Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from____ to ____ Commission File Number: 001-32295 FENNEC PHARMACEUTICALS INC. (Exact Name of Registrant as Specified in Its Charter) | Briti ...

[PART I: FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%3A%20FINANCIAL%20INFORMATION) This part presents the company's unaudited condensed consolidated financial statements, management's discussion, market risk disclosures, and internal controls [Item 1. Condensed Consolidated Financial Statements](index=3&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements) This section presents Fennec Pharmaceuticals Inc.'s unaudited condensed consolidated financial statements, including the balance sheets, statements of operations, stockholders' equity, and cash flows, along with detailed notes explaining the company's business, significant accounting policies, and financial position for the periods ended June 30, 2023, and December 31, 2022 [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20as%20of%20June%2030%2C%202023%20%28Unaudited%29%20and%20December%2031%2C%202022) This section provides a snapshot of the company's financial position, detailing assets, liabilities, and stockholders' deficit at specific dates Condensed Consolidated Balance Sheets (in thousands) | Metric (in thousands) | June 30, 2023 (Unaudited) | December 31, 2022 | | :-------------------- | :------------------------ | :------------------ | | **Assets** | | | | Cash and cash equivalents | $14,958 | $23,774 | | Accounts receivable, net | $2,445 | $1,545 | | Inventory | $1,439 | $576 | | Total current assets | $19,331 | $26,728 | | Total assets | $19,437 | $26,939 | | **Liabilities** | | | | Accounts payable | $3,005 | $2,390 | | Accrued liabilities | $773 | $2,219 | | Total current liabilities | $3,778 | $4,609 | | Term loan | $25,000 | $25,000 | | PIK interest | $707 | $260 | | Total liabilities | $29,164 | $29,508 | | **Stockholders' Deficit** | | | | Total stockholders' deficit | $(9,727) | $(2,569) | - Total assets decreased from **$26,939 thousand** at December 31, 2022, to **$19,437 thousand** at June 30, 2023, primarily driven by a decrease in cash and cash equivalents[7](index=7&type=chunk) - The company's stockholders' deficit significantly increased from **$(2,569) thousand** at December 31, 2022, to **$(9,727) thousand** at June 30, 2023[7](index=7&type=chunk) [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20%28Unaudited%29%20for%20the%20Three%20and%20Six%20Months%20Ended%20June%2030%2C%202023%20and%202022) This section outlines the company's financial performance over specific periods, detailing revenues, expenses, and net loss Three Months Ended June 30, 2023 vs. 2022 (in thousands) | Metric (in thousands) | June 30, 2023 | June 30, 2022 | Change | | :-------------------- | :------------ | :------------ | :----- | | PEDMARK product sales, net | $3,325 | $— | $3,325 | | Gross profit | $3,177 | $— | $3,177 | | Research and development | $8 | $1,131 | $(1,123) | | Selling and marketing | $2,340 | $— | $2,340 | | General and administrative | $5,495 | $3,878 | $1,617 | | Total operating expenses | $7,843 | $5,009 | $2,834 | | Loss from operations | $(4,666) | $(5,009) | $343 | | Interest expense | $(825) | $(57) | $(768) | | Net loss | $(5,444) | $(5,072) | $(372) | | Basic net loss per common share | $(0.21) | $(0.19) | $(0.02) | Six Months Ended June 30, 2023 vs. 2022 (in thousands) | Metric (in thousands) | June 30, 2023 | June 30, 2022 | Change | | :-------------------- | :------------ | :------------ | :----- | | PEDMARK product sales, net | $5,002 | $— | $5,002 | | Gross profit | $4,759 | $— | $4,759 | | Research and development | $12 | $2,568 | $(2,556) | | Selling and marketing | $4,871 | $— | $4,871 | | General and administrative | $9,812 | $5,987 | $3,825 | | Total operating expenses | $14,695 | $8,555 | $6,140 | | Loss from operations | $(9,936) | $(8,555) | $(1,381) | | Interest expense | $(1,623) | $(115) | $(1,508) | | Net loss | $(11,496) | $(8,768) | $(2,728) | | Basic net loss per common share | $(0.43) | $(0.34) | $(0.09) | - Net product sales for PEDMARK® were **$3,325 thousand** and **$5,002 thousand** for the three and six months ended June 30, 2023, respectively, as the product became commercially available in October 2022[8](index=8&type=chunk)[128](index=128&type=chunk)[133](index=133&type=chunk) - Research and development expenses decreased significantly by **$1,123 thousand** (3 months) and **$2,556 thousand** (6 months) year-over-year, primarily because manufacturing costs for PEDMARK® are now capitalized as inventory post-approval, rather than expensed to R&D[128](index=128&type=chunk)[133](index=133&type=chunk) - Selling and marketing expenses were **$2,340 thousand** (3 months) and **$4,871 thousand** (6 months) in 2023, reflecting new commercialization efforts for PEDMARK®[128](index=128&type=chunk)[133](index=133&type=chunk) - Interest expense increased substantially by **$768 thousand** (3 months) and **$1,508 thousand** (6 months) due to higher interest rates and an additional **$20 million** in funded debt from the Petrichor facility[129](index=129&type=chunk)[134](index=134&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity%20%28Unaudited%29%20for%20the%20Three%20and%20Six%20Months%20Ended%20June%2030%2C%202023%2C%20and%202022) This section tracks changes in the company's equity, including common stock, additional paid-in capital, and accumulated deficit over time Condensed Consolidated Statements of Stockholders' Equity (in thousands) | Metric (in thousands) | Dec 31, 2022 | Mar 31, 2023 | Jun 30, 2023 | | :-------------------- | :----------- | :----------- | :----------- | | Common Stock Amount | $142,591 | $142,804 | $143,345 | | Additional Paid-in Capital | $56,797 | $57,866 | $60,381 | | Accumulated Deficit | $(203,200) | $(209,252) | $(214,696) | | Total Stockholders' Equity | $(2,569) | $(7,339) | $(9,727) | - The accumulated deficit increased from **$(203,200) thousand** at December 31, 2022, to **$(214,696) thousand** at June 30, 2023, reflecting net losses incurred during the period[10](index=10&type=chunk) - Stock-based compensation for employees contributed **$1,089 thousand** (Q1 2023) and **$2,543 thousand** (Q2 2023) to additional paid-in capital[10](index=10&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20%28Unaudited%29%20for%20the%20Six%20Months%20Ended%20June%2030%2C%202023%20and%202022) This section presents the company's cash inflows and outflows from operating, investing, and financing activities over specific periods Condensed Consolidated Statements of Cash Flows (in thousands) | Metric (in thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------- | :----------------------------- | :----------------------------- | | Net loss | $(11,496) | $(8,768) | | Net cash used in operating activities | $(9,523) | $(6,246) | | Net cash provided by financing activities | $707 | $61 | | Decrease in cash and cash equivalents | $(8,816) | $(6,185) | | Cash and cash equivalents - End of period | $14,958 | $14,915 | - Net cash used in operating activities increased to **$(9,523) thousand** for the six months ended June 30, 2023, from **$(6,246) thousand** in the prior year, primarily due to a higher net loss and changes in operating assets and liabilities[12](index=12&type=chunk)[137](index=137&type=chunk) - Cash and cash equivalents decreased by **$8,816 thousand** during the six months ended June 30, 2023, ending at **$14,958 thousand**[12](index=12&type=chunk)[135](index=135&type=chunk) - Financing activities provided **$707 thousand** in cash, mainly from the issuance of shares and option exercises[12](index=12&type=chunk)[137](index=137&type=chunk) [Notes to the Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and additional information supporting the condensed consolidated financial statements [1. Nature of Business and Going Concern](index=9&type=section&id=1.%20Nature%20of%20Business%20and%20Going%20Concern) Fennec Pharmaceuticals Inc. is a commercial-stage specialty pharmaceutical company focused on PEDMARK®, approved by the FDA and European Commission to reduce ototoxicity in pediatric cancer patients. Despite incurring significant losses and negative operating cash flows, the company believes its current funds, including convertible notes, are sufficient to support commercialization efforts for at least the next twelve months - Fennec Pharmaceuticals Inc. is a commercial-stage specialty pharmaceutical company with one U.S. FDA and European Commission approved product, PEDMARK®, for reducing the risk of ototoxicity associated with cisplatin in pediatric patients[14](index=14&type=chunk) - For the six months ended June 30, 2023, the Company incurred a loss from operations of **$9,936 thousand** and experienced negative cash flows from operating activities of **$9,523 thousand**, with an accumulated deficit of **$214,696 thousand**[16](index=16&type=chunk) - The Company secured **$25,000 thousand** through senior secured floating rate convertible notes (First Closing Note: **$5,000 thousand**, Second Closing Note: **$20,000 thousand**) and may draw up to an additional **$20,000 thousand**[17](index=17&type=chunk)[18](index=18&type=chunk)[19](index=19&type=chunk) - Management believes current funds, including the convertible notes, provide sufficient funding for planned activities, including PEDMARK® commercialization, for at least the next twelve months[21](index=21&type=chunk) [2. Significant Accounting Policies](index=11&type=section&id=2.%20Significant%20Accounting%20Policies) This section details the significant accounting policies used in preparing the interim condensed consolidated financial statements, including the basis of presentation, use of estimates, segment information, stock-based compensation, inventory valuation, revenue recognition for PEDMARK® sales, and policies for trade receivables, cash, financial instruments, R&D costs, credit risk, income taxes, and foreign currency transactions. The adoption of ASU 2016-13 for credit losses had no material impact - The financial statements are prepared in accordance with US GAAP, with all amounts in **thousands of U.S. dollars**, except per share amounts[23](index=23&type=chunk) - The Company operates and manages its business as one operating segment, principally in the United States, with no assets located outside the U.S. as of June 30, 2023[25](index=25&type=chunk) - Revenue from PEDMARK® product sales, commercially available since October 17, 2022, is recognized net of estimated variable consideration (discounts, chargebacks, rebates, co-pay assistance, returns) upon delivery to the customer[32](index=32&type=chunk)[34](index=34&type=chunk) - Inventory costs for PEDMARK® are capitalized post-FDA approval (September 2022); prior manufacturing costs were expensed as R&D. As of June 30, 2023, **$1.4 million** of costs were capitalized as inventory[29](index=29&type=chunk)[44](index=44&type=chunk) Net Product Revenues for PEDMARK® (in thousands) | Period | Gross Product Revenues | Discounts and Allowances | Net Product Revenues | | :----- | :--------------------- | :----------------------- | :------------------- | | 3 Months Ended June 30, 2023 | $3,711 | $(386) | $3,325 | | 6 Months Ended June 30, 2023 | $5,606 | $(604) | $5,002 | PEDMARK® Product Revenue by Customer Type (Percentage of Total) | Customer Type | 3 Months Ended June 30, 2023 | 6 Months Ended June 30, 2023 | | :------------ | :--------------------------- | :--------------------------- | | ASD | 34% | 43% | | McKesson | 12% | 11% | | Subtotal-Specialty Distributors | 46% | 54% | | Direct Customers and those less than 10% | 54% | 46% | [3. Loss Per Share](index=21&type=section&id=3.%20Loss%20Per%20Share) Basic and diluted net loss per share are calculated by dividing net loss by the weighted average number of common shares outstanding. Certain outstanding options and warrants were excluded from diluted EPS calculations as their inclusion would have been anti-dilutive - Basic and diluted net loss per common share were **$(0.21)** for the three months ended June 30, 2023, and **$(0.43)** for the six months ended June 30, 2023[8](index=8&type=chunk) Anti-Dilutive Options and Warrants Excluded from EPS (in thousands) | Instrument | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--------- | :----------------------------- | :----------------------------- | | Options to purchase common shares | 4,887 | 4,337 | | Warrants to purchase common shares | 150 | 39 | [4. Stockholders' Equity](index=21&type=section&id=4.%20Stockholders%27%20Equity) This section details changes in stockholders' equity, including authorized capital, warrants, and activity under the equity incentive plan. Stock-based compensation expense for employees increased significantly, and summaries of stock option and restricted share unit activity are provided - The Company's authorized capital stock consists of an unlimited number of common shares, no par value[61](index=61&type=chunk) - Total stock option expense recognized for employees increased to **$3,632 thousand** for the six months ended June 30, 2023, from **$1,407 thousand** in the prior year[65](index=65&type=chunk) Stock Option Activity (in thousands) | Metric | Outstanding at Dec 31, 2022 | Granted | Exercised | Forfeited | Outstanding at Jun 30, 2023 | | :----- | :-------------------------- | :------ | :-------- | :-------- | :-------------------------- | | Number of Options | 4,539 | 705 | (144) | (213) | 4,887 | | Weighted-Average Exercise Price ($USD) | $5.13 | $8.12 / $8.80 | $4.36 / $5.60 | $6.98 / $7.51 | $5.77 | Restricted Share Units (RSUs) Activity (in thousands) | Metric | Outstanding at Dec 31, 2022 | Awarded | Released | Forfeited | Outstanding at Jun 30, 2023 | | :----- | :-------------------------- | :------ | :------- | :-------- | :-------------------------- | | Number of RSUs | 35 | 362 | (4) | (17) | 376 | [5. Fair Value Measurements](index=24&type=section&id=5.%20Fair%20Value%20Measurements) The Company adopted ASC 820 for fair value measurements, classifying financial assets and liabilities into Level 1, 2, or 3 based on input observability. Cash and cash equivalents are primarily Level 1 and Level 2, while Processa common shares are Level 1 - The Company classifies fair value measurements into Level 1 (quoted market prices), Level 2 (observable market-based inputs), or Level 3 (unobservable inputs)[72](index=72&type=chunk)[73](index=73&type=chunk) Fair Value Measurement at June 30, 2023 (in thousands) | Asset | Level 1 | Level 2 | Level 3 | Total | | :---- | :------ | :------ | :------ | :---- | | Cash and cash equivalents | $3,501 | $11,457 | $— | $14,958 | | Processa common shares | $56 | $— | $— | $56 | - As of June 30, 2023, cash and cash equivalents included **$3,501 thousand** in cash (Level 1) and **$11,457 thousand** in money market investments (Level 2)[74](index=74&type=chunk)[75](index=75&type=chunk) [6. Commitments and Contingencies](index=25&type=section&id=6.%20Commitments%20and%20Contingencies) This section outlines the Company's commitments and contingencies, including an exclusive license agreement with OHSU for PEDMARK® intellectual property, the resolution of two securities class action lawsuits (Chapman v. Fennec and Fisher v. Fennec) in favor of the defendants, ongoing inter partes review (IPR) challenges against PEDMARK® patents by Hope Medical Enterprises, and active ANDA litigation against CIPLA for alleged infringement of PEDMARK® patents - Fennec has an exclusive worldwide license agreement with Oregon Health & Science University (OHSU) for intellectual property related to PEDMARK®, expiring in **2038** in the U.S. for methods of use patents[76](index=76&type=chunk)[78](index=78&type=chunk) - Two federal securities class action lawsuits, Chapman v. Fennec Pharmaceuticals Inc., et al. and Fisher v. Fennec Pharmaceuticals Inc., et al., were dismissed with prejudice, and the cases are now closed[83](index=83&type=chunk)[86](index=86&type=chunk) - Hope Medical Enterprises, Inc. filed Inter Partes Review (IPR) challenges against U.S. Patent No. **10,596,190** (invalidated in April 2023) and U.S. Patent No. **10,792,363** (decision extended to November 2023)[87](index=87&type=chunk)[89](index=89&type=chunk) - The Company is engaged in ANDA litigation against CIPLA Ltd. and CIPLA USA for alleged infringement of PEDMARK® patents (U.S. Patent No. **11,291,728**, U.S. Patent No. **11,510,984**, and U.S. Patent No. **11,617,793**). The suit is ongoing and provides a **30-month stay** on FDA approval for CIPLA's generic[91](index=91&type=chunk)[92](index=92&type=chunk)[93](index=93&type=chunk) - PEDMARQSI (EU brand name for PEDMARK) received European Commission approval in June 2023, granting **10 years** of market exclusivity in Europe under Pediatric Use Marketing Authorization (PUMA)[94](index=94&type=chunk) [7. Term Loans](index=31&type=section&id=7.%20Term%20Loans) The Company entered into a Securities Purchase Agreement (SPA) for up to **$45,000 thousand** in senior secured floating rate convertible notes, with **$25,000 thousand** funded to date. These notes accrue cash interest at prime plus **4.5%** (**12.75%** at June 30, 2023) and PIK interest at **3.5%** per annum, maturing in August 2027. The facility is secured by all Company assets - The Company entered into a SPA for up to **$45,000 thousand** in senior secured floating rate convertible notes, with **$5,000 thousand** from the First Closing Note and **$20,000 thousand** from the Second Closing Note already funded[99](index=99&type=chunk)[100](index=100&type=chunk) - An additional **$20,000 thousand** may be drawn under the SPA before December 31, 2023, upon mutual agreement[101](index=101&type=chunk) - Cash interest accrues at prime plus **4.5%** per annum (**12.75%** at June 30, 2023), and Payment-in-Kind (PIK) interest accrues at **3.5%** per annum, with **$707 thousand** accrued as of June 30, 2023[103](index=103&type=chunk) - The notes are convertible into common shares and mature on **August 19, 2027**. The SPA facility is secured by all of the Company's and its subsidiaries' assets[104](index=104&type=chunk)[106](index=106&type=chunk)[107](index=107&type=chunk) [8. Subsequent Events](index=33&type=section&id=8.%20Subsequent%20Events) Subsequent to the reporting period, Adrian Haigh was appointed Chief Operating Officer of Fennec on August 3, 2023, and stepped down from the board - On **August 3, 2023**, Adrian Haigh was appointed Chief Operating Officer of Fennec and stepped down from the Company's board of directors[109](index=109&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial condition and results of operations, highlighting the commercial launch of PEDMARK® in the U.S. and its European marketing authorization. It details the financial performance for the three and six months ended June 30, 2023, compared to 2022, emphasizing increased revenue from product sales, shifts in operating expenses due to commercialization, and the impact of new debt on interest expense. The discussion also covers liquidity, capital resources, and outstanding share information - Fennec is a commercial-stage biopharmaceutical company focused on PEDMARK®, which received FDA approval on **September 20, 2022**, and European Commission Marketing Authorization in **June 2023**[112](index=112&type=chunk)[113](index=113&type=chunk) - PEDMARK® is the first and only FDA-approved treatment to reduce the risk of ototoxicity associated with cisplatin in pediatric patients, and it is commercially available in the U.S. since **October 17, 2022**[112](index=112&type=chunk)[119](index=119&type=chunk) - The Company received Orphan Drug Exclusivity for PEDMARK® in **January 2023**, providing **seven years** of market exclusivity until **September 20, 2029**, and holds three patents listed in the FDA's Orange Book expiring in **2039**[116](index=116&type=chunk)[118](index=118&type=chunk) - Net loss for the six months ended June 30, 2023, was approximately **$11.3 million**, increasing from **$8.8 million** in the same period of 2022, with an accumulated deficit of **$214.5 million**[124](index=124&type=chunk) - Cash and cash equivalents totaled **$15.0 million** as of June 30, 2023. The Company believes current funds, including potential additional financing of **$20 million** from Petrichor, are sufficient for at least the next twelve months[124](index=124&type=chunk) Outstanding Share Information (in thousands) | Outstanding Share Type | June 30, 2023 | December 31, 2022 | Change | | :--------------------- | :------------ | :---------------- | :----- | | Common shares | 26,509 | 26,361 | 148 | | Warrants | 150 | 150 | — | | Stock options | 4,887 | 4,539 | 348 | | Total | 31,546 | 31,050 | 496 | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=28&type=section&id=Item%203.%2E%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This item is not applicable for the Company, indicating no material quantitative or qualitative disclosures about market risk are required - The Company states that Item 3, Quantitative and Qualitative Disclosures About Market Risk, is not applicable[148](index=148&type=chunk) [Item 4. Controls and Procedures](index=28&type=section&id=Item%204.%20Controls%20and%20Procedures) The Company's management, including the CEO and CFO, concluded that its disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2023. There have been no material changes in internal control over financial reporting during the period - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective at the reasonable assurance level as of **June 30, 2023**[149](index=149&type=chunk) - There have been no material changes in internal control over financial reporting during the period covered by this Quarterly Report[150](index=150&type=chunk) [PART II: OTHER INFORMATION](index=28&type=section&id=PART%20II%3A%20OTHER%20INFORMATION) This part includes disclosures on legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and exhibits [Item 1. Legal Proceedings](index=28&type=section&id=Item%201.%20Legal%20Proceedings) Information regarding legal proceedings is incorporated by reference from Note 6, 'Commitments and Contingencies,' in Part I of this Quarterly Report - Information about legal proceedings is detailed in the Commitments and Contingencies footnote (Note 6) to the unaudited interim condensed consolidated financial statements[151](index=151&type=chunk) [Item 1A. Risk Factors](index=28&type=section&id=Item%201A.%20Risk%20Factors) The Company refers readers to the detailed discussion of risk factors in its Annual Report on Form 10-K for the year ended December 31, 2022, and states that no material changes to these risk factors have occurred - Readers should consider the risk factors discussed in the Annual Report on Form 10-K, as no material changes from previously disclosed risk factors are known[152](index=152&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=28&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) There were no unregistered sales of equity securities or use of proceeds to report during the period - There were no unregistered sales of equity securities and use of proceeds to report[153](index=153&type=chunk) [Item 3. Defaults Upon Senior Securities](index=29&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The Company reported no defaults upon senior securities during the period - There were no defaults upon senior securities[155](index=155&type=chunk) [Item 4. Mine Safety Disclosures](index=29&type=section&id=Item%204.%20Mine%20Disclosures) This item is not applicable to the Company - The Company states that Item 4, Mine Safety Disclosures, is not applicable[156](index=156&type=chunk) [Item 5. Other Information](index=29&type=section&id=Item%205.%20Other%20Information) On August 3, 2023, the Company issued a press release announcing its financial results for the quarter ended June 30, 2023, which is furnished as Exhibit 99.1 - On **August 3, 2023**, the Company issued a press release announcing financial results for the quarter ended **June 30, 2023**, furnished as Exhibit 99.1[157](index=157&type=chunk) [Item 6. Exhibits](index=29&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Quarterly Report, including certifications from the CEO and CFO (Sections 302 and 906 of Sarbanes-Oxley Act), the press release for Q2 2023 financial results, and Inline XBRL documents - Exhibits include certifications from the CEO and CFO (**31.1**, **31.2**, **32.1**), the press release for Q2 2023 financial results (**99.1**), and various Inline XBRL documents (**101.INS**, **101.SCH**, **101.CAL**, **101.DEF**, **101.LAB**, **101.PRE**, **104**)[158](index=158&type=chunk) [Signatures](index=30&type=section&id=Signatures) The Quarterly Report was duly signed on **August 7, 2023**, by Rostislav Raykov, Chief Executive Officer, and Robert Andrade, Chief Financial Officer, in accordance with the Securities Exchange Act of 1934 - The report was signed on **August 7, 2023**, by Rostislav Raykov, Chief Executive Officer, and Robert Andrade, Chief Financial Officer[162](index=162&type=chunk)

Fennec Pharmaceuticals Inc. (NASDAQ:FENC) Q2 2023 Earnings Conference Call August 3, 2023 8:30 AM ET Company Participants Robert Andrade - Chief Financial Officer Rostislav Raykov - Chief Executive Officer Adrian Haigh - Chief Operating Officer Conference Call Participants Chase Knickerbocker - Craig-Hallum Capital Group David Nierengarten - Wedbush Securities Operator Good morning, ladies and gentlemen and welcome to the Fennec Pharmaceuticals Second Quarter 2023 Earnings and Corporate Update Conference Ca ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from____ to ____ Commission File Number: 001-32295 FENNEC PHARMACEUTICALS INC. (Exact Name of Registrant as Specified in Its Charter) | British C ...

Product Approval and Market Exclusivity - PEDMARK® received FDA approval on September 20, 2022, making it the first and only treatment approved to reduce the risk of ototoxicity associated with cisplatin in pediatric patients[13]. - The company announced the commercial availability of PEDMARK® in the United States on October 17, 2022[13]. - The company received Orphan Drug Exclusivity for PEDMARK® in January 2023, providing seven years of market exclusivity until September 20, 2029[17]. - PEDMARK® is estimated to potentially benefit over 10,000 children annually in the U.S. and Europe receiving platinum-based chemotherapy[20]. - The company has received Orphan Drug Exclusivity, preventing FDA approval of any generic versions for at least 7 years from PEDMARK®'s approval date of September 20, 2022[46]. - The company is pursuing a Pediatric Use Marketing Authorization (PUMA) in the EU, which could provide an additional 10 years of market protection[26]. - The company can apply for Pediatric Marketing Use Authorization (PUMA) for drugs developed exclusively for children, which provides 8 plus 2 years of regulatory protection[92][94]. - The European Orphan Drug Regulation provides eight years of data exclusivity and two years of marketing exclusivity for drugs treating rare conditions affecting five or fewer per 10,000 people in the EU[128]. Intellectual Property and Patent Issues - The company has three patents listed for PEDMARK® in the FDA's Orange Book, with two patents expiring in 2039 and one in 2038[18]. - Hope Medical Enterprises, Inc. filed two petitions for inter partes review (IPR) to invalidate U.S. Patent No. 10,596,190 and U.S. Patent No. 10,792,363 related to PEDMARK®[40]. - The U.S. '190 Patent is set to expire in January 2038, while the U.S. '363 Patent is set to expire in July 2039[45]. - The company expects a decision on the IPR for both patents in May 2023, which can be appealed by the losing party[42]. - The company plans to vigorously defend its intellectual property rights related to PEDMARK®, but an invalidation could adversely affect its market exclusivity[44]. - The company is actively pursuing additional patent applications in the U.S. and internationally for PEDMARK®[18]. - The company must list all patents related to its drug products in the FDA's Orange Book upon NDA approval, which can affect generic competition[96]. Financial Performance and Risks - The company reported a net loss of approximately $23.71 million for the year ended December 31, 2022, and an accumulated deficit of approximately $203.2 million as of the same date[184]. - The company has cash and cash equivalents of $23.8 million available as of December 31, 2022, which is expected to fund operations for at least the next 12 months[189]. - The company has a history of significant losses and has generated limited revenue from product sales since inception, highlighting financial risks[174]. - The company may require additional financing to obtain regulatory approval and commercialize PEDMARK®, which could delay or limit product development[174]. - The company may require additional financing to obtain marketing approval of PEDMARK® and commercialize it abroad[189]. Manufacturing and Supply Chain - The company is reliant on contract manufacturers for PEDMARK® production and has no plans to build in-house manufacturing capabilities[51]. - The company has entered into agreements with suppliers for the active pharmaceutical ingredient (API) and third-party manufacturers for PEDMARK® vials[52]. - The OHSU Agreement for PEDMARK® includes milestone payments and royalties on net sales, with the agreement expiring in 2038 or 8 years from the last patent claim expiration[55][58]. - Compliance with cGMP regulations is mandatory for third-party manufacturers, impacting quality control and assurance[208]. - The FDA issued a Complete Response Letter (CRL) in August 2020 and November 2021 due to deficiencies in the third-party manufacturing facility for PEDMARK®[208]. Regulatory Environment and Compliance - The drug approval process in the U.S. typically takes several years and requires substantial resources, with the review process for marketing applications generally taking 12 to 18 months[71][78]. - Companies must ensure compliance with current Good Manufacturing Practices (cGMP) and may face legal or regulatory actions for non-compliance, including recalls and civil penalties[82][83]. - The company is required to disclose clinical trial results within applicable time periods, with penalties for failure to do so[71]. - The approval process in Canada and the U.S. is considered among the most rigorous in the world, requiring adherence to strict safety, efficacy, and quality standards[72]. - The company is subject to various laws and regulations, including those related to Good Manufacturing Practices, which must be adhered to for pharmaceutical product manufacturing[90]. - The company faces risks related to maintaining regulatory compliance and potential enforcement actions[180]. - Non-compliance with FDA regulations could lead to reputational harm and sanctions, including funding issues and drug effectiveness concerns[209]. - Potential consequences of non-compliance include delays, warning letters, fines, and product recalls[210]. - There is a risk of total or partial suspension of production if regulatory issues persist[211]. Market Competition and Challenges - The biotechnology and pharmaceutical industries are highly competitive, with potential competitors having more resources and experience[60]. - The company is subject to substantial competition in the biopharmaceutical market, which could affect its market position[175]. - The company anticipates substantial regulatory review prior to the commercialization of PEDMARK® outside of the United States[188]. - The ongoing COVID-19 pandemic may impact operations, but has not materially affected the company to date[59]. - The ongoing COVID-19 pandemic poses risks to the company's business operations and financial condition[175]. - The company faces scrutiny regarding drug pricing, particularly for orphan drugs, which could affect its pricing strategies[122]. Research and Development - Research and development expenses decreased to $3.5 million in fiscal year 2022 from $5.0 million in 2021, reflecting a shift towards commercial readiness and launch activities for PEDMARK®[164]. - The company has established relationships with contract research organizations and universities to enhance its drug development capabilities[163]. - Phase 3 clinical trials usually take two to four years to complete and involve several hundred to several thousand patients, making them the most time-consuming and expensive part of the clinical trial program[78]. Sales and Reimbursement - The company emphasizes the importance of securing third-party reimbursement for PEDMARK®, which is critical for sales[27]. - Sales of PEDMARK® will depend on reimbursement by payers, which may be limited or unavailable in certain market segments[178]. - Federal law mandates pharmaceutical manufacturers to pay rebates to state Medicaid programs, with the basic rebate for innovator products set at 23.1% of the average manufacturer price[145]. - Effective January 1, 2024, the cap on rebate amounts for drugs will be eliminated, potentially allowing rebates to exceed the average price received by manufacturers[146]. Legislative and Regulatory Changes - The company anticipates ongoing legislative and regulatory changes in the U.S. healthcare system that could significantly impact its business[116]. - Proposed changes to the Orphan Drug Act may limit benefits for drugs treating more than 200,000 individuals, creating uncertainty for future product approvals[124]. - Pediatric exclusivity can extend marketing protection by an additional six months if pediatric data is submitted in response to FDA requests[125]. - The FDA's Breakthrough Therapy Designation aims to expedite the development of drugs showing substantial improvement over existing therapies for serious conditions[129]. - Fast Track Designation allows for expedited review of drugs addressing unmet medical needs, with a determination made within 60 days of the request[130]. - Priority Review can shorten the review time to six to eight months for drugs that address serious conditions or unmet medical needs[136].

FENNEC PHARMA ● November 2022 | Corporate Presentation www.fennecpharma.com FEN-1321-v3 1 Safe Harbor Statement Except for historical information described in this press release, all other statements are forward-looking. Words such as "believe," "anticipate," "plan," "expect," "estimate," "intend," "may," "will," or the negative of those terms, and similar expressions, are intended to identify forward-looking statements. These forward-looking statements include statements about our business strategy, timeli ...

PART I: FINANCIAL INFORMATION [Item 1. Condensed Consolidated Financial Statements](index=3&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements) The company's unaudited financial statements show no revenue, significant net losses, and increased long-term debt [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheets (U.S. Dollars in thousands) | Item | September 30, 2022 (Unaudited) | December 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $29,752 | $21,100 | | Total current assets | $30,153 | $22,387 | | Total assets | $30,417 | $22,414 | | Total current liabilities | $2,927 | $1,654 | | Long-term debt (net of discount) | $24,688 | $4,988 | | Total liabilities | $27,615 | $6,642 | | Total stockholders' equity | $2,802 | $15,772 | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Condensed Consolidated Statements of Operations (U.S. Dollars in thousands) | Item | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $— | $— | $— | $— | | Research and development | $846 | $1,242 | $3,414 | $4,458 | | General and administrative | $7,053 | $2,931 | $13,040 | $8,558 | | Loss from operations | $(7,899) | $(4,173) | $(16,454) | $(13,016) | | Net loss | $(8,089) | $(4,185) | $(16,857) | $(12,919) | | Basic net loss per common share | $(0.31) | $(0.16) | $(0.65) | $(0.50) | | Diluted net loss per common share | $(0.31) | $(0.16) | $(0.65) | $(0.50) | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Condensed Consolidated Statements of Cash Flows (U.S. Dollars in thousands) | Item | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net loss | $(16,857) | $(12,919) | | Net cash used in operating activities | $(11,256) | $(10,977) | | Net cash provided by financing activities | $19,908 | $4,968 | | Increase/(decrease) in cash and cash equivalents | $8,652 | $(6,009) | | Cash and cash equivalents - End of period | $29,752 | $24,335 | | Warrants issued for long-term debt (non-cash) | $441 | $— | [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Condensed Consolidated Statements of Stockholders' Equity (U.S. Dollars in thousands) | Item | December 31, 2021 | September 30, 2022 | | :--- | :--- | :--- | | Common Shares Outstanding | 26,014 | 26,238 | | Common Stock Amount | $140,801 | $141,309 | | Additional Paid-in Capital | $53,214 | $56,593 | | Accumulated Deficit | $(179,486) | $(196,343) | | Accumulated Other Comprehensive Income | $1,243 | $1,243 | | Total Stockholders' Equity | $15,772 | $2,802 | [Notes to the Unaudited Interim Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20the%20Unaudited%20Interim%20Condensed%20Financial%20Statements) [1. Nature of Business and Going Concern](index=9&type=section&id=1.%20Nature%20of%20Business%20and%20Going%20Concern) - Fennec Pharmaceuticals Inc. is a commercial-stage biopharmaceutical company focused on PEDMARK® (sodium thiosulfate injection) for the prevention of platinum-induced ototoxicity in pediatric cancer patients[23](index=23&type=chunk) Financial Performance (U.S. Dollars in thousands) | Metric | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Loss from operations | $7,899 | $16,454 | | Accumulated deficit (as of Sep 30, 2022) | N/A | $196,343 | | Negative cash flows from operating activities (9 months ended Sep 30, 2022) | N/A | $11,256 | - The Company entered into a Securities Purchase Agreement (SPA) for up to **$45,000** in senior secured floating rate convertible notes, with an initial tranche of **$5,000** closed on August 19, 2022, and a second tranche of **$20,000** closed on September 23, 2022, following FDA approval of PEDMARK®[26](index=26&type=chunk)[27](index=27&type=chunk) - The Company believes current funds, along with the funds from the Note Financing, provide **sufficient funding** for planned activities, including the commencement of commercialization efforts for PEDMARK®, for at least the **next twelve months**[30](index=30&type=chunk) [2. Significant Accounting Policies](index=11&type=section&id=2.%20Significant%20Accounting%20Policies) - The unaudited interim condensed consolidated financial statements are prepared in accordance with U.S. GAAP and rely on management estimates, particularly for valuing equity instruments and warrants[33](index=33&type=chunk)[35](index=35&type=chunk) - No new accounting pronouncements were adopted during the quarter ended September 30, 2022[36](index=36&type=chunk) Cash and Cash Equivalents (U.S. Dollars in thousands) | Date | Amount | | :--- | :--- | | September 30, 2022 | $29,752 | | December 31, 2021 | $21,100 | - The Company will begin capitalizing inventory costs associated with PEDMARK® during the fourth quarter of 2022, following FDA approval on September 20, 2022, and will begin recognizing product revenues after the initial product launch in October 2022[39](index=39&type=chunk)[43](index=43&type=chunk) [3. Loss Per Share](index=13&type=section&id=3.%20Loss%20Per%20Share) Net Loss Per Share (Basic and Diluted, U.S. Dollars) | Period | 2022 | 2021 | | :--- | :--- | :--- | | Three Months Ended September 30 | $(0.31) | $(0.16) | | Nine Months Ended September 30 | $(0.65) | $(0.50) | Anti-Dilutive Securities Excluded from EPS Calculation (thousands) | Item | Three Months Ended 2022 | September 30, 2021 | Nine Months Ended 2022 | September 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Options to purchase common shares | 4,466 | 3,653 | 4,466 | 3,653 | | Warrants to purchase common shares | 150 | 39 | 150 | 39 | [4. Stockholders' Equity](index=14&type=section&id=4.%20Stockholders'%20Equity) - The Company's authorized capital stock consists of an unlimited number of common shares, no par value[47](index=47&type=chunk) - During the three and nine months ended September 30, 2022, the Company issued **111 warrants** at a strike price of **$8.11**, capitalizing **$441** in non-cash expense and **$175** in cash expense associated with the Securities Purchase Agreement (SPA)[48](index=48&type=chunk) Total Option Expense Recognized (U.S. Dollars in thousands) | Period | 2022 | 2021 | | :--- | :--- | :--- | | Three Months Ended September 30 | $1,887 | $917 | | Nine Months Ended September 30 | $3,363 | $2,839 | - As of September 30, 2022, **4,466 U.S. denominated options** were outstanding, with **3,448 fully vested** and exercisable[53](index=53&type=chunk) - As of September 30, 2022, **103 Restricted Share Units (RSUs)** were outstanding[57](index=57&type=chunk)[58](index=58&type=chunk) [5. Fair Value Measurements](index=17&type=section&id=5.%20Fair%20Value%20Measurements) - The Company classifies financial assets and liabilities into a three-level hierarchy based on the observability of inputs used in valuation[59](index=59&type=chunk) Fair Value Measurements (U.S. Dollars in thousands) as of September 30, 2022 | Asset | Level 1 | Level 2 | Level 3 | Total | | :--- | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $438 | $29,314 | $— | $29,752 | | Processa common shares | $— | $114 | $— | $114 | - Valuation of Processa Pharmaceuticals, Inc. common shares at September 30, 2022, included liquidity discounts of **0%**, **0%**, and **15%** applied to different share tranches[63](index=63&type=chunk) [6. Commitments and Contingencies](index=18&type=section&id=6.%20Commitments%20and%20Contingencies) - Fennec has an exclusive license agreement with Oregon Health & Science University (OHSU) for intellectual property related to PEDMARK®, including milestone payments and royalties on net sales[64](index=64&type=chunk)[65](index=65&type=chunk) - The Company is vigorously defending two federal securities class action lawsuits, both of which had amended complaints **dismissed with prejudice**, and has not recorded a liability as of September 30, 2022[72](index=72&type=chunk)[77](index=77&type=chunk)[150](index=150&type=chunk)[156](index=156&type=chunk) - Hope Medical Enterprises, Inc. filed two inter partes review (IPR) petitions challenging Fennec's patents for PEDMARK®, with decisions expected in **May 2023**[79](index=79&type=chunk)[80](index=80&type=chunk) - The USPTO issued U.S. Patent No. 11,291,728 covering the PEDMARK® pharmaceutical formulation on April 5, 2022, and two additional formulation patent applications received Notices of Allowance on September 14, 2022, all expiring in **2039**[81](index=81&type=chunk) - PEDMARK® has U.S. Orphan Drug Designation, and the Company plans to pursue a Pediatric Use Marketing Authorization (PUMA) in Europe for **10 years of market exclusivity**[82](index=82&type=chunk) [7. Term Loans](index=24&type=section&id=7.%20Term%20Loans) - On August 1, 2022, the Company entered into a Securities Purchase Agreement (SPA) for up to **$45,000** in senior secured floating rate convertible notes[89](index=89&type=chunk) - The Company closed on an initial tranche of **$5,000** on August 19, 2022, and a second tranche of **$20,000** on September 23, 2022, with an additional **$20,000** available for draw before December 31, 2023[89](index=89&type=chunk)[90](index=90&type=chunk)[91](index=91&type=chunk) - The notes bear cash interest at **prime plus 4.5%** per annum (**10.75%** as of September 30, 2022) and Payment-in-Kind (PIK) interest at **prime plus 3.5%** per annum (**9.75%** as of September 30, 2022), and are convertible into common shares[94](index=94&type=chunk)[95](index=95&type=chunk) Aggregate Annual Payments Due on SPA (U.S. Dollars in thousands) as of September 30, 2022 | Years Ending December 31, | Amount | | :--- | :--- | | 2022 | $— | | 2023 | $— | | 2024 | $— | | 2025 | $— | | 2026 | $— | | 2027 | $25,000 | | Total future payments | $25,000 | | Less: unamortized debt discount | $(312) | | Total term loan, net of debt discount | $24,688 | [8. Subsequent Events](index=26&type=section&id=8.%20Subsequent%20Events) - On October 17, 2022, the Company announced the U.S. commercial launch and availability of PEDMARK® for pediatric patients[98](index=98&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the commercial launch of PEDMARK®, financial results showing net losses, and the strategic shift to commercialization [Overview](index=27&type=section&id=Overview) - Fennec Pharmaceuticals Inc. is a commercial-stage biopharmaceutical company focused on PEDMARK®, which received **FDA approval** on September 20, 2022[102](index=102&type=chunk) - PEDMARK® became commercially available in the United States on **October 17, 2022**, supported by a field force and the Fennec HEARS™ patient access program[102](index=102&type=chunk)[103](index=103&type=chunk)[104](index=104&type=chunk) - The Company holds two patents listed for PEDMARK® in the FDA's Orange Book expiring in **2038** and **2039**, with two additional patents expected to issue soon, also expiring in **2039**[105](index=105&type=chunk) - In Europe, the company's product is eligible for a Pediatric Use Marketing Authorization (PUMA) with up to **10 years of data and market protection**[109](index=109&type=chunk) [Capital Funding](index=29&type=section&id=Capital%20Funding) - As of September 30, 2022, the Company had not received revenues from PEDMARK® sales and reported a net loss of approximately **$16.9 million** for the nine months ended, with an accumulated deficit of approximately **$196.3 million**[110](index=110&type=chunk)[111](index=111&type=chunk) - The Company's cash and cash equivalents totaled **$29.8 million** as of September 30, 2022, and with an additional **$20 million** available from Petrichor Financing, it believes it has **sufficient funding for at least the next twelve months**[112](index=112&type=chunk) - Projections of capital requirements are subject to **substantial uncertainty**, and the Company may need to raise additional funds[112](index=112&type=chunk) [Results of Operations](index=31&type=section&id=Results%20of%20Operations) [Three months ended September 30, 2022 versus three months ended September 30, 2021](index=31&type=section&id=Three%20months%20ended%20September%2030,%202022%20versus%20three%20months%20ended%20September%2030,%202021) Operating Expenses (U.S. Dollars in thousands) | Expense Category | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change | | :--- | :--- | :--- | :--- | | Research and development | $846 | $1,242 | $(396) | | General and administrative | $7,053 | $2,931 | $4,122 | | Total operating expense | $7,899 | $4,173 | $3,726 | | Net loss | $(8,089) | $(4,185) | $(3,904) | - The increase in General and Administrative expenses was driven by a **$970 thousand** increase in non-cash equity compensation, a **$1,212 thousand** increase in salaries due to increased headcount, and a **$620 thousand** increase in sales and marketing activities[116](index=116&type=chunk) - Interest expense increased by **$64 thousand** due to new debt facilities, while interest income increased by **$11 thousand** due to higher cash balances and interest rates[117](index=117&type=chunk) [Nine months ended September 30, 2022 versus nine months ended September 30, 2021](index=32&type=section&id=Nine%20months%20ended%20September%2030,%202022%20versus%20nine%20months%20ended%20September%2030,%202021) Operating Expenses (U.S. Dollars in thousands) | Expense Category | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change | | :--- | :--- | :--- | :--- | | Research and development | $3,414 | $4,458 | $(1,044) | | General and administrative | $13,040 | $8,558 | $4,482 | | Total operating expenses | $16,454 | $13,016 | $3,438 | | Net loss | $(16,857) | $(12,919) | $(3,938) | - The decrease in Research and Development expenses was mainly due to a **decline in manufacturing activities** and regulatory expenses[120](index=120&type=chunk) - The increase in General and Administrative expenses was primarily related to **legal expenses**, non-cash equity compensation, and higher wages from increased headcount[120](index=120&type=chunk) - Unrealized loss on securities was **$126 thousand** in 2022, contrasting with a **$137 thousand** gain in 2021[120](index=120&type=chunk) [Liquidity and Capital Resources](index=32&type=section&id=Liquidity%20and%20Capital%20Resources) Selected Asset and Liability Data (U.S. Dollars in thousands) | Item | September 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Cash and equivalents | $29,752 | $21,100 | | Other current assets | $401 | $1,287 | | Current liabilities | $2,927 | $1,654 | | Working capital | $27,226 | $20,733 | - Working capital increased by **$6,493 thousand** between December 31, 2021, and September 30, 2022, primarily due to a net cash inflow from Petrichor notes and option exercises, offset by operating expenditures[124](index=124&type=chunk) Selected Cash Flow Data (U.S. Dollars in thousands) | Item | Nine Months Ended 2022 | September 30, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(11,256) | $(10,977) | | Net cash provided by investing activities | $— | $— | | Net cash provided by financing activities | $19,908 | $4,968 | | Net cash flow | $8,652 | $(6,009) | - The Company expects **increases in cash outflows** related to commercialization activities and continues to pursue strategic alternatives for additional funding[124](index=124&type=chunk)[126](index=126&type=chunk) [Financial Instruments](index=34&type=section&id=Financial%20Instruments) - The Company invests excess cash in high credit quality investments, primarily money market accounts (**$29,314 thousand** as of September 30, 2022), to protect principal[127](index=127&type=chunk)[129](index=129&type=chunk) - The investment policy requires securities to have a minimum Dun & Bradstreet rating of **A for bonds** or **R1 low for commercial paper** and a maximum-weighted average time to maturity of **twelve months**[129](index=129&type=chunk)[130](index=130&type=chunk)[131](index=131&type=chunk) - The Company has not had any material off-balance sheet arrangements and does not engage in trading activities involving non-exchange traded contracts[132](index=132&type=chunk) [Research and Development](index=36&type=section&id=Research%20and%20Development) - Research and development efforts have been focused on PEDMARK® since 2013[133](index=133&type=chunk) Research and Development Expenses (U.S. Dollars in thousands) | Period | 2022 | 2021 | | :--- | :--- | :--- | | Three Months Ended September 30 | $846 | $1,242 | | Nine Months Ended September 30 | $3,414 | $4,458 | - R&D expenses decreased as the Company's efforts **shifted to commercial readiness activities** for PEDMARK®[135](index=135&type=chunk) - The development of PEDMARK® is subject to inherent risks of failure, and the Company is unable to accurately estimate future costs or timing[136](index=136&type=chunk) [Critical Accounting Policies and Use of Estimates](index=36&type=section&id=Critical%20Accounting%20Policies%20and%20Use%20of%20Estimates) - There have been **no material changes** to the Company's critical accounting policies and use of estimates during the nine months ended September 30, 2022[137](index=137&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=36&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company is exposed to market risks from money market investments, variable interest rates, and foreign currency fluctuations [Money Market Investments](index=36&type=section&id=Money%20Market%20Investments) - The Company maintains an investment portfolio of U.S. or Canadian obligations and bank securities, with **$29,314 thousand** in money market investments as of September 30, 2022[138](index=138&type=chunk)[141](index=141&type=chunk) - The investment policy requires securities to have a minimum Dun & Bradstreet rating of **A for bonds** or **R1 low for commercial paper** and a maximum-weighted average time to maturity of **twelve months**[138](index=138&type=chunk)[139](index=139&type=chunk) - Amounts held in money market accounts are substantially above the **$250,000** amount insured by the FDIC and may lose value[141](index=141&type=chunk) [Variable Interest Rate Risk](index=38&type=section&id=Variable%20Interest%20Rate%20Risk) - The Company is subject to interest rate fluctuation exposure through its borrowings under the SPA (**prime plus 4.5%** cash interest, **prime plus 3.5%** PIK interest) and its investment in money market accounts[142](index=142&type=chunk) - Increases in interest rates may adversely affect the Company's ability to meet its obligations[142](index=142&type=chunk) [Foreign Currency Exposure](index=38&type=section&id=Foreign%20Currency%20Exposure) - The Company is subject to foreign currency risks from purchasing goods and services denominated in Euro, Great British Pounds, and Canadian dollars[143](index=143&type=chunk) - To date, the Company has not employed derivative instruments but holds Canadian dollars for vendor payments and other corporate obligations[143](index=143&type=chunk) [Item 4. Controls and Procedures](index=38&type=section&id=Item%204.%20Controls%20and%20Procedures) Management confirms the effectiveness of disclosure controls and reports no material changes in internal financial reporting controls [Evaluation of Disclosure Controls and Procedures](index=38&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) - As of September 30, 2022, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were **effective** at the reasonable assurance level[144](index=144&type=chunk) [Changes in Internal Control over Financial Reporting](index=38&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) - There have been **no changes** in internal control over financial reporting during the period that materially affected, or are reasonably likely to materially affect, the Company's internal control[145](index=145&type=chunk) PART II: OTHER INFORMATION [Item 1. Legal Proceedings](index=38&type=section&id=Item%201.%20Legal%20Proceedings) The company details ongoing legal challenges, including two dismissed securities class action lawsuits and two patent review petitions [Chapman v. Fennec Pharmaceuticals Inc. et al.](index=38&type=section&id=Chapman%20v.%20Fennec%20Pharmaceuticals%20Inc.%20et%20al.) - A federal securities class action lawsuit alleging false or misleading statements regarding PEDMARK® was **dismissed with prejudice** on March 2, 2022[147](index=147&type=chunk)[149](index=149&type=chunk)[150](index=150&type=chunk) - The lead plaintiff filed a motion for post-judgment relief to file a second amended complaint, which the defendants are opposing[151](index=151&type=chunk) - The Company believes this lawsuit is **without merit** and intends to defend it vigorously; no liability has been recorded[152](index=152&type=chunk) [Fisher v. Fennec Pharmaceuticals Inc. et al.](index=40&type=section&id=Fisher%20v.%20Fennec%20Pharmaceuticals%20Inc.%20et%20al.) - A federal securities class action lawsuit, similar to Chapman, was **dismissed with prejudice** on October 12, 2022[153](index=153&type=chunk)[156](index=156&type=chunk) - The lead plaintiff has until November 14, 2022, to file a notice of appeal[157](index=157&type=chunk) - The Company believes this lawsuit is **without merit** and intends to defend it vigorously; no liability has been recorded[158](index=158&type=chunk) [Hope Medical Enterprises, Inc.](index=42&type=section&id=Hope%20Medical%20Enterprises,%20Inc.) - Hope Medical Enterprises filed two inter partes review (IPR) petitions challenging Fennec's patents for PEDMARK®, with decisions expected in **May 2023**[159](index=159&type=chunk)[160](index=160&type=chunk) - The USPTO issued U.S. Patent No. 11,291,728 covering the PEDMARK® pharmaceutical formulation on April 5, 2022, and two additional formulation patent applications received Notices of Allowance, all expiring in **2039**[161](index=161&type=chunk) - The Company plans to **vigorously defend its intellectual property rights**, but an invalidation of its patents could materially affect its ability to protect PEDMARK®[163](index=163&type=chunk) [Item 1A. Risk Factors](index=42&type=section&id=Item%201A.%20Risk%20Factors) The company reports no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K - The Company's detailed risk factors are discussed in Part I, Item 1A of its Annual Report on Form 10-K for the fiscal year ended December 31, 2021[164](index=164&type=chunk) - The Company is not aware of any **material changes** from the risk factors previously disclosed[165](index=165&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=44&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) There were no unregistered sales of equity securities or use of proceeds to report for the period - None[168](index=168&type=chunk) [Item 3. Defaults Upon Senior Securities](index=44&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities to report for the period - None[169](index=169&type=chunk) [Item 4. Mine Safety Disclosures](index=44&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[171](index=171&type=chunk) [Item 5. Other Information](index=44&type=section&id=Item%205.%20Other%20Information) A press release announcing Q3 2022 financial results was issued on November 11, 2022 - On November 11, 2022, the Company issued a press release announcing its financial results for the quarter ended September 30, 2022, furnished as Exhibit 99.1[173](index=173&type=chunk) [Item 6. Exhibits](index=45&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including certifications and XBRL documents List of Exhibits | Exhibit No. | Description | | :--- | :--- | | 31.1 | Certification of Chief Executive Officer (Section 302) | | 31.2 | Certification of Chief Financial Officer (Section 302) | | 32.1 | Certification of CEO and CFO (Section 906) | | 99.1 | Press Release for Quarter Ended September 30, 2022 | | 101.INS* | Inline XBRL Instance Document | | 101.SCH* | Inline XBRL Taxonomy Extension Schema Document | | 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | | 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | | 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | 104 | Cover Page Interactive Data File | [Signatures](index=46&type=section&id=Signatures) The report is duly signed by the company's Chief Executive Officer and Chief Financial Officer - The report was signed by Rostislav Raykov, Chief Executive Officer, and Robert Andrade, Chief Financial Officer, on November 14, 2022[178](index=178&type=chunk)

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from____ to ____ Commission File Number: 001-32295 FENNEC PHARMACEUTICALS INC. (Exact Name of Registrant as Specified in Its Charter) | --- | --- ...

Company Overview - Fennec Pharmaceuticals is focused on developing PEDMARK™ to prevent cisplatin-induced ototoxicity in children aged 1 month to ≤ 18 years with localized, non-metastatic solid tumors[3] - The FDA assigned a PDUFA target action date of September 23, 2022, for PEDMARK™[3] - Fennec has patent protection in the U S until 2038 for the method of use for children <5 years of age and until 2039 for the unique anhydrous form of the active ingredient[4] - As of March 31, 2022, Fennec had USD $18 3 million in cash and cash equivalents and USD $5 million in debt[12] - In 2021, Fennec's cash burn was USD $14 2 million[12] PEDMARK™ Clinical Data - COG ACCL0431 study showed a 48% reduction in the risk of hearing loss with STS[48] - SIOPEL 6 study demonstrated a 48% decrease in the risk of hearing loss with STS[58] - In the SIOPEL 6 study, 63% of patients in the Cisplatin alone group experienced any grade hearing loss compared to 33% in the STS group[59] Market Opportunity - Approximately 70% of pediatric solid tumor cases in both the U S and European markets are localized, non-metastatic, representing 3,554 cases in the U S and 4,215 cases in Europe[23] - Cisplatin is a standard of care chemotherapy drug used to treat various childhood cancers[24, 25] - Up to 60% to 90% of children develop irreversible ototoxicity as a result of cisplatin treatment[31] - Among 226 survivors of non-CNS tumors, 39% had severe hearing loss, and 20% of these patients had hearing aids or cochlear implants[35]

FENNEC PHARMA ● March 2022 | Corporate Presentation www.fennecpharma.com Safe Harbor Statement During the course of this presentation, we will make statements that constitute forward-looking statements. These statements may include operating expense projections, the initiation, timing and results of pending or future clinical trials, the actions or potential action of the U.S. Food and Drug Administration (FDA), the status and timing of ongoing research, corporate partnering activities and other factors aff ...