FENNEC PHARMACEUTICALS INC. Management report and analysis of the financial situation and operating results. (Form 10-Q)
This section and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Forward-looking statements can be identified by words such as "future," "anticipates," "believes," "estimates," "expects," "intends," "plans," "predicts," "will," "would," "could," "can," "may," and similar terms. Forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in Part I, Item 1A of the our Annual Report on Form 10-K for the year ended
December 31, 2021under the heading "Risk Factors." We assume no obligation to revise or update any forward-looking statements for any reason, except as required by law. The following discussion should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2021and the condensed consolidated financial statements and accompanying notes included elsewhere in this report.
Product candidate – PEDMARKTM
Our only product candidate in clinical development is:
PEDMARKTM (a unique formulation of sodium thiosulfate ("STS")). We have announced results of two Phase 3 clinical trials for the prevention of cisplatin induced hearing loss, or ototoxicity in children, including the pivotal Phase 3 study SIOPEL 6, "A Multicentre Open Label Randomised Phase 3 Trial of the Efficacy of Sodium Thiosulfate in Reducing Ototoxicity in Patients Receiving Cisplatin Chemotherapy for Standard Risk Hepatoblastoma," and the proof of concept Phase 3 study in collaboration with the
Children's Oncology Group("COG ACCL0431") "A Randomized Phase 3 Study of Sodium Thiosulfate for the Prevention of Cisplatin-Induced Ototoxicity in Children". COG ACCL0431 final results were published in the Lancet Oncology in 2016. SIOPEL 6 final results were published in the New England Journal of Medicinein June 2018.
We continue to focus our resources on the development of PEDMARKTM.
We have licensed from
Oregon Health & Science University("OHSU") intellectual property rights for the use of PEDMARKTM as a chemoprotectant and are developing PEDMARKTM as a protectant against the hearing loss often caused by platinum-based anti-cancer agents in children. Preclinical and clinical studies conducted by OHSU and others have indicated that PEDMARKTM can effectively reduce the incidence of hearing loss caused by platinum-based anti-cancer agents. Hearing loss among children receiving platinum-based chemotherapy is frequent, permanent and often severely disabling. The incidence of hearing loss in these children depends upon the dose and duration of chemotherapy, and many of these children require lifelong hearing aids. In addition, adults undergoing chemotherapy for several common malignancies, including ovarian cancer, testicular cancer, and particularly head and neck cancer and brain cancer, often receive intensive platinum-based therapy and may experience severe, irreversible hearing loss, particularly in the high frequencies. In the U.S.and Europe, it is estimated that, annually, over 10,000 children may receive platinum-based chemotherapy. The incidence of ototoxicity depends upon the dose and duration of chemotherapy. There is currently no established preventive agent for this hearing loss and only expensive, technically difficult and sub-optimal cochlear (inner ear) implants have been shown to provide some benefit. Infants and young children that suffer ototoxicity at critical stages 19 Table of Contents
developmentally lack speech language development and literacy, and older children and adolescents lack social-emotional development and academic achievement.
We initiated our rolling New Drug Application ("NDA") for PEDMARKTM for the prevention of ototoxicity induced by cisplatin chemotherapy patients 1 month to < 18 years of age with localized, non-metastatic, solid tumors with the FDA in
December 2018. We announced that we had submitted full completion of the NDA in February 2020. The FDA set a Prescription Drug User Fee Act ("PDUFA") target action date of August 10, 2020for the completion of the FDA'sreview. On August 10, 2020, we announced that we received a Complete Response Letter ("CRL") from the FDA regarding our NDA for PEDMARKTM, which identified deficiencies in the third-party manufacturing facility that manufactures PEDMARKTM on our behalf. Importantly, no clinical safety or efficacy issues were identified during the review and there was no requirement for further clinical data. In May 2021, we announced the resubmission of our NDA for PEDMARKTM and in June 2021we further announced that the FDA accepted for filing the resubmission of our NDA and set a PDUFA target action date of November 27, 2021. On November 29, 2021, we announced that we received a CRL from the FDA regarding our NDA for PEDMARKTM, which identified deficiencies in the third-party manufacturing facility that manufactures PEDMARKTM on our behalf. In March 2022, we announced the resubmission of our NDA for PEDMARKTM, and in April 2022, we further announced that the FDA accepted for filing the resubmission of our NDA and set a PDUFA target action date of September 23, 2022. In August 2018, the Pediatric Committee ("PDCO") of the European Medicines Agency("EMA") accepted our pediatric investigation plan ("PIP") for sodium thiosulfate with the trade name Pedmarqsi for the condition of the prevention of platinum-induced hearing loss. An accepted PIP is a prerequisite for filing a Marketing Authorization Application ("MAA") for any new medicinal product in Europe. The indication targeted by our PIP is for the prevention of platinum-induced ototoxic hearing loss for standard risk hepatoblastoma ("SR-HB"). Additional tumor types of the proposed indication will be subject to the Committee for Medicinal Products for Human Use ("CHMP") assessment at the time of the MAA. No deferred clinical studies were required in the positive opinion given by PDCO. We were also advised that sodium thiosulfate (tradename to be determined) is eligible for submission of an application for a Pediatric Use Marketing Authorization ("PUMA"). A PUMA is a dedicated marketing authorization covering the indication and appropriate formulation for medicines developed exclusively for use in the pediatric population and provides data and market protection up to 10 years. Therefore, this decision allows us to proceed with the submission of a PUMA in the European Union("EU") with incentives of automatic access to the centralized procedure and up to 10 years of data and market protection. In February 2020, we announced that we had submitted a MAA for the prevention of ototoxicity induced by cisplatin chemotherapy patients 1 month to < 18 years of age with localized, non-metastatic, solid tumors. The EMA continues its review of our MAA.
PEDMARKTM has been studied by cooperative groups in two Phase 3 clinical studies of survival and reduction of ototoxicity, COG ACCL0431 and SIOPEL 6. Both studies have been completed. The COG ACCL0431 protocol enrolled one of five childhood cancers typically treated with intensive cisplatin therapy for localized and disseminated disease, including newly diagnosed hepatoblastoma, germ cell tumor, osteosarcoma, neuroblastoma, and medulloblastoma. SIOPEL 6 enrolled only hepatoblastoma patients with localized tumors.
October 2007, we announced that our collaborative partner, the International Childhood Liver Tumour Strategy Group, known as SIOPEL, a multi-disciplinary group of specialists under the umbrella of the International Society of Pediatric Oncology, had launched a randomized Phase 3 clinical trial SIOPEL 6 to investigate whether STS reduces hearing loss in standard risk hepatoblastoma (liver) cancer patients receiving cisplatin as a monotherapy. 20
The study was initiated in
October 2007initially in the United Kingdomand completed enrollment at the end of 2014. 52 sites from 11 countries enrolled 109 evaluable patients. Under the terms of our agreement, SIOPEL conducted and funded all clinical activities and we provided drug, drug distribution and pharmacovigilance, or safety monitoring, for the study. SIOPEL 6 was completed in December 2014and the final results of SIOPEL 6 were published in The New England Journal of Medicinein June 2018.
The main objectives of SIOPEL 6 were:
? To assess the effectiveness of STS in reducing hearing loss caused by
? Carefully monitor any potential impact of STS on response to cisplatin and
survival. SIOPEL 6 - Results Background / Objectives: Bilateral high-frequency hearing loss is a serious permanent side-effect of cisplatin therapy, particularly debilitating when occurring in young children. STS has been shown to reduce cisplatin induced hearing loss. SIOPEL 6 was a Phase 3 randomized trial to assess the efficacy of STS in reducing ototoxicity in young children treated with cisplatin (Cis) for SR-HB.
Design / Methods:
Newly diagnosed patients with SR-HB, defined as tumor limited to PRETEXT I, II or III, no portal or hepatic vein involvement, no intra-abdominal extrahepatic disease, AFP >100ng/ml and no metastases, were randomized to Cis or Cis+STS for 4 preoperative and 2 postoperative courses. Cisplatin 80mg/m2 was administered over 6 hours, STS 20g/m2 was administered intravenously over 15 minutes exactly 6 hours after stopping cisplatin. Tumor response was assessed after 2 and 4 preoperative cycles with serum AFP and liver imaging. In case of progressive disease (PD), STS was to be stopped and doxorubicin 60mg/m2 combined with cisplatin. The primary endpoint was centrally reviewed absolute hearing threshold, at the age of ?3.5 years by pure tone audiometry.
109 randomized patients (52 Cisplatin only ("Cis") and 57 Cis+STS) were evaluable. The combination of Cis+STS was generally well tolerated. With a patient follow-up time of 52 months, the three-year Event Free Survival ("EFS") for Cis was 78.8% Cisplatin and 82.1% for the Cis + STS. The three-year Overall Survival ("OS") is 92.3% for Cis and 98.2% for Cis + STS. Treatment failure defined as Progressive Disease ("PD") at 4 cycles was equivalent in both arms. Among the first 101 evaluable patients, hearing loss occurred in 29/46=63.0% under Cis and in 18/55=32.7% under Cis +STS, corresponding to a relative risk of 0.52(P=0.002). 21 Table of Contents [[Image Removed: Chart Description automatically generated]]
This randomized phase 3 trial in SR-HB of cisplatin versus cisplatin plus STS shows that the addition of STS significantly reduces the incidence of cisplatin-induced hearing loss without any evidence of tumor protection.
March 2008, we announced the activation of a Phase 3 trial with STS to prevent hearing loss in children receiving cisplatin-based chemotherapy in collaboration with the Children's Oncology Group. The goal of this Phase 3 study was to evaluate in a multi-centered, randomized trial whether STS is an effective and safe means of preventing hearing loss in children receiving cisplatin-based chemotherapy for newly diagnosed germ cell, liver (hepatoblastoma), brain (medulloblastoma), nerve tissue (neuroblastoma) or bone (osteosarcoma) cancers. Eligible children, one to eighteen years of age, were to receive cisplatin according to their disease-specific regimen and, upon enrollment in this study, were randomized to receive STS or not. Efficacy of STS was determined through comparison of hearing sensitivity at follow-up relative to baseline measurements using standard audiometric techniques. The Children's Oncology Groupwas responsible for funding the clinical activities for the study and we were responsible for providing the drug, drug distribution and pharmacovigilance, or safety monitoring, for the study. The trial completed enrollment of 131 pediatric patients in the first quarter of 2012. The final results of COG ACCL0431 were published in Lancet Oncology in December 2016.
COG ACCL0431 – Results
COG Study ACCL0431, "A Randomized Phase 3 Study of Sodium Thiosulfate for the Prevention of Cisplatin-Induced Ototoxicity in Children," finished enrollment of 131 patients of which 125 were eligible patients. The patients had been previously diagnosed with childhood cancers.
The primary endpoint was to assess the efficacy of STS for the prevention of hearing loss in children receiving cisplatin chemotherapy (hypothesis: 50% relative reduction in hearing loss).
Secondary endpoints included:
? Compare the evolution of average hearing thresholds.
? Compare incidence of other Grade 3/4 toxicities (renal and hematological). 22 Table of Contents
? Monitor event-free survival (EFS) and overall survival (OS) in two groups.
125 eligible subjects were enrolled with germ cell tumor (32), osteosarcoma (29), neuroblastoma (26), medulloblastoma/pnet (26), hepatoblastoma (7), or other (5). Of these, 104 subjects (64 men and 29
Subjects were randomized either to no treatment (control) or treatment with STS 16 grams/m2 IV over 15 minutes, 6 hours after each cisplatin dose. Hearing was measured using standard audiometry for age and data was reviewed centrally using
American Speech-Language-Hearing Associationcriteria.
The proportion of subjects with hearing loss assessed at 4 weeks after the final dose of cisplatin (primary endpoint):
? The proportion of hearing loss for STS versus control was 28.6% (14/49) versus 56.4%
(31/55), respectively (p=0.004).
In a predefined subgroup of patients under 5 years of age with 29 eligible
? subjects: STS versus control was 21.4% (3/14) versus 73.3% (11/15), respectively
STS protects against cisplatin-induced hearing loss in children through a
? heterogeneous range of tumor types, with even stronger efficiency in the protocol
predefined subgroup of patients under five years of age, and is not associated
with serious adverse events attributed to its use.
? Other potential clinical uses will be informed by the final results of SIOPEL
6 study. Capital Funding We have not received and do not expect to have significant revenues from our product candidate until we are either able to sell our product candidate after obtaining applicable regulatory approvals or we establish collaborations that provide us with up-front payments, licensing fees, milestone payments, royalties or other revenue. We generated a net loss of approximately
$3.7 millionfor the three months ended March 31, 2022, and a net loss of $4.7 millionfor the three months ended March 31, 2021. As of March 31, 2022, our accumulated deficit was approximately $183.2 million( $179.5 millionat December 31, 2021). We believe that our cash and cash equivalents as of March 31, 2022, which totaled $18.3 million, plus the Bridge Bank Loan and Security Agreement, will be sufficient to meet our cash requirements through at least the next twelve months, including anticipated NDA approval and, if approved, the first commercial launch of PEDMARKTM in the United States. Our projections of our capital requirements are subject to substantial uncertainty, and more capital than we currently anticipate may be required thereafter. To finance our continuing operations, we may need to raise substantial additional funds through either the sale of additional equity, the issuance of debt, the establishment of collaborations that provide us with funding, the out-license or sale of certain aspects of our intellectual property portfolio or from other sources. We may not be able to raise the necessary capital, or such funding may not be available on financially acceptable terms if at all. If we cannot obtain adequate funding in the future, we might be required to further delay, scale back or eliminate certain research and development studies, consider business combinations, or even shut down some, or all, of our operations. Our operating expenses will depend on many factors, including the progress of our drug development efforts and efficiency of our operations and current resources. Our research and development expenses, which include expenses associated with our clinical trials, drug manufacturing to support clinical programs, stock-based compensation, consulting fees, sponsored research costs, toxicology studies, license fees, milestone payments, and other fees and costs related to the development of our product candidate, will depend on the availability of financial resources, the results of our clinical trials, and any directives from regulatory agencies, which are difficult to predict. Our general and administration expenses include 23
expenses associated with employee compensation, stock-based compensation, professional fees, consulting fees, insurance and other administrative matters associated with supporting our drug development programs.
Three months completed
Three Months Ended Three Months Ended In thousands of U.S. Dollars March 31, 2022 % March 31, 2021 % Change Revenue $ - $ - $ - Operating expenses: Research and development 1,437 41 % 2,416 49 % (979)
General and administration 2,109 59 % 2,507 51 % (398) Total operating expenses 3,546 100 % 4,923 100 % (1,377) Loss from operations (3,546) (4,923) 1,377 Unrealized (loss)/gain on securities (91)
182 (273) Other losses (61) (8) (53) Amortization expense (7) - (7) Interest income 9 16 (7) Net loss $ (3,696) $ (4,733)
$ 1,037Research and development expenses decreased by $979for the three months ended March 31, 2022, compared to the same period in 2021. The Company's research and development activities for the first three months of 2022 decreased as the Company's efforts on a year over year basis were less focused on development and shifted towards pre-commercialization activities. General and administrative expenses decreased by $398over same period in 2021 as select expenses associated with pre-commercialization activities were previously done in 2021. The Company holds shares of Processa (NASDAQ: PCSA) which are marked to market each balance sheet date and unrealized gains or losses are recognized at that time. The unrealized loss on those shares for the three months ended March 31, 2022was $91. Other losses were driven mainly by interest expense and unrealized losses related to the Company's foreign currency transactions. The Company has vendors that transact in Euros, Great British Pounds and Canadian Dollars. There was an increase of $52in other losses for the three months ended March 31, 2022, compared to the same period in 2021. Amortization expense is also a non-cash expense and relates to amortization of the deferred issuance cost of the loan facilities with Bridge Bank. Amortization expense increased by $7for the three months ended March 31, 2022compared to the same period in 2021. In 2022, the Company is amortizing the capitalized costs associated with the renegotiated Bridge Bankloan facility. During the same period in 2020, the Company had written off the remaining capitalized cost associated with the former facility after it received the CRL from the FDA in August 2020. Interest income was $7lower for the three months ended March 31, 2022, compared to the same period in 2021. This was driven mainly by lower average cash balances for the three months ended March 31, 2022compared to the same period in 2021.
24 Table of Contents Quarterly Information
The following table presents selected condensed financial data for each of the last eight quarters through
March 31, 2022, as prepared under U.S.GAAP ( U.S.dollars in thousands, except per share information): Net Loss for the Basic Net Loss per Diluted Net Loss per Period Period Common Share Common Share June 30, 2020 $ (4,845) $ (0.21) $ (0.21) September 30, 2020 (6,200) (0.24) (0.24) December 31, 2020 (3,238) (0.13) (0.13) March 31, 2021 (4,733) (0.18) (0.18) June 30, 2021 (4,001) (0.15) (0.15) September 30, 2021 (4,185) (0.16) (0.16) December 31, 2021 (4,427) (0.18) (0.18) March 31, 2022 (3,696) (0.14) (0.14)
Cash and capital resources
As of As of Selected Asset and Liability Data (thousands):
March 31, 2022
December 31, 2021Cash and equivalents $ 18,259 $ 21,100 Other current assets 869 1,287 Current liabilities 2,136 1,654 Working capital (1) 16,992 20,733
(1) [Current assets – current liabilities]
Selected Equity: Common stock and additional paid in capital 194,463
194,015 Accumulated deficit (183,182) (179,486) Shareholders' equity 12,524 15,772 Cash and cash equivalents were
$18,259at March 31, 2022and $21,100at December 31, 2021. The decrease in cash and cash equivalents between March 31, 2022and December 31, 2021is the result of expenses related to the development and preparation of the NDA resubmission of PEDMARKTM and general and administrative expenses, which was offset by minimal cash inflows of $15from various option exercises. There was a decrease of $418in other current assets between March 31, 2022and December 31, 2021. This is a result of a $249decrease in deferred charges related to the financing of our director and officer's insurance policy, a $91decrease in the value of Processa shares and an decrease in prepaid expenses of $78.
Current liabilities increased primarily due to the timing of certain manufacturing and regulatory costs associated with the resubmission of the NDA PEDMARKTM.
Working capital decreased between
December 31, 2021and March 31, 2022by $3,741. The decrease relates to cash expenditures for operating activities for the three months ended March 31, 2022, the recognition of $500reclassification of long-term debt to current liability, offset by the $15cash inflow from option exercises. The Company expects increases in cash outflows related to pre-commercialization and commercialization activities in the coming quarters upon potential NDA approval. 25 Table of Contents
The following table illustrates a summary of the cash flow data for the three-month periods of
Selected Cash Flow Data Three Months Ended March
(dollars and shares in thousands) 2022
Net cash used in operating activities
$ (2,856) $ (3,593)Net cash provided by investing activities -
Net cash provided by financing activities 15
- Net cash flow
$ (2,841) $ (3,593)
Net cash used in operating activities for the three months ended
March 31, 2022primarily reflected a net loss of $3,696. The three month loss was adjusted for the add back of non-cash items consisting of $433in stock-based compensation expense, with unrealized loss on securities of $91and amortization expense of $7for the three months ended March 31, 2022. For the three months ended March 31, 2022, there was a net change in prepaid and other assets of $326; coupled with a net decrease in current liabilities of $18for the three months ended March 31, 2022. Three month cash flows from operating activities were $2,856and $3,593, respectively, for the periods ended March 31, 2022and 2021. Net cash provided by financing activities for the three months ended March 31, 2022was $15. There was no financing activity cash flows for the same period in 2021. Net cash flows from the three month-periods ended March 31, 2022and 2021, were negative $2,841and $3,593, respectively. We continue to pursue various strategic alternatives including collaborations with other pharmaceutical and biotechnology companies. Our projections of further capital requirements are subject to substantial uncertainty. Our working capital requirements may fluctuate in future periods depending upon numerous factors, including: our ability to obtain additional financial resources; our ability to enter into collaborations that provide us with up-front payments, milestones or other payments; results of our research and development activities; progress or lack of progress in our preclinical studies or clinical trials; unfavorable toxicology in our clinical programs; our drug substance requirements to support clinical programs; change in the focus, direction, or costs of our research and development programs; headcount expense; the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing our patent claims; competitive and technological advances; the potential need to develop, acquire or license new technologies and products; our business development activities; new regulatory requirements implemented by regulatory authorities; the timing and outcome of any regulatory review process; and commercialization activities, if any.
Outstanding Share Information
Our outstanding share data as of
March 31, 2022and December 31, 2021was as follows (in thousands): March 31, December 31, Outstanding Share Type 2022 2021 Change Common shares 26,040 26,014 26 Warrants 39 39 - Stock options 4,051 4,259 (208) Total 30,130 30,312 (182) Financial Instruments We invest excess cash and cash equivalents in high credit quality investments held by financial institutions in accordance with our investment policy designed to protect the principal investment. At March 31, 2022, we had approximately $131in our cash accounts and $18,128in savings and money market accounts. While we have never experienced any loss or write down of our money market investments since our inception, the amounts we hold in money market accounts are substantially above the $250amount insured by the FDICand may lose value. Our investment policy is to manage investments to achieve, in the order of importance, the financial objectives of preservation of principal, liquidity and return on investment. Investments may be made in U.S.or Canadian obligations and bank securities, commercial paper of U.S.or Canadian industrial companies, utilities, financial institutions and consumer loan companies, and securities of foreign banks provided the obligations are guaranteed or carry ratings 26
appropriate to the policy. Securities must have a minimum Dun & Bradstreet rating of A for bonds or R1 low for commercial paper. The policy also provides for investment limits on concentrations of securities by issuer and maximum-weighted average time to maturity of twelve months. This policy applies to all of our financial resources. The policy risks are primarily the opportunity cost of the conservative nature of the allowable investments. As our main purpose is research and development, we have chosen to avoid investments of a trading or speculative nature. Since our inception, we have not had any material off-balance sheet arrangements. In addition, we do not engage in trading activities involving non-exchange traded contracts. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such activities. Research and Development
Our research and development efforts have focused on the development of PEDMARKTM since 2013.
We have established relationships with contract research organizations, universities and other institutions, which we utilize to perform many of the day-to-day activities associated with our drug development. Where possible, we have sought to include leading scientific investigators and advisors to enhance our internal capabilities. Research and development issues are reviewed internally by our executive management and supporting scientific team. Research and development expenses for the three months ended
March 31, 2022was $1,437. For the same period in 2021 research and development expense was $2,416. We have decreased our research and development expenses related to PEDMARKTM as our efforts have shifted to pre-commercialization activities after the NDA resubmission in March 2022. Our product candidate still requires significant, time-consuming and costly research and development, testing and regulatory clearances. In developing our product candidate, we are subject to risks of failure that are inherent in the development of products based on innovative technologies. For example, it is possible that our product candidate will be ineffective or toxic, or will otherwise fail to receive the necessary regulatory clearances. There is a risk that our product candidate will be uneconomical to manufacture or market or will not achieve market acceptance. There is also a risk that third parties may hold proprietary rights that preclude us from marketing our product candidate or that others will market a superior or equivalent product. As a result of these factors, we are unable to accurately estimate the nature, timing and future costs necessary to complete the development of this product candidate. In addition, we are unable to reasonably estimate the period when material net cash inflows could commence from the sale, licensing or commercialization of such product candidate, if ever.
Significant Accounting Policies and Use of Estimates
A summary of our critical accounting policies and use of estimates are presented in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operation" of our Annual Report on Form 10-K for the fiscal year ended
December 31, 2021(filed February 28, 2022). There have been no material changes to our critical accounting policies and use of estimates during the three months ended March 31, 2022.
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