Fair Value Measurements

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This Topic applies to certain assets and liabilities that are being measured and reported on a fair value basis.

The Fair Value Measurements Topic defines fair value, establishes a framework for measuring fair value in accordance with US GAAP, and expands disclosure about fair value measurements.

This Topic enables the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information

Fennec Pharmaceuticals Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

dollars and shares in thousands, except per share information)

used to determine fair values.

The Fair Value Measurements Topic defines fair value, establishes a framework for measuring fair value in accordance with U.S.

GAAP, and expands disclosure about fair value measurements.

The Topic requires that financial assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

2 unchanged sentences

Unobservable inputs that are not corroborated by market data.

Fair Value Measurement at September 30, 2023 and December 31, 2022

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 the Processa Pharmaceuticals, Inc (“Processa”) common shares held by the Company 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 March 31, 2024, 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 three months ended March 31, 2024, the Company did not have any transfers of financial assets between Levels 1 and 2.

Fair Value Measurement at March 31, 2024 and December 31, 2023

(in thousands)

6 unchanged sentences

Processa common shares

The Company held approximately $ 2,007 in cash as of September 30, 2023, of which approximately $ 488 was in Canadian funds (translated into U.S.

As of December 31, 2022, the Company held approximately $ 307 in cash of which approximately $ 33 was in Canadian funds (translated into U.S.

The Company holds 51 unrestricted common shares of Processa Pharmaceuticals, Inc.

(NASDAQ:PCSA), which it received as part of a royalty arrangement in 2020.

The Company held approximately $ 1,314 in cash as of March 31, 2024, of which approximately $ 363 was held in foreign currencies (translated into U.S.

As of December 31, 2023, the Company held approximately $ 1,340 in cash of which approximately $ 570 was in foreign currencies (translated into U.S.

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

Commitments and Contingencies

Oregon Health & Science University Agreement

On February 20, 2013, we entered into an exclusive license agreement with Oregon Health & Science University (“OHSU”) for exclusive worldwide license rights to intellectual property directed to thiol-based compounds, including PEDMARK ® , and their use in oncology (the “OHSU 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 ® and their use in oncology (the "OHSU Agreement").

OHSU will receive certain milestone payments, royalty on net sales for licensed products and a royalty on any consideration received from sublicensing of the licensed technology.

On May 18, 2015, we negotiated an amendment (“Amendment 1”) to the OHSU Agreement, which expands Fennec’s exclusive license to include the use of N-acetylcysteine as a standalone therapy and/or in combination with sodium thiosulfate for the prevention of ototoxicity induced by chemotherapeutic agents to treat cancers.

Further, Amendment 1 adjusts select milestone payments 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 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.

PEDMARK ® is currently protected by methods of use patent that the Company exclusively licensed from OHSU that expire in the United States in 2038.

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.

The OHSU Agreement is terminable by either Fennec or OHSU in the event of a material breach of the agreement by either party after 45 days prior written notice.

Fennec also has the right to terminate the OHSU Agreement at any time upon 60 days prior written notice and payment of all fees due to OHSU under the OHSU Agreement.

Securities Class Action Suit

Fennec Pharmaceuticals Inc., et al.

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

Fennec Pharmaceuticals Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

dollars and shares in thousands, except per share information)

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, asserted a putative class period from December 20, 2018 through August 10, 2020, made allegations similar to those in the original complaint, claimed that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, and sought 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.

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 sought 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.

Lead plaintiff had until April 3, 2023 to file a notice of appeal and did not file a notice of appeal.

The case is now closed.

Fennec Pharmaceuticals Inc.

On February 9, 2022, plaintiff Jeffrey D.

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

Fennec Pharmaceuticals Inc., et al.

1:22-cv-00115.

The complaint asserted a putative class period from May 28, 2021 through November 28, 2021, and alleged 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 sought 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 asserted the same putative class period from May 28, 2021 through November 28, 2021, was brought against the same defendants and made 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.

Fennec Pharmaceuticals Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

dollars and shares in thousands, except per share information)

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.

The case is now closed.

The Company had accrued approximately $ 77 ( 1 % net sales) in royalty expense to OHSU for the period ended March 31, 2024.

Total amount accrued in royalty expense to OHSU as of March 31, 2024 was $ 314 .

Hope Medical Enterprises, Inc.

Inter Partes Review Challenges

Inter Partes Review (IPR) Challenges

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

2 unchanged sentences

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

On December 5, 2022, a Fennec filed a Motion to Amend the single claim of the ‘190 Patent focing on the treatment of medulloblastoma.

On April 18, 2023, the PTAB invalidated the only claim of the‘190 Patent.

7 unchanged sentences

The ‘363 Patent was issued October 6, 2020.

In May 2022, the PTAB granted Hope’s Petition to Institute the IPR against the ‘363 patent.

During the ‘363 IPR, we disclaimed the patent claims directed to the anhydrous morphic form of STS and continued with claims directed to its method of manufacture.

1 unchanged sentence

In September 2023, the PTAB issued a Final Written Decision in favor of Fennec and upholding the amended claim.

Hope has until November 3, 2023 to request that PTAB reconsider the Final Written Decision, or alternatively, file an appeal of the Final Written Decision with the Court of Appeals for the Federal Circuit.

If no further actions are taken, the ‘363 Patent as amended will remain in force.

The USPTO has now granted three additional U.S.

patents that cover the PEDMARK ® formulation, each of which have been listed in the U.S.

The USPTO has now granted four additional U.S.

patents that cover the PEDMARK ® formulation and its use, each of which have been, or are in the process of being, listed in the U.S.

FDA’s “Orange Book” (U.S.

11,291,728 (issued April 5, 2022), U.S.

11,510,984 (issued November 29, 2022), and U.S.

11,617,794 (issued April 4, 2023)), and additional United States patent applications from this family remain pending at the USPTO.

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

11,510,984 (issued November 29, 2022), U.S.

11,617,793 (issued April 4, 2023), and U.S.

11,964,018 (issued April 23, 2024)).

The USPO has also recently allowed two additional patent applications (U.S.

Patent Application Nos.

17/992,703 and 17/992,707) that cover the use of the PEDMARK® formulation.

Five additional United States patent applications from this family are pending at the USPTO covering various sodium thiosulfate formulations and uses.

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

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 ® in the United States under Orphan Drug Designation.

CIPLA ANDA Litigation

CIPLA Litigation

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

1 unchanged sentence

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 ‘190 Patent, expiration date January 2038;

licensed ‘190 Patent, expiration date January 2038;

and our US 11,291,728 Patent (the “’728 Patent”), expiration date July 2039.

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

Fennec Pharmaceuticals Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

dollars and shares in thousands, except per share information)

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 ® .

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On July 27, 2023, we filed a Second Amended Complaint to assert the ‘793 Patent.

CIPLA filed an Answer to the Second Amended Complaint on August 31, 2023.

The suit is ongoing.

PEDMARQSI TM (EU Brand name for PEDMARK ® ) received European Commission approval in June 2023 and was granted 10 years of market exclusivity in Europe under Pediatric Use (“PUMA”).

PEDMARQSI ® (EU Brand name for PEDMARK ® ) received European Commission approval in June 2023 and was granted 10 years of market exclusivity in Europe under Pediatric Use (“PUMA”).

Executive Severance

In the event of Mr.

Raykov's termination with the Company other than for cause, the Company will be obligated to pay him a one -time severance payment equal to twelve months of salary (currently $ 585 ).

In the event of Mr.

Andrade’s termination with the Company other than for cause, the Company will be obligated to pay him a one -time severance payment equal to six months of salary (currently $ 212 ).

In the event of termination of Mr.

Raykov's (Chief Executive Officer) employment with the Company other than for cause, the Company will be obligated to pay him a one -time severance payment equal to twelve months of salary (currently $ 608 ).

In the event of termination of Mr.

Andrade’s (Chief Financial Officer) employment with the Company other than for cause, the Company will be obligated to pay him a one -time severance payment equal to six months of salary (currently $ 220 ).

In the event of termination of Mr.

Haigh’s (Chief Operating Officer) employment with the Company other than for cause, the Company will be obligated to pay him a one -time severance payment equal to three months of salary (currently $112 as translated to US dollars at March 31, 2024).

The Company has an operating lease in Research Triangle Park, North Carolina utilizing a small space within a commercial building.

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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.

On January 23, 2020, the Company entered into an Office Service Agreement (the “Office Service Agreement”) with Regus to lease office space in Hoboken, New Jersey.

Per the terms of the Office Service Agreement, the monthly rent payments are $ 1 .

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The Company was required to pay a security deposit of $ 5 , which is the equivalent of two months’ rent.

The Second Office Service Agreement commenced on August 1, 2023 and terminates on January 31, 2025, 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.

The Second Office Service Agreement commenced on August 1, 2023 and terminates on January 31,

2025, 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.

The Second Office Service Agreement does not provide an implicit rate, and therefore the Company uses its incremental borrowing rate as the discount rate when measuring the operating lease liability.

The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of the lease within a particular currency environment.

The Company uses an incremental borrowing rate consisting of the current prime rate plus 150 basis points for operating leases that

Fennec Pharmaceuticals Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

dollars and shares in thousands, except per share information)

commenced after August 2023.

The Company uses an incremental borrowing rate consisting of the current prime rate plus 150 basis points for operating leases that commenced after August 2023.

The depreciable lives of operating leases and leasehold improvements are limited by the expected lease term.

September 30, 2023

March 31, 2024

Remaining lease terms (in months)

Discount rate

Maturities of lease liabilities as of September 30, 2023 were as follows (in thousands):

Maturities of lease liabilities as of December 31, 2023 were as follows (in thousands):

Year Ending December 31,

2023 (remaining three months)

Less imputed interest

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Total lease liabilities

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 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.

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 Internal Revenue Code of 1986.

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

As of March 31, 2024, 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 (see Note 1).

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 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.

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 date the Company obtained FDA approval for PEDMARK ® .

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 approximately 0.05 Fennec common shares and half was payable in cash or warrants of approximately 0.05 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 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 ( 12.75 % at September 30, 2023 and 12 % as of December 31, 2022).

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

On December 4, 2023, the Company closed a third tranche under the SPA in the amount of $ 5,000,000 and issued the Investor a Note in the same amount (the “Third Closing Note”).

and the Third Closing Note is convertible at a price equal to $ 7.89 per share, which price was calculated on the same basis as the Second Closing Note.

Also on December 4, 2023, the Company entered into the SPA Amendment, which, among other things, extends the period that the Company may draw the remaining $ 15,000,000 under the SPA from December 31, 2023, to December 31, 2024.

Subsequent draws are subject to mutual agreement of the Company and the Investor and will be represented by Notes that will also be convertible at a price equal to $ 7.89 per share.

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 March 31, 2024).

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

In addition to cash interest, payment-in-kind (“PIK”) interest will commence on funding date and accrue at a rate of 3.5 % per annum.

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

Fennec Pharmaceuticals Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

dollars and shares in thousands, except per share information)

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

The Company has accrued $ 0.71 in PIK interest and has classified the PIK interest in long-term liabilities.

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 $ 1.6 million in PIK interest and has classified the PIK interest in long-term liabilities.

The Notes are convertible into fully paid, non-assessable shares of the Company’s common shares at any point after their issuance dates and before the maturity date.

Any amount of the Notes may be converted into the Company’s common shares so long as it does not create partial shares.

Any amount of the 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 SPA 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 September 30, 2023 are as follows (in thousands):

Aggregate annual payments under the SPA as of December 31, 2023, are as follows (in thousands):

Years Ending December 31,

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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 to the Investor to secure access to the SPA.

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 closing on the First Closing Note and the Second Closing Note, 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.

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.

License Agreement

License Agreement with Norgine Pharma UK Limited

On March 17, 2024, the Company announced that, through its wholly-owned subsidiary, Fennec Pharmaceuticals, Inc.

entered into a License and Supply Agreement (the “Agreement”) with Norgine Pharma UK Limited (“Norgine”), pursuant to which Norgine is granted an exclusive license to commercialize the Company’s product PEDMARQSI® (known as PEDMARK® in the United States) for all human indications in the European Economic Area, Switzerland, the United Kingdom, Australia and New Zealand (collectively, the “Territory”).

Pursuant to the terms of the Agreement, Fennec shall receive the following payments from Norgine:

(i) an upfront payment in the amount of € 40 million or approximately $ 43.2 million, which was paid to Fennec on March 15, 2024, (ii) up to € 210 million (or approximately $ 230 million) upon the achievement of certain regulatory and commercial milestones, and (iii) tiered royalty payments based on net sales of PEDMARQSI® in the Territory, which royalty payment range from mid-teen percent to mid-twenty percent based on the aggregate net sales of PEDMARQSI® in the Territory.

The tiered royalty payments are subject to material reduction if an alternative or generic version of PEDMARQSI® becomes available in any respective country or jurisdiction within the Territory.

Subject to customary rights of each party to earlier terminate the Agreement, the term of the Agreement continues for the longer of:

(i) March 15, 2034, or (ii) with respect to any particular country in the Territory, (a) the expiration of regulatory market exclusivity for PEDMARQSI® in such country, or (b) the last-to-expire of all patents for PEDMARQSI® in such country.

The term of the Agreement shall be automatically renewed for additional three-year periods unless either party provides the other party written notice of its intent not to renew the Agreement at least one year prior to the applicable termination date of the Agreement.

The Company evaluated the Norgine License Agreement under ASC 606 and concluded that Norgine represents a customer in the transaction.

There were two performance obligations:

A license of functional IP and a material right for future supply.

The Company will allocate the transaction price, including currently unrecognized variable consideration, to the two performance obligations based on estimated standalone selling price, which was estimated using projected cash flows.

The initial transaction price consisted of the non-refundable upfront payment, a portion of which was allocated to and recognized as License Revenue in the first quarter of 2024 as the requirements for revenue recognition under ASC 606 were met.

The portion of the transaction price associated with the material right is deferred and reflected as deferred revenue in the condensed consolidated balance sheets.

Deferred revenue associated with the material right is recognized as contract liabilities under the supply arrangement are made.

The remaining forms of consideration are variable because they are dependent on the achievement of sales-based or other milestones.

The Company evaluated the constraint on variable consideration and concluded that the milestone payments are dependent on regulatory approvals and actions of third parties, and thus are highly susceptible to factors outside the Company’s influence.

Therefore, at contract inception, the milestones are not included in the transaction price as it is not probable that a significant reversal of revenue would not occur.

Sales-based milestones will be recognized as revenue or deferred as part of the material right in the period when the related sales threshold is met.

All other milestones will be recognized as revenue or deferred as part of the material right immediately in the period the underlying milestone is achieved.

Any consideration related to sales-based royalties will be recognized as revenue or deferred as part of the material right when the related sales occur.

For the three months ended March 31, 2024, the Company did not recognize any milestone or royalty revenue payments to from the Norgine sales of PEDMARQSI ® Agreement.

In conjunction with entering into the Agreement, the Company paid approximately $ 1.7 million in incremental costs, which were capitalized and recorded within Other non-current assets.

The Company amortizes the asset over the period of expected benefit using a systematic basis that reflects the pattern of transfer to the customer.

A portion that represents the license was recognized immediately and is recorded within selling and marketing expense in the consolidated statements of operations.

As of March 31, 2024, $ 1.0 million in incremental cost was capitalized.

Subsequent Events

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

What changed 10-Q

Item 1. Financial Statements