Fennec Pharma(FENC) - 2025 Q2 - Quarterly Report

PART I: FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements The company's unaudited financial statements show key changes in assets, liabilities, operations, equity, and cash flows Condensed Consolidated Balance Sheets The balance sheet reflects a decrease in cash and total assets, alongside an increase in liabilities and stockholders' deficit | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | :-------------------- | | Cash and cash equivalents | $18,705 | $26,634 | $(7,929) | | Accounts receivable, net | $17,502 | $12,884 | $4,618 | | Inventory | $2,201 | $1,060 | $1,141 | | Total current assets | $40,794 | $44,124 | $(3,330) | | Total assets | $44,876 | $44,946 | $(70) | | Accounts payable | $5,941 | $3,241 | $2,700 | | Total current liabilities | $8,414 | $6,919 | $1,495 | | Total liabilities | $52,339 | $50,818 | $1,521 | | Total stockholders' deficit | $(7,463) | $(5,872) | $(1,591) | Condensed Consolidated Statements of Operations The company reported a net loss for the first half of 2025, a reversal from 2024's net income due to absent licensing revenue Three Months Ended June 30 (in thousands, except per share) | Metric | June 30, 2025 | June 30, 2024 | Change | | :-------------------------- | :------------ | :------------ | :----- | | PEDMARK product sales, net | $9,652 | $7,262 | $2,390 | | Total revenue | $9,652 | $7,262 | $2,390 | | Total operating expenses | $12,384 | $12,301 | $83 | | Net (loss)/income | $(3,152) | $(5,553) | $2,401 | | Basic net (loss)/income per common share | $(0.11) | $(0.20) | $0.09 | Six Months Ended June 30 (in thousands, except per share) | Metric | June 30, 2025 | June 30, 2024 | Change | | :-------------------------- | :------------ | :------------ | :------- | | PEDMARK product sales, net | $18,403 | $14,681 | $3,722 | | Licensing revenue | $0 | $17,958 | $(17,958) | | Total revenue | $18,403 | $32,639 | $(14,236) | | Total operating expenses | $21,943 | $23,935 | $(1,992) | | Net (loss)/income | $(4,317) | $7,284 | $(11,601) | | Basic net (loss)/income per common share | $(0.16) | $0.27 | $(0.43) | Condensed Consolidated Statements of Stockholders' Equity (Deficit) The stockholders' deficit widened in the first half of 2025, driven by net losses that outweighed equity-related inflows Stockholders' Equity (Deficit) Changes (in thousands) | Item | Balance at Dec 31, 2024 | Stock-based compensation | Stock option exercise | Restricted stock release | Net loss | Balance at Jun 30, 2025 | | :---------------------- | :---------------------- | :----------------------- | :-------------------- | :----------------------- | :------- | :---------------------- | | Common Stock Amount | $145,608 | — | $557 | — | — | $146,165 | | Additional Paid-in Capital | $66,958 | $2,292 | — | $(123) | — | $69,127 | | Accumulated Deficit | $(219,681) | — | — | — | $(4,317) | $(223,998) | | Total Stockholders' Equity (deficit) | $(5,872) | $2,292 | $557 | $(123) | $(4,317) | $(7,463) | Condensed Consolidated Statements of Cash Flows The company experienced a significant net cash outflow from operations in H1 2025, contrasting sharply with a large inflow in H1 2024 Six Months Ended June 30 (in thousands) | Cash Flow Activity | June 30, 2025 | June 30, 2024 | Change | | :------------------------------------------ | :------------ | :------------ | :------- | | Net cash (used in) / provided by operating activities | $(8,004) | $30,660 | $(38,664) | | Net cash provided by / (used in) financing activities | $75 | $(875) | $950 | | (Decrease) / increase in cash and cash equivalents | $(7,929) | $29,785 | $(37,714) | | Cash and cash equivalents - End of period | $18,705 | $43,054 | $(24,349) | Notes to the Condensed Consolidated Financial Statements These notes detail the company's financial position, operations, liquidity, accounting policies, and key agreements 1. Nature of Business and Liquidity The company focuses on its approved product PEDMARK® and believes current funds are sufficient for the next twelve months - Fennec Pharmaceuticals Inc is a biopharmaceutical company with one FDA, EMA, and U.K approved product, PEDMARK®, designed to reduce the risk of ototoxicity associated with cisplatin in pediatric patients[14] - The company experienced a net loss from operations of $(3,540) thousand and negative cash flows from operating activities of $(8,004) thousand for the six-month period ended June 30, 2025, with an accumulated deficit of $223,998 thousand[16] - In March 2024, the company secured an exclusive licensing agreement with Norgine Pharma UK Limited for PEDMARQSI® (PEDMARK® outside the U.S) in Europe, Australia, and New Zealand, providing approximately $43,000 thousand upfront and potential future royalties and milestone payments of approximately $230,000 thousand[25] - Management believes current funds, including the Norgine upfront payment, provide sufficient funding for planned activities, including PEDMARK® commercialization, for at least the next twelve months[26] 2. Significant Accounting Policies This section outlines key accounting policies for revenue recognition, inventory, stock compensation, and segment reporting - The company operates and manages its business as a single operating segment focused on the production and commercialization of PEDMARK®[32] - Revenue from product sales (PEDMARK®) is recognized when the customer obtains control, typically upon delivery, with estimates for variable consideration (discounts, rebates, chargebacks) recorded as reserves[43][44] - Licensing revenue from intellectual property is recognized upon transfer of control of the license, with contingent milestones constrained until probable of not resulting in a material reversal[39][40] - Recent accounting pronouncements include ASU 2023-09 (Income Taxes) effective for annual periods beginning December 31, 2025, and ASU 2024-03 (Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures) effective for annual periods beginning after December 15, 2026[70][71] Net Product Revenues (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Gross product revenues | $10,941 | $9,466 | $21,753 | $19,022 | | Discounts and allowances | $(1,289) | $(2,204) | $(3,350) | $(4,341) | | Net product revenues | $9,652 | $7,262 | $18,403 | $14,681 | 3. Loss Per Share Due to a net loss in 2025, all common stock equivalents were anti-dilutive, making basic and diluted EPS identical - For the three and six months ended June 30, 2025, options, convertible debt, restricted share units, performance share units, and warrants were excluded from diluted EPS calculation as they were anti-dilutive due to the net loss[73] Net (Loss)/Income Per Share (in thousands, except per share data) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net (loss) / income | $(3,152) | $(5,553) | $(4,317) | $7,284 | | Weighted-average common shares, basic | 27,664 | 27,297 | 27,621 | 27,250 | | Weighted-average common shares, diluted | 27,664 | 27,297 | 27,621 | 30,354 | | Net (loss) / income per share diluted | $(0.11) | $(0.20) | $(0.16) | $0.24 | 4. Stockholders' Equity The company amended its equity incentive plan to increase available shares and add an employee stock purchase program - The Company's authorized capital stock consists of an unlimited number of common shares, no par value per share[74] - On April 24, 2025, the Board approved an amendment to the Equity Incentive Plan to increase common shares available for issuance to 8,500 thousand and include an employee stock purchase program, which was approved by shareholders on June 3, 2025[77] - In May 2025, the Board approved a performance-based unit (PSU) grant, with vesting dependent on revenue performance milestones over the next year, with partial achievement deemed probable as of June 30, 2025[85][86] Stock-Based Compensation Expense (in thousands) | Period | June 30, 2025 | June 30, 2024 | | :----------------------- | :------------ | :------------ | | Three Months Ended | $1,494 | $925 | | Six Months Ended | $2,292 | $2,116 | Stock Option Activity (in thousands) | Metric | Outstanding at Dec 31, 2024 | Granted | Exercised | Forfeited | Outstanding at Jun 30, 2025 | | :-------------------------- | :-------------------------- | :------ | :-------- | :-------- | :-------------------------- | | Number of Options | 5,855 | 498 | (107) | (168) | 6,078 | | Weighted-Average Exercise Price | $6.22 | $7.05 | $5.04 | $6.09 | $6.31 | 5. Fair Value Measurements The company's financial assets are classified within a three-level fair value hierarchy, with most cash equivalents in Level 2 - The company held approximately $1,984 thousand in cash accounts and $16,721 thousand in savings and money market accounts as of June 30, 2025[91] Fair Value Measurement at June 30, 2025 (in thousands) | Asset | Level 1 | Level 2 | Level 3 | Total | | :---------------------- | :------ | :------ | :------ | :------ | | Cash and cash equivalents | $1,984 | $16,721 | $— | $18,705 | | Processa common shares | $1 | $— | $— | $1 | 6. Commitments and Contingencies The company is engaged in ongoing patent infringement litigation against CIPLA and has defined executive severance agreements - The company is engaged in ongoing patent infringement litigation against CIPLA Ltd and CIPLA USA concerning generic versions of PEDMARK®, asserting infringement of multiple patents (US '190, '728, '984, '793, '018, '530, '604, '026)[92][94][97][100] - On July 14, 2025, the court granted the motion to consolidate two related cases (2:25-cv-05709 and 2:23-cv-00123) and issued an order on claim construction, adopting the company's proposed constructions for two disputed claim terms[101][102] - Executive severance agreements include a one-time payment of $559 thousand for the CEO and $344 thousand for the CFO upon termination without cause[104] - The company has operating lease commitments for office spaces in Research Triangle Park, North Carolina, and previously in Dublin, Ireland (terminated)[105][107][108] 7. Term Loans The company significantly reduced its convertible note obligations with Petrichor through a redemption in December 2024 - The company entered into a Securities Purchase Agreement (SPA) with Petrichor Opportunities Fund I LP for up to $45,000 thousand in senior secured floating rate convertible notes, with tranches closed in August 2022 ($5,000 thousand), September 2022 ($20,000 thousand), and December 2023 ($5,000 thousand)[110][111][113] - On December 18, 2024, the company repurchased and redeemed $13,000 thousand in Notes (including $1,271 thousand in PIK interest), fully redeeming the First and Third Closing Notes[115] - As of June 30, 2025, approximately $19,477 thousand of Second Closing Notes (inclusive of PIK interest) remains outstanding, due in August 2027[117] - Cash interest accrues at prime plus 4.5% per annum (12% at June 30, 2025), and PIK interest accrued at 3.5% per annum until August 24, 2024, with $1,271 thousand accrued and classified as long-term liabilities[118] Aggregate Annual Payments Due on SPA (in thousands) | Years Ending December 31, | Amount | | :------------------------ | :----- | | 2025 | $— | | 2026 | $— | | 2027 | $18,206 | | Payment in kind interest | $1,271 | | Total future payments | $19,477 | | Less: unamortized debt discount | $(113) | | Total term loan, net of debt discount | $19,364 | 8. License Agreement with Norgine Pharma UK Limited The company secured a significant licensing deal with Norgine for European commercialization of PEDMARQSI® - On March 17, 2024, the company entered into an exclusive License and Supply Agreement with Norgine Pharma UK Limited to commercialize PEDMARQSI® (PEDMARK® in the U.S) in Europe, Australia, and New Zealand[122] - The agreement provided an upfront payment of approximately $43.2 million (€40 million) and potential future payments of up to approximately $230 million (€210 million) upon achievement of regulatory and commercial milestones, plus tiered royalties from mid-teen to mid-twenty percent on net sales[123][125] - The company identified two performance obligations under ASC 606: a license of functional IP and a material right for future supply, allocating the upfront payment between recognized revenue and deferred liability[127] - Milestone payments are constrained and not included in the transaction price at inception due to dependence on regulatory approvals and third-party actions, and will be recognized when achieved[127] 9. Segment Reporting The company operates as a single segment focused on the commercialization of its sole product, PEDMARK® - The company views its operations and manages its business in one operating segment, principally in the United States, focused on the production and commercialization of PEDMARK®[129] - The chief operating decision maker (senior executive team) uses net loss to evaluate segment performance and allocate resources[130][133] 10. Subsequent Events Management evaluated subsequent events and concluded there were no events requiring disclosure after the reporting period - No events of significance requiring disclosure were identified by management through the date of this filing[134] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial results, highlighting PEDMARK® commercialization, the Norgine agreement, and operational trends Overview Fennec is a commercial-stage biopharmaceutical company focused on its approved product PEDMARK® for pediatric cancer patients - Fennec Pharmaceuticals is a commercial-stage biopharmaceutical company focused on PEDMARK®, approved by the FDA (September 20, 2022) to reduce ototoxicity associated with cisplatin in pediatric patients[137] - PEDMARK® received European Commission Marketing Authorization in June 2023 and U.K approval in October 2023 (branded as PEDMARQSI®)[138] - An exclusive licensing agreement with Norgine in March 2024 provided approximately $43,200 thousand upfront and potential future milestone and royalty payments of up to $230,000 thousand for commercialization in Europe, Australia, and New Zealand[138] - The company holds Orphan Drug Exclusivity for PEDMARK® until September 20, 2029, and has six patents listed in the FDA Orange Book, with expiration dates in 2039[141] PEDMARK® Product Overview PEDMARK® is the only approved therapy to mitigate cisplatin-induced hearing loss in pediatric patients - PEDMARK® is the first and only FDA- and EMA-approved agent designed to reduce the risk of cisplatin-induced hearing loss (CIO) in children with localized solid tumors[144] - Strategic imperatives include increasing awareness of unmet patient needs, emphasizing CIO prevention, establishing PEDMARK® as the standard of care, expanding adoption beyond oncologists, ensuring seamless access, and activating patients/caregivers through disease education[144] - The U.S pediatric oncology landscape includes approximately 200 targeted hospital centers, treating around 80% of pediatric cancer patients[147] - An estimated 10,000+ pediatric patients annually in the U.S and Europe may receive platinum-based chemotherapy, with many requiring lifelong hearing aids due to ototoxicity[145] Cisplatin Induced Ototoxicity ("CIO") Cisplatin-induced ototoxicity is a permanent and irreversible hearing loss affecting a high percentage of cancer patients - Cisplatin and other platinum compounds can cause permanent, irreversible ototoxicity (hearing loss), which is particularly harmful to pediatric cancer survivors[150][151] - It is estimated that over 50% of pediatric patients and approximately 40-80% of adult patients may suffer permanent hearing loss as a result of CIO[152] European Commission Marketing Authorization PEDMARQSI® received European and U.K marketing authorization, with commercial launch initiated by Norgine in early 2025 - PEDMARQSI® (PEDMARK® brand name in Europe) received European Commission Marketing Authorization in June 2023 and U.K approval in October 2023[153] - Norgine, the exclusive licensing partner, launched PEDMARQSI® in Germany and the U.K in early 2025[155] Results of Operations Net product sales increased, but the absence of 2024's licensing revenue led to a significant year-over-year total revenue decline - The decrease in selling and marketing expenses for both periods is largely related to the elimination of European pre-commercial activities in 2024 after the Norgine transaction[157][159] - Interest expense decreased due to a lower long-term debt balance following a $13,000 thousand debt paydown in December 2024[157][159] Three Months Ended June 30, 2025 vs 2024 (in thousands) | Metric | June 30, 2025 | June 30, 2024 | Change | | :-------------------------- | :------------ | :------------ | :----- | | PEDMARK product sales, net | $9,652 | $7,262 | $2,390 | | Selling and marketing expenses | $4,354 | $4,672 | $(318) | | General and administrative | $6,956 | $6,864 | $92 | | Loss from operations | $(2,732) | $(5,039) | $2,307 | | Interest expense | $(594) | $(1,044) | $450 | | Net loss | $(3,152) | $(5,553) | $2,401 | Six Months Ended June 30, 2025 vs 2024 (in thousands) | Metric | June 30, 2025 | June 30, 2024 | Change | | :-------------------------- | :------------ | :------------ | :------- | | PEDMARK product sales, net | $18,403 | $14,681 | $3,722 | | Licensing revenue | $0 | $17,958 | $(17,958) | | Total revenue | $18,403 | $32,639 | $(14,236) | | Selling and marketing expenses | $7,301 | $9,881 | $(2,580) | | General and administrative | $13,101 | $12,736 | $365 | | (Loss) / income from operations | $(3,540) | $8,704 | $(12,244) | | Interest expense | $(1,186) | $(2,078) | $892 | | Net (loss) / income | $(4,317) | $7,284 | $(11,601) | Liquidity and Capital Resources Cash and working capital decreased in H1 2025 due to higher operating expenses and timing of working capital collections - The net decrease in cash and cash equivalents of $7,929 thousand was primarily due to seasonally higher cash operating expenses and the timing of working capital collections[163] - The company's investment policy prioritizes preservation of principal, liquidity, and return on investment, avoiding speculative investments[166] Selected Asset and Liability Data (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Cash and equivalents | $18,705 | $26,634 | | Other current assets | $22,089 | $17,490 | | Current liabilities | $8,414 | $6,919 | | Working capital | $32,380 | $37,205 | | Stockholders' deficit | $(7,463) | $(5,872) | Selected Cash Flow Data (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Net cash (used in) / provided by operating activities | $(8,004) | $30,660 | | Net cash provided by / (used in) financing activities | $75 | $(875) | | Net cash flow | $(7,929) | $29,785 | Outstanding Share Information (in thousands) | Outstanding Share Type | June 30, 2025 | December 31, 2024 | Change | | :----------------------- | :------------ | :---------------- | :----- | | Common shares | 27,733 | 27,527 | 206 | | Warrants | 150 | 150 | — | | RSUs | 485 | 324 | 161 | | PSUs | 100 | — | 100 | | Stock options | 6,078 | 5,855 | 223 | | Total | 34,546 | 33,856 | 690 | Credit Losses The company provides for expected credit losses on trade receivables by analyzing customer classes and financial status - The company estimates and records a provision for expected credit losses related to trade receivables, considering historical collection rates, customer financial status, macroeconomic factors, and industry-specific factors[171] - Receivables are disaggregated by customer class, and each component is analyzed individually, establishing customer profiles based on past collections and evaluating current/forecasted financial positions[172] Revenue Recognition Revenue is recognized under ASC 606, requiring significant judgment in estimating variable consideration and allocating price - Revenue is recognized when customers obtain control of promised goods or services, reflecting the consideration expected in exchange[173] - For license agreements, if intellectual property is distinct, revenue is recognized upon transfer of control, with contingent milestones constrained until probable of not resulting in a material reversal[175][176] - Sales-based royalties are recognized as revenue when the related sales occur or when the performance obligation to which royalties relate has been satisfied[179] Stock-based Compensation The fair value of stock options is estimated using the Black-Scholes model, which requires significant management assumptions - The fair value of stock options is estimated using the Black-Scholes option-pricing model, requiring assumptions for expected volatility, expected life, expected dividends, and expected risk-free interest rates[180] - Performance-based units (PSUs) are expensed over the performance period to the extent that the achievement of revenue performance milestones is considered probable[181] Black-Scholes Model Assumptions (June 30, 2025) | Assumption | Value | | :-------------------- | :------------------ | | Expected dividend | -% | | Risk free rate | 3.93 - 4.19 % | | Expected volatility | 71.04 - 161.67 % | | Expected life | 1.5 - 6.0 years | Common shares and warrants Common shares are recorded at net proceeds, while warrants are recorded at relative fair value as additional paid-in capital - Common shares are recorded as net proceeds received on issuance, after deducting share issuance costs and the relative fair value of investor warrants[182] - Warrants are recorded at relative fair value and deducted from common share proceeds, then recorded as additional paid-in capital[182] Newly Adopted and Recent Accounting Pronouncements This section refers to Note 2 for details on new and recently adopted accounting pronouncements - Refer to Note 2, 'Significant Accounting Policies - Recent Accounting Pronouncements' for information on newly adopted and recent accounting pronouncements[183] Item 3. Quantitative and Qualitative Disclosures about Market Risk This item states that there are no applicable quantitative and qualitative disclosures about market risk for the company - This section is not applicable[184] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of the end of the reporting period - As of June 30, 2025, the company's Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective[186] - There were no material changes to the company's internal control over financial reporting during the quarter ended June 30, 2025[187] - The effectiveness of any internal control system is subject to inherent limitations, providing reasonable, not absolute, assurances[188] PART II: OTHER INFORMATION Item 1. Legal Proceedings The company is actively engaged in patent infringement litigation against CIPLA concerning its generic version of PEDMARK® - The company is actively engaged in patent infringement litigation against CIPLA Ltd and CIPLA USA, who submitted an ANDA for a generic version of PEDMARK®[189][191] - The litigation involves multiple patents covering PEDMARK®, including newly granted patents like US 12,311,026 ('026 Patent) in May 2025, all with expiration dates in July 2039[191][193][194][197] - On July 14, 2025, the court granted a motion to consolidate two related cases (2:25-cv-05709 and 2:23-cv-00123) and issued an order on claim construction, adopting the company's proposed constructions for two disputed claim terms[198][199] - The company has received Orphan Drug Exclusivity, preventing FDA approval of CIPLA's ANDA until at least September 20, 2029[192] Item 1A. Risk Factors This section refers to the company's Annual Report for a detailed discussion of risk factors, with no material changes noted - Readers should carefully consider the risk factors discussed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2024[201] - The company is not aware of any material changes from the risk factors previously disclosed[201] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This item confirms there were no unregistered sales of equity securities or use of proceeds to report during the period - No unregistered sales of equity securities or use of proceeds to report[202] Item 3. Defaults Upon Senior Securities This item confirms there were no defaults upon senior securities to report during the period - No defaults upon senior securities to report[203] Item 4. Mine Safety Disclosures This item states that mine safety disclosures are not applicable to the company's operations - Mine safety disclosures are not applicable[204] Item 5. Other Information This section discloses a director's adoption of a Rule 10b5-1 trading plan and the furnishing of a press release - Chris Rallis, a Board member, adopted a Rule 10b5-1 trading arrangement on May 19, 2025, covering the disposition of up to 18,406 common shares, set to terminate on June 9, 2026[205] - A press release announcing financial results for the quarter ended June 30, 2025, was issued on August 14, 2025, and furnished as Exhibit 99.1[206] Item 6. Exhibits This section lists all exhibits filed with the report, including certifications and Inline XBRL documents - Exhibits include certifications from the CEO and CFO (31.1, 31.2, 32.1), the press release for Q2 2025 results (99.1), and various Inline XBRL documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[207][209] Signatures This section contains the certifying signatures of the company's Chief Executive Officer and Chief Financial Officer - The report is signed by Jeff Hackman, Chief Executive Officer, and Robert Andrade, Chief Financial Officer, on August 14, 2025[213]