Fennec Pharmaceuticals
Annual Report 2019

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K (Mark One) þANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2019OR ¨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 Columbia, Canada(State or Other Jurisdiction ofIncorporation or Organization)20-0442384(I.R.S. EmployerIdentification No.) PO Box 13628, 68 TW Alexander DriveResearch Triangle Park, NC(Address of Principal Executive Offices)27709(Zip Code) (919) 636-4530(Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registeredCommon Shares, no par value Nasdaq Capital Market Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ¨ NO þ Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES ¨ NO þ Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for thepast 90 days. YES þ NO ¨ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).YES þ NO ¨ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not becontained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K. þ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerginggrowth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2of the Exchange Act. Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer þ Smaller reporting company þ Emerging growth company ¨ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new orrevised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨ Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO þ The aggregate market value of the voting stock held by non-affiliates of the Registrant, computed by reference to the closing sales price of the Registrant’sCommon Shares as reported on the Nasdaq Capital Market on June 30, 2019 (the last business day of the Registrant’s most recently completed second fiscalquarter) was $45,968,332 based upon a total of 11,492,083 shares held as of June 30, 2019 by persons believed to be non-affiliates of the Registrant (for purposesof this calculation, all of the Registrant’s officers, directors and 10% owners known to the Registrant are deemed to be affiliates of the Registrant). As of February 11, 2020, there were 19,895,830 shares of the Registrant’s Common Shares outstanding.  FENNEC PHARMACEUTICALS INC. 2019 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS PART I1 Item 1.Business1 Item 1A. Risk Factors11 Item 1B. Unresolved Staff Comments38 Item 2.Properties38 Item 3.Legal Proceedings38 Item 4.Mine Safety Disclosures38 PART II39 Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer’s Purchases of Equity Securities39 Item 6. Selected Financial Data47 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations48 Item 7A. Quantitative and Qualitative Disclosures About Market Risk53 Item 8.Financial Statements and Supplementary Data54 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure54 Item 9A. Controls and Procedures54 Item 9B.Other Information55 PART III56 Item 10. Directors, Executive Officers and Corporate Governance56 Item 11. Executive Compensation59 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters61 Item 14. Principal Accounting Fees and Services63 PART IV64 Item 15.Exhibits, Financial Statement Schedules64 Item 16. Form 10-K Summary65 SIGNATURES66  NOTE REGARDING FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K contains forward-looking statements within the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of1995. Our actual results, performance or achievements may be materially different from any results, performance or achievements expressed or implied by suchforward-looking statements. Words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” “project,” “plan,” and other similarwords are one way to identify such forward-looking statements. Forward-looking statements in this Annual Report include, but are not limited to, statements withrespect to (1) our anticipated sources and uses of cash and cash equivalents; (2) our anticipated commencement dates, completion dates and results of clinical trials;(3) our efforts to pursue collaborations with the government, industry groups or other companies; (4) our anticipated progress and costs of our clinical andpreclinical research and development programs; (5) our corporate and development strategies; (6) our expected results of operations; (7) our anticipated levels ofexpenditures; (8) our ability to protect our intellectual property; (9) our ability to fully comply with domestic and international governmental regulation; (10) theanticipated applications and efficacy of our drug candidates; (11) our ability to obtain U.S. Food and Drug Administration (“FDA”) and similar foreign approvalsfor our drug candidate, (12) the nature and scope of potential markets for our drug candidate; (13) future legal liability; and (14) our ability to attract and retain keyemployees. All statements, other than statements of historical fact, included in this Annual Report that address activities, events or developments that we expect oranticipate will or may occur in the future are forward-looking statements. We include forward-looking statements because we believe that it is important tocommunicate our expectations to our investors. However, all forward-looking statements are based on management’s current expectations of future events and aresubject to a number of risks and uncertainties, including those discussed below in Item 1A., “Risk Factors.” Although we believe the expectations reflected in theforward-looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be attained, and we caution you not toplace undue reliance on such statements. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be madefrom time to time, whether as a result of new information, future developments or otherwise. PART I Item 1.Business Fennec Pharmaceuticals Inc. (“Fennec,” the “Company,” “we,” “us,” or “our”) is a biopharmaceutical company focused on the development of PEDMARKTM(sodium thiosulfate (STS) anhydrous injection)”) for the prevention of platinum-induced ototoxicity in pediatric cancer patients. We incorporated under the CanadaBusiness Corporations Act (“CBCA”) in September 1996. Effective on August 25, 2011, the Company continued from the CBCA to the Business CorporationsAct (British Columbia) (the “Continuance”). We have four wholly-owned subsidiaries: Oxiquant, Inc. and Fennec Pharmaceuticals, Inc., both Delawarecorporations, Cadherin Biomedical Inc., a Canadian company, and Fennec Pharmaceuticals (EU) Limited (“Fennec Limited”), an Ireland company. With theexception of Fennec Pharmaceuticals, Inc., all subsidiaries are inactive. Our corporate website is www.fennecpharma.com. We make our periodic and current reports, together with amendments to these reports, filed or furnishedpursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, available on our website, free of charge, as soon asreasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission, or the SEC. Members of the publicmay also read and copy any materials we file with, or furnish to, the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. Toobtain information on the operation of the Public Reference Room, please call the SEC at 1-800-SEC-0330. The SEC maintains a website at www.sec.gov thatcontains the reports, proxy statements and other information that we file or furnish electronically with the SEC. The Canadian securities regulatory authoritiesmaintain a website at www.sedar.com that contains our filings with the Canadian securities regulatory authorities. Our website and the information containedtherein or connected thereto is not intended to be incorporated into this Annual Report or any other report or information we file with the SEC or Canadiansecurities regulatory authorities. Product Candidate - PEDMARKTM The following is our only product candidate in the clinical stage of development: ·PEDMARKTM (sodium thiosulfate (STS) anhydrous injection) –has announced results of two Phase 3 clinical trials for the prevention of cisplatininduced hearing loss, or ototoxicity in children including the pivotal Phase 3 study SIOPEL 6 , “A Multicentre Open Label Randomised Phase 3 Trial ofthe Efficacy of Sodium Thiosulfate in Reducing Ototoxicity in Patients Receiving Cisplatin Chemotherapy for Standard Risk Hepatoblastoma,” and theproof of concept Phase 3 study “A Randomized Phase 3 Study of Sodium Thiosulfate for the Prevention of Cisplatin-Induced Ototoxicity in Children”. We continue to focus our resources on the development of PEDMARKTM. 1 PEDMARKTM We have licensed from Oregon Health & Science University (“OHSU”) intellectual property rights for the use of PEDMARKTM as a chemoprotectant and aredeveloping PEDMARKTM as a protectant against the hearing loss often caused by platinum-based anti-cancer agents in children. Preclinical and clinical studiesconducted by OHSU and others have indicated that PEDMARKTM can effectively reduce the incidence of hearing loss caused by platinum-based anti-canceragents. Hearing loss among children receiving platinum-based chemotherapy is frequent, permanent and often severely disabling. The incidence of hearing loss in thesechildren depends upon the dose and duration of chemotherapy, and many of these children require lifelong hearing aids. There is currently no establishedpreventive agent for this hearing loss and only expensive, technically difficult and sub-optimal cochlear (inner ear) implants have been shown to provide somebenefit. In addition, adults undergoing chemotherapy for several common malignancies, including ovarian cancer, testicular cancer, and particularly head and neckcancer 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 annually that over 10,000 children may receive platinum-based chemotherapy. The incidence of ototoxicity depends uponthe dose and duration of chemotherapy, and many of these children require lifelong hearing aids. There is currently no established preventive agent for this hearingloss and only expensive, technically difficult and sub-optimal cochlear (inner ear) implants have been shown to provide some benefit. Infants and young childrenthat suffer ototoxicity at critical stages of development lack speech language development and literacy, and older children and adolescents lack social-emotionaldevelopment and educational achievement. PEDMARK has been studied by cooperative groups in two Phase 3 clinical studies of survival and reduction of ototoxicity, The Clinical Oncology Group ProtocolACCL0431 and SIOPEL 6. Both studies have been completed. The COG ACCL0431 protocol enrolled one of five childhood cancers typically treated withintensive cisplatin therapy for localized and disseminated disease, including newly diagnosed hepatoblastoma, germ cell tumor, osteosarcoma, neuroblastoma, andmedulloblastoma. SIOPEL 6 enrolled only hepatoblastoma patients with localized tumors. In July 2018, the Pediatric Committee (PDCO) of the European Medicines Agency (EMA) accepted our pediatric investigation plan (PIP) for Sodium Thiosulfatefor Infusion for the condition of the prevention of platinum-induced ototoxic hearing loss. An accepted PIP is a prerequisite for filing a full MarketingAuthorization Application (MAA) for a new medicinal product in Europe. The indication targeted by the Company’s PIP is for the prevention of platinum-inducedototoxic hearing loss for standard risk hepatoblastoma (SR-HB). Additional tumor types within the proposed Marketing Authorization (MA) indication will besubject to the Committee for Medicinal Products for Human Use (CHMP) assessment at the time of the MAA. No deferred clinical studies were required in thepositive opinion given by PDCO. The Company was also advised that Sodium Thiosulfate for Infusion is eligible for submission of an application for a PediatricUse Marketing Authorization (PUMA). Therefore, this PIP decision allows Fennec to proceed with the submission of a PUMA in the European Union (EU) withincentives of automatic access to the centralized procedure and up to 10 years of data and market protection. The PUMA is a dedicated MA for new products ofmedicines previously authorized and no longer under data or marketing protection, covering the indication and appropriate formulation for medicines developedexclusively for use in the pediatric population. In February 2020, Fennec announced that it has submitted a MAA for the prevention of ototoxicity induced bycisplatin chemotherapy in patients 1 month to < 18 years of age with localized, non-metastatic, solid tumors. The Company is targeting potential commerciallaunch of Sodium Thiosulfate for Infusion, if approved, in the first half of 2021. We initiated our rolling FDA New Drug Application (“NDA”) for PEDMARKTM (tradename for Sodium Thiosulfate for Infusion in the US) for the prevention ofototoxicity induced by cisplatin chemotherapy in patients 1 month to < 18 years of age with localized, non-metastatic, solid tumors in December 2018. Fennecannounced that it has completed its rolling submission of the NDA in February 2020. The Company is targeting a potential commercial launch of PEDMARKTM,if approved, in the second half of 2020. In March 2018, PEDMARKTM received Breakthrough Therapy and Fast Track designations from the FDA. Further,PEDMARKTM has received Orphan Drug Designation in the US in this setting. In September 2019, the Company announced the appointment of Shubh Goel as chief commercial officer. In this newly created position, Ms. Goel will build andoversee Fennec’s commercial strategy and organization, including both the launch and commercialization of PEDMARKTM, if approved by the FDA andequivalent foreign regulators. SIOPEL 6 In October 2007, we announced that our collaborative partner, the International Childhood Liver Tumour Strategy Group, known as SIOPEL, a multi-disciplinarygroup of specialists under the umbrella of the International Society of Pediatric Oncology, had launched a randomized Phase 3 clinical trial SIOPEL 6 toinvestigate whether STS reduces hearing loss in standard risk hepatoblastoma (liver) cancer patients receiving cisplatin as a monotherapy. 2 The study was initiated in October 2007 initially in the United Kingdom and completed enrollment at the end of 2014. 52 sites from 11 countries enrolled 109evaluable patients. Under the terms of our agreement, SIOPEL conducted and funded all clinical activities and we provided drug, drug distribution andpharmacovigilance, or safety monitoring, for the study. SIOPEL 6 was completed in December 2014 and the final results of SIOPEL 6 were published in The NewEngland Journal of Medicine in June 2018. The primary objectives of SIOPEL 6 were: ·To assess the efficacy of STS to reduce the hearing impairment caused by cisplatin.·To carefully monitor any potential impact of STS on response to cisplatin and survival. SIOPEL 6 - Results Background / Objectives: Background: Bilateral high-frequency hearing loss is a serious permanent side-effect of cisplatin therapy, particularly debilitating when occurring in youngchildren. 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 reducingototoxicity in young children treated with cisplatin (Cis) for Standard Risk Hepatoblastoma (SR-HB). Design / Methods: 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-abdominalextrahepatic disease, AFP >100ng/ml and no metastases, were randomized to Cis or Cis+STS for 4 preoperative and 2 postoperative courses. Cisplatin 80mg/m2was administered over 6 hours, STS 20g/m2 was administered intravenously over 15 minutes exactly 6 hours after stopping cisplatin. Tumor response was assessedafter 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/m2combined with cisplatin. The primary endpoint is centrally reviewed absolute hearing threshold, at the age of ≥3.5 years by pure tone audiometry. Results: One hundred and nine randomized patients (52 Cisplatin only ("Cis") and 57 Cis+STS) were evaluable. The combination of Cis+STS was generally well tolerated.With a follow up time of 52 months for the patients the three-year Event Free Survival ("EFS") for Cis is 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 inboth 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 arelative risk of 0.52(P=0.002). Conclusions: 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. COG ACCL0431 In March 2008, we announced the activation of a Phase 3 trial with STS to prevent hearing loss in children receiving cisplatin-based chemotherapy in collaborationwith the Children’s Oncology Group (“COG ACCL0431”). The goal of this Phase 3 study was to evaluate in a multi-centered, randomized trial whether STS is aneffective 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, who were to receivecisplatin according to their disease-specific regimen and, upon enrollment in this study, were randomized to receive STS or not. Efficacy of STS was determinedthrough 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 safetymonitoring, for the study. The trial completed enrollment of 131 pediatric patients in the first quarter of 2012. The final results of COG ACCL0431 were publishedin Lancet Oncology in December 2016. 3 COG ACCL0431 - Results COG Study ACCL0431, “A Randomized Phase 3 Study of Sodium Thiosulfate for the Prevention of Cisplatin-Induced Ototoxicity in Children,” finishedenrollment of 131 patients of which 125 were eligible patients. The patients had been previously diagnosed with childhood cancers. The primary endpoint was to evaluate the efficacy of STS for prevention of hearing loss in children receiving cisplatin chemotherapy (hypothesis: 50% relativereduction in hearing loss). Secondary endpoints included: ·Compare change in mean hearing thresholds.·Compare incidence of other Grade 3/4 toxicities (renal and hematological).·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 male and 29 <5 years old) were evaluable for the primary endpoint. 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 wasmeasured using standard audiometry for age and data were reviewed centrally using American Speech-Language-Hearing Association criteria. The proportion of subjects with hearing loss assessed at 4 weeks post the final cisplatin dose (primary endpoint): ·The proportion of hearing loss for STS vs. Control was 28.6% (14/49) vs. 56.4% (31/55), respectively (p=0.004).·In a predefined subgroup of patients less than 5 years old with 29 eligible subjects: STS vs. Control was 21.4% (3/14) vs. 73.3% (11/15),respectively (p=0.005). Conclusions: ·STS protects against cisplatin-induced hearing loss in children across a heterogeneous range of tumor types with even stronger efficacy in theprotocol predefined subgroup of patients under five years old and is not associated with serious adverse events attributed to its use.·Further potential clinical use will be informed by the final results of SIOPEL 6 study. Intellectual Property Patents are important to developing and protecting our competitive position. Our general policy is to seek patent protection in the United States, major Europeancountries, Japan, Canada and other jurisdictions as appropriate for our compounds and methods. U.S. patents, as well as most foreign patents, are generallyeffective for 20 years from the date the earliest (priority) application was filed; however, U.S. patents that issue on applications filed before June 8, 1995 may beeffective until 17 years from the issue date, if that is later than the twenty-year date. In some cases, the patent term may be extended to recapture a portion of theterm lost during the U.S. FDA regulatory review or because of U.S. Patent and Trademark Office, or USPTO, delays in prosecuting the application. The durationof foreign patents varies similarly, in accordance with local law. Currently, we have licensed from OHSU one U.S. and nine foreign patents. All the patents licensed from OHSU expire in 2021. Additionally, there are twopatents pending that we license from OHSU and two additional patents pending owned by Fennec. To the extent the patents owned by Fennec are issued, theCompany plans to operate under the owned patents as those licensed from OHSU will expire. In addition, periods of marketing exclusivity for STS may also be possible in the United States under orphan drug status and in Europe under European MarketExclusivity for Pediatric Use. We obtained U.S. Orphan Drug Designation for the use of STS in the prevention of platinum-induced ototoxicity in pediatric patientsin 2004 which provides 7.5 years of market exclusivity upon FDA approval of our NDA. We plan to pursue European Market Exclusivity for Pediatric Use uponapproval of the MAA which would allow for 10 years of market exclusivity. Our success is significantly dependent on our ability to obtain and maintain patent protection for STS, both in the United States and abroad. The patent position ofbiotechnology and pharmaceutical companies, in general, is highly uncertain and involves complex legal and factual questions, which often results in apparentinconsistencies regarding the breadth of claims allowed and general uncertainty as to their legal interpretation and enforceability. Further, our principal candidateSTS, is based on previously known compounds, and the candidates or products that we develop in the future may include or be based on the same or othercompounds owned or produced by other parties, some or all of which may not be subject to effective patent protection. In addition, regimens that we may developfor the administration of pharmaceuticals, such as specifications for the frequency, timing and amount of dosages, may not be patentable. Accordingly, our patentapplications may not result in patents being issued and issued patents may not afford effective protection. In addition, products or processes that we develop mayturn out to be covered by third party patents, in which case we may require a license under such patents if we intend to continue the development of those productsor processes. 4 Our patent position and proprietary rights are subject to certain risks and uncertainties. Please read the “Risk Factors” in Item 1A of this Annual Report forinformation about certain risks and uncertainties that may affect our patent position and proprietary rights. We also rely upon unpatented confidential information to remain competitive. We protect such information principally through confidentiality agreements with ouremployees, consultants, outside scientific collaborators, and other advisers. In the case of our employees, these agreements also provide, in compliance withrelevant law, that inventions and other intellectual property conceived by such employees during their employment shall be our exclusive property. Corporate Relationships License Agreement with Oregon Health & Science University On February 20, 2013, Fennec entered into a new exclusive license agreement with OHSU for exclusive worldwide license rights to intellectual property directedto thiol-based compounds, including STS and their use in oncology (the "OHSU Agreement"). OHSU will receive certain milestone payments, royalty on net salesfor licensed products and a royalty on any consideration received from sublicensing of the licensed technology. On May 18, 2015, Fennec negotiated an amendment ("Amendment 1") to the OHSU Agreement, which expands Fennec’s exclusive license to include the use ofN-acetylcysteine as a standalone therapy and/or in combination with STS for the prevention of ototoxicity induced by chemotherapeutic agents to treat cancers.Further, Amendment 1 adjusts select milestone payments entered in the OHSU Agreement including but not limited to the royalty rate on net sales for licensedproducts, royalty rate from sublicensing of the licensed technology and the fee payable upon the regulatory approval of a licensed product. The term of the OHSU Agreement as amended by Amendment 1 expires on the date of the last to expire claim(s) covered in the patents licensed to Fennec or 8years, whichever is later. In the event a licensed product obtains regulatory approval and is covered by the Orphan Drug Designation, the parties will in good faithamend the term of the agreement. STS is currently protected by methods of use patents that the Company exclusively licensed from OHSU that expire in Europein 2021 and are currently pending in the United States. The OHSU Agreement is terminable by either Fennec or OHSU in the event of a material breach of theagreement by either party after 45 days prior written notice. Fennec also has the right to terminate the OHSU Agreement at any time upon 60 days prior writtennotice and payment of all fees due to OHSU under the OHSU Agreement. Competition Competition in the biotechnology and pharmaceutical industries is intense. We expect that if PEDMARKTM achieves regulatory approval for sale, it will competeon the basis of drug efficacy, safety, patient convenience, reliability, ease of manufacture, price, marketing, distribution, and patent protection, among othervariables. Our competitors may develop technologies or drugs that are more effective, safer or more affordable than any we may develop. We are aware of a number of companies engaged in the research, development and testing of new cancer therapies or means of increasing the effectiveness ofexisting therapies, including, among many others, Amgen, AstraZeneca, Bayer, Bristol-Myers Squibb, Eli Lilly, Eisai, Merck KGaA, Novartis, Johnson &Johnson, Pfizer, Roche, Taiho and Sanofi-Aventis. Some of these companies have products that have already received, or are in the process of receiving,regulatory approval or are in later stages of clinical development than our product. Many of them have much greater financial resources than we do. Many of thesecompanies have marketed drugs or are developing targeted cancer therapeutics which, depending upon the mechanism of action of such agents, could be viewed ascompetitors. We are not aware of any commercially available agents that reduce the incidence of hearing loss associated with the use of platinum-based anti-cancer agents, forwhich purpose we are developing STS. There are several potential competitive agents with activity in preclinical or limited clinical settings. These include: D-methionine, an amino acid that has been shown to protect against hearing loss in experimental settings but was demonstrated to be inferior to STS in comparativestudies; SPI-3005, an oral agent primarily being developed by Sound Pharmaceuticals for noise and age-related hearing loss but in early Phase II trials forchemotherapy related hearing loss, which mimics glutathione peroxidase and induces the intracellular induction of glutathione; N-acetylcysteine and amifostine,which have shown effectiveness (but less than STS) in experimental systems; and Vitamin E, salicylate and tiopronin, which have all demonstrated moderateactivity in rat models to protect against cisplatin-induced ototoxicity, but no clinical trials have been completed and DB-020 a clinical stage candidate in anongoing Phase1b trial being developed by Decibel Therapeutics. Cochlear implants, which are small electronic devices that are surgically placed in the inner ear toassist with certain types of deafness, are utilized to offer some relief for hearing loss associated with the use of platinum-based anti-cancer agents, but are oftensuboptimal. 5 Many of our existing or potential competitors have substantially greater financial, technical and human resources than we do and may be better equipped todevelop, manufacture and market products. In addition, many of these competitors have extensive experience with preclinical testing and human clinical trials andin obtaining regulatory approvals. In addition, many of the smaller companies that compete with us have formed collaborative relationships with large, establishedcompanies to support the research, development, clinical trials and commercialization of any products that they may develop. We may rely on third parties tocommercialize the products we develop, and our success will depend in large part on the efforts and competitive merit of these collaborative partners. Academicinstitutions, government agencies and other public and private research organizations may also conduct research, seek patent protection and establish collaborativearrangements for research, clinical development and marketing of products similar to PEDMARKTM. These companies and institutions compete with us inrecruiting and retaining qualified scientific and management personnel as well as in acquiring technologies complementary to our projects. The existence ofcompetitive products, including products or treatments of which we are not aware, or products or treatments that may be developed in the future, may adverselyaffect the marketability of PEDMARKTM. Government Regulation The production and manufacture of our product candidate and our research and development activities are subject to significant regulation for safety, efficacy andquality by various governmental authorities around the world. Before new pharmaceutical products may be sold in the U.S. and other countries, clinical trials ofthe product must be conducted, and the results submitted to appropriate regulatory agencies for approval. Clinical trial programs must establish efficacy, determinean appropriate dose and regimen, and define the conditions for safe use. This is a high-risk process that requires stepwise clinical studies in which the candidateproduct must successfully meet predetermined endpoints. In the U.S., the results of the preclinical and clinical testing of a product are then submitted to the FDAin the form of a Biologics License Application or a New Drug Application. In response to these submissions, the FDA may grant marketing approval, requestadditional information or deny the application if it determines the application does not provide an adequate basis for approval. Similar submissions are required byauthorities in other jurisdictions who independently assess the product and may reach the same or different conclusions. The receipt of regulatory approval often takes a number of years, involves the expenditure of substantial resources and depends on a number of factors, includingthe severity of the disease in question, the availability of alternative treatments and the risks and benefits demonstrated in clinical trials. On occasion, regulatoryauthorities may require larger or additional studies, leading to unanticipated delay or expense. Even after initial approval from the FDA or other regulatoryagencies has been obtained, further clinical trials may be required to provide additional data on safety and effectiveness. Additional trials are required to gainclearance for the use of a product as a treatment for indications other than those initially approved. Furthermore, the FDA and other regulatory agencies requirecompanies to disclose clinical trial results. Failure to disclose such results within applicable time periods could result in penalties, including civil monetarypenalties. In Canada, these activities are subject to regulation by Health Canada’s Therapeutic Products Directorate, or TPD, and the rules and regulations promulgated underthe Food and Drug Act. In the United States, drugs and biological products are subject to regulation by the FDA. The FDA requires licensing of manufacturing andcontract research facilities, carefully controlled research and testing of products and governmental review and approval of results prior to marketing therapeuticproducts. Additionally, the FDA requires adherence to “Good Laboratory Practices” as well as “Good Clinical Practices” during clinical testing and “GoodManufacturing Practices” and adherence to labeling and supply controls. The systems of new drug approvals in Canada and the United States are substantiallysimilar and are generally considered to be among the most rigorous in the world. Generally, the steps required for drug approval in Canada and the United States, specifically in cancer related therapies, include: ·Preclinical Studies: Preclinical studies, also known as non-clinical studies, primarily involve evaluations of pharmacology, toxic effects,pharmacokinetics and metabolism of a drug in animals to provide evidence of the relative safety and bioavailability of the drug prior to its administrationto humans in clinical studies. A typical program of preclinical studies takes 18 to 24 months to complete. The results of the preclinical studies as well asinformation related to the chemistry and comprehensive descriptions of proposed human clinical studies are then submitted as part of the InvestigationalNew Drug Application to the FDA, a Clinical Trial Application to the TPD, or similar submission to other foreign regulatory bodies. This is necessary inCanada, the United States and most other countries prior to undertaking clinical studies. Additional preclinical studies are conducted during clinicaldevelopment to further characterize the toxic effects of a drug prior to submitting a marketing application.·Phase 1 Clinical Trials: Most Phase 1 clinical trials take approximately one year to complete and are usually conducted on a small number of healthyhuman subjects to evaluate the drug’s safety, tolerability and pharmacokinetics. In some cases, such as cancer indications, Phase 1 clinical trials areconducted in patients rather than healthy volunteers.·Phase 2 Clinical Trials: Phase 2 clinical trials typically take one to two years to complete and are generally carried out on a relatively small number ofpatients, generally between 15 and 50, in a specific setting of targeted disease or medicalcondition, in order to provide an estimate of the drug’s effectiveness in that specific setting. This phase also provides additional safety data and serves toidentify possible common short-term side effects and risks in a somewhat larger group of patients. Phase 2 testing frequently relates to a specific disease,such as breast or lung cancer. Some contemporary methods of developing drugs, particularly molecularly targeted therapies, do not require broad testingin specific diseases, and instead permit testing in subsets of patients expressing the particular marker. In some cases, such as cancer indications, thecompany sponsoring the new drug may submit a marketing application to seek accelerated approval of the drug based on evidence of the drug’s effect ona “surrogate endpoint” from Phase II clinical trials. A surrogate endpoint is a laboratory finding or physical sign that may not be a direct measurement ofhow a patient feels, functions or survives, but is still considered likely to predict therapeutic benefit for the patient. If accelerated approval is received, thecompany sponsoring the new drug must continue testing to demonstrate that the drug indeed provides therapeutic benefit to the patient.·Phase 3 Clinical Trials: Phase 3 clinical trials typically take two to four years to complete and involve tests on a much larger population of patientssuffering from the targeted condition or disease. These studies involve conducting controlled testing and/or uncontrolled testing in an expanded patientpopulation, numbering several hundred to several thousand patients, at separate test sites, known as multi-center trials, to establish clinical safety andeffectiveness. These trials also generate information from which the overall benefit-risk relationship relating to the drug can be determined and provide abasis for drug labeling. Phase 3 trials are generally the most time consuming and expensive part of a clinical trial program. In some instances,governmental authorities, such as the FDA, will allow a single Phase 3 clinical trial to serve as a pivotal efficacy trial to support a Marketing Application.·Marketing Application: Upon completion of Phase 3 clinical trials, the pharmaceutical company sponsoring the new drug assembles all the chemistry,preclinical and clinical data and submits it to the TPD or the FDA as part of a New Drug Submission in Canada or a New Drug Application in the UnitedStates. The marketing application is then reviewed by the applicable regulatory body for approval to market the product. The review process generallytakes twelve to eighteen months. 6 Any clinical trials that we conduct may not be successfully completed, either in a satisfactory time period or at all. The typical time periods described above mayvary substantially and may be materially longer. In addition, the FDA and its counterparts in other countries have considerable discretion to discontinue trials ifthey become aware of any significant safety issues or convincing evidence that a therapy is not effective for the indication being tested. It is possible the FDA andits counterparts in other countries may not (i) allow clinical trials to proceed at any time after receiving an Investigational New Drug, (ii) allow further clinicaldevelopment phases after authorizing a previous phase, or (iii) approve marketing of a drug after the completion of clinical trials. While European, U.S. and Canadian regulatory systems require that medical products be safe, effective, and manufactured according to high quality standards, thedrug approval process in Europe differs from that in the United States and Canada and may require us to perform additional preclinical or clinical testing regardlessof whether FDA or TPD approval has been obtained. The amount of time required to obtain necessary approvals may be longer or shorter than that required forFDA or TPD approval. European Union Regulations and Directives generally classify health care products either as medicinal products, medical devices or in vitrodiagnostics. For medicinal products, marketing approval may be sought using either the centralized procedure of the European Agency for the Evaluation ofMedicinal Products, or EMEA, or the decentralized, mutual recognition process. The centralized procedure, which is mandatory for some biotechnology derivedproducts, results in an approval recommendation from the EMEA to all member states, while the European Union mutual recognition process involves country bycountry approval. The NDA Approval Process Assuming successful completion of the required clinical testing, the results of the preclinical studies and clinical trials, including negative or ambiguous results aswell as positive findings, together with detailed information relating to the product’s chemistry, manufacture, controls and proposed labeling, among other things,are submitted to the FDA as part of an NDA to support approval to market the product for one or more indications. In most cases, the submission of an NDA issubject to a substantial application user fee. Fennec anticipates a waiver of the application user fee related to its NDA for PEDMARK TM. The FDA is required to conduct a preliminary review of an NDA within the first 60 days after submission, before accepting it for filing, to determine whether it issufficiently complete to permit a substantive review. The FDA may accept the NDA for filing, potentially refuse to file the NDA due to deficiencies but work withthe applicant to rectify the deficiencies (in which case the NDA is filed upon resolution of the deficiencies) or refuse to file the NDA. The FDA must notify theapplicant of a refusal to file a decision within 60 days after the original receipt date of the application. If the FDA refuses to file the NDA the applicant mayresubmit the NDA with the deficiencies addressed. The resubmitted NDA is considered a new application subject to a new review goal, as described below. If theNDA is refused for filing, the FDA will refund 75 percent of the application fee. Upon resubmission, a new application fee will be required, unless the applicant iseligible for a waiver or reduction. The resubmitted application is also subject to review before the FDA accepts it for filing. Once an NDA is accepted for filing,the FDA begins an in-depth substantive review. Under the Prescription Drug User Fee Act, or PDUFA, and the FDA’s commitments under the current PDUFAreauthorization, the FDA has a goal of reviewing and acting on 90% of standard non-priority NDA applications for drugs that are not new molecular entities withinten months from the FDA’s receipt of the NDA. 7 The FDA reviews an NDA to determine, among other things, whether the drug is safe and effective for its intended use and whether the facility in which it ismanufactured, processed, packaged or held meets standards designed to assure the product’s continued safety, quality and purity. The FDA is required to refer anapplication for a novel drug to an advisory committee or explain why such referral was not made. An advisory committee is a panel of independent experts,including clinicians and other scientific experts, that reviews, evaluates and provides a recommendation in response to specific questions raised by the FDA, whichmay include whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, butit considers such recommendations carefully when making decisions. Before approving an NDA, the FDA may inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless itdetermines that the manufacturing processes and facilities are in compliance with current Good Manufacturing Practices (cGMP) requirements and adequate toassure consistent production of the product within required specifications. Additionally, before approving an NDA, the FDA will typically inspect one or moreclinical investigational sites to evaluate the integrity of the data and confirm compliance with current Good Clinical Practices (cGCP). After the FDA evaluates the NDA and conducts its inspections, it may issue an approval letter or a Complete Response Letter. An approval letter authorizes thecommercial marketing of the drug subject to specific prescribing information for specific indications and, if applicable, specific post-approval requirements. AComplete Response Letter indicates that the review cycle of the application is complete and the application is not ready for approval in its present form. Afterreceiving a Complete Response Letter, the applicant must decide within twelve months (subject to extension), if it wants to resubmit the NDA addressing thedeficiencies identified by the FDA in the Complete Response Letter, withdraw the NDA, or request an opportunity for a hearing to challenge the FDA’sdetermination. A Complete Response Letter may require additional clinical data and/or an additional pivotal Phase 3 clinical trial(s), and/or other significant,expensive and time-consuming requirements related to clinical trials, nonclinical studies or manufacturing. Even if such data are submitted, the FDA mayultimately decide that the NDA does not satisfy the criteria for approval. Data from clinical trials are not always conclusive and the FDA may interpret datadifferently than we interpret data. The FDA also may require implementation of a Risk Evaluation and Mitigation Strategy, or REMS, to mitigate any identified or suspected serious risks. TheREMS could include a medication guide, physician communication plan, assessment plan and elements to assure safe use, such as restricted distribution methods,patient registries or other risk minimization tools. The drug testing and approval process requires substantial time, effort and financial resources, and may take several years to complete. Data obtained from clinicalactivities are not always conclusive and may be susceptible to varying interpretations, which could delay, limit or prevent marketing approval. The FDA may notgrant marketing approval on a timely basis, or at all. Even if the FDA approves a product, it may limit the approved indications for use for the product. The FDA requires that the approved product labeling includeinformation regarding contraindications, warnings or precautions. It may also require that post-approval studies, including a long-term registry, be conducted tofurther assess a drug’s safety after approval, require testing and surveillance programs to monitor the product after commercialization, or impose other conditions,including distribution restrictions or other risk management mechanisms, which can materially affect the potential market and profitability of the product. TheFDA may prevent or limit further marketing of a product based on the results of post-marketing studies or surveillance programs. After approval, some types ofchanges to the approved product, such as adding new indications or labeling claims or manufacturing changes may be subject to further testing requirements andFDA review and approval. Also after approval, the FDA may require labeling changes as new information becomes known, particularly if new risks are identified,such as unexpected adverse events. The FDA has the authority to prevent or limit further marketing of a drug based on the results of these post-marketing studiesand programs or other information that may become known after approval. Hatch-Waxman Exclusivity The Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments, amended the U.S. Federal Food, Drug, andCosmetic Act (“FFDCA”) and established abbreviated pathways to market, as well as incentives for the development of new drug products. The Hatch-WaxmanAmendments established section 505(b)(2) of the FFDCA that provides an alternative pathway for submission of an NDA, referred to as the 505(b)(2) application,when some or all of the safety and efficacy investigations relied on for approval were not conducted by or for the applicant and for which the applicant has notobtained a right of reference. The Hatch-Waxman Amendments also established the Abbreviated New Drug Application, or ANDA, approval pathway, whichprovides an expedient route for generic drugs that have the same active ingredient as a previously approved drug. At the same time, to incentivize continuedpharmaceutical innovation, the Hatch-Waxman Amendments authorized periods of statutory exclusivity to protect certain approved new drugs from competitionfor five or three year periods. Under the Hatch-Waxman Amendments, a new drug containing an active ingredient that had never before been approved in any other NDA, ANDA, or 505(b)(2)NDA is provided five years of statutory exclusivity upon approval. The FDA refers to this exclusivity as new chemical entity (NCE) exclusivity. During the NCEexclusivity period, the FDA cannot approve an ANDA or a 505(b)(2) application for a drug containing the same active ingredient generally may not be submittedto the FDA. For NCE exclusivity, the FDA regulations interpret “active ingredient” to mean “active moiety,” which is defined as “the molecule or ion, excludingthose appended portions of the molecule that cause the drug to be an ester, salt, or other noncovalent derivative of the molecule, responsible for the physiologicalor pharmacological action of the drug substance.” Although the FDA may not approve an ANDA or 505(b)(2) NDA with the same active ingredient during thefive-year NCE exclusivity period, an ANDA or 505(b)(2) NDA may be submitted to the FDA after four years if it contains a certification of patent invalidity, non-infringement, or unenforceability. 8 The Hatch-Waxman Amendments also provide three years of statutory exclusivity for an NDA, a 505(b)(2) NDA, or a supplement to either of these applicationsfor a drug product containing an active moiety that has been previously approved, if new clinical investigations, other than bioavailability studies, that wereconducted or sponsored by the applicant, are deemed by the FDA to be essential to the approval of the application. During this three-year exclusivity period, theFDA will not make effective the approval of any ANDA or 505(b)(2) NDA for the same active moiety for the same conditions of use. Five-year and three-yearexclusivity will not delay the submission or approval of a new drug containing the same active moiety if it is the subject of a full NDA for which the applicantconducted, sponsored, or obtained a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstratesafety and effectiveness. Other Regulatory Requirements. Drugs manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things,annual establishment registration, product listing, user fees, compliance with requirements regarding cGMP, recordkeeping, periodic reporting, product samplingand distribution, advertising and promotion, and adverse drug experience monitoring and reporting with the product. After approval, most changes to the approvedproduct labeling, such as adding new indications, are subject to prior FDA review and approval. Also, any post-approval changes in the drug substance, drugproduct, production process, quality controls, equipment, or facilities that have a substantial potential to have an adverse effect on the identity, strength, quality,purity, or potency of the drug product are subject to FDA review and approval. Any such changes that have a moderate potential to have an adverse effect on theidentity, strength, quality, purity, or potency of the drug product may not be implemented until 30 days after the FDA receives a supplement for the change. Allmanufacturing facilities, as well as records required to be maintained under FDA regulations, are subject to inspection or audit by the FDA. In addition,manufacturers generally are required to pay annual user fees for approved products and a user fee for the submission of each new or supplemental application. The FDA may impose a number of post-approval requirements as a condition of approval of an NDA. For example, the FDA may require post-approval testing,including Phase 4 clinical trials, and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization. The Food and DrugAdministration Amendments Act of 2007 gave the FDA the authority to require a REMS from drug manufacturers to manage a known or potential serious riskassociated with the drug and to ensure that the benefits of a drug outweigh its risks. Examples of a REMS include, but are not limited to, a Medication Guide, apatient package insert to help mitigate a serious risk of the drug, and a communication plan to healthcare providers to support the implementation of an element ofthe REMS. In addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments withthe FDA and register or obtain permits or licenses in states where they do business, and are subject to periodic unannounced inspections by the FDA and stateregulatory authorities with jurisdiction over their activities to determine compliance with regulatory requirements. A drug manufacturer is responsible for ensuringthat its third-party contractors operate in compliance with applicable laws and regulations including the cGMP regulation. The failure of a drug manufacturer orany of its third-party contractors to comply with federal or state laws or regulations may subject the drug manufacturer to possible legal or regulatory action, suchas an untitled letter, warning letter, recall, suspension of manufacturing or distribution or both, suspension of state permit or license, seizure of product, importdetention, injunctive action, and civil and criminal penalties. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDA regulations also require a drugmanufacturer to conduct investigations and implement appropriate corrective actions to address any deviations from cGMP requirements and impose reporting anddocumentation requirements upon the manufacturer and any third-party contractors (including contract manufacturers and laboratories) involved in themanufacture of a drug product. Accordingly, manufacturers must continue to expend significant time, money and effort to maintain and ensure ongoing cGMPcompliance and to confirm and ensure ongoing cGMP compliance of their third-party contractors. Once an approval is granted, the FDA may withdraw the approval if, among other things, there is information that the drug is unsafe for use under the approvedconditions of use; new information or evidence that, evaluated together with evidence available to the FDA at the time of approval, shows that the drug is notshown to be safe for use under the approved conditions of use; new information that, evaluated together with the evidence available to the FDA at the time ofapproval, shows there is a lack of substantial evidence of effectiveness; the approved application contains an untrue statement of material fact; or that the requiredpatient information was not submitted within 30 days after receiving notice from the FDA of the failure to submit such information. Later discovery of previouslyunknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply withregulatory requirements, may result in revisions to the approved labeling to add new safety and risk information; imposition of a post-market study requirement toassess new safety risks; or implementation of a REMS that may include distribution or other restrictions. 9 The FDA closely regulates drug advertising and promotional activities, including promotion of an unapproved drug, direct-to-consumer advertising, disseminationof scientific information about a drug not on the approved labeling, off-label promotion, communications with payors and formulary committees, industry-sponsored scientific and educational activities, and promotional activities involving the internet and social media. A company’s product claims must be true andnot misleading, provide fair balance, provide adequate risk information, and be consistent with the product labeling approved by the FDA. Failure to comply withthese requirements can lead to legal or regulatory actions including, among other things, warning letters, corrective advertising, injunction, violation and relatedpenalties under the False Claims Act and can result in reputational and economic harm. Physicians may prescribe FDA-approved drugs for uses that are not described in the product’s labeling and that differ from those uses tested by the manufacturer.Such off-label uses occur across medical specialties. Physicians may believe that such off-label uses are the best treatment for many patients in variedcircumstances. The FDA does not regulate the behavior of physicians in their choice of treatments for their individual patients. The FDA does, however, regulatemanufacturers’ communications about their drug products and interprets the FFDCA to prohibit pharmaceutical companies from promoting their FDA-approveddrug products for uses that are not specified in the FDA-approved labeling. Companies that market drugs for off-label uses have been subject to warning letters,related costly litigation, criminal prosecution, and civil liability under the FFDCA and the False Claims Act. In addition, the distribution of prescription pharmaceutical products is subject to the Prescription Drug Marketing Act, or PDMA, as amended by the Drug SupplyChain Security Act, which regulates the distribution of drug and drug samples at the federal level, and sets minimum standards for the registration and regulation ofwholesale drug distributors by the states. Good Clinical PracticesThe FDA and other regulatory agencies promulgate regulations and standards, commonly referred to as current Good Clinical Practices, for designing, conducting,monitoring, auditing and reporting the results of clinical trials to ensure that the data and results are accurate and that the trial participants are adequately protected.The FDA and other regulatory agencies enforce Good Clinical Practices through periodic inspections of trial sponsors, principal investigators and trial sites. If ourstudy sites fail to comply with applicable Good Clinical Practices, the clinical data generated in our clinical trials may be deemed unreliable and relevant regulatoryagencies may require us to perform additional clinical trials before approving our marketing applications. Good Manufacturing PracticesThe FDA and other regulatory agencies regulate and inspect equipment, facilities and processes used in the manufacture of pharmaceutical and biological productsprior to approving a product. If, after receiving approval from regulatory agencies, a company makes a material change in manufacturing equipment, location orprocess, additional regulatory review and approval may be required. All facilities and manufacturing techniques that may be used for the manufacture of ourproducts must comply with applicable regulations governing the production of pharmaceutical products known as "Good Manufacturing Practices." Orphan Drug ActUnder the Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to treat a “rare disease or condition,” which generally is a disease orcondition that affects fewer than 200,000 individuals in the U.S. If a product which has an orphan drug designation subsequently receives the first FDA approvalfor that drug for the indication for which it has such designation, the product is entitled to orphan exclusivity, i.e., the FDA may not approve any other applicationsubmitted by a different applicant to market the same drug for the same indication for a period of seven years following marketing approval, except in certain verylimited circumstances, such as if the later product is shown to be clinically superior to the approved product with orphan drug exclusivity. Legislation similar to theOrphan Drug Act has been enacted in other countries, including within the European Union. Pediatric Marketing Use AuthorizationThe PUMA approval is typically granted by the European Commission, based on a review by the European Medecines Agency, and is intended exclusively forpediatric (patients under 18 years of age) use. Such PUMA approval is ultimately valid in all countries within the European Economic Area (which excludes theUnited Kingdom as of February 1, 2020). The PUMA was introduced by the EU Paediatric Regulation for medicines that are: ·Normally contain an already authorized active ingredient;·Are no longer covered by a supplementary protection certificate (SPC) or a patent that qualifies for a SPC;·Are to be exclusively developed for use in children. The PUMA process was established to make it more efficient for pharmaceutical companies to invest in the development of drugs for children. PUMA drugsreceive 8 plus 2 years of regulatory data and marketing protection. and the applications are, in part, exempt from fees. The regulatory protection does not preventoff-label use of other drugs with the same active substance and indication for adults, nor pharmacy compounding. Other LawsOur present and future business has been and will continue to be subject to various other laws and regulations. Various laws, regulations and recommendationsrelating to safe working conditions, laboratory practices, the experimental use of animals, and the purchase, storage, movement, import and export and use anddisposal of hazardous or potentially hazardous substances, including radioactive compounds and infectious disease agents, used in connection with our researchwork are or may be applicable to our activities. Certain agreements entered into by us involving exclusive license rights may be subject to national or supranationalantitrust regulatory control, the effect of which cannot be predicted. The extent of government regulation, which might result from future legislation oradministrative action, cannot accurately be predicted. 10 Research and Development Our research and development efforts have been 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-dayactivities associated with our drug development. Where possible, we have sought to include leading scientific investigators and advisors to enhance our internalcapabilities. Research and development issues are reviewed internally by our executive management and supporting scientific team. Research and development expenses totaled $5.6 million and $5.0 million for the fiscal years ended December 31, 2019 and 2018, respectively. We have increasedour research and development expenses related to PEDMARKTM as a result of our drug manufacturing activities related to the preparation for registration batchesand NDA and MAA submission. Our product candidate still requires significant, time-consuming and costly research and development, testing and regulatory clearances. In developing our productcandidate, 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 ourproduct candidate will be ineffective or toxic, or will otherwise fail to receive the necessary regulatory clearances. There is a risk that our product candidate willbe 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 usfrom 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 estimatethe nature, timing and future costs necessary to complete the development of this product candidate. In addition, we are unable to reasonably estimate the periodwhen material net cash inflows could commence from the sale, licensing or commercialization of such product candidate, if ever. Employees At December 31, 2019, we had four employees (our Chief Executive Officer, Chief Financial Officer, Chief Commercial Officer, and Controller). Theseemployees are employed on a full-time basis and there are no part-time employees. We use independent contractors to perform certain daily operations of theCompany. Item 1A.Risk Factors An investment in our common shares involves a significant risk of loss. You should carefully read this entire Annual Report and should give particular attention tothe following risk factors. You should recognize that other significant risks may arise in the future, which we cannot reasonably foresee at this time. Also, the risksthat we now foresee might affect us to a greater or different degree than currently expected. There are a number of important factors that could cause our actualresults to differ materially from those expressed or implied by any of our forward-looking statements in this Annual Report. These factors include, withoutlimitation, the risk factors listed below, and other factors presented throughout this Annual Report and any other documents filed by us with the SEC and theCanadian securities regulators on SEDAR. Risks Related to Our Business We have a history of significant losses and have had no revenues to date through the sale of our products. If we do not generate significant revenues, wewill not achieve profitability. To date, we have been engaged primarily in research and development activities. We have had no revenues through the sale of our products, and we do not expectto have significant revenues until we are able to either sell our product candidate after obtaining applicable regulatory approvals or we establish collaborations thatprovide us with up-front payments, licensing fees, milestone payments, royalties or other revenue. We have incurred significant operating losses every year sinceour inception on September 3, 1996. We reported a loss of approximately $12.8 million for the year ended December 31, 2019 and reported a net loss ofapproximately $9.9 million (which included a non-cash loss on derivative liabilities of $0.2 million) for the year ended December 31, 2018. At December 31,2019, we had an accumulated deficit of approximately $144.0 million. We anticipate incurring substantial additional losses due to the need to spend substantialamounts on activities required for regulatory approval of PEDMARKTM, commercial launch preparation of PEDMARKTM, anticipated research and developmentactivities, and general and administrative expenses, among other factors. We have not commercially introduced any products. Our ability to attain profitability willdepend upon our ability to fund and develop products that are safe, effective and commercially viable, to obtain regulatory approval for the manufacture and sale ofour product candidate and to license or otherwise market our product candidate successfully. Any revenues generated from such product, assuming it issuccessfully developed, marketed and sold, may not be realized for a number of years. We may never achieve or sustain profitability on an ongoing basis. 11 PEDMARKTM is currently our only product candidate and there is no assurance that we will successfully develop PEDMARKTM into a commerciallyviable product. Since our formation in September 1996, we have engaged in research and development programs. We have generated no revenue from product sales, do not haveany products currently available for sale, and none are expected to be commercially available for sale until we have completed regulatory approval ofPEDMARKTM. PEDMARKTM is currently our only product candidate. There can be no assurance that the research we fund and manage will lead PEDMARKTMor any future product candidate to become a commercially viable product. We have completed two-Phase 3 studies for PEDMARKTM and completed submissionof our NDA in the U.S. We anticipate substantial regulatory review prior to the commercialization of PEDMARKTM. We may require additional financing to obtain marketing approval of PEDMARKTM and commercialize PEDMARKTM and a failure to obtain thiscapital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product development, other operations orcommercialization efforts. Based on available resources, we believe that our cash and cash equivalents of $13.7 million available and the $12.5 million debt facility announced in February2019 (under which we had not yet made an borrowings) are sufficient to fund our anticipated operating and capital requirements to NDA approval and thecommencement of commercialization efforts expected to occur later in 2020, subject to approval of our NDA. Moreover, we expect to continue to incur losses forthe foreseeable future as we continue our development of and seek marketing approvals for PEDMARKTM. Further, we may not be able to secure NDA approvalprior to the expiration of our debt facility in September 2020. We may not be able to obtain additional financing in sufficient amounts or on acceptable terms whenneeded. If we fail to arrange for sufficient capital on a timely basis, we may be required to curtail our business activities until we can obtain adequate financing.Debt financing must be repaid regardless of whether or not we generate profits or cash flows from our business activities. Equity financing may result in dilution toexisting shareholders and may involve securities that have rights, preferences, or privileges that are senior to our common shares or other securities. If we cannotraise sufficient capital when necessary, we will likely have to curtail operations and you may lose part or all of your investment. If we do not maintain current or enter into new collaborations with other companies, we might not successfully develop our product candidate orgenerate sufficient revenues to expand our business. We currently rely on scientific and research and development collaboration arrangements with academic institutions and other third-party collaborators, includingan exclusive worldwide license from OHSU for PEDMARKTM. We also rely on collaborators for testing PEDMARKTM, including SIOPEL and the Children’sOncology Group. The agreements with OHSU are terminable by either party in the event of an uncured breach by the other party. We may also terminate our agreement with OHSUat any time upon prior written notice of specified durations to OHSU. Termination of any of our collaborative arrangements could materially adversely affect ourbusiness. For example, if we are unable to make the necessary payments under these agreements, the licensor might terminate the agreement which might have amaterial adverse impact. In addition, our collaborators might not perform as agreed in the future. Since we conduct a significant portion of our research and development through collaborations, our success may depend significantly on the performance of suchcollaborators, as well as any future collaborators. Collaborators might not commit sufficient resources to the research and development or commercialization of ourproduct candidate. Economic or technological advantages of products being developed by others, among other factors, could lead our collaborators to pursue otherproduct candidates or technologies in preference to those being developed in collaboration with us. The commercial potential of, development stage of andprojected resources required to develop our drug candidate will affect our ability to maintain current collaborations or establish new collaborators. There is a riskof dispute with respect to ownership of technology developed under any collaboration. Our management of any collaboration will require significant time andeffort as well as an effective allocation of resources. We may not be able to simultaneously manage a large number of collaborations. Our product candidate is still in development. Due to the long, expensive and unpredictable drug development process, we might not ever successfullydevelop and commercialize our product candidate. In order to achieve profitable operations, we, alone or in collaboration with others, must successfully fund, develop, manufacture, introduce and market ourproduct candidate. The time necessary to achieve market success for any individual product is long and uncertain. Our product candidate and research programs arein clinical development and require significant, time-consuming and costly research, testing and regulatory clearances. In developing our product candidate, we aresubject to risks of failure that are inherent in the development of therapeutic products based on innovative technologies. The results of preclinical and initial clinicaltrials are not necessarily predictive of future results. Our product candidate might not be economical to manufacture or market ormight not achieve market acceptance. In addition, third parties might hold proprietary rights that preclude us from marketing our product candidate or others mightmarket equivalent or superior products. 12 We may need to conduct additional human clinical trials to assess our product candidate. If these trials are delayed or are unsuccessful, our developmentcosts will significantly increase, and our business prospects may suffer. Before obtaining regulatory approvals for the commercial sale of our product candidate, we must demonstrate, through preclinical studies with animals and clinicaltrials with humans, that our product candidate is safe and effective for use in each target indication. To date, we have performed only limited clinical trials. Muchof our testing has been conducted on animals or on human cells in the laboratory, and the benefits of treatment seen in animals or on human cells in a laboratorysetting may not ultimately be obtained in human clinical trials. As a result, we may need to perform significant additional research and development activities andconduct extensive preclinical and clinical testing prior to any application for commercial use. We may suffer significant setbacks in additional clinical trials, andthe trials may demonstrate our product candidate to be unsafe or ineffective. We may also encounter problems in our clinical trials that will cause us to delay,suspend or terminate those clinical trials, which would increase our development costs and harm our financial results and commercial prospects. Identifying andqualifying patients to participate in clinical trials of our potential products is critically important to our success. The timing of our clinical trials depends on, amongother things, the speed at which we can recruit patients to participate in testing our product candidate. We have experienced delays in some of our clinical trials andwe may experience significant delays in the future. If patients are unwilling to participate in our trials because of competing clinical trials for similar patientpopulations, perceived risk or any other reason, the timeline for recruiting patients, conducting trials and obtaining regulatory approval of potential products willbe delayed. Other factors that may result in significant delays include obtaining regulatory or ethics review board approvals for proposed trials, reaching agreementon acceptable terms with prospective clinical trial sites, and obtaining sufficient quantities of drugs for use in the clinical trials. Such delays could result in thetermination of the clinical trials altogether. Regulatory approval of our product candidate is time-consuming, expensive and uncertain, and could result in unexpectedly high expenses and delay ourability to sell our product. Development, manufacture and marketing of our product is subject to extensive regulation by governmental authorities in the United States and other countries.This regulation could require us to incur significant unexpected expenses or delay or limit our ability to sell our product candidate. Our clinical studies might bedelayed or halted, or additional studies might be required, for various reasons, including: ·there is a lack of sufficient funding;·the drug is not effective;·patients experience severe side effects during treatment;·appropriate patients do not enroll in the studies at the rate expected;·drug supplies are not sufficient to treat the patients in the studies; or·we decide to modify the drug during testing. If regulatory approval of our product is granted, it will be limited to those indications for which the product has been shown to be safe and effective, asdemonstrated to the satisfaction of the FDA and foreign regulators through clinical studies. Furthermore, approval might entail ongoing requirements for post-marketing studies. Even if regulatory approval is obtained, labeling and promotional activities are subject to continual scrutiny by the FDA and state and foreignregulatory agencies and, in some circumstances, the Federal Trade Commission. FDA enforcement policy prohibits the marketing of approved products forunapproved, or off-label, uses. These regulations and the FDA’s interpretation of them might impair our ability to effectively market our product. We and our third-party manufacturers are also required to comply with the applicable current FDA Good Manufacturing Practices regulations, which includerequirements relating to quality control and quality assurance, as well as the corresponding maintenance of records and documentation. Further, manufacturingfacilities, which we outsource to third parties, must be approved by the FDA before they can be used to manufacture our product, and they are subject to additionalFDA inspection. If we fail to comply with any of the FDA’s continuing regulations, we could be subject to reputational harm and sanctions, including: · delays, warning letters and fines;· product recalls or seizures and injunctions on sales;· refusal of the FDA to review pending applications;· total or partial suspension of production;· withdrawals of previously approved marketing applications; and· civil penalties and criminal prosecutions. In addition, identification of side effects after a drug is on the market or the occurrence of manufacturing problems could cause subsequent withdrawal of approval,reformulation of the drug, additional testing or changes in labeling of the product. 13 We may be unable to effectively deploy the proceeds from our recent financings for the development of PEDMARKTM. In February 2019, the Company announced a $12.5 million debt facility available to the Company upon approval of PEDMARKTM. Any inability on our part tomanage effectively the deployment of this capital could limit our ability to successfully develop PEDMARKTM. Further, under the terms of the debt facility to beissued we must obtain NDA approval prior to September 30, 2020. If our licenses to proprietary technology owned by others are terminated or expire, we may suffer increased development costs and delays, and we maynot be able to successfully develop our product candidate. The development of our drug candidate and the manufacture and sale of any products that we develop will involve the use of processes, products and information,some of the rights to which are owned by others. STS is licensed under agreements with OHSU. Although we have obtained licenses or rights with regard to theuse of certain processes, products and information, the licenses or rights could be terminated or expire during critical periods and we may not be able to obtain, onfavorable terms or at all, licenses or other rights that may be required. Some of these licenses provide for limited periods of exclusivity that may be extended onlywith the consent of the licensor, which may not be granted. If we are unable to adequately protect or maintain our patents and licenses related to our product candidate, or if we infringe upon the intellectualproperty rights of others, we may not be able to successfully develop and commercialize our product candidate. The value of our technology will depend in part upon our ability, and those of our collaborators, to obtain patent protection or licenses to patents, maintain tradesecret protection and operate without infringing on the rights of third parties. Although we have successfully pursued patent applications in the past, it is possiblethat: ·some or all of our pending patent applications, or those we have licensed, may not be allowed;·proprietary products or processes that we develop in the future may not be patentable;·any issued patents that we own or license may not provide us with any competitive advantages or may be successfully challenged by third parties; or·the patents of others may have an adverse effect on our ability to do business. It is not possible for us to be certain that we are the original and first creator of inventions encompassed by our pending patent applications or that we were the firstto file patent applications for any such inventions. Further, any of our patents, once issued, may be declared by a court to be invalid or unenforceable. STS is currently protected by methods of use patents that we exclusively licensed from OHSU that expire in Europe and the United States in 2021 and additionalpatents that are currently pending in the United States. In addition, periods of marketing exclusivity for STS may also be possible in the United States underorphan drug status. We obtained Orphan Drug Designation in the United States for the use of STS in the prevention of platinum-induced ototoxicity in pediatricpatients in 2004; if it is subsequently approved, we will have seven and a half years of pediatric exclusivity in the United States from the approval date. Refer to the“Description of Business” section of this Annual Report for a further description of the United States Orphan Drug Designation. We may be required to obtain licenses under patents or other proprietary rights of third parties, but the extent to which we may wish or need to do so is unknown.Any such licenses may not be available on terms acceptable to us or at all. If such licenses are obtained, it is likely they would be royalty bearing, which wouldreduce any future income. If licenses cannot be obtained on an economical basis, we could suffer delays in market introduction of planned products or theirintroduction could be prevented, in some cases after the expenditure of substantial funds. If we do not obtain such licenses, we would have to design aroundpatents of third parties, potentially causing increased costs and delays in product development and introduction or precluding us from developing, manufacturing orselling our planned products, or our ability to develop, manufacture or sell products requiring such licenses could be foreclosed. Litigation may also be necessary to enforce or defend patents issued or licensed to us or our collaborators or to determine the scope and validity of a third party’sproprietary rights. We could incur substantial costs if litigation is required to defend ourselves in patent suits brought by third parties, if we participate in patentsuits brought against or initiated by our collaborators, or if we initiate such suits. We might not prevail in any such action. An adverse outcome in litigation or aninterference to determine priority or other proceeding in a court or patent office could subject us to significant liabilities, require disputed rights to be licensed fromother parties or require us or our collaborators to cease using certain technology or products. Any of these events would likely have a material adverse effect onour business, financial condition and results of operations. Much of our technological know-how that is not patentable may constitute trade secrets. Our confidentiality agreements might not provide for meaningfulprotection of our trade secrets, know-how or other proprietary information in the event of any unauthorized use or disclosure of information. In addition, othersmay independently develop or obtain similar technology and may be able to market competing products and obtain regulatory approval through a showing ofequivalency to our product that has obtained regulatory approvals, without being required to undertake the same lengthy and expensive clinical studies that wewould have already completed. 14 The vulnerability to off-label use or sale of our product candidate that are covered only by “method of use” patents may cause downward pricingpressure on the product candidate if they are ever commercialized and may make it more difficult for us to enter into collaboration or partneringarrangements for the development of this product candidate. STS is currently only covered by “method of use” patents, which covers the use of certain compounds to treat specific conditions and are not covered by“composition of matter” patents, which would cover the chemical composition of the compound. Method of use patents provide less protection than compositionof matter patents because of the possibility of off-label competition if other companies develop or market the compound for other uses. If another company marketsa drug that we expect to market under the protection of a method of use patent, physicians may prescribe the other company’s drug for use in the indication forwhich we obtain approval and have a patent, even if the other company’s drug is not approved for such an indication. Off-label use and sales could limit our salesand exert pricing pressure on any product we develop covered only by method of use patents. Also, it may be more difficult to find a collaborator to license orsupport the development of our product candidate that is only covered by method of use patents. If our third-party manufacturers breach or terminate their agreements with us, or if we are unable to secure arrangements with third partymanufacturers on acceptable terms as needed in the future, we may suffer significant delays and additional costs. We have no experience manufacturing products and do not currently have the resources to manufacture any products that we may develop. We currently haveagreements with contract manufacturers for clinical supplies of PEDMARKTM, including drug substance providers and drug product suppliers, but they might notperform as agreed in the future or may terminate our agreements with them before the end of the required term. Significant additional time and expense would berequired to effect a transition to a new contract manufacturer. We plan to continue to rely on contract manufacturers for the foreseeable future to produce quantities of products and substances necessary for research anddevelopment, preclinical trials, human clinical trials and product commercialization, and to perform their obligations in a timely manner and in accordance withapplicable government regulations. If we develop any product with commercial potential, we will need to develop the facilities to independently manufacture suchproduct or products or secure arrangements with third parties to manufacture them. We may not be able to independently develop manufacturing capabilities orobtain favorable terms for the manufacture of our product. While we intend to contract for the commercial manufacture of our product candidate, we may not beable to identify and qualify contractors or obtain favorable contracting terms. We or our contract manufacturers may also fail to meet required manufacturingstandards, which could result in delays or failures in product delivery, increased costs, injury or death to patients, product recalls or withdrawals and other problemsthat could significantly hurt our business. We intend to maintain a second source for back-up commercial manufacturing, wherever feasible. However, if areplacement to our future internal or contract manufacturers were required, the ability to establish second-sourcing or find a replacement manufacturer may bedifficult due to the lead times generally required to manufacture drugs and the need for FDA compliance inspections and approvals of any replacementmanufacturer, all of which factors could result in production delays and additional commercialization costs. Such lead times would vary based on the situation butmight be twelve months or longer. We may lack the resources necessary to effectively market our product candidate, and we may need to rely on third parties over whom we have little orno control and who may not perform as expected. We may not have the necessary resources to market our product candidate. If we develop any products with commercial potential, we will either have to develop amarketing capability, including a sales force, which is difficult and expensive to implement successfully, or attempt to enter into a collaboration, merger, jointventure, license or other arrangement with third parties to provide a substantial portion of the financial and other resources needed to market such products. Wemay not be able to do so on acceptable terms, if at all. If we rely extensively on third parties to market our products, the commercial success of such products maybe largely outside of our control. We conduct our business internationally and are subject to laws and regulations of several countries which may affect our ability to access regulatoryagencies and may affect the enforceability and value of our licenses. We have conducted clinical trials in the United States, Canada, Europe and the Pacific Rim and intend to, or may, conduct future clinical trials in these and otherjurisdictions. There can be no assurance that any sovereign government will not establish laws or regulations that will be deleterious to our interests. There is noassurance that we, as a British Columbia corporation, will continue to have access to the regulatory agencies in any jurisdiction where we might want to conductclinical trials or obtain regulatory approval, and we might not be able to enforce our licenses or patent rights in foreign jurisdictions. Foreign exchange controlsmay have a material adverse effect on our business and financial condition, since such controls may limit our ability to flow funds into or out of a particularcountry to meet obligations under licenses, clinical trial agreements or other collaborations. 15 Our cash invested in money market funds might be subject to loss. Even though we believe we take a conservative approach to investing our funds, the nature of financial markets exposes us to investment risk, including the risksthat the value and liquidity of our money market investments could deteriorate significantly and the issuers of the investments we hold could be subject to creditrating downgrades. While we have not experienced any loss or write down of our money market investments in the past, we cannot guarantee that such losses willnot occur in future periods. Risks Related to the Clinical Development and Marketing Approval of Our Product Candidate The marketing approval processes of the FDA and comparable foreign authorities are lengthy, time-consuming and inherently unpredictable, and if weare ultimately unable to obtain marketing approval for our product candidate, our business will be substantially harmed. Our current product candidate has not gained marketing approval for sale in the United States or any other country, and we cannot guarantee that we will ever haveany marketable products. Our business is substantially dependent on our ability to complete the development of, obtain marketing approval for, and successfullycommercialize our product candidate in a timely manner. We cannot commercialize our product candidate in the United States without first obtaining approvalfrom the FDA to market each product candidate. Similarly, we cannot commercialize our product candidate outside of the United States without obtainingregulatory approval from comparable foreign regulatory authorities. Our product candidate could fail to receive marketing approval for many reasons, includingthe following: ·the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;·the FDA or comparable foreign regulatory authorities may find the human subject protections for our clinical trials inadequate and place a clinical hold onan Investigational New Drug Application, or IND, at the time of its submission precluding commencement of any trials or a clinical hold on one or moreclinical trials at any time during the conduct of our clinical trials;·the FDA could determine that we cannot rely on Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act, or FFDCA, for our product candidate;·we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a product candidate is safe and effectivefor its proposed indication;·the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign regulatory authorities forapproval;·we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;·the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials;·the FDA could determine that our application relies, or must rely, upon a listed drug or drugs that we a failed to identify or that approval of our 505(b)(2)application for our product candidate is blocked by patent or non-patent exclusivity of the listed drug or drugs;·the data collected from clinical trials of our product candidate may not be sufficient to support the submission of an application to obtain marketingapproval in the United States or elsewhere;·the FDA or comparable foreign regulatory authorities may find inadequate the manufacturing processes or facilities of third-party manufacturers withwhich we contract for clinical and commercial supplies; and·the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner that would delaymarketing approval. Before obtaining marketing approval for the commercial sale of any drug product for a target indication, we must demonstrate in preclinical studies and well-controlled clinical trials and, with respect to approval in the United States, to the satisfaction of the FDA, that the product is safe and effective for its intended useand that the manufacturing facilities, processes, and controls are adequate to preserve the drug’s identity, strength, quality and purity. In the United States, it isnecessary to submit and obtain approval of a New Drug Application, or NDA, from the FDA. An NDA must include extensive preclinical and clinical data andsupporting information to establish the product’s safety and efficacy for each desired indication. The NDA must also include significant information regarding thechemistry, manufacturing, and controls for the product. After the submission of an NDA, but before approval of the NDA, the manufacturing facilities used tomanufacture a product candidate generally must be inspected by the FDA to ensure compliance with the applicable Current Good Manufacturing Practice, orcGMP, requirements. The FDA and the Competent Authorities of the Member States of the European Economic Area, or EEA, and comparable foreign regulatoryauthorities, may also inspect our clinical trial sites and audit clinical study data to ensure that our studies are properly conducted in accordance with the INDregulations, human subject protection regulations, and good clinical practice, or cGCP. Obtaining approval of an NDA is a lengthy, expensive and uncertain process, and approval may not be obtained. Upon submission of an NDA, the FDA mustmake an initial determination that the application is sufficiently complete to accept the submission for filing. We cannot be certain that any submissions will beaccepted for filing and reviewed by the FDA, or ultimately be approved. If the application is not accepted for review, the FDA may require that we conductadditional clinical studies or preclinical testing, or take other actions before it will reconsider our application. If the FDA requires additional studies or data, wewould incur increased costs and delays in the marketing approval process, which may require us to expend more resources than we have available. In addition, theFDA might not consider any additional information to be complete or sufficient to support the filing or approval of the NDA. 16 Regulatory authorities outside of the United States, such as in Europe and Japan and in emerging markets, also have requirements for approval of drugs forcommercial sale with which we must comply prior to marketing in those areas. Regulatory requirements can vary widely from country to country and could delayor prevent the introduction of our product candidate. Clinical trials conducted in one country may not be accepted or the results may not be found adequate byregulatory authorities in other countries, and obtaining regulatory approval in one country does not mean that regulatory approval will be obtained in any othercountry. However, the failure to obtain regulatory approval in one jurisdiction could have a negative impact on our ability to obtain approval in a differentjurisdiction. Approval processes vary among countries and can involve additional product candidate testing and validation and additional administrative reviewperiods. Seeking foreign regulatory approval could require additional non-clinical studies or clinical trials, which could be costly and time-consuming. Foreignregulatory approval may include all of the risks associated with obtaining FDA approval. For all of these reasons, we may not obtain foreign regulatory approvalson a timely basis, if at all. The process to develop, obtain marketing approval for, and commercialize product candidates is long, complex and costly, both inside and outside of the UnitedStates, and approval is never guaranteed. The time required to obtain approval by the FDA and comparable foreign authorities is unpredictable but typically takesmany years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. Inaddition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’sclinical development and may vary among jurisdictions. Even if our product candidate were to successfully obtain approval from regulatory authorities, any suchapproval might significantly limit the approved indications for use, including more limited patient populations, require that precautions, warnings orcontraindications be included on the product labeling, including black box warnings, require expensive and time-consuming post-approval clinical studies, riskevaluation and mitigation strategies or surveillance as conditions of approval, or, through the product label, the approval may limit the claims that we may make,which may impede the successful commercialization of our product candidate. Following any approval for commercial sale of our product candidate, certainchanges to the product, such as changes in manufacturing processes and additional labeling claims, as well as new safety information, may require new studies andwill be subject to additional FDA notification, or review and approval. Also, marketing approval for any of our product candidate may be withdrawn. If we areunable to obtain marketing approval for our product candidate in one or more jurisdictions, or any approval contains significant limitations, our ability to market toour full target market will be reduced and our ability to realize the full market potential of our product candidate will be impaired. Furthermore, we may not be ableto obtain sufficient funding or generate sufficient revenue and cash flows to continue or complete the development of any of our current or future productcandidates. Our risk of delay in product approvals is increased if the United States government is fully or partially shut down due to lack of continuity in funding. Our business operations, and particularly the timing of the outcome of review of our NDA filing for marketing approval of PEDMARKTM, are directly andindirectly affected by the operations of the United States government, including but not limited to the FDA. Any interruption in the continuity of funding of all or apart of government activities could have a significant negative effect on our business, including the timing of that review decision. For example, over the lastseveral years, including beginning on December 22, 2018 and ending on January 25, 2019, the United States government has had shut downs. We cannot predictthe likelihood, duration, impact, or timing of any future shutdown. There can be no assurance that if such shutdown(s) were to occur in the future, adequate fundswould be available to the FDA and other U.S. government agencies to allow them to continue their activities uninterrupted. Even when funding is restoredfollowing one or more shutdowns, we cannot predict the ongoing impact of such shutdowns on our business, or the degree to which funding would be restored tothe FDA or other agencies having an impact on our business. If we are unable to submit an application for approval under Section 505(b)(2) of the FFDCA or if we are required to generate additional data related tosafety and efficacy in order to obtain approval under Section 505(b)(2), we may be unable to meet our anticipated development and commercializationtimelines. Our current strategy for seeking marketing authorization in the United States for our product candidate relies primarily on Section 505(b)(2) of the FFDCA, whichpermits use of a marketing application, referred to as a 505(b)(2) application, where at least some of the information required for approval comes from studies notconducted by or for the applicant and for which the applicant has not obtained a right of reference or use. The FDA interprets this to mean that an applicant mayrely for approval on such data as that found in published literature or the FDA’s finding of safety or effectiveness, or both, of a previously approved drug productowned by a third party. There is no assurance that the FDA would find the published literature or third-party data relied upon by us in a 505(b)(2) applicationsufficient or adequate to support approval, and the FDA may require us to generate additional data to support the safety and efficacy of our product candidate.Consequently, we may need to conduct substantial new research and development activities beyond those we currently plan to conduct. Such additional newresearch and development activities would be costly and time-consuming and there is no assurance that such data generated from such additional activities wouldbe sufficient to obtain approval. If the data to be relied upon in a 505(b)(2) application are related to drug products previously approved by the FDA and covered by patents that are listed in theFDA’s Orange Book, we would be required to submit with our 505(b)(2) application an appropriate patent certification or statement. The type of patentcertification that would enable us to obtain approval of our application before a listed patent expires, known as a Paragraph IV Certification, would require us tocertify that we do not infringe the listed patent or that such patent is invalid or unenforceable. We would be required to provide timely notice to the patent ownerand the holder of the approved NDA. If a patent infringement action is initiated against us within 45 days from receipt of our Paragraph IV Certification, theapproval of our NDA would be subject to a stay of up to 30 months or more while we defend against such a suit. Approval of our product candidate under Section505(b)(2) may, therefore, be delayed until patent exclusivity expires or until we successfully challenge those patents. Alternatively, we may elect to generatesufficient clinical data so that we would no longer need to rely on third-party data, which would be costly and time-consuming and there would be no assurancethat such data generated from such additional activities would be sufficient to obtain approval. 17 We may not be able to obtain shortened review of our applications, and the FDA may not agree that our product candidate qualifies for marketing approval. If weare required to generate additional data to support approval, we may be unable to meet anticipated or reasonable development and commercialization timelines,may be unable to generate the additional data at a reasonable cost, or at all, and may be unable to obtain marketing approval of our product candidate. If the FDAchanges its interpretation of Section 505(b)(2) allowing reliance on data in published literature or a previously approved drug application owned by a third party, orthere is a change in the law affecting Section 505(b)(2), this could delay or even prevent the FDA from approving any Section 505(b)(2) application that wesubmit. Even if we receive marketing approval for our product candidate, such approved products will be subject to ongoing obligations and continuedregulatory review, which may result in significant additional expense. Additionally, our product candidate, if approved, could be subject to labeling andother restrictions, and we may be subject to penalties and legal sanctions if we fail to comply with regulatory requirements or experience unanticipatedproblems with our approved products. If the FDA approves any of our product candidate, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising,promotion and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safetyand other post-marketing information and reports, registration, as well as continued compliance with cGMP regulations and GCP for any clinical trials that weconduct post-approval. Any marketing approvals that we receive for our product candidate may also be subject to limitations on the approved indicated uses forwhich the product may be marketed or to conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinicaltrials, and surveillance to monitor safety and efficacy. Later discovery of previously unknown problems with an approved product, including adverse events of unanticipated severity or frequency, or with manufacturingoperations or processes, or failure to comply with regulatory requirements, or evidence of acts that raise questions about the integrity of data supporting the productapproval, may result in, among other things: ·restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory product recalls;·fines, warning letters, or holds on clinical trials;·refusal by the FDA to approve pending applications or supplements to approved applications filed by us, or suspension or revocation of product approvals;·product seizure or detention, or refusal to permit the import or export of products; and·injunctions or the imposition of civil or criminal penalties. The FDA’s policies may change, and additional government regulations may be enacted that could prevent, limit or delay marketing approval, manufacturing orcommercialization of our product candidate. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation oradministrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of newrequirements or policies, or we are not able to maintain regulatory compliance, we may lose any marketing approval that may have been obtained and we may notachieve or sustain profitability, which would adversely affect our business. Agencies like the FDA and national competition regulators in European countries regulate the promotion and uses of drugs not consistent with approvedproduct labeling requirements. If we are found to have improperly promoted our current product candidate for uses beyond those that are approved, wemay become subject to significant liability. Regulatory authorities like the FDA and national competition laws in Europe strictly regulate the promotional claims that may be made about prescriptionproducts, such as PEDMARKTM, if approved. In particular, a product may not be promoted for uses that are not approved by the FDA or comparable foreignregulatory authorities as reflected in the product’s approved labeling, known as “off-label” use, nor may it be promoted prior to obtaining marketing approval. Ifwe receive marketing approval for our product candidate for our proposed indications, physicians may nevertheless use our products for their patients in a mannerthat is inconsistent with the approved label if the physicians personally believe in their professional medical judgment it could be used in such manner. Althoughphysicians may prescribe legally available drugs for off-label uses, manufacturers may not market or promote such off-label uses. 18 In addition, the FDA requires that promotional claims not be “false or misleading” as such terms are defined in the FDA’s regulations. For example, the FDArequires substantial evidence, which generally consists of two adequate and well-controlled head-to-head clinical trials, for a company to make a claim that itsproduct is superior to another product in terms of safety or effectiveness. Generally, unless we perform clinical trials meeting that standard comparing our productcandidate to competitive products and these claims are approved in our product labeling, we will not be able promote our current product candidate as superior toother products. If we are found to have made such claims, we may become subject to significant liability. In the United States, the federal government has leviedlarge civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in improper promotion. TheFDA has also requested that companies enter into consent decrees or corporate integrity agreements. The FDA could also seek permanent injunctions under whichspecified promotional conduct is monitored, changed or curtailed. Our current and future relationships with healthcare professionals, investigators, consultants, collaborators, actual customers, potential customers andthird-party payors in the United States and elsewhere may be subject, directly or indirectly, to applicable anti-kickback, fraud and abuse, false claims,physician payment transparency, health information privacy and security and other healthcare laws and regulations, which could expose us to sanctions. Healthcare providers, physicians and third-party payors in the United States and elsewhere will play a primary role in the recommendation and prescription of anydrug candidates for which we obtain marketing approval. Our current and future arrangements with healthcare professionals, investigators, consultants,collaborators, actual customers, potential customers and third-party payors may expose us to broadly applicable fraud and abuse and other healthcare laws,including, without limitation, the federal Anti-Kickback Statute and the federal False Claims Act, that may constrain the business or financial arrangements andrelationships through which we sell, market and distribute any drug candidates for which we obtain marketing approval. In addition, we may be subject tophysician payment transparency laws and patient privacy and security regulation by the federal government and by the U.S. states and foreign jurisdictions inwhich we conduct our business. The applicable federal, state and foreign healthcare laws that may affect our ability to operate include the following: ·the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providingremuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, lease,order or recommendation of, any good, facility, item or service, for which payment may be made, in whole or in part, under federal and state healthcareprograms such as Medicare and Medicaid;·federal civil and criminal false claims laws and civil monetary penalty laws, including the federal False Claims Act, which impose criminal and civilpenalties, including civil whistleblower or qui tam actions, against individuals or entities for, among other things, knowingly presenting, or causing to bepresented, to the federal government, including the Medicare and Medicaid programs, claims for payment that are false or fraudulent or making a falsestatement to avoid, decrease or conceal an obligation to pay money to the federal government;·the civil monetary penalties statute, which imposes penalties against any person or entity who, among other things, is determined to have presented orcaused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimedor is false or fraudulent;·the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal criminal statutes that prohibit knowinglyand willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses,representations or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of thepayor (e.g., public or private), knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminalinvestigation of a healthcare offense and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or makingany materially false statements in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters;·HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and its implementing regulations,which impose obligations on covered entities, including healthcare providers, health plans, and healthcare clearinghouses, as well as their respectivebusiness associates that create, receive, maintain or transmit individually identifiable health information for or on behalf of a covered entity, with respectto safeguarding the privacy, security and transmission of individually identifiable health information;·the federal Open Payments program, created under Section 6002 of the Patient Protection and Affordable Care Act, as amended by the Health Care andEducation Reconciliation Act, or the Affordable Care Act, and its implementing regulations, which imposed annual reporting requirements formanufacturers of drugs, devices, biologicals and medical supplies for certain payments and “transfers of value” provided to physicians and teachinghospitals, as well as ownership and investment interests held by physicians and their immediate family members, where failure to submit timely,accurately and completely the required information for all covered payments, transfers of value and ownership or investment interests may result in civilmonetary penalties; and·analogous state and foreign laws, such as state anti-kickback and false claims laws, which may apply to sales or marketing arrangements and claimsinvolving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers; state laws that requirepharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidancepromulgated by the federal government or otherwiserestrict payments that may be made to healthcare providers; state and foreign laws that require drug manufacturers to report information related topayments and other transfers of value to physicians and other healthcare providers or marketing expenditures; and state and foreign laws governing theprivacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preemptedby HIPAA, thus complicating compliance efforts. 19 Further, the Affordable Care Act, among other things, amended the intent requirement of the federal Anti-Kickback Statute and certain criminal statutes governinghealthcare fraud. A person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it. In addition, the Affordable Care Actprovided that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a falseor fraudulent claim for purposes of the False Claims Act. Efforts to ensure that our future business arrangements with third parties will comply with applicable healthcare laws and regulations may involve substantial costs.It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case lawinvolving applicable fraud and abuse or other healthcare laws. If our operations are found to be in violation of any of these laws or any other governmentalregulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, including, without limitation, damages, fines,imprisonment, exclusion from participation in government healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of ouroperations, which could significantly harm our business. If any of the physicians or other healthcare providers or entities with whom we expect to do business,including our current and future collaborators, if any, are found not to be in compliance with applicable laws, those persons or entities may be subject to criminal,civil or administrative sanctions, including exclusion from participation in government healthcare programs, which could also affect our business. The impact of recent healthcare reform legislation and other changes in the healthcare industry and healthcare spending on us is currently unknown andmay adversely affect our business model. In the United States and some foreign jurisdictions, legislative and regulatory changes and proposed changes regarding the healthcare system could prevent ordelay marketing approval of our drug candidates, restrict or regulate post-approval activities and affect our ability to profitably sell any drug candidates for whichwe obtain marketing approval. Our revenue prospects could be affected by changes in healthcare spending and policy in the United States and abroad. We operate in a highly regulated industryand new laws and judicial decisions, or new interpretations of existing laws or decisions, related to healthcare availability, the method of delivery or payment forhealthcare products and services could negatively impact our business, financial condition, results of operations and prospects. There is significant interest inpromoting healthcare reform, as evidenced by the enactment in the United States of the Affordable Care Act. Among other things, the Affordable Care Actcontains provisions that may reduce the profitability of drug products, including, for example, revising the methodology by which rebates owed by manufacturersfor covered outpatient drugs under the Medicaid Drug Rebate Program are calculated, extending the Medicaid Drug Rebate Program to utilization of prescriptionsof individuals enrolled in Medicaid managed care plans, imposing mandatory discounts for certain Medicare Part D beneficiaries, and subjecting drugmanufacturers to payment of an annual fee. We expect that the Affordable Care Act, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coveragecriteria and in additional downward pressure on the price that we receive for any approved product. Any reduction in reimbursement from Medicare or othergovernment programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcarereforms may prevent us from being able to generate revenue or commercialize our drugs. It is likely that federal and state legislatures within the United States and foreign governments will continue to consider changes to existing healthcare legislation.We cannot predict the reform initiatives that may be adopted in the future or whether initiatives that have been adopted will be repealed or modified. Thecontinuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs ofhealthcare may adversely affect: ·the demand for any drug products for which we may obtain marketing approval;·our ability to set a price that we believe is fair for our products;·our ability to obtain coverage and reimbursement approval for a product;·our ability to generate revenues and achieve or maintain profitability; and·the level of taxes that we are required to pay. If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that couldhave a material adverse effect on our business, financial condition or results of operations. Our research and development activities and our third-party manufacturers’ and suppliers’ activities involve the controlled storage, use, and disposal of hazardousmaterials, including the components of our product candidate and other hazardous compounds. We and our manufacturers and suppliers are subject to laws andregulations governing the use, manufacture, storage, handling, and disposal of these hazardous materials. In some cases, these hazardous materials and variouswastes resulting from their use are stored at our and our manufacturers’ facilities pending their use and disposal. We cannot eliminate the risk of contamination,which could cause an interruption of our commercialization efforts, research and development efforts and business operations, environmental damage resulting incostly clean-up and liabilities under applicable laws and regulations governing the use, storage, handling, and disposal of these materials and specified wasteproducts. Although we believe that the safety procedures utilized by us and our third-party manufacturers for handling and disposing of these materials generallycomply with the standards prescribed by these laws and regulations, we cannot guarantee that this is the case or eliminate the risk of accidental contamination orinjury from these materials. In such an event, we may be held liable for any resulting damages and such liability could exceed our resources and state or federal orother applicable authorities may curtail our use of specified materials and/or interrupt our business operations. Furthermore, environmental laws and regulationsare complex, change frequently, and have tended to become more stringent. We cannot predict the impact of such changes and cannot be certain of our futurecompliance. We do not currently carry biological or hazardous waste insurance coverage. 20 Risks Related to Commercialization of Our Product Candidate Even if we obtain the required regulatory approvals in the United States and other territories, the commercial success of our product candidate willdepend on market awareness and acceptance of our product candidates. Even if we obtain marketing approval for PEDMARKTM or any other product candidate that we may develop or acquire in the future, the products may not gainmarket acceptance among physicians, key opinion leaders, healthcare payors, patients and the medical community. Market acceptance of any approved productsdepends on a number of factors, including: ·the timing of market introduction;·the efficacy and safety of the product, as demonstrated in clinical trials;·the clinical indications for which the product is approved, and the label approved by regulatory authorities for use with the product, including anyprecautions, warnings or contraindications that may be required on the label;·acceptance by physicians, key opinion leaders and patients of the product as a safe and effective treatment;·the cost, safety and efficacy of treatment in relation to alternative treatments;·the availability of coverage and adequate reimbursement and pricing by third-party payors and government authorities;·the number and clinical profile of competing products;·the growth of drug markets in our various indications;·relative convenience and ease of administration;·marketing and distribution support;·the prevalence and severity of adverse side effects; and·the effectiveness of our sales and marketing efforts. Market acceptance is critical to our ability to generate revenue. Any product candidate, if approved and commercialized, may be accepted in only limited capacitiesor not at all. If any approved products are not accepted by the market to the extent that we expect, we may not be able to generate revenue and our business wouldsuffer. If the market opportunities for our product candidates are smaller than we believe they are, then our revenues may be adversely affected, and ourbusiness may suffer. The market opportunities that our current and future product candidates are being developed to address are rare. Our projections of both the number of people whoare administered Cisplatin, as well as the subset of people who have the potential to benefit from treatment with our product candidates, and our assumptionsrelating to pricing are based on estimates. Given the small number of patients that we are targeting, our eligible patient population and pricing estimates may differsignificantly from the actual market addressable by our product candidates. Coverage and reimbursement may be limited or unavailable in certain market segments for our product candidate, which could make it difficult for usto sell our products profitably. There is significant uncertainty related to third-party coverage and reimbursement of newly approved pharmaceuticals. Market acceptance and sales of our productcandidate, should it receive marketing approval, will depend significantly on the availability of coverage and adequate reimbursement from third-party payors andmay be affected by existing and future healthcare reform measures. Patients who are prescribed treatments for their conditions and providers performing theprescribed services generally rely on third-party payors to reimburse all or part of the associated healthcare costs. Government authorities and third-party payors,such as private health insurers, health maintenance organizations, and government payors like Medicare and Medicaid, decide which drugs they will pay for andestablish reimbursement levels. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices andare challenging the prices charged for drugs and products. Coverage and reimbursement may not be available for any product that we commercialize and, even ifcoverage is provided, the level of reimbursement may not be satisfactory. Inadequate reimbursement levels may adversely affect the demand for, or the price of,any drug candidate for which we obtain marketing approval. 21 Reimbursement by a third-party payor may depend upon a number of factors, including the third-party payor’s determination that use of a product is, among otherthings: ·a covered benefit under its health plan;·safe, effective and medically necessary;·appropriate for the specific patient;·cost-effective; and·neither experimental nor investigational. Obtaining coverage and adequate reimbursement approval for a product from a government or other third-party payor is a time consuming and costly process thatcould require us to conduct expensive pharmacoeconomic studies and provide supporting scientific, clinical and cost-effectiveness data for the use of our productsto the payor. We may not be able to provide data sufficient to gain acceptance with respect to coverage and adequate reimbursement. In addition to examining themedical necessity and cost-effectiveness of new products, coverage may be limited to specific drug products on an approved list, or formulary, which might notinclude all of the FDA-approved drug products for a particular indication. There may also be formulary placements that result in lower reimbursement levels andhigher cost-sharing borne by patients, any of which could have an adverse effect on our revenues and profits. Moreover, a third-party payor’s decision to providecoverage for a drug product does not imply that an adequate reimbursement rate will be approved. Adequate third-party reimbursement may not be available toenable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. Additionally, coverage and reimbursementfor drug products can differ significantly from payor to payor. One third-party payor’s decision to cover a particular drug product does not ensure that other payorswill also provide coverage for the drug product, or even if coverage is available, establish an adequate reimbursement rate. We cannot be sure that coverage or adequate reimbursement will be available for any of our product candidate. Also, we cannot be sure that reimbursementamounts will not reduce the demand for, or the price of, our products. If reimbursement is not available or is available only to limited levels, we may not be able tocommercialize certain of our products. In the United States, third-party payors are increasingly attempting to contain healthcare costs by limiting both coverageand the level of reimbursement of new drugs. Third-party payors are increasingly challenging the prices charged for medical products and services, examining themedical necessity and reviewing the cost-effectiveness of drug products and medical services and questioning safety and efficacy. As a result, significantuncertainty exists as to whether and how much third-party payors will reimburse patients for their use of newly approved drugs, which in turn will put pressure onthe pricing of drugs. Additionally, emphasis on managed care in the United States has increased and we expect will continue to increase the pressure on drugpricing. If third-party payors do not consider our products to be cost-effective compared to other available therapies, they may not cover the products for which wereceive FDA approval or, if they do, the level of payment may not be sufficient to allow us to sell our products at a profit. Coverage policies, third-party reimbursement rates and drug pricing regulation may change at any time, and there is the potential for significant movement in theseareas in the foreseeable future. Even if favorable coverage and reimbursement status is attained for one or more products for which we receive marketing approval,less favorable coverage policies and reimbursement rates may be implemented in the future. We face substantial competition, which may result in others discovering, developing or commercializing products before, or more successfully, than we do. The life sciences industry is highly competitive, and we face significant competition from many pharmaceutical, biopharmaceutical and biotechnology companiesthat are generally developing and marketing therapeutic products. Such competition may include large pharmaceutical and biotechnology companies, specialtypharmaceutical and generic companies and medical technology companies. Our future success depends on our ability to demonstrate and maintain a competitiveadvantage with respect to the design, development and commercialization of our product candidate for the treatment of orphan and ultra-orphan diseases for whichthere is a small patient population in the United States. A drug designated an Orphan Drug may receive up to seven years of exclusive marketing in the UnitedStates for that indication. Many of our potential competitors have significantly greater financial, manufacturing, marketing, development, technical and human resources than we do. Largepharmaceutical and biotechnology companies, in particular, have extensive experience in clinical testing, obtaining regulatory approvals, recruiting patients and inmanufacturing clinical products. These companies also have significantly greater research and marketing capabilities than we do and may also have products thathave been approved or are in late stages of development, and have collaborative arrangements in our target markets with leading companies and researchinstitutions. Established companies may also invest heavily to accelerate discovery and development of compounds that could make our product candidateobsolete. As a result of all of these factors, maintaining Orphan Drug designation for our product candidate is essential to our viability since our competitors may,among other things: ·have greater name and brand recognition, financial and human resources;·develop and commercialize products that are safer, more effective, less expensive, or more convenient or easier to administer;·obtain quicker marketing approval;·establish superior proprietary positions;·have access to more manufacturing capacity as well as to more cost-effective manufacturing capacity;·implement more effective approaches to sales and marketing; or·form more advantageous strategic alliances. 22 Should any of these events occur, our business, financial condition, results of operations, and prospects could be materially adversely affected. If we are not able tocompete effectively against potential competitors, our business will not grow and our financial condition and operations will suffer. We believe that our ability to successfully compete will depend on our ability to obtain Orphan Drug designation as well as: ·our ability to design and successfully execute appropriate clinical trials;·our ability to recruit and enroll patients for our clinical trials;·the results of our clinical trials and the efficacy and safety of our product candidate;·the speed at which we develop our product candidate;·achieving and maintaining compliance with regulatory requirements applicable to our business;·the timing and scope of regulatory approvals, including labeling;·adequate levels of reimbursement under private and governmental health insurance plans, including Medicare and Medicaid;·our ability to protect intellectual property rights related to our product candidate;·our ability to commercialize and market any of our product candidate if it obtains marketing approval;·our ability to manufacture and sell commercial quantities of any approved our product candidate;·acceptance of our product candidate by physicians, other healthcare providers and patients; and·the cost of treatment in relation to alternative therapies. If our competitors are able to obtain orphan drug exclusivity for their products that are for the same indication as our product candidate, we may not beable to have competing products approved by the applicable regulatory authority for a significant period of time or benefit from that exclusivity. We have orphan drug designation in the United States for PEDMARKTM for the prevention of platinum induced ototoxicity in pediatric patients. Generally, if a product with an orphan drug designation subsequently receives the first marketing approval for the indication for which it has such designation, thatproduct is entitled to a period of marketing exclusivity, which precludes the applicable regulatory authority from approving another marketing application for thesame drug for the same indication for that time period. The applicable period is seven and a half years in the United States. Maintaining orphan drug designationfor PEDMARKTM may be important to its success. Even with orphan drug designation, we may not be able to maintain it. For example, if a competitive productthat treats the same disease as our product candidate is shown to be clinically superior to our product candidate, any orphan drug designation we have obtained willnot block the approval of such competitive product and we may effectively lose what had previously been orphan drug designation. Orphan drug designation forPEDMARKTM also will not bar the FDA from approving another STS drug product for another indication. In the United States, reforms to the Orphan Drug Act, ifenacted, could also materially affect our ability to maintain orphan drug designation for PEDMARKTM for cisplatin induced ototoxicity in pediatric cancer. Price controls may be imposed in foreign markets, which may adversely affect our future profitability. In some countries, particularly member states of the European Union, the pricing of prescription drugs is subject to governmental control. In these countries,pricing negotiations with governmental authorities can take considerable time after receipt of marketing approval for a product. In addition, there can beconsiderable pressure by governments and other stakeholders on prices and reimbursement levels, including as part of cost containment measures. Political,economic and regulatory developments may further complicate pricing negotiations, and pricing negotiations may continue after reimbursement has beenobtained. Reference pricing used by various European Union member states and parallel distribution, or arbitrage between low-priced and high-priced memberstates, can further reduce prices. In some countries, we may be required to conduct a clinical trial or other studies that compare the cost-effectiveness of ourproduct candidate to other available therapies in order to obtain or maintain reimbursement or pricing approval. Publication of discounts by third-party payors orauthorities may lead to further pressure on the prices or reimbursement levels within the country of publication and other countries. If reimbursement of ourproducts is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be adversely affected. Rapid technological change could make our products obsolete. Pharmaceutical technologies have undergone rapid and significant change, and we expect that they will continue to do so. As a result, there is significant risk thatour product candidate may be rendered obsolete or uneconomical by new discoveries before we recover any expenses incurred in connection with theirdevelopment. If our product candidate is rendered obsolete by advancements in pharmaceutical technologies, our prospects will suffer. 23 Government controls and healthcare reform measures could adversely affect our business. The business and financial condition of pharmaceutical and biotechnology companies are affected by the efforts of governmental and third-party payors to containor reduce the costs of healthcare. In the United States and in foreign jurisdictions, there have been, and we expect that there will continue to be, a number oflegislative and regulatory proposals aimed at changing the healthcare system. For example, in some foreign countries, particularly in Europe, the pricing ofprescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable timeafter the receipt of marketing approval for a product candidate. To obtain reimbursement or pricing approval in some countries, we may be required to conductadditional clinical trials that compare the cost-effectiveness of any product candidate to other available therapies. If reimbursement of any product candidate isunavailable or limited in scope or amount in a particular country, or if pricing is set at unsatisfactory levels, we may be unable to achieve or sustain profitability insuch country. In the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or MMA, changed the way Medicare coversand pays for pharmaceutical products. The legislation established Medicare Part D, which expanded Medicare coverage for outpatient prescription drug purchasesby the elderly but provided authority for limiting the number of drugs that will be covered in any therapeutic class. The MMA also introduced a newreimbursement methodology based on average sales prices for physician-administered drugs. Any negotiated prices for our product candidate under a Part Dprescription drug plan will likely be lower than the prices that might otherwise be obtained outside of the Medicare Part D prescription drug plan. Moreover, whileMedicare Part D applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in settingtheir own payment rates. Any reduction in payment under Medicare Part D may result in a similar reduction in payments from non-governmental payors. The United States and several other jurisdictions are considering, or have already enacted, a number of legislative and regulatory proposals to change thehealthcare system in ways that could affect our ability to sell any product candidate. Among policy-makers and payors in the United States and elsewhere, there issignificant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access tohealthcare. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislativeinitiatives. There have been, and likely will continue to be, legislative and regulatory proposals at the federal and state levels directed at broadening the availabilityof healthcare and containing or lowering the cost of healthcare. We cannot predict the initiatives that may be adopted in the future. The continuing efforts of thegovernment, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare may adverselyaffect: the demand for any product candidate; the ability to set a price that we believe is fair for any product candidate; our ability to generate revenues and achieveor maintain profitability; the level of taxes that we are required to pay; and the availability of capital. We have limited experience as a company in marketing or distributing pharmaceutical products. If we are unable to expand our marketing capabilities andeffectively commercialize PEDMARKTM, our business, results of operations and financial condition may be materially adversely affected. Our strategy is to build our sales, marketing and distribution capabilities to successfully commercialize PEDMARKTM in the United States and evaluatecommercial opportunities globally for PEDMARKTM. While we have begun to establish our commercial team, we have limited experience commercializingpharmaceutical products as an organization. In order to successfully market PEDMARKTM, we must continue to build our sales, marketing, managerial,compliance, and related capabilities or make arrangements with third parties to perform these services. If we are unable to establish adequate sales, marketing, anddistribution capabilities, whether independently or with third parties, we may not be able to appropriately commercialize PEDMARKTM and may not becomeprofitable. Included in our strategy in the United States is to have a sales force to commercialize PEDMARKTM, subject to it receiving marketing approval . These efforts willcontinue to be expensive and time-consuming, and we cannot be certain that we will be able to successfully develop this capability. We will need to train our salesforce to ensure that a consistent and appropriate message about PEDMARKTM is being delivered to our potential customers. If we are unable to effectively trainour sales force and equip them with effective materials, including medical and sales literature to help them inform and educate potential customers about thebenefits of PEDMARKTM and its proper administration, all while maintaining compliance with regulatory requirements, our efforts to successfully commercializePEDMARKTM could be harmed, which would negatively impact our ability to generate product revenue. Additionally, we will need to maintain and furtherdevelop our sales force to achieve commercial success, and we will be competing with other pharmaceutical and biotechnology companies to recruit, hire, train andretain marketing and sales personnel. In the event we are unable to continue to develop and effectively maintain our commercial team, our ability to successfullycommercialize PEDMARKTM would be limited, and we would not be able to generate product revenue successfully. There are risks involved both with establishing our own sales and marketing capabilities, and with entering into arrangements with third parties to perform theseservices. For example, any efforts to develop a direct sales and marketing organization are subject to numerous risks, including: ·the expense and time required to recruit, retain, and motivate members of the sales force;·our inability to recruit, retain or motivate adequate numbers of effective marketing personnel and partner marketing agencies;·the inability to provide adequate training to sales and marketing personnel;·the expense and time required to monitor regulatory compliance;·the inability of sales personnel to obtain access to physicians or convince adequate numbers of physicians to prescribe any product; and·unforeseen costs and expenses associated with creating an independent sales and marketing organization. 24 Similarly, if we enter into arrangements with third parties to perform sales, marketing and distribution services, our product revenue or the profitability associatedwith any product revenue may be lower than if we were to market and sell any products that we develop ourselves. In addition, we may not be successful inentering into arrangements with third parties to sell and market our products or may be unable to do so on terms that are favorable to us. We may have little controlover such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our products effectively. Moreover, we may benegatively impacted by other factors outside of our control relating to such third parties, including, but not limited to, their inability to comply with regulatoryrequirements. If we do not establish sales, marketing and distribution capabilities successfully, either on our own or in collaboration with third parties, we will notbe successful in commercializing our products. Finally, because we are using a very small group of exclusive specialty pharmacies to distribute our product, if theorganizations that we work with to deliver our drug do not perform in a lawful manner or have issues unrelated to our business, our business could be adverselyaffected. We face a risk of product liability claims and may not be able to obtain adequate insurance. Our business exposes us to potential liability risks that may arise from the clinical testing, manufacture, and/or sale of our pharmaceutical products. Patients havereceived substantial damage awards in some jurisdictions against pharmaceutical companies based on claims for injuries allegedly caused by the use ofpharmaceutical products used in clinical trials or after FDA approval. Liability claims may be expensive to defend and may result in large judgments against us.We currently carry liability insurance that we believe to be adequate. Our insurance may not reimburse us for certain claims or the coverage may not be sufficientto cover claims made against us. We cannot predict all of the possible harms or side effects that may result from the use of our current drug candidates, or anypotential future products we may acquire and use in clinical trials or after FDA approval and, therefore, the amount of insurance coverage we currently hold maynot be adequate to cover all liabilities we might incur. If we are sued for any injury allegedly caused by our products, our liability could exceed our ability to paythe liability. Whether or not we are ultimately successful in any adverse litigation, such litigation could consume substantial amounts of our financial andmanagerial resources, all of which could have a material adverse effect on our business, financial condition, results of operations, prospects and stock price. Risks Related to Third Parties We rely on third-party suppliers and other third parties for production of our product candidate and our dependence on these third parties may impair theadvancement of our research and development programs and the development of our product candidate. We do not currently own or operate manufacturing facilities for clinical or commercial production of our product candidate. We lack the resources and thecapability to manufacture any of our product candidate on a clinical or commercial scale. Instead, we rely on, and expect to continue to rely on, third parties for thesupply of raw materials and manufacture of drug supplies necessary to conduct our preclinical studies and clinical trials. Our reliance on third parties may exposeus to more risk than if we were to manufacture our current product candidate or other products ourselves. Delays in production by third parties could delay ourclinical trials or have an adverse impact on any commercial activities. In addition, the fact that we are dependent on third parties for the manufacture of andformulation of our product candidate means that we are subject to the risk that the products may have manufacturing defects that we have limited ability to preventor control. Although we oversee these activities to ensure compliance with our quality standards, budgets and timelines, we have had and will continue to have lesscontrol over the manufacturing of our product candidate than potentially would be the case if we were to manufacture our product candidate. Further, the thirdparties we deal with could have staffing difficulties, might undergo changes in priorities or may become financially distressed, which would adversely affect themanufacturing and production of our product candidate. In addition, a third party could be acquired by, or enter into an exclusive arrangement with, one of ourcompetitors, which would adversely affect our ability to access the formulations we require. The facilities used by our current contract manufacturers and any future manufacturers to manufacture our product candidate must be inspected by the FDA duringthe review of our NDA. We do not control the manufacturing process of, and are completely dependent on, our contract manufacturers for compliance with theregulatory requirements, known as cGMPs, for manufacture of both active drug substances and finished drug products. If our contract manufacturers cannotsuccessfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or others, the FDA may refuse to approveour NDA. If the FDA or a comparable foreign regulatory authority does not approve our NDA because of concerns about the manufacture of our product candidateor if significant manufacturing issues arise in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability todevelop our product candidate, to obtain marketing approval of our NDA or to continue to market our product candidate, if approved. Although we are ultimatelyresponsible for ensuring compliance with these regulatory requirements, we do not have day-to-day control over a contract manufacturing organization (“CMO”) orother third-party manufacturer’s compliance with applicable laws and regulations, including cGMPs and other laws and regulations, such as those related toenvironmental health and safety matters. Any failure to achieve and maintain compliance with these laws, regulations and standards could subject us to the risk thatwe may have to suspend the manufacturing of our product candidate or that obtained approvals could be revoked, which would adversely affect our business andreputation. In addition, third-party contractors, such as our CMOs, may elect not to continue to work with us due to factors beyond our control. Although we havecontracts in place, they may also refuse to work with us because of their own financial difficulties, business priorities or other reasons, at a time that is costly orotherwise inconvenient for us. If we were unable to find adequate replacement or another acceptable solution in time, our clinical trials could be delayed or ourcommercial activities could be harmed. 25 Problems with the quality of the work of third parties may lead us to seek to terminate our working relationships and use alternative service providers. However,making this change may be costly and may delay clinical trials. In addition, it may be very challenging, and in some cases impossible, to find replacement serviceproviders that can develop and manufacture our drug candidates in an acceptable manner and at an acceptable cost and on a timely basis. The sale of productscontaining any defects or any delays in the supply of necessary services could adversely affect our business, financial condition, results of operations, andprospects. Growth in the costs and expenses of components or raw materials may also adversely affect our business, financial condition, results of operations, and prospects.Supply sources could be interrupted from time to time and, if interrupted, supplies may not be resumed (whether in part or in whole) within a reasonable timeframeand at an acceptable cost or at all. We plan to rely on third parties to conduct clinical trials for our product candidate. If these third parties do not successfully carry out their contractual dutiesor meet expected deadlines, it may cause delays in commencing and completing clinical trials of our product candidate or we may be unable to obtainmarketing approval for or commercialize our product candidate. Clinical trials must meet applicable FDA and foreign regulatory requirements. We do not have the ability to independently conduct clinical trials for our productcandidate. We expect to rely on third parties, such as CROs, medical institutions, clinical investigators and contract laboratories, to conduct all of our clinical trialsof our product candidate; however, we remain responsible for ensuring that each of our clinical trials is conducted in accordance with our investigational plan andprotocol. Moreover, the FDA and other foreign regulatory authorities require us to comply with IND and human subject protection regulations and current goodclinical practice standards, commonly referred to as GCPs, for conducting, monitoring, recording, and reporting the results of clinical trials to ensure that the dataand results are scientifically credible and accurate and that the trial subjects are adequately informed of the potential risks of participating in clinical trials. Ourreliance on third parties does not relieve us of these responsibilities and requirements. Regulatory authorities enforce these GCPs through periodic inspections oftrial sponsors, principal investigators and trial sites. If we or any of our third-party contractors fail to comply with applicable GCPs, the clinical data generated inour clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials beforeapproving our marketing applications. There is no assurance that upon inspection by a given regulatory authority, such regulatory authority will determine that anyof our clinical trials comply with GCPs. Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the marketingapproval process. There are significant requirements imposed on us and on clinical investigators who conduct clinical trials that we sponsor. Although we are responsible forselecting qualified CROs or clinical investigators, providing them with the information they need to conduct the clinical trials properly, ensuring proper monitoringof the clinical trials, and ensuring that the clinical trials are conducted in accordance with the general investigational plan and protocols contained in the IND, wecannot ensure that the CROs or clinical investigators will maintain compliance with all regulatory requirements at all times. The pharmaceutical industry hasexperienced cases where clinical investigators have been found to incorrectly record data, omit data, or even falsify data. We cannot ensure that the CROs orclinical investigators in our trials will not make mistakes or otherwise compromise the integrity or validity of data, any of which would have a significant negativeeffect on our ability to obtain marketing approval, our business, and our financial condition. We or the third parties we rely on may encounter problems in clinical trials that may cause us or the FDA or foreign regulatory agencies to delay, suspend orterminate our clinical trials at any phase. These problems could include the possibility that we may not be able to manufacture sufficient quantities of materials foruse in our clinical trials, conduct clinical trials at our preferred sites, enroll a sufficient number of patients for our clinical trials at one or more sites, or begin orsuccessfully complete clinical trials in a timely fashion, if at all. Furthermore, we, the FDA or foreign regulatory agencies may suspend clinical trials of our productcandidate at any time if we or they believe the subjects participating in the trials are being exposed to unacceptable health risks, whether as a result of adverseevents occurring in our trials or otherwise, or if we or they find deficiencies in the clinical trial process or conduct of the investigation. The FDA and foreign regulatory agencies could also require additional clinical trials before or after granting of marketing approval for any products, which wouldresult in increased costs and significant delays in the development and commercialization of such products and could result in the withdrawal of such products fromthe market after obtaining marketing approval. Our failure to adequately demonstrate the safety and efficacy of a product candidate in clinical development coulddelay or prevent obtaining marketing approval of the product candidate and, after obtaining marketing approval, data from post-approval studies could result in theproduct being withdrawn from the market, either of which would likely have a material adverse effect on our business. 26 Risks Related to Our Intellectual Property We are dependent on our relationships and license agreements, and we rely upon the patent rights granted to us pursuant to the license agreements. Our commercial success will depend in large part on our ability to use patents and regulatory exclusivity to exclude others from competing with our products. Thepatent position of emerging pharmaceutical companies like us can be highly uncertain and involve complex legal and technical issues. Until our licensed patentsare interpreted by a court, either because we have sought to enforce them against a competitor or because a competitor has preemptively challenged them, we willnot know the breadth of protection that they will afford us. Our patents may not contain claims sufficiently broad to prevent others from practicing ourtechnologies or marketing competing products. Third parties may intentionally attempt to design around our patents or design around our patents so as to competewith us without infringing our patents. Moreover, the issuance of a patent is not conclusive as to its validity or enforceability, and so our patents may beinvalidated or rendered unenforceable if challenged by others. As a result of the foregoing factors, we cannot be certain how much protection from competition patent rights will provide us. Our success will depend significantly on our ability to operate without infringing the patents and other proprietary rights of third parties. While we are not currently aware of any third-party patents which we may infringe, there can be no assurance that we do not or will not infringe on patents held bythird parties or that third parties will not claim that we have infringed on their patents. In the event that our technologies infringe or violate the patent or otherproprietary rights of third parties, we may be prevented from pursuing product development, manufacturing or commercialization of our products that utilize suchtechnologies. There may be patents held by others of which we are unaware that contain claims that our products or operations infringe. In addition, given thecomplexities and uncertainties of patent laws, there may be patents of which we are aware that we may ultimately be held to infringe, particularly if the claims ofthe patent are determined to be broader than we believe them to be. Adding to this uncertainty, in the United States, patent applications filed in recent years areconfidential for 18 months, while older applications are not publicly available until the patent issues. As a result, avoiding patent infringement may be difficult. If a third-party claims that we infringe its patents, any of the following may occur: ·we may be required to pay substantial financial damages if a court decides that our technologies infringe a competitor’s patent, which can be tripled if theinfringement is deemed willful, or be required to discontinue or significantly delay development, marketing, selling and licensing of the affected productsand intellectual property rights;·a court may prohibit us from selling or licensing our product without a license from the patent holder, which may not be available on commerciallyacceptable terms or at all, or which may require us to pay substantial royalties or grant cross-licenses to our patents; and·we may have to redesign our product so that it does not infringe others’ patent rights, which may not be possible or could require substantial funds or timeand require additional studies. In addition, employees, consultants, contractors and others may use the proprietary information of others in their work for us or disclose our proprietaryinformation to others. If our employees, consultants, contractors or others disclose our data to others or use data belonging to others in connection with ourbusiness, it could lead to disputes over the ownership of inventions derived from that information or expose us to potential damages or other penalties. The occurrence of any of these events could have a material adverse effect on our business, financial condition, results of operations or prospects. We may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights. There is substantial history of litigation and other proceedings regarding patent and intellectual property rights in the pharmaceutical industry. We may be forced todefend claims of infringement brought by our competitors and others, and we may institute litigation against others who we believe are infringing our intellectualproperty rights. The outcome of intellectual property litigation is subject to substantial uncertainties and may, for example, turn on the interpretation of claimlanguage by the court, which may not be to our advantage, or on the testimony of experts as to technical facts upon which experts may reasonably disagree. Under our license agreements, we have the right to bring legal action against any alleged infringers of the patents we license. However, we are responsible for allcosts relating to such potential litigation. We have the right to any proceeds received as a result of such litigation, but, even if we are successful in such litigation,there is no assurance we would be awarded any monetary damages. Our involvement in intellectual property litigation could result in significant expense to us. Some of our competitors have considerable resources available to themand a strong economic incentive to undertake substantial efforts to stop or delay us from commercializing products. Moreover, regardless of the outcome,intellectual property litigation against or by us could significantly disrupt our development and commercialization efforts, divert our management’s attention andquickly consume our financial resources. 27 In addition, if third parties file patent applications or issue patents claiming technology that is also claimed by us in pending applications, we may be required toparticipate in interference proceedings with the USPTO or in other proceedings outside the United States, including oppositions, to determine priority of inventionor patentability. Even if we are successful in these proceedings, we may incur substantial costs, and the time and attention of our management and scientificpersonnel will be diverted from product development or other more productive matters. Our proprietary rights may not adequately protect our technologies and product candidate. Our commercial success will depend in part on our ability to obtain patents and protect our existing patent position as well as our ability to maintain adequateprotection of other intellectual property for our technologies, product candidate, and any future products in the United States and other countries. If we do notadequately protect our intellectual property, competitors may be able to use our technologies and erode or negate any competitive advantage we may have, whichcould harm our business and ability to achieve profitability. The laws of some foreign countries do not protect our proprietary rights to the same extent or in thesame manner as United States laws, and we may encounter significant problems in protecting and defending our proprietary rights in these countries. We will beable to protect our proprietary rights from unauthorized use by third parties only to the extent that our proprietary technologies, product candidate and any futureproducts are covered by valid and enforceable patents or are effectively maintained as trade secrets. We apply for patents covering both our technologies and product candidate, as we deem appropriate. However, we may fail to apply for patents on importanttechnologies or product candidate in a timely fashion, or at all. Our existing patents and any future patents we obtain may not be sufficiently broad to preventothers from practicing our technologies or from developing competing products and technologies. We cannot be certain that our patent applications will beapproved or that any patents issued will adequately protect our intellectual property. While we are responsible for and have control over the filing and prosecuting of patent applications and maintaining patents which cover making, using or sellingPEDMARKTM, we may lose any such rights if we decide to allow any licensed patent to lapse. If we fail to appropriately prosecute and maintain patent protectionfor any of our product candidate, our ability to develop and commercialize those product candidate may be adversely affected and we may not be able to preventcompetitors from making, using and selling competing products. Moreover, the patent positions of pharmaceutical companies are highly uncertain and involve complex legal and factual questions for which important legalprinciples are evolving and remain unresolved. As a result, the validity and enforceability of patents cannot be predicted with certainty. In addition, we do notknow whether: ·we or our licensors were the first to make the inventions covered by each of our issued patents and pending patent applications;·we or our licensors were the first to file patent applications for these inventions;·any of the patents that cover our product candidate will be eligible to be listed in the FDA’s compendium of “Approved Drug Products with TherapeuticEquivalence Evaluation,” sometimes referred to as the FDA’s Orange Book;·others will independently develop similar or alternative technologies or duplicate any of our technologies;·any of our or our licensors’ pending patent applications will result in issued patents;·any patents issued to us or our licensors and collaborators will provide us with any competitive advantages, or will be challenge by third parties;·we will develop additional proprietary technologies that are patentable;·the United States government will exercise any of its statutory rights to our intellectual property that was developed with government funding; or·our business may infringe the patents or other proprietary rights of others. The actual protection afforded by a patent varies based on products or processes, from country to country and depends upon many factors, including the type ofpatent, the scope of its coverage, the availability of regulatory related extensions, the availability of legal remedies in a particular country, the validity andenforceability of the patents and our financial ability to enforce our patents and other intellectual property. Our ability to maintain and solidify our proprietaryposition for our products will depend on our success in obtaining effective claims and enforcing those claims once granted. Our issued patents and those that mayissue in the future, or those licensed to us, may be challenged, narrowed, invalidated or circumvented, and the rights granted under any issued patents may notprovide us with proprietary protection or competitive advantages against competitors with similar products. Due to the extensive amount of time required for thedevelopment, testing and regulatory review of a potential product, it is possible that, before any of our product candidate can be commercialized, any related patentmay expire or remain in force for only a short period following commercialization, thereby reducing any advantage of the patent. We may also rely on trade secrets to protect some of our technology, especially where we do not believe patent protection is appropriate or obtainable. However,trade secrets are difficult to maintain. While we use reasonable efforts to protect our trade secrets, we or any of our collaborators’ employees, consultants,contractors or scientific and other advisors may unintentionally or willfully disclose our proprietary information to competitors and we may not have adequateremedies in respect of that disclosure. Enforcement of claims that a third party has illegally obtained and is using trade secrets is expensive, time consuming anduncertain. In addition, foreign courts are sometimes less willing than United States courts to protect trade secrets. If our competitors independently developequivalent knowledge, methods and know-how, we would not be able to assert our trade secrets against them and our business could be harmed. 28 We may not be able to protect our intellectual property rights throughout the world. Filing, prosecuting and defending patents on our product candidate in all countries throughout the world would be prohibitively expensive, and our intellectualproperty rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries donot protect intellectual property rights to the same extent as federal and state laws in the United States. For example, many foreign countries have compulsorylicensing laws under which a patent owner must grant licenses to third parties. Consequently, we may not be able to prevent third parties from practicing ourinventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or otherjurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and further, mayexport otherwise infringing products to territories where we have patent protection, but enforcement rights are not as strong as those in the United States. Theseproducts may compete with our product candidate in jurisdictions where we do not have any issued patents and our patent claims or other intellectual rights maynot be effective or sufficient to prevent them from so competing. Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems ofcertain countries do not favor the enforcement of patents and other intellectual property protection, which could make it difficult for us to stop the infringement ofour patents generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention fromother aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and couldprovoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not becommercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significantcommercial advantage from the intellectual property that we develop or license. The patent protection for our product candidate may expire before we are able to maximize their commercial value, which may subject us to increasedcompetition and reduce or eliminate our opportunity to generate product revenue. The patents for our product candidate have varying expiration dates and, if these patents expire, we may be subject to increased competition and we may not beable to recover our development costs or market any of our approved products profitably. In some of the larger potential market territories, such as the UnitedStates and Europe, patent term extension or restoration may be available to compensate for time taken during aspects of the product’s development and regulatoryreview. For example, depending on the timing, duration and specifics of FDA marketing approval of our product candidate, if any, one of the United States patentscovering each of such approved product(s) or the use thereof may be eligible for up to five years of patent term restoration under the Hatch-Waxman Act. TheHatch-Waxman Act allows a maximum of one patent to be extended per FDA-approved product. Patent term extension also may be available in certain foreigncountries upon regulatory approval of our product candidate. Nevertheless, we may not be granted patent term extension either in the United States or in any foreign country because of, for example, failing to apply withinapplicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. Moreover, the term of extension,as well as the scope of patent protection during any such extension, afforded by the governmental authority could be less than we request. In addition, even thoughsome regulatory authorities may provide some other exclusivity for a product under their own laws and regulations, we may not be able to qualify the product orobtain the exclusive time period. If we are unable to obtain patent term extension/restoration or some other exclusivity, we could be subject to increasedcompetition and our opportunity to establish or maintain product revenue could be substantially reduced or eliminated. Furthermore, we may not have sufficienttime to recover our development costs prior to the expiration of our United States and foreign patents. Obtaining and maintaining our patent protection depends on compliance with various procedural, documentary, fee payment and other requirements imposedby governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similarprovisions during the patent prosecution process. Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on any issued patentand/or pending patent applications are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of a patent or patent application.We employ an outside firm and rely on our outside counsel to pay these fees. While an inadvertent lapse may sometimes be cured by payment of a late fee or byother means in accordance with the applicable rules, there are many situations in which noncompliance can result in abandonment or lapse of the patent or patentapplication, resulting in partial or complete loss of patent rights in the relevant jurisdiction. If we fail to maintain the patents and patent applications directed to ourproduct candidate, our competitors might be able to enter the market earlier than should otherwise have been the case, which would have a material adverse effecton our business. 29 We may become involved in lawsuits to protect our patents or other intellectual property rights, which could be expensive, time-consuming and ultimatelyunsuccessful. Competitors may infringe our patents or other intellectual property rights. To counter infringement or unauthorized use, we may be required to file infringementclaims, directly or through our licensors, which can be expensive and time consuming. In addition, in an infringement proceeding, a court may decide that a patentof our licensor is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not coverthe technology in question. An adverse result in any litigation or defense proceedings could put one or more of the patents we license at risk of being invalidated orinterpreted narrowly and could put our licensors’ patent applications at risk of not issuing. Interference proceedings brought by the USPTO may be necessary to determine the priority of inventions with respect to our patents or the patents of our licensors.An unfavorable outcome could require us to cease using the technology or to attempt to license rights to it from the prevailing party. Our business could be harmedif a prevailing party does not offer us a license on terms that are acceptable to us. Litigation or interference proceedings may fail and, even if successful, may resultin substantial costs and distraction of our management and other employees. We may not be able to prevent, alone or with our licensors, misappropriation of ourproprietary rights, particularly in countries where the laws may not protect those rights as fully as in the United States. In addition, potential infringers of ourintellectual property rights may have substantially more resources than we do to defend their position, which could adversely affect the outcome of any suchdispute. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidentialand proprietary information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements of the results ofhearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a substantialadverse effect on the price of our common stock. Third-party claims of intellectual property infringement or misappropriation may adversely affect our business and could prevent us from developing orcommercializing our product candidate. Our commercial success depends in part on us not infringing the patents and proprietary rights of third parties. There is a substantial amount of litigation, bothwithin and outside the United States, involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including patentinfringement lawsuits, interferences, oppositions, ex-parte review and inter partes reexamination and post-grant review proceedings before the USPTO andcorresponding foreign patent offices. Numerous United States and foreign issued patents and pending patent applications owned by third parties exist in the fieldsin which we are developing and may develop our product candidate. As the biotechnology and pharmaceutical industries expand and more patents are issued, therisk increases that our product candidate may be subject to claims of infringement of the patent rights of third parties. If a third party claims that we infringe ontheir products or technology, we could face a number of issues, including: ·infringement and other intellectual property claims which, with or without merit, can be expensive and time-consuming to litigate and can divertmanagement’s attention from our core business;·substantial damages for past infringement, which we may have to pay if a court decides that our product infringes on a competitor’s patent;·a court prohibiting us from selling or licensing our product unless the patent holder licenses the patent to us, which the collaborator would not be requiredto do;·if a license is available from a patent holder, we may have to pay substantial royalties or grant cross licenses to our patents; and·redesigning our processes so they do not infringe, which may not be possible or could require substantial funds and time. Third parties may assert that we are employing their proprietary technology without authorization. There may be third-party patents or patent applications withclaims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of our product candidate that we failed toidentify. For example, applications filed before November 29, 2000 and certain applications filed after that date that will not be filed outside the United Statesremain confidential until issued as patents. Except for the preceding exceptions, patent applications in the United States and elsewhere are generally published onlyafter a waiting period of approximately 18 months after the earliest filing. Therefore, patent applications covering our product candidate could have been filed byothers without the knowledge of us or our licensors. Additionally, pending patent applications which have been published can, subject to certain limitations, belater amended in a manner that could cover our product candidate or the use or manufacture of our product candidate. We may also face a claim ofmisappropriation if a third party believes that we inappropriately obtained and used trade secrets of such third party. If we are found to have misappropriated athird party’s trade secrets, we may be prevented from further using such trade secrets, limiting our ability to develop our product candidate, and we may berequired to pay damages. 30 If any third-party patents were held by a court of competent jurisdiction to cover aspects of our materials, formulations, methods of manufacture or methods fortreatment, the holders of any such patents would be able to block our ability to develop and commercialize the applicable product candidate until such patentexpired or unless we obtain a license. These licenses may not be available on acceptable terms, if at all. Even if we were able to obtain a license, the rights may benonexclusive, which could result in our competitors gaining access to the same intellectual property. Ultimately, we could be prevented from commercializing a product, or be forced to cease some aspect of our business operations, if, as a result of actual orthreatened patent infringement claims, we are unable to enter into licenses on acceptable terms. Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize oneor more of our product candidate. Defending against claims of patent infringement or misappropriation of trade secrets could be costly and time-consuming,regardless of the outcome. Thus, even if we were to ultimately prevail, or to settle at an early stage, such litigation could burden us with substantial unanticipatedcosts. In addition, litigation or threatened litigation could result in significant demands on the time and attention of our management team, distracting them fromthe pursuit of other company business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including trebledamages and attorneys’ fees for willful infringement, pay royalties, redesign our infringing products or obtain one or more licenses from third parties, which maybe impossible or require substantial time and monetary expenditure. In addition, the uncertainties associated with litigation could have a material adverse effect onour ability to raise the funds necessary to continue our clinical trials, continue our research programs, license necessary technology from third parties, or enter intodevelopment collaborations that would help us bring our product candidate to market. Changes in United States patent law could diminish the value of patents in general, thereby impairing our ability to protect our product candidate. As is the case with other pharmaceutical companies, our success is heavily dependent on intellectual property, particularly on obtaining and enforcing patents andpatent rights. Obtaining and enforcing patents and patent rights in the pharmaceutical industry involves both technological and legal complexity, and therefore, iscostly, time-consuming and inherently uncertain. In addition, the United States has recently enacted and is currently implementing wide-ranging patent reformlegislation. Further, several recent United States Supreme Court rulings have either narrowed the scope of patent protection available in certain circumstances orweakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, thiscombination of events has created uncertainty with respect to the value of patents and patent rights, once obtained. For our United States patent applications containing a claim not entitled to priority before March 16, 2013, there is a greater level of uncertainty in the patent law.In September 2011, the Leahy-Smith America Invents Act (the “America Invents Act” or “AIA”) was signed into law. The AIA includes a number of significantchanges to United States patent law, including provisions that affect the way patent applications will be prosecuted, reviewed after issuance, and may also affectpatent litigation. The USPTO is currently developing regulations and procedures to govern administration of the AIA, and many of the substantive changes topatent law associated with the AIA. It is not clear what other, if any, impact the AIA will have on the operation of our business. Moreover, the AIA and itsimplementation could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of patent rights, all ofwhich could have a material adverse effect on our business and financial condition. An important change introduced by the AIA is that, as of March 16, 2013, the United States transitioned to a “first-inventor-to-file” system for deciding whichparty should be granted a patent when two or more patent applications are filed by different parties claiming the same invention. A third party that files a patentapplication in the USPTO after that date but before a licensor or us could therefore be awarded a patent covering an invention of ours even if said licensor or wehad made the invention before it was made by the third party. This will require us to be cognizant going forward of the time from invention to filing of a patentapplication. Furthermore, our ability to obtain and maintain valid and enforceable patent rights depends on whether the differences between the licensor’s or ourtechnology and the prior art allow our technology to be patentable over the prior art. Since patent applications in the United States and most other countries areconfidential for a period of time after filing, we cannot be certain that a licensor or we were the first to either (a) file any patent application related to our productcandidate or (b) invent any of the inventions claimed in our patents or patent applications. Among some of the other changes introduced by the AIA are changes that limit where a patentee may file a patent infringement suit and providing opportunitiesfor third parties to challenge any issued patent in the USPTO. This applies to all United States patents, even those issued before March 16, 2013. Because of alower evidentiary standard in USPTO proceedings compared to the evidentiary standard in United States federal court necessary to invalidate a patent claim, a thirdparty could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid as unpatentable even though the same evidencemay be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party may attempt to use the USPTO procedures toinvalidate patent rights that would not have been invalidated if first challenged by the third party as a defendant in a district court action. 31 Depending on decisions by the United States Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change inunpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future. Intellectual property rights do not address all potential threats to our competitive advantage. The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may notadequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative: ·Others may be able to make products that are similar to our product candidate but that are not covered by the claims of the patents that we license fromothers or may license or own in the future;·Others may independently develop similar or alternative technologies or otherwise circumvent any of our technologies without infringing our intellectualproperty rights;·Any of our collaborators might not have been the first to conceive and reduce to practice the inventions covered by the patents or patent applications thatwe license or will, in the future, own or license;·Issued patents that have been licensed to us may not provide us with any competitive advantage, or may be held invalid or unenforceable, as a result oflegal challenges by our competitors;·Our competitors might conduct research and development activities in countries where we do not have license rights, or in countries where research anddevelopment safe harbor laws exist, and then use the information learned from such activities to develop competitive products for sale in our majorcommercial markets;·Ownership of patents or patent applications licensed to us may be challenged by third parties;·The patents of third parties or pending or future applications of third parties, if issued, may have an adverse effect on our business. Confidentiality agreements with employees, consultants and others may not adequately prevent disclosure of trade secrets and protect other proprietaryinformation. We consider proprietary trade secrets and/or confidential know-how and unpatented know-how to be important to our business. We may rely on trade secretsand/or confidential know-how to protect our technology, especially where patent protection is believed by us to be of limited value. However, trade secrets and/orconfidential know-how can be difficult to maintain as confidential. To protect this type of information against disclosure or appropriation by competitors, our policy is to require our employees, consultants, contractors and advisorsto enter into confidentiality agreements with us. However, current or former employees, consultants, contractors and advisers may unintentionally or willfullydisclose our confidential information to competitors, and confidentiality agreements may not provide an adequate remedy in the event of unauthorized disclosureof confidential information. Enforcing a claim that a third party obtained illegally and is using trade secrets and/or confidential know-how is expensive, timeconsuming and unpredictable. The enforceability of confidentiality agreements may vary from jurisdiction to jurisdiction. Failure to obtain or maintain trade secrets and/or confidential know-how trade protection could adversely affect our competitive position. Moreover, ourcompetitors may independently develop substantially equivalent proprietary information and may even apply for patent protection in respect of the same. Ifsuccessful in obtaining such patent protection, our competitors could limit our use of our trade secrets and/or confidential know-how. We may need to license certain intellectual property from third parties, and such licenses may not be available or may not be available on commerciallyreasonable terms. A third party may hold intellectual property, including patent rights, that are important or necessary to the development or commercialization of our productcandidate. It may be necessary for us to use the patented or proprietary technology of third parties to commercialize our product candidate, in which case we wouldbe required to obtain a license from these third parties. Such a license may not be available on commercially reasonable terms or at all, which could materiallyharm our business. We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of thirdparties. We have received confidential and proprietary information from third parties. In addition, we employ individuals who were previously employed at otherbiotechnology or pharmaceutical companies. We may be subject to claims that we or our employees, consultants or independent contractors have inadvertently orotherwise improperly used or disclosed confidential information of these third parties or our employees’ former employers. 32 Further, we may be subject to ownership disputes in the future arising, for example, from conflicting obligations of consultants or others who are involved indeveloping our product candidate. We may also be subject to claims that former employees, consultants, independent contractors, collaborators or other thirdparties have an ownership interest in our patents or other intellectual property. Litigation may be necessary to defend against these and other claims challengingour right to and use of confidential and proprietary information. If we fail in defending any such claims, in addition to paying monetary damages, we may lose ourrights therein. Such an outcome could have a material adverse effect on our business.Even if we are successful in defending against these claims, litigation could result in substantial cost and be a distraction to our management and employees. Our reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade secretswill be misappropriated or disclosed. Because we rely on third parties to assist with research and development and to manufacture our product candidate, we must, at times, share trade secrets withthem. We seek to protect our proprietary technology in part by entering into confidentiality agreements and, if applicable, material transfer agreements, consultingagreements or other similar agreements with our advisors, employees, third-party contractors and consultants prior to beginning research or disclosing proprietaryinformation. These agreements typically limit the rights of the third parties to use or disclose our confidential information, including our trade secrets. Despite thecontractual provisions employed when working with third parties, the need to share trade secrets and other confidential information increases the risk that suchtrade secrets become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of theseagreements. Given that our proprietary position is based, in part, on our know-how and trade secrets, a competitor’s discovery of our trade secrets or otherunauthorized use or disclosure would impair our competitive position and may have a material adverse effect on our business. In addition, these agreements typically restrict the ability of our advisors, employees, third-party contractors and consultants to publish data potentially relating toour trade secrets, although our agreements may contain certain limited publication rights. For example, any academic institution that we may collaborate with inthe future will usually expect to be granted rights to publish data arising out of such collaboration, provided that we are notified in advance and given theopportunity to delay publication for a limited time period in order for us to secure patent protection of intellectual property rights arising from the collaboration, inaddition to the opportunity to remove confidential or trade secret information from any such publication. In the future, we may also conduct joint research anddevelopment programs that may require us to share trade secrets under the terms of our research and development or similar agreements. Despite our efforts toprotect our trade secrets, our competitors may discover our trade secrets, either through breach of our agreements with third parties, independent development orpublication of information by any of our third-party collaborators. A competitor’s discovery of our trade secrets would impair our competitive position and havean adverse impact on our business. Risks Related to Our Industry If we are unable to obtain applicable U.S. and/or foreign regulatory approvals, we will be unable to develop and commercialize our drug candidate. The preclinical studies and clinical trials of our product candidate, as well as the manufacturing, labeling, sale and distribution, export or import, marketing,advertising and promotion of our product candidate, are subject to various regulatory frameworks in the United States, Canada and other countries. Any productsthat we develop must receive all relevant regulatory approvals and clearances before any marketing, sale or distribution. The regulatory process, which includesextensive preclinical studies and clinical testing to establish product safety and efficacy, can take many years and cost substantial amounts of money. As a result ofthe length of time, many challenges and costs are associated with the drug development process, and the historical rate of failures for drug candidates is extremelyhigh. Changes in regulatory policy could also cause delays or affect regulatory approval. Any regulatory delays may increase our development costs and negativelyimpact our competitiveness and prospects. It is possible that we may not be able to obtain regulatory approval of our drug candidate or approvals may take longerand cost more to obtain than expected. Regulatory approvals, if granted, may entail limitations on the uses for which any product we develop may be marketed, limiting the potential sales for any suchproducts. The granting of product approvals can be withdrawn at any time, and manufacturers of approved products are subject to regular reviews, including forcompliance with FDA Good Manufacturing Practices regulations. Failure to comply with any applicable regulatory requirement, which may change from time totime, can result in warning letters, fines, sanctions, penalties, recalling or seizing products, suspension of production, or even criminal prosecution. 33 Future sales of our product candidate may suffer if it fails to achieve market acceptance. Even if our product candidate is successfully developed and achieves appropriate regulatory approval, it may not enjoy commercial acceptance or success. Ourproduct candidate may compete with a number of new and traditional drugs and therapies developed by major pharmaceutical and biotechnology companies.Market acceptance is dependent on the product candidate demonstrating clinical efficacy and safety, as well as demonstrating advantages over alternativetreatment methods. In addition, market acceptance is influenced by government reimbursement policies and the ability of third parties to pay for such products.Physicians, patients, or the medical community may not accept or utilize any products we may develop. We face a strong competitive environment. Other companies may develop or commercialize more effective or cheaper products, which may reduce oreliminate the demand for our product candidate. The biotechnology and pharmaceutical industry, and in particular the field of cancer therapeutics where we are focused, is very competitive. Many companies andresearch organizations are engaged in the research, development and testing of new cancer therapies or means of increasing the effectiveness of existing therapies,including, among many others, Amgen, AstraZeneca, Bayer, Bristol-Myers Squibb, Eli Lilly, Eisai, Merck KGaA, Novartis, Johnson & Johnson, Pfizer, Roche,Taiho and Sanofi-Aventis. Many of these companies have marketed drugs or are developing targeted cancer therapeutics, which depending upon the mechanism ofaction of such agents could be competitors. Many of our existing or potential competitors have substantially greater financial, technical and human resources than we do and may be better equipped todevelop, manufacture and market products. In addition, many of these competitors have extensive experience with preclinical testing and human clinical trials andin obtaining regulatory approvals. Also, some of the smaller companies that compete with us have formed collaborative relationships with large, establishedcompanies to support the research, development, clinical trials and commercialization of any products that they may develop. Academic institutions, governmentagencies and other public and private research organizations may also conduct research, seek patent protection and establish collaborative arrangements forresearch, clinical development and marketing of products similar to those we seek to develop. These companies and institutions compete with us in recruiting andretaining qualified scientific and management personnel as well as in acquiring technologies complementary to our projects. We are likely to face competition in the areas of product efficacy and safety, ease of use and adaptability, as well as pricing, product acceptance, regulatoryapprovals and intellectual property. Competitors could develop more effective, safer and more affordable products than we do, and they may obtain patentprotection or product commercialization before we do or even render our product candidate obsolete. The existence of competitive products, including products ortreatments of which we are not aware, or products or treatments that may be developed in the future, may adversely affect the marketability of any product that wedevelop. We may face product liability claims that could require us to defend costly lawsuits or incur substantial liabilities that could adversely impact ourfinancial condition, receipt of regulatory approvals for our product candidate and our results of operation. The use of our product candidate in clinical trials and for commercial applications, if any, may expose us to liability claims in the event that such product candidatecauses injury or death or results in other adverse effects. These claims could be made by health care institutions, contract laboratories, and subjects participating inour clinical studies, patients or others using our product candidate. In addition to liability claims, certain serious adverse events could require interruption, delayand/or discontinuation of a clinical trial and potentially prevent further development of our product candidate. Litigation is very expensive, even if we defendsuccessfully against possible litigation. In addition, our existing insurance coverage may not be adequate to cover certain types or amounts of liability, and futurecoverage may not be available in sufficient amounts or at reasonable cost. Further, it is possible that we may later reduce or terminate this coverage based on futureavailability of financial resources. Adverse liability claims may also harm our ability to obtain or maintain regulatory approvals. We use hazardous materials and chemicals in our research and development, and our failure to comply with laws related to hazardous materials couldmaterially harm us. Our research and development processes while outsources, dies involve the controlled use of hazardous materials, such as flammable organic solvents, corrosiveacids and corrosive bases. Accordingly, we are subject to federal, state, local and foreign laws and regulations governing the use, manufacture, storage, handlingand disposal of such materials and certain waste products. The risk of accidental contamination or injury from these materials cannot be completely eliminated.We could be held liable for any damages that result and any such liability could exceed our resources and may not be covered by our general liability insurance.We currently do not carry insurance specifically for hazardous materials claims. We may be required to incur significant costs to comply with environmental lawsand regulations, which may change from time to time. Efforts to reduce product pricing and health care reimbursement and changes to government policies could negatively affect the commercialization ofour product candidate. If our product candidate achieves regulatory approval, we may be materially adversely affected by the continuing efforts of governmental and third-party payers tocontain or reduce health care costs. For example, if we succeed in bringing one or more products to market, such products may not be considered cost-effective andthe availability of consumer reimbursement may not exist or be sufficient to allow the sale of such products on a competitive basis. The constraints on pricing andavailability of competitive products may further limit our pricing and reimbursement policies as well as adversely impact market acceptance andcommercialization of our product candidate. 34 In many markets, the pricing or profitability of healthcare products is subject to government control. In recent years, federal, state, provincial and local officialsand legislators have proposed or are proposing a variety of price-based reforms to the healthcare systems in the United States, Canada and elsewhere. Someproposals include measures that would limit or eliminate payments from third-party payors to the consumer for certain medical procedures and treatments or allowgovernment control of pharmaceutical pricing. The adoption of any such proposals or reforms could adversely affect the commercial viability of our productcandidate. In the United States, there have been and continue to be a number of legislative initiatives to contain healthcare costs. For example, in 2010, the Affordable CareAct was passed, which substantially changes the way health care is financed by both governmental and private insurers, and significantly impacts the U.S.pharmaceutical industry. Some states are also considering legislation that would control the prices of drugs, and state Medicaid programs are increasingly requesting manufacturers to paysupplemental rebates and requiring prior authorization by the state program for use of any drug for which supplemental rebates are not being paid. Managed careorganizations continue to seek price discounts and, in some cases, to impose restrictions on the coverage of particular drugs. Government efforts to reduceMedicaid expenses may lead to increased use of managed care organizations by Medicaid programs. This may result in managed care organizations influencingprescription decisions for a larger segment of the population and a corresponding constraint on prices and reimbursement for our products. Since its enactment, there have been judicial and Congressional challenges to numerous aspects of the Affordable Care Act, and Congress and the executivebranch are seeking to replace the Affordable Care Act with new federal legislation. There may also be federal and state regulatory changes that impact theAffordable Care Act or healthcare programs, insurance coverage or reimbursement generally. These efforts have increased uncertainty regarding the availability ofhealthcare programs, insurance coverage and reimbursement as a general matter as well as for our product candidate, and we cannot predict how these events willimpact our business. In addition, there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which have resultedin several recent Congressional inquiries and proposed bills designed to, among other things, bring more transparency to product pricing, review the relationshipbetween pricing and manufacturer patient programs, reduce the price of drugs under Medicare and reform government program reimbursement methodologies forproducts. We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federaland state governments will pay for healthcare products and services, which could result in reduced demand for our product candidate or additional pricingpressures. Any significant changes in the healthcare system in the United States, Canada or abroad would likely have a substantial impact on the manner in which we conductbusiness and could have a material adverse effect on our ability to raise capital and the viability of product commercialization. Risks Related to Owning Our Common Shares We may be unable to maintain the listing of our common shares on the Nasdaq Capital Market or the TSX and that would make it more difficult forshareholders to dispose of our common shares. Our common shares are currently listed on the Nasdaq Capital Market and the Toronto Stock Exchange (the “TSX”). Both the Nasdaq Capital Market and the TSXhave rules for continued listing, including minimum market capitalization and other requirements that we might not meet in the future. While we are exercisingdiligent efforts to maintain the listing of our common stock on the NASDAQ Capital Market and TSX, there can be no assurance that we will be able to do so, andour securities could be delisted. Delisting from the Nasdaq Capital Market or the TSX would make it more difficult for shareholders to dispose of our common shares and more difficult to obtainaccurate quotations on our common shares. This could have an adverse effect on the price of our common shares. There can be no assurances that a market makerwill make a market in our common shares on the OTCQB or any other stock quotation system after delisting. Furthermore, securities quoted over-the-countergenerally have significantly less liquidity than securities traded on a national securities exchange, not only in the number of shares that can be bought and sold, butalso through delays in the timing of transactions and lower market prices than might otherwise be obtained. As a result, shareholders might find it difficult to resellshares at prices quoted in the market or at all. Furthermore, because of the limited market and generally low volume of trading in our common shares, our commonshares are more likely to be affected by broad market fluctuations, general market conditions, fluctuations in our operating results, changes in the market’sperception of our business, and announcements made by us, our competitors or parties with whom we have business relationships. Our ability to issue additionalsecurities for financing or other purposes, or to otherwise arrange for any financing we may need in the future, may also be materially and adversely affected by thelimited market and low trading volume of our common shares. 35 The market price of our common shares is highly volatile and could cause the value of your investment to significantly decline. Historically, the market price of our common shares has been highly volatile and the market for our common shares has from time to time experienced significantprice and volume fluctuations, some of which are unrelated to our operating performance. From March 11, 2013 to February 11, 2020, the closing trading price ofour stock fluctuated from a high of $18.45 Canadian dollars (“CAD”) per share to a low of CAD$0.72 per share on the TSX. From September 13, 2017 toFebruary 11, 2020, the closing trading price of our stock fluctuated from a high of $14.33 per share to a low of $3.30 on the Nasdaq Capital Market. Historically,our common shares have had a low trading volume, and may continue to have a low trading volume in the future. This low volume may contribute to the volatilityof the market price of our common shares. It is likely that the market price of our common shares will continue to fluctuate significantly in the future. The market price of our common shares may be significantly affected by many factors, including without limitation: ·the development of our sole product candidate, PEDMARKTM;·the need to raise additional capital and the terms of any transaction we are able to enter into;·other external factors generally or stock market trends in the pharmaceutical or biotechnology industries specifically;·announcements of licensing agreements, joint ventures, collaborations or other strategic alliances that involve our product or those of ourcompetitors;·innovations related to our or our competitors’ products;·actual or potential clinical trial results related to our or our competitors’ products;·the status, timing and outcome of regulatory approvals;·our financial results or those of our competitors;·reports of securities analysts regarding us or our competitors;·developments or disputes concerning our licensed or owned patents or those of our competitors;·developments with respect to the efficacy or safety of our product or those of our competitors; and·health care reforms and reimbursement policy changes nationally and internationally. Our existing principal shareholders hold a substantial number of our common shares and may be able to exercise influence in matters requiringapproval of our shareholders. At February 11, 2020, our current shareholders separately representing more than 5% ownership in our Company collectively represented beneficial ownership ofapproximately 41.86% of our common shares. In particular, Southpoint Capital Advisors LP (“Southpoint Capital”) owns or exercises control over approximately4.0 million common shares, representing approximately 20.1% of our issued and outstanding common shares; Essetifin SpA, owns approximately 3.2 millionshares, or approximately 16.2% of our issued and outstanding common shares; and venBio owns approximately 1.1 million shares, or approximately 5.6% of ourissued and outstanding common shares. Southpoint Capital, Essetifin SpA, venBio, our other significant shareholders, and other insiders, acting alone or together,might be able to influence the outcomes of matters that require the approval of our shareholders, including but not limited to certain equity transactions (such as afinancing), an acquisition or merger with another company, a sale of substantially all of our assets, the election and removal of directors, or amendments to ourincorporating documents. These shareholders might make decisions that are adverse to your interests. The concentration of ownership could have the effect ofdelaying, preventing or deterring a change of control of our Company, which could adversely affect the market price of our common shares or deprive our othershareholders of an opportunity to receive a premium for our common shares as part of a sale of our Company. There are a large number of our common shares underlying outstanding options, and reserved for issuance under our stock option plan, that may be soldin the market, which could depress the market price of our shares and result in substantial dilution to the holders of our common shares. The sale or issuance of a substantial amount of our common shares in the future could cause the market price of our common shares to decline. It may also impairour ability to obtain additional financing. At February 11, 2020, we had outstanding warrants to purchase approximately 0.04 million shares of our common sharesat an exercise price of $6.80 per common share. In addition, at February 11, 2020, there were approximately 3.1 million common shares issuable upon the exerciseof outstanding stock options, of which options to purchase approximately $1.2 million were denominated in Canadian dollars and had a weighted average exerciseprice of CAD $2.43 per common share and options to purchase approximately $9.9 million were denominated in U.S. dollars and had a weighted average exerciseprice of $4.05 per common share. We may also issue further warrants as part of any future financings in addition to the additional 1.9 million options to acquireour common shares currently remaining and available for future awards under our stock option plan. 36 We may need to raise additional funds in the future to continue our operations. Any equity offering could result in significant dilution to the ownershipinterests of shareholders and may result in dilution of the value of such interests and any debt offering will increase financial risk. In order to satisfy our anticipated capital requirements to develop our product, we may need to raise additional funds through either the sale of additional equity,the issue of securities convertible into equity, the issuance of debt, the establishment of collaborations that provide us with funding, the out-license or sale ofcertain aspects of our intellectual property portfolio, or from other sources. The most likely sources of financing that may be available to us in the near term are thesale of common shares and/or securities convertible or exercisable into common shares and the issuance of debt. We cannot predict the size of future issues of common shares or the future issue of securities convertible or exercisable into common shares or the effect that anysuch future issues and sales of common shares or other securities will have on the market price of our common shares. Any transaction involving the issue ofcommon shares, or securities convertible or exercisable into common shares, could result in immediate and substantial dilution to present and prospective holdersof our common shares. Alternatively, we may rely on debt financing and assume debt obligations that require us to make substantial interest and capital paymentsand to pledge some or all of our assets as collateral to secure such debt obligations. Failure to meet out debt obligations could result in an acceleration of the debtand enforcement against our assets pledged as collateral, either of which would have an adverse effect on our operations and prospects. Our management has significant flexibility in using the current available cash. In addition to general corporate purposes (including working capital, research and development, business development and operational purposes), we currentlyintend to use our available cash to continue the development of our drug candidate PEDMARK™, to seek regulatory approval for PEDMARK™, and to invest inprecommercial activities for PEDMARK™. Depending on future developments and circumstances, we may use some of our available cash for other purposes,which may have the potential to decrease our cash runway. Notwithstanding our current intentions regarding use of our available cash, our management will havesignificant flexibility with respect to such use. The actual amounts and timing of expenditures will vary significantly depending on a number of factors, includingthe amount and timing of cash used in our operations and our research and development efforts. Management’s failure to use these funds effectively would have anadverse effect on the value of our common stock and could make it more difficult and costlier to raise funds in the future. We have not paid any dividends since incorporation and do not anticipate declaring any dividends in the foreseeable future. As a result, you may not beable to recoup your investment through the payment of dividends on your common shares and the lack of a dividend payable on our common sharesmight depress the value of your investment. For the foreseeable future, we plan to use all available funds to finance the development of our product candidate and operate our business. Our directors willdetermine if and when dividends should be declared and paid in the future based on our financial position at the relevant time, but since we have no present plansto pay dividends, you should not expect receipt of dividends either for your cash needs or to enhance the value of our common shares held by you. We may be a passive foreign investment company, or “PFIC,” which could result in adverse United States federal income tax consequences to U.S.investors. If we are a PFIC for any taxable year (or portion thereof) that is included in the holding period of a U.S. Holder (as such term is defined in the section of thisAnnual Report entitled “Material U.S. Federal Income Tax Considerations”) of our common shares, the U.S. Holder may be subject to adverse U.S. federal incometax consequences and may be subject to additional reporting requirements. We have not made the analysis necessary to determine whether or not we are currently aPFIC or whether we have ever been a PFIC, and there can be no assurances with respect to our status as a PFIC for our current taxable year or any subsequenttaxable year. Moreover, if we are a PFIC for any taxable year, we intend to provide to a U.S. Holder such information as the Internal Revenue Service (“IRS”) mayrequire, including a PFIC annual information statement, in order to enable the U.S. Holder to make and maintain a “qualified electing fund” election. We urge U.S.investors to consult their own tax advisors regarding the possible application of the PFIC rules. For a more detailed explanation of the tax consequences of PFICclassification to U.S. Holders, see the section of this Annual Report entitled “Material U.S. Federal Income Tax Considerations—General Rules Applicable to theOwnership and Disposition of Common Shares.” This paragraph is qualified in its entirety by the discussion below under the heading “Material U.S. FederalIncome Tax Considerations.” Each U.S. shareholder should consult its own tax advisors regarding the PFIC rules and the U.S. federal income tax consequences ofthe acquisition, ownership, and disposition of our common shares. Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could have an adverse effect on ourbusiness, and our per share price may be adversely affected. Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”) and the rules and regulations promulgated by the SEC to implement Section 404, weare required to include in our Form 10-K a report by our management regarding the effectiveness of our internal control over financial reporting. The reportincludes, among other things, an assessment of the effectiveness of our internal control over financial reporting. The assessment must include disclosure of anymaterial weakness in our internal control over financial reporting identified by management. 37 As part of the evaluation undertaken by management pursuant to Section 404, our internal control over financial reporting was effective as of December 31, 2019.However, if we fail to maintain an effective system of disclosure controls or internal controls over financial reporting, we may discover material weaknesses thatwe would then be required to disclose. Any material weaknesses identified in our internal controls could have an adverse effect on our business. We may not beable to accurately or timely report on our financial results, and we might be subject to investigation by regulatory authorities. This could result in a loss of investorconfidence in the accuracy and completeness of our financial reports, which may have an adverse effect on our stock price. No evaluation process can provide complete assurance that our internal controls will detect and correct all failures within our Company to disclose materialinformation otherwise required to be reported. The effectiveness of our controls and procedures could also be limited by simple errors or faulty judgments. Inaddition, if we continue to expand, through either organic growth or through acquisitions (or both), the challenges involved in implementing appropriate controlswill increase and may require that we evolve some or all of our internal control processes. It is also possible that the overall scope of Section 404 may be revised in the future, thereby causing ourselves to review, revise or reevaluate our internal controlprocesses, which may result in the expenditure of additional human and financial resources. Item 1B.Unresolved Staff Comments None. Item 2.Properties We have an operating lease in Research Triangle Park, North Carolina utilizing small space within a commercial building. The operating lease has payments of$200 per month with no scheduled increases. This operating lease is terminable with 30 days’ notice and has no penalties or contingent payments due. Item 3.Legal Proceedings None. Item 4.Mine Safety Disclosures Not applicable. 38 PART II Item 5.Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer’s Purchases of Equity Securities Our common shares currently trade in the U.S. on the Nasdaq Capital Market under the trading symbol “FENC” and in Canada on the TSX under the tradingsymbol “FRX”. Prior to September 13, 2017, our common shares traded in the U.S. on the OTCQB Market under the trading symbol “FENCF”. The followingtable sets forth the quarterly high and low market closing prices, and average daily trading volume on the OTCQB, Nasdaq Capital Market (as applicable), and theTSX, for the two most recent full fiscal years: Nasdaq Capital Market/OTCQB(in U.S. dollars) Toronto Stock Exchange(in Canadian dollars) Fiscal 2019: High $ Low $ Volume High $ Low $ Volume Quarter ended 12/31/19 $6.49 $4.25 30,248 $8.45 $5.65 321 Quarter ended 09/30/19 4.95 3.85 34,336 6.55 5.00 489 Quarter ended 06/30/19 5.09 3.30 107,826 6.80 4.38 1,622 Quarter ended 03/31/19 $7.58 $4.64 45,072 $10.00 $6.22 1,502 Fiscal 2018: High $ Low $ Volume High $ Low $ Volume Quarter ended 12/31/18 $8.39 $5.37 80,832 $10.72 $7.22 2,062 Quarter ended 09/30/18 10.83 7.84 84,521 14.16 10.19 1,911 Quarter ended 06/30/18 14.33 10.05 109,447 18.45 13.28 4,109 Quarter ended 03/31/18 $12.10 $8.26 44,777 $15.65 $10.36 1,629 As of February 11, 2020, the last reported sale on the TSX was CAD$9.55 per share and the last reported sale on the Nasdaq Capital Market was $7.17 per share. Record Holders As of February 11, 2020, there were approximately 38 shareholders of record of our common shares, one of which was Cede & Co., a nominee for DepositoryTrust Company, or DTC, and one of which was The Canadian Depository for Securities Limited, or CDS. All of our common shares held by brokerage firms,banks and other financial institutions in the U.S. or Canada as nominees for beneficial owners are considered to be held of record by Cede & Co. in respect ofbrokerage firms, banks and other financial institutions located in Canada. Cede & Co. and CDS are each considered to be one shareholder of record. Dividend Policy We have never declared or paid cash dividends on our common shares. We currently expect to retain future earnings, if any, for use in the operation and expansionof business and do not anticipate paying any cash dividends in the foreseeable future. Material United States Federal and Canadian Income Tax Consequences Material U.S. Federal Income Tax Considerations The following is a general summary of certain U.S. federal income tax considerations applicable to a U.S. Holder (as defined below) arising from and relating tothe acquisition, ownership, and disposition of our common shares. This summary is for general information purposes only and does not purport to be a completeanalysis or listing of all potential U.S. federal income tax considerations that may apply to a U.S. Holder arising from and relating to the acquisition, ownership,and disposition of our common shares. In addition, this summary does not take into account the individual facts and circumstances of any particular U.S. Holderthat may affect the U.S. federal income tax consequences to such U.S. Holder, including, without limitation, specific tax consequences to a U.S. Holder under anapplicable income tax treaty. Accordingly, this summary is not intended to be, and should not be construed as, legal or U.S. federal income tax advice with respectto any U.S. Holder. This summary does not address the U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and non-U.S. taxconsequences to U.S. Holders of the acquisition, ownership, and disposition of our common shares. In addition, except as specifically set forth below, thissummary does not discuss applicable tax reporting requirements. Each prospective U.S. Holder should consult its own tax advisors regarding the U.S. federal, U.S.federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences relating to the acquisition, ownership and dispositionof our common shares. 39 No legal opinion from U.S. legal counsel or ruling from the IRS has been requested, or will be obtained, regarding the U.S. federal income tax consequences of theacquisition, ownership, and disposition of our common shares. This summary is not binding on the IRS, and the IRS is not precluded from taking a position that isdifferent from, and contrary to, the positions taken in this summary. In addition, because the authorities on which this summary is based are subject to variousinterpretations, the IRS and the U.S. courts could disagree with one or more of the conclusions described in this summary. General Authorities This summary is based on the Code, Treasury Regulations (whether final, temporary, or proposed), published rulings of the IRS, published administrative positionsof the IRS, the Convention Between Canada and the United States of America with Respect to Taxes on Income and on Capital, signed September 26, 1980, asamended (the “Canada-U.S. Tax Convention”), and U.S. court decisions that are applicable, and, in each case, as in effect and available, as of the date of thisdocument. Any of the authorities on which this summary is based could be changed in a material and adverse manner at any time, and any such change could beapplied retroactively. This summary does not discuss the potential effects, whether adverse or beneficial, of any proposed legislation. U.S. Holders For purposes of this summary, the term “U.S. Holder” means a beneficial owner of our common shares that is for U.S. federal income tax purposes: ·an individual who is a citizen or resident of the United States (as determined under U.S. federal income tax rules);·a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of theUnited States or of any political subdivision of the United States;·an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or·a trust that (i) is subject to the primary supervision of a court within the United States and the control of one or more U.S. persons for allsubstantial decisions or (ii) has a valid election in effect under applicable United States Treasury Regulations to be treated as a U.S. person. An individual may be a resident for U.S. federal income tax purposes in any calendar year if the individual was present in the United States for at least 31 days inthat calendar year and for an aggregate of at least 183 days during the three-year period ending with the current calendar year. For purposes of this calculation, allof the days present in the current year, one-third of the days present in the immediately preceding year, and one-sixth of the days present in the second precedingyear are counted. Residents are taxed for U.S. federal income tax purposes as if they were U.S. citizens. Non-U.S. Holders Not Addressed For purposes of this summary, a “non-U.S. Holder” is a beneficial owner of our common shares that is not a U.S. Holder and is not a partnership for U.S. federalincome tax purposes. This summary does not address the U.S. federal income tax consequences to non-U.S. Holders of acquiring, owning, and disposing of ourcommon shares. Each prospective investor should consult a professional tax advisor with respect to the U.S. federal income, U.S. alternative minimum, U.S.federal estate and gift, U.S. state and local, and non-U.S. tax consequences of acquiring, owning, and disposing of our common shares. Certain U.S. Holders Not Addressed This summary does not address the U.S. federal income tax considerations applicable U.S. Holders that are subject to special provisions under the Code, including,but not limited to, U.S. Holders that: ·are tax-exempt organizations, qualified retirement plans, individual retirement accounts, or other tax-deferred accounts;·are financial institutions, underwriters, insurance companies, real estate investment trusts, or regulated investment companies;·are broker-dealers, dealers, or traders in securities or currencies that elect to apply a mark-to-market accounting method;·have a “functional currency” other than the U.S. dollar;·own our common shares as part of a straddle, hedging transaction, conversion transaction, constructive sale, or other arrangement involvingmore than one position;·acquired our common shares in connection with the exercise of employee stock options or otherwise as compensation for services;·hold our common shares other than as a capital asset within the meaning of section 1221 of the Code (generally, property held for investmentpurposes); 40 ·are partnerships or other “pass-through” entities for U.S. federal income tax purposes (or investors in such partnerships or entities);·own, have owned, or will own (directly, indirectly, or by attribution) 10% or more of the total combined voting power of the outstanding sharesof your company;·are U.S. expatriates or former long-term residents of the United States;·have been, are, or will be residents or deemed to be residents in Canada for purposes of the Income Tax Act (Canada) (the “Tax Act”);·use or hold, will use or hold, or that are or will be deemed to use or hold our common shares in connection with carrying on a business inCanada;·are persons whose common shares constitute “taxable Canadian property” under the Tax Act; or·have a permanent establishment in Canada for the purposes of the Canada-U.S. Tax Convention. U.S. Holders that are subject to special provisions under the Code, including, but not limited to, U.S. Holders described immediately above, should consult theirown tax advisors regarding the U.S. federal income, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and non-U.S. taxconsequences of acquiring, owning, and disposing of our common shares. The following summary is not a substitute for careful tax planning and advice. U.S. Holders of our common shares are urged to consult their own taxadvisors concerning the U.S. federal income tax consequences of the issues discussed herein, in light of their particular circumstances, as well as anyconsiderations arising under the laws of any foreign, state, local, or other taxing jurisdiction. General Rules Applicable to the Ownership and Disposition of Common Shares A U.S. Holder that receives a distribution, including a constructive distribution, with respect to a common share will be required to include the amount of suchdistribution in gross income as a dividend (without reduction for any Canadian income tax withheld from such distribution) to the extent of our current andaccumulated “earnings and profits,” as computed for U.S. federal income tax purposes. A dividend generally will be taxed to a U.S. Holder at ordinary income taxrates. (See, however, the exception discussed below for individual and other non-corporate U.S. Holders, which may allow such holders preferential rates when wehave terminated PFIC status.) To the extent that a distribution exceeds our current and accumulated “earnings and profits,” such distribution will be treated, first,as a tax-free return of capital to the extent of a U.S. Holder’s tax basis in our common shares and thereafter as gain from the sale or exchange of such commonshares. However, we may not maintain the calculations of our earnings and profits in accordance with U.S. federal income tax principles, and U.S. Holders mayhave to assume that any distribution by us with respect to our common shares will constitute ordinary dividend income. Dividends received on our common sharesby corporate U.S. Holders generally will not be eligible for the “dividends received deduction.” Provided that (1) we are eligible for the benefits of the Canada-U.S.Tax Convention or (2) our common shares are readily tradable on a United States securities market (and certain holding period and other conditions are satisfied),dividends paid by us to non-corporate U.S. Holders, including individuals, will be eligible for the preferential tax rates applicable to long-term capital gains fordividends unless we are classified as a PFIC in the tax year of distribution or in the preceding tax year. The dividend rules are complex, and each U.S. Holdershould consult its own tax advisors regarding the application of such rules. Upon the sale or other taxable disposition of our common shares, subject to the PFIC rules below, a U.S. Holder generally will recognize capital gain or loss in anamount equal to the difference between the U.S. dollar value of cash received plus the fair market value of any property received and such U.S. Holder’s tax basisin such common shares sold or otherwise disposed of. A U.S. Holder’s tax basis in our common shares generally will be determined initially by the holder’s U.S.dollar cost for our common shares (with adjustments provided under the PFIC rules below). Subject again to the PFIC rules, gain or loss recognized on such sale orother disposition generally will be long-term capital gain or loss if, at the time of the sale or other disposition, our common shares have been held for more thanone year. Preferential tax rates currently apply to long-term capital gain of a U.S. Holder that is an individual, estate, or trust. There are currently no preferential tax rates forlong-term capital gain of a U.S. Holder that is a corporation. Deductions for capital losses are subject to significant limitations under the Code. If we aredetermined to be a PFIC, any gain realized on our common shares could be ordinary income under the rules discussed below. PFIC Status of the Company If we were to constitute a “passive foreign investment company” under the meaning of Section 1297 of the Code (a “PFIC”) for any taxable year during a U.S.Holder’s holding period, then certain potentially adverse rules may affect the U.S. federal income tax consequences to a U.S. Holder as a result of the acquisition,ownership and disposition of our common shares. We have not made the analysis necessary to determine whether or not we are currently a PFIC or whether wehave ever been a PFIC. There can be no assurance that we are not, have never been or will not in the future be a PFIC. No opinion of legal counsel or ruling fromthe IRS concerning our status as a PFIC has been obtained or is currently planned to be requested. The determination of whether any corporation was, or will be, aPFIC for a tax year depends, in part, on the application of complex U.S. federal income tax rules, which are subject to differing interpretations. In addition, whetherany corporation will be a PFIC for any tax year depends on the assets and income of such corporation over the course of each such tax year and, as a result, cannotbe predicted with certainty as of the date of this Annual Report. Accordingly, there can be no assurance that the IRS will not challenge any determination made byus (or any of our subsidiaries) concerning our PFIC status in any taxable year. Each U.S. Holder should consult its own tax advisors regarding the PFIC status ofus and our subsidiaries. 41 In any taxable year in which we are classified as a PFIC, a U.S. Holder will be required to file an annual report with the IRS containing such information asTreasury Regulations and/or other IRS guidance may require. IRS Form 8621 is currently used for such filings. In addition to penalties, a failure to satisfy suchreporting requirements may result in an extension of the time period during which the IRS can assess a tax. U.S. Holders should consult their own tax advisorsregarding the requirements of filing such information returns under these rules, including the requirement to file an IRS Form 8621 annually. We generally will be a PFIC for a taxable year if, for such year, (a) 75% or more of our gross income is passive income (the “PFIC income test”) or (b) 50% ormore of the value of our assets either produce passive income or are held for the production of passive income, based on the quarterly average of the fair marketvalue of such assets (the “PFIC asset test”). “Gross income” generally includes all sales revenues less the cost of goods sold, plus income from investments andfrom incidental or outside operations or sources, and “passive income” generally includes, for example, dividends, interest, certain rents and royalties, certain gainsfrom the sale of stock and securities, and certain gains from commodities transactions. Active business gains arising from the sale of commodities generally are excluded from passive income if substantially all (85% or more) of a foreigncorporation’s commodities are stock in trade or inventory, depreciable property used in a trade or business, or supplies regularly used or consumed in the ordinarycourse of its trade or business, and certain other requirements are satisfied. For purposes of the PFIC income test and PFIC asset test described above, if we own, directly or indirectly, 25% or more of the total value of the outstandingshares of another corporation, we will be treated as if we (a) held a proportionate share of the assets of such other corporation and (b) received directly aproportionate share of the income of such other corporation. In addition, for purposes of the PFIC income test and PFIC asset test described above, and assumingcertain other requirements are met, “passive income” does not include certain interest, dividends, rents, or royalties that are received or accrued by us from certain“related persons” (as defined in Section 954(d)(3) of the Code) also organized in Canada, to the extent such items are properly allocable to the income of suchrelated person that is neither passive income nor income connected with a U.S. trade or business. Under certain attribution rules, if we are a PFIC, U.S. Holders will generally be deemed to own their proportionate share of our direct or indirect equity interestin any company that is also a PFIC (a ‘‘Subsidiary PFIC’’), and will generally be subject to U.S. federal income tax on their proportionate share of (a) any“excess distributions,” as described below, on the stock of a Subsidiary PFIC and (b) a disposition or deemed disposition of the stock of a Subsidiary PFIC by usor another Subsidiary PFIC, both as if such U.S. Holders directly held the shares of such Subsidiary PFIC. In addition, U.S. Holders may be subject to U.S.federal income tax on any indirect gain realized on the stock of a Subsidiary PFIC on the sale or disposition of our common shares. Accordingly, U.S. Holdersshould be aware that they could be subject to tax under the PFIC rules even if no distributions are received on our common shares and no redemptions or otherdispositions of our common shares are made. Default PFIC Rules Under Section 1291 of the Code If we are a PFIC for any tax year during which a U.S. Holder owns our common shares, the U.S. federal income tax consequences to such U.S. Holder of theacquisition, ownership, and disposition of our common shares will depend on whether and when such U.S. Holder makes an election to treat us and eachSubsidiary PFIC, if any, as a “qualified electing fund” or “QEF” under Section 1295 of the Code (a “QEF Election”) or makes a mark-to-market election underSection 1296 of the Code (a “Mark-to-Market Election”). A U.S. Holder that does not make either a QEF Election or a Mark-to-Market Election will be referred toin this summary as a “Non-Electing U.S. Holder.” A Non-Electing U.S. Holder will be subject to the rules of Section 1291 of the Code (described below) with respect to (a) any gain recognized on the sale or othertaxable disposition of our common shares and (b) any “excess distribution” received on our common shares. A distribution generally will be an “excessdistribution” to the extent that such distribution (together with all other distributions received in the current tax year) exceeds 125% of the average distributionsreceived during the three preceding tax years (or during a U.S. Holder’s holding period for our common shares, if shorter). Under Section 1291 of the Code, any gain recognized on the sale or other taxable disposition of our common shares (including an indirect disposition of the stockof any Subsidiary PFIC), and any “excess distribution” received on our common shares or deemed received with respect to the stock of a Subsidiary PFIC, must beratably allocated to each day in a Non-Electing U.S. Holder’s holding period for the respective common shares. The amount of any such gain or excess distributionallocated to the tax year of disposition or distribution of the excess distribution, or allocated to years before the entity became a PFIC, if any, would be taxed asordinary income at the rates applicable for such year (and not eligible for certain preferred rates). The amounts allocated to any other tax year would be subject toU.S. federal income tax at the highest tax rate applicable to ordinary income in each such year. In addition, an interest charge would be imposed on the tax liabilityfor each such year, calculated as if such tax liability had been due in each such year. A Non-Electing U.S. Holder that is not a corporation must treat any suchinterest paid as “personal interest,” which is not deductible. 42 If we are a PFIC for any tax year during which a Non-Electing U.S. Holder holds our common shares, we will continue to be treated as a PFIC with respect to suchNon-Electing U.S. Holder, regardless of whether we cease to be a PFIC in one or more subsequent tax years. A Non-Electing U.S. Holder may terminate thisdeemed PFIC status by electing to recognize gain (which will be taxed under the rules of Section 1291 of the Code discussed above), but not loss, as if suchcommon shares were sold on the last day of the last tax year for which we were a PFIC. QEF Election A U.S. Holder that makes a timely and effective QEF Election for the tax year in which the holding period of our common shares begins generally will not besubject to the rules of Section 1291 of the Code discussed above with respect to such common shares. A U.S. Holder that makes such a QEF Election will besubject to U.S. federal income tax on such U.S. Holder’s pro rata share (based on its ownership of our common shares) of (a) the net capital gain of the Company,which will be taxed as long-term capital gain to such U.S. Holder, and (b) the ordinary earnings of the Company, which will be taxed as ordinary income to suchU.S. Holder. Generally, “net capital gain” is the excess of (a) net long-term capital gain over (b) net short-term capital loss, and “ordinary earnings” are the excessof (a) “earnings and profits” over (b) net capital gain. A U.S. Holder that makes a QEF Election will be subject to U.S. federal income tax on such amounts foreach tax year in which the Company is a PFIC, regardless of whether such amounts are actually distributed by us to such U.S. Holder. However, for any tax year inwhich we are a PFIC and has no net income or gain, U.S. Holders that have made a QEF Election would not have any income inclusions as a result of the QEFElection. If a U.S. Holder that made a QEF Election has an income inclusion, such a U.S. Holder may, subject to certain limitations, elect to defer payment ofcurrent U.S. federal income tax on such amounts, subject to an interest charge. If such U.S. Holder is not a corporation, any such interest paid will be treated as“personal interest,” which is not deductible. A U.S. Holder that makes a timely and effective QEF Election with respect to the Company generally (a) may receive a tax-free distribution from the Company tothe extent that such distribution represents “earnings and profits” of the Company that were previously included in income by the U.S. Holder because of such QEFElection and (b) will adjust such U.S. Holder’s tax basis in our common shares to reflect the amount included in income or allowed as a tax-free distributionbecause of such QEF Election. A U.S. Holder that makes a QEF Election generally will recognize capital gain or loss on the sale or other taxable disposition of ourcommon shares. A U.S. Holder may make a timely QEF Election by filing the appropriate QEF Election documents (currently IRS Form 8621) at the time such U.S. Holder files aU.S. federal income tax return for such year. If a U.S. Holder does not make a timely QEF Election for the first year in the U.S. Holder’s holding period in whichwe are a PFIC, the U.S. Holder may still be able to make an effective QEF Election in a subsequent year if such U.S. Holder meets certain requirements and makesa “purging” election to recognize gain (which will be taxed under the rules of Section 1291 of the Code discussed above) as if such common shares were sold fortheir fair market value on the day the QEF Election is effective. If a U.S. Holder makes a QEF Election but does not make a “purging” election to recognize gain asdiscussed in the preceding sentence, then such U.S. Holder shall be subject to the QEF Election rules and shall continue to be subject to tax under the rules ofSection 1291 discussed above with respect to our common shares. If a U.S. Holder owns PFIC stock indirectly through another PFIC, separate QEF Elections mustbe made for the PFIC in which the U.S. Holder is a direct shareholder and the Subsidiary PFIC for the QEF rules to apply to both PFICs. A QEF Election will apply to the tax year for which such QEF Election is timely made and to all subsequent tax years, unless such QEF Election is invalidated orterminated or the IRS consents to revocation of such QEF Election. If a U.S. Holder makes a QEF Election and, in a subsequent tax year, we cease to be a PFIC,the QEF Election will remain in effect (although it will not be applicable) during those tax years in which we are not a PFIC. Accordingly, if we become a PFIC inanother subsequent tax year, the QEF Election will be effective and the U.S. Holder will be subject to the QEF rules described above during any subsequent taxyear in which we qualify as a PFIC. We: (a) will make available to U.S. Holders, upon their written request, information as to our status as a PFIC, and (b) for each taxable year in which we are aPFIC, provide to a U.S. Holder, upon written request, such information and documentation that a U.S. Holder making a QEF Election with respect to the Companyis reasonably required to obtain for U.S. federal income tax purposes. We may elect to provide such information on our website. However, U.S. Holders should beaware that we cannot assure that we will provide any such information relating to any Subsidiary PFIC. Because we may own shares in one or more SubsidiaryPFICs at any time, U.S. Holders will continue to be subject to the rules discussed above with respect to the taxation of gains and excess distributions with respect toany Subsidiary PFIC for which the U.S. Holders do not obtain the required information. Each U.S. Holder should consult its own tax advisors regarding therequirements for, and procedure for making, a QEF Election with respect to the Company and any Subsidiary PFIC. 43 A U.S. Holder makes a QEF Election by attaching a completed IRS Form 8621, including a PFIC Annual Information Statement, to a timely filed United Statesfederal income tax return. However, if we do not provide the required information with regard to the Company or any of our Subsidiary PFICs, U.S. Holders maynot be able to make a QEF Election for such entity and, unless they make the Mark-to-Market Election discussed in the next section, will continue to be subject tothe rules of Section 1291 of the Code discussed above that apply to Non-Electing U.S. Holders with respect to the taxation of gains and excess distributions. Mark-to-Market Election A U.S. Holder may make a Mark-to-Market Election only if our common shares are marketable stock. Our common shares generally will be “marketable stock” ifour common shares are regularly traded on (a) a national securities exchange that is registered with the Securities and Exchange Commission, (b) the nationalmarket system established pursuant to section 11A of the Exchange Act, or (c) a foreign securities exchange that is regulated or supervised by a governmentalauthority of the country in which the market is located, provided that (i) such foreign exchange has trading volume, listing, financial disclosure, and surveillancerequirements, and meets other requirements and the laws of the country in which such foreign exchange is located, together with the rules of such foreignexchange, ensure that such requirements are actually enforced and (ii) the rules of such foreign exchange effectively promote active trading of listed stocks. If suchstock is traded on such a qualified exchange or other market, such stock generally will be “regularly traded” for any calendar year during which such stock istraded, other than in de minimis quantities, on at least 15 days during each calendar quarter. We expect that our common shares will meet the definition of“marketable stock,” although there can be no assurance of this, especially as regards the required trading frequency. If a U.S. Holder that makes a Mark-to-Market Election for any taxable year with respect to our common shares, it generally will not be subject to the rules ofSection 1291 of the Code discussed above with respect to such common shares for such taxable year. However, if a U.S. Holder does not make a Mark-to-MarketElection beginning in the first tax year of such U.S. Holder’s holding period for which we are a PFIC and such U.S. Holder has not made a timely QEF Election,the rules of Section 1291 of the Code discussed above will apply to dispositions of, and certain distributions on, our common shares. A U.S. Holder that makes a Mark-to-Market Election will include in ordinary income, for each tax year in which we are a PFIC, an amount equal to the excess, ifany, of (a) the fair market value of our common shares, as of the close of such tax year over (b) such U.S. Holder’s adjusted tax basis in such common shares. AU.S. Holder that makes a Mark-to-Market Election will be allowed a deduction in an amount equal to the excess, if any, of (a) such U.S. Holder’s adjusted taxbasis in our common shares, over (b) the fair market value of such common shares (but only to the extent of the net amount of previously included income as aresult of the Mark-to-Market Election for prior tax years). A U.S. Holder that makes a Mark-to-Market Election generally also will adjust its tax basis in our common shares to reflect the amount included in gross incomeor allowed as a deduction because of such Mark-to-Market Election. Upon a sale or other taxable disposition of our common shares, a U.S. Holder that makes aMark-to-Market Election will recognize ordinary income or ordinary loss. Any such ordinary loss, however, is limited to exceed the excess, if any, of (a) theamount included in ordinary income because of such Mark-to-Market Election for prior tax years over (b) the amount allowed as a deduction because of suchMark-to-Market Election for prior tax years. Losses that exceed this limitation are subject to the rules generally applicable to losses provided in the Code andTreasury Regulations, with the result that they will be capital losses for most U.S. Holders. A U.S. Holder makes a Mark-to-Market Election by attaching a completed IRS Form 8621 to a timely filed United States federal income tax return. A Mark-to-Market Election applies to the tax year in which such Mark-to-Market Election is made and to each subsequent tax year, unless our common shares cease to be“marketable stock” or the IRS consents to revocation of such election. Each U.S. Holder should consult its own tax advisors regarding the requirements for, andprocedure for making, a Mark-to-Market Election. Although a U.S. Holder may be eligible to make a Mark-to-Market Election with respect to our common shares, no such election may be made with respect to thestock of any Subsidiary PFIC that a U.S. Holder is treated as owning, because such stock is not marketable. Hence, the Mark-to-Market Election will not beeffective to avoid the application of the default rules of Section 1291 of the Code described above with respect to deemed dispositions of Subsidiary PFIC stock orexcess distributions from a Subsidiary PFIC to its shareholder. Other PRIC and Related Rules Under Section 1291(f) of the Code, the IRS has issued proposed Treasury Regulations that, subject to certain exceptions, would cause a U.S. Holder that had notmade a timely QEF Election or Mark-to-Market Election to recognize gain (but not loss) upon certain transfers of our common shares that would otherwise betax-deferred (e.g., gifts and exchanges pursuant to corporate reorganizations). However, the specific U.S. federal income tax consequences to a U.S. Holder mayvary based on the manner in which our common shares are transferred. 44 Certain additional adverse rules may apply with respect to a U.S. Holder if we are a PFIC, regardless of whether such U.S. Holder makes a QEF Election. Forexample, under Section 1298(b)(6) of the Code, a U.S. Holder that uses our common shares as security for a loan will, except as may be provided in TreasuryRegulations, be treated as having made a taxable disposition of such common shares. Special rules also apply to the amount of foreign tax credit that a U.S. Holder may claim on a distribution from a PFIC. Subject to such special rules, foreign taxespaid with respect to any distribution in respect of stock in a PFIC are generally eligible for the foreign tax credit. The rules relating to distributions by a PFIC andtheir eligibility for the foreign tax credit are complicated, and each U.S. Holder should consult with its own tax advisors regarding the availability of the foreigntax credit with respect to distributions by a PFIC. If U.S. Holders of our common shares or U.S. Holders that are treated as constructively owning our common shares, each owning 10 percent or more of our equityby vote (“10-percent Shareholders”) own in total more than 50 percent of such equity by either vote or value, we will be treated as a controlled foreign corporation(“CFC”). For our taxable year ending December 31, 2019 and subsequent years, and for taxable years of U.S. Holders ending with or within such years, the test fora 10-percent Shareholder will be whether the holder owns 10 percent of our equity by vote or value (i.e., not only by vote). If we are a CFC, a 10-percentShareholder would be treated, subject to certain exceptions, as receiving a deemed dividend at the end of each taxable year of the Company in an amount equal toits pro rata share of the Company’s “subpart F income.” Among other items, and subject to certain exceptions, “subpart F income” includes dividends, interest,certain rents and royalties, certain gains from the sale of stock and securities, and certain gains from commodities transactions. Thus, it is likely that, if we weretreated as a CFC, some of our income would be subpart F income. If, for any period, we were treated as a CFC and a U.S. Holder were treated as a 10-percentShareholder therein, we would not be treated as a PFIC with respect to such U.S. Holder for such period. The PFIC and CFC rules are complex, and each U.S. Holder should consult with its own tax advisors regarding the PFIC and CFC rules and how they may affectthe U.S. federal income tax consequences of the acquisition, ownership, and disposition of our common shares. Additional Considerations Additional Tax on Passive Income Certain U.S. Holders that are individuals, estates or trusts (other than trusts that are exempt from tax) will be subject to a 3.8% tax on all or a portion of their “netinvestment income,” which includes dividends on our common shares and net gains from the disposition of our common shares. Further, excess distributionstreated as dividends, gains treated as excess distributions under the PFIC rules discussed above, and mark-to-market inclusions and deductions are all included inthe calculation of net investment income. Treasury Regulations provide, subject to the election described in the following paragraph, that solely for purposes of this additional tax, distributions of previouslytaxed income will be treated as dividends and included in net investment income subject to the additional 3.8% tax. Additionally, to determine the amount of anycapital gain from the sale or other taxable disposition of our common shares that will be subject to the additional tax on net investment income, a U.S. Holder whohas made a QEF Election will be required to recalculate its basis in our common shares excluding QEF basis adjustments. Alternatively, a U.S. Holder may make an election which will be effective with respect to all interests in a PFIC for which a QEF Election has been made andwhich is held in that year or acquired in future years. Under this election, a U.S. Holder pays the additional 3.8% tax on QEF income inclusions and on gainscalculated after giving effect to related tax basis adjustments. U.S. Holders that are individuals, estates or trusts should consult their own tax advisors regarding theapplicability of this tax to any of their income or gains in respect of our common shares. Receipt of Foreign Currency The amount of any distribution paid to a U.S. Holder in foreign currency, or on the sale, exchange or other taxable disposition of our common shares, generallywill be equal to the U.S. dollar value of such foreign currency based on the exchange rate applicable on the date of receipt (regardless of whether such foreigncurrency is converted into U.S. dollars at that time). A U.S. Holder will have a basis in the foreign currency equal to its U.S. dollar value on the date of receipt.Any U.S. Holder who converts or otherwise disposes of the foreign currency after the date of receipt may have a foreign currency exchange gain or loss that wouldbe treated as ordinary income or loss, and generally will be U.S. source income or loss for foreign tax credit purposes. Different rules apply to U.S. Holders whouse the accrual method of tax accounting. Each U.S. Holder should consult its own U.S. tax advisors regarding the U.S. federal income tax consequences ofreceiving, owning, and disposing of foreign currency. 45 Foreign Tax Credit Subject to the PFIC rules discussed above, a U.S. Holder that pays (whether directly or through withholding) Canadian income tax with respect to dividends paidon our common shares generally will be entitled, at the election of such U.S. Holder, to receive either a deduction or a credit for such Canadian income tax.Generally, a credit will reduce a U.S. Holder’s U.S. federal income tax liability on a dollar-for-dollar basis, whereas a deduction will reduce a U.S. Holder’sincome that is subject to U.S. federal income tax. This election is made on a year-by-year basis and applies to all foreign taxes paid (whether directly or throughwithholding) by a U.S. Holder during a year. Complex limitations apply to the foreign tax credit, including the general limitation that the credit cannot exceed the proportionate share of a U.S. Holder’s U.S.federal income tax liability that such U.S. Holder’s “foreign source” taxable income bears to such U.S. Holder’s worldwide taxable income. In applying thislimitation, a U.S. Holder’s various items of income and deduction must be classified, under complex rules, as either “foreign source” or “U.S. source.” Generally,dividends paid on our common shares should be treated as foreign source for this purpose, and gains recognized on the sale of our common shares by a U.S.Holder should be treated as U.S. source for this purpose, except as otherwise provided in an applicable income tax treaty, and if an election is properly made underthe Code. However, the amount of a distribution with respect to our common shares that is treated as a “dividend” may be lower for U.S. federal income taxpurposes than it is for Canadian federal income tax purposes, resulting in a reduced foreign tax credit allowance to a U.S. Holder. In addition, this limitation iscalculated separately with respect to specific categories of income. The foreign tax credit rules are complex, and each U.S. Holder should consult its own U.S. taxadvisors regarding the foreign tax credit rules. Backup Withholding and Information Reporting A U.S. Holder that is an individual (and, to the extent provided in future regulations, an entity), may be subject to certain reporting obligations with respect to ourcommon shares if the aggregate value of these and certain other “specified foreign financial assets” exceeds $50,000. If required, this disclosure is made by filingForm 8938 with the IRS. Significant penalties can apply if a U.S. Holder is required to make this disclosure and fail to do so. In addition, a U.S. Holder shouldconsider the possible obligation to file online a FinCEN Form 114—Foreign Bank and Financial Accounts Report, as a result of holding our common shares incertain accounts. Holders are urged to consult their U.S. tax advisors with respect to these and other reporting requirements that may apply to their acquisition ofour common shares. Payments made within the U.S., or by a U.S. payor or U.S. middleman, of dividends on, and proceeds arising from the sale or other taxable disposition of, ourcommon shares will generally be subject to information reporting and backup withholding tax, at the rate of 28%, if a U.S. Holder (a) fails to furnish such U.S.Holder’s correct U.S. taxpayer identification number (generally on Form W-9), (b) furnishes an incorrect U.S. taxpayer identification number, (c) is notified by theIRS that such U.S. Holder has previously failed to report properly items subject to backup withholding tax, or (d) fails to certify, under penalty of perjury, that suchU.S. Holder has furnished its correct U.S. taxpayer identification number and that the IRS has not notified such U.S. Holder that it is subject to backup withholdingtax. However, certain exempt persons generally are excluded from these information reporting and backup withholding rules. Backup withholding is not anadditional tax. Any amounts withheld under the U.S. backup withholding tax rules will be allowed as a credit against a U.S. Holder’s U.S. federal income taxliability, if any, or will be refunded, if such U.S. Holder furnishes required information to the IRS in a timely manner. The discussion of reporting requirements set forth above is not intended to constitute a complete description of all reporting requirements that may apply to a U.S.Holder. A failure to satisfy certain reporting requirements may result in an extension of the time period during which the IRS can assess a tax and, under certaincircumstances, such an extension may apply to assessments of amounts unrelated to any unsatisfied reporting requirement. Each U.S. Holder should consult itsown tax advisors regarding the information reporting and backup withholding rules. THE ABOVE SUMMARY IS NOT INTENDED TO CONSTITUTE A COMPLETE ANALYSIS OF ALL TAX CONSIDERATIONS APPLICABLETO U.S. HOLDERS WITH RESPECT TO THE ACQUISITION, OWNERSHIP, AND DISPOSITION OF OUR COMMON SHARES. U.S. HOLDERSSHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX CONSIDERATIONS APPLICABLE TO THEM IN THEIR OWNPARTICULAR CIRCUMSTANCES. Material Canadian Federal Income Tax Considerations Non-Residents of Canada The following portion of the summary is generally applicable to a U.S. Holder who, for the purposes of the Tax Act, is not resident in Canada, holds our commonshares as capital property and does not hold our common shares in connection with any business carried on in Canada. Special rules, which are not discussed in thissummary, may apply to a U.S. Holder that is an insurer that carries on an insurance business in Canada and elsewhere. 46 Disposition of Common Shares Upon the disposition by a U.S. Holder of our common shares, the U.S. Holder will not be subject to tax under the Tax Act in respect of any capital gain realizedunless the common shares disposed of constitute “taxable Canadian property” of the U.S. Holder and the U.S. Holder is not entitled to relief under an applicabletax treaty or convention. Our common shares will generally not constitute “taxable Canadian property” of such U.S. Holder unless at any time in the preceding 60months both of the following statements were true: (a) the U.S. Holder, together with either (i) persons with whom the U.S. Holder does not deal at arm’s length or(ii) partnerships in which the U.S. Holder or a person in (i) directly or indirectly holds membership interests, held shares and/or rights to acquire sharesrepresenting 25% or more of the issued shares of any class of our capital stock; and (b) more than 50% of the fair market value of our common stock was deriveddirectly or indirectly from one or any combination of (i) real or immovable property situated in Canada, (ii) Canadian resource properties, (iii) timber resourceproperties, and (iv) options in respect of, or interests in, or for civil law rights in, property described in any of (i) to (iii). U.S. Holders whose common shares constitute “taxable Canadian property” should consult their own tax advisors for advice having regard to their particularcircumstances. Dividends Paid on Common Shares Dividends paid, credited or deemed to have been paid or credited on our common shares held by a U.S. Holder will be subject to a Canadian withholding tax underthe Tax Act at a rate of 25% of the gross amount of the dividends, subject to reduction by any applicable tax convention. Under the Canada-U.S. Tax Convention,the rate of withholding tax on dividends generally applicable to U.S. Holders who beneficially own the dividends is reduced to 15%. In the case of U.S. Holdersthat are corporations that beneficially own at least 10% of our voting shares, the rate of withholding tax on dividends generally is reduced to 5%. So-called“fiscally transparent” entities, such as United States limited liability companies, or LLCs, are not entitled to rely on the terms of the Canada-U.S. Tax Convention,however a member of such entity will be considered to have received the dividend directly and to benefit from the reduced rates under the Canada-U.S. TaxConvention, where the member is considered under U.S. taxation law to have derived the dividend through that entity and by reason of the entity being a fiscallytransparent entity, the treatment of the dividend is the same as its treatment would be if the amount had been derived directly by the member. Members of suchentities are regarded as holding their proportionate share of our common shares held by the entity for the purposes of the Canada-U.S. Tax Convention. Asdiscussed above under “Dividend Policy,” we have never declared or paid cash dividends on our common shares and do not anticipate paying any cash dividendsin the foreseeable future. Item 6.Selected Financial Data Not applicable. 47 Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations CAUTIONARY STATEMENT The discussion below contains forward-looking statements regarding our financial condition and our results of operations that are based upon our annualconsolidated financial statements, which have been prepared in accordance with generally accepted accounting principles within the United States, or U.S. GAAP,and applicable U.S. Securities and Exchange Commission, or SEC, regulations for financial information. The preparation of these financial statements requires ourmanagement to make estimates and judgments that affect the reported amounts of assets, liabilities, income and expenses, and related disclosure of contingentassets and liabilities. We evaluate our estimates on an ongoing basis. Our estimates are based on historical experience and on various other assumptions that webelieve to be reasonable. Overview The following is our only product candidate in the clinical stage of development: ·PEDMARKTM (sodium thiosulfate (STS) anhydrous injection) –has announced results of two Phase 3 clinical trials for the prevention of cisplatininduced hearing loss, or ototoxicity in children including the pivotal Phase 3 study SIOPEL 6 , “A Multicentre Open Label Randomised Phase 3 Trial ofthe Efficacy of Sodium Thiosulfate in Reducing Ototoxicity in Patients Receiving Cisplatin Chemotherapy for Standard Risk Hepatoblastoma,” and theproof of concept Phase 3 study “A Randomized Phase 3 Study of Sodium Thiosulfate for the Prevention of Cisplatin-Induced Ototoxicity in Children”. We continue to focus our resources on the development of PEDMARKTM. We have licensed from OHSU intellectual property rights for the use of PEDMARKTM as a chemoprotectant and are developing PEDMARKTM as a protectantagainst the hearing loss often caused by platinum-based anti-cancer agents in children. Preclinical and clinical studies conducted by OHSU and others haveindicated that PEDMARKTM can effectively reduce the incidence of hearing loss caused by platinum-based anti-cancer agents. We have received Orphan DrugDesignation in the United States for the use of PEDMARKTM in the prevention of platinum-induced ototoxicity in pediatric patients. Hearing loss among children receiving platinum-based chemotherapy is frequent, permanent and often severely disabling. The incidence of hearing loss in thesechildren depends upon the dose and duration of chemotherapy, and many of these children require lifelong hearing aids. There is currently no establishedpreventive agent for this hearing loss and only expensive, technically difficult and sub-optimal cochlear (inner ear) implants have been shown to provide somebenefit. In addition, adults undergoing chemotherapy for several common malignancies, including ovarian cancer, testicular cancer, and particularly head and neckcancer 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 annually that over 10,000 children may receive platinum-based chemotherapy. The incidence of ototoxicity depends uponthe dose and duration of chemotherapy, and many of these children require lifelong hearing aids. There is currently no established preventive agent for this hearingloss and only expensive, technically difficult and sub-optimal cochlear (inner ear) implants have been shown to provide some benefit. Infants and young childrenthat suffer ototoxicity at critical stages of development lack speech language development and literacy, and older children and adolescents lack social-emotionaldevelopment and educational achievement. PEDMARK has been studied by cooperative groups in two Phase 3 clinical studies of survival and reduction of ototoxicity, The Clinical Oncology Group ProtocolACCL0431 and SIOPEL 6. Both studies have been completed. The COG ACCL0431 protocol enrolled one of five childhood cancers typically treated withintensive cisplatin therapy for localized and disseminated disease, including newly diagnosed hepatoblastoma, germ cell tumor, osteosarcoma, neuroblastoma, andmedulloblastoma. SIOPEL 6 enrolled only hepatoblastoma patients with localized tumors. In July 2018, the Pediatric Committee (PDCO) of the European Medicines Agency (EMA) accepted our pediatric investigation plan (PIP) for Sodium Thiosulfatefor Infusion for the condition of the prevention of platinum-induced ototoxic hearing loss. An accepted PIP is a prerequisite for filing a full MarketingAuthorization Application (MAA) for a new medicinal product in Europe. The indication targeted by the Company’s PIP is for the prevention of platinum-inducedototoxic hearing loss for standard risk hepatoblastoma (SR-HB). Additional tumor types within the proposed MAA indication will be subject to the Committee forMedicinal Products for Human Use (CHMP) assessment at the time of the MAA. No deferred clinical studies were required in the positive opinion given byPDCO. The Company was also advised that Sodium Thiosulfate for Infusion is eligible for submission of an application for a Pediatric Use MarketingAuthorization (PUMA). Therefore, this PIP decision allows Fennec to proceed with the submission of a PUMA in the European Union (EU) with incentives ofautomatic access to the centralized procedure and up to 10 years of data and market protection. The PUMA is a dedicated MA for new products of medicinespreviously authorized and no longer under data or marketing protection, covering the indication and appropriate formulation for medicines developed exclusivelyfor use in the pediatric population. In February 2020, Fennec announced that it has submitted a MAA for the prevention of ototoxicity induced by cisplatinchemotherapy in patients 1 month to < 18 years of age with localized, non-metastatic, solid tumors. The Company is targeting potential commercial launch ofSodium Thiosulfate for Infusion, if approved, in the first half of 2021. 48 We initiated our rolling FDA New Drug Application (“NDA”) for PEDMARKTM (tradename for Sodium Thiosulfate for Infusion in the US) for the prevention ofototoxicity induced by cisplatin chemotherapy in patients 1 month to < 18 years of age with localized, non-metastatic, solid tumors in December 2018. Fennecannounced that it has completed its rolling submission of the NDA in February 2020. The Company is targeting a potential commercial launch of PEDMARKTM,if approved, in the second half of 2020. In March 2018, PEDMARKTM received Breakthrough Therapy and Fast Track designations from the FDA. Further,PEDMARKTM has received Orphan Drug Designation in the US in this setting. 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 afterobtaining applicable regulatory approvals or we establish collaborations that provide us with up-front payments, licensing fees, milestone payments, royalties orother revenue. We generated a net loss of $12.8 million for the year ended December 31, 2019. We generated a net loss of approximately $9.9 million for the yearended December 31, 2018 and had a non-cash gain on the change in derivative liability of $0.2 million. As of December 31, 2019, our accumulated deficit wasapproximately $144.0 million. Our projections of our capital requirements are subject to substantial uncertainty. More capital than we anticipated may be required thereafter. To finance ourcontinuing operations, we may need to raise substantial additional funds through either the sale of additional equity, the issuance of debt, the establishment ofcollaborations 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 beable 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-basedcompensation, consulting fees, sponsored research costs, toxicology studies, license fees, milestone payments, and other fees and costs related to the developmentof our product candidate, will depend on the availability of financial resources, the results of our clinical trials and any directives from regulatory agencies, whichare difficult to predict. Our general and administration expenses include expenses associated with the compensation of employees, stock-based compensation,professional fees, consulting fees, insurance and other administrative matters associated in support of our drug development programs. On February 1, 2019, Fennec entered into a Loan and Security Agreement with Bridge Bank, a division of Western Alliance Bank, an Arizona corporation,pursuant to which the Bank agreed to loan $12.5 million to the Company, to be made available if we receive NDA approval of PEDMARKTM by no later thanSeptember 30, 2020. The proceeds from the loan will be used for working capital purposes and to fund general business requirements in accordance with the termsof the Loan and Security Agreement. Interest under the Term Loans shall bear interest, on the outstanding daily balance thereof, at a floating per annum rate equalto the Effective Interest Rate (as defined in the Loan and Security Agreement) which is equal to the sum of the Prime Rate published in the Wall Street Journal(currently 4.75%) plus one percent (1.00%). The debt facility is to have interest-only monthly payments due for the first eighteen months from the funding dateand then monthly principal and interest payments are due through the remainder of the term which has a maturity date of October 1, 2023. In connection with thefacility, Fennec granted Bridge Bank a warrant to purchase up to 39,130 common shares at an exercise price of $6.80 per common share, for a term of ten yearsfrom the date of issuance, subject to early termination under certain conditions. Results of Operations Fiscal 2019 versus Fiscal 2018 Fiscal YearEnded Fiscal YearEnded In thousands of U.S. Dollars December 31,2019 % December 31,2018 % Increase(Decrease) Revenue $ - $ - $ - Operating expenses: Research and development 5,607 43% 5,008 48% 599 General and administration 7,402 57% 5,401 52% 2,001 Total operating expense 13,009 100% 10,409 100% 2,600 Derivative income/(loss) - 167 (167)Amortization expense (64) - (64)Other loss (17) 6 (23)Interest income and other, net 315 348 (33)Net income (loss) $(12,775) $(9,888) $(2,887) 49 ·Research and development expense increased by $0.6 million in fiscal 2019 as compared to fiscal 2018, primarily due to drug manufacturing activitiesrelated to the preparation for registration batches and additional regulatory activities in preparation for the submission of our new drug application to eachof the FDA and EMA.·The $2.0 million increase in general and administrative expenses is attributed to a small rise in compensation to officers, directors and key contractemployees in fiscal 2019 as compared to fiscal 2018. Shareholders passed a motion to increase the exercise period of all outstanding option contracts to atotal of ten years in 2019. This added $1.3 million in G&A in non-cash compensation over the prior year. Sales and marketing expenses increased by $0.4million over the prior year as we began to focus efforts to commercialize PEDMARKTM. We incurred approximately $0.25 million in executive searchservices as we continue to build a commercial team.·All of our derivative instruments were exercised or expired during fiscal 2018.·Amortization expense relates to the Bridge Bank loan facility as the loan origination fees were capitalized in fiscal 2019.·Interest income decreased in fiscal 2019 as compared to 2018, due to a lower average balance in savings and money market accounts for the comparableperiods. Quarterly Information The following table presents selected consolidated financial data for each of the last eight quarters through December 31, 2019, as prepared under U.S. GAAP(dollars in thousands, except per share information). Period Net(Loss)/Incomefor the Period Basic Net(Loss)/Incomeper CommonShare Diluted Net(Loss)/Incomeper CommonShare March 31, 2018 (1,568) (0.09) (0.09)June 30, 2018 (2,587) (0.14) (0.14)September 30, 2018 (2,749) (0.14) (0.14)December 31, 2018 (2,984) (0.15) (0.15)March 31, 2019 (2,626) (0.13) (0.13)June 30, 2019 (4,730) (0.24) (0.24)September 30, 2019 (1,809) (0.09) (0.09)December 31, 2019 (3,610) (0.18) (0.18) Quarter ended December 31, 2019 versus 2018 Quarter Ended Quarter Ended Increase In thousands of U.S. Dollars December 31,2019 % December 31,2018 % (Decrease) Revenue $- $- $- Operating expenses: Research and development 1,172 32% 1,723 55% (551)General and administration 2,481 68% 1,382 45% 1,099 Total operating expense 3,653 100% 3,105 100% 548 Interest income 69 115 (46)Amortization expense (18) - (18)Other(loss)/income, net (8) 6 (14)Net (loss) $(3,610) $(2,984) $(626) We reported a net loss from operations of $3.6 million for the three months ended December 31, 2019, compared to a net loss from operations of $3.0 million forthe same period in 2018. Research and development expenses totaled $1.1 million for the three months ended December 31, 2019, as compared to a $1.7 million inthe same period in 2018 as largely most cost associated with the production of registration batches was incurred in the first three quarters of 2019. General andadministrative expenses increased by $1.1 million in the three months ended December 31, 2019, as compared to the same period in 2018. The increase arises fromour commercialization activities for PEDMARKTM as we execute on our plan to be ready to bring product to market co-incidentally with FDA approval, expectedto occur later in 2020. There were also increases in compensation expenses in fiscal 2019 as we hired a Chief Commercial Officer in September 2019. Selected Asset and Liability Data (thousands): As atDecember 31,2019 As at December 31,2018 Cash and equivalents $13,650 $22,781 Other current assets 234 169 Current liabilities 2,271 1,637 Working capital [current assets – current liabilities] 11,613 21,313 50 Selected Asset and Liability Data (thousands): As atDecember 31,2019 As at December 31,2018 Selected Equity: Common stock and additional paid in capital $154,663 $151,326 Accumulated deficit (144,031) (131,256)Shareholders’ equity 11,875 21,313 Liquidity and Capital Resources ·There was a $9.1 million decrease in cash and cash equivalents between December 31, 2019 and December 31, 2018. During the period ended December31, 2019, cash for operations was used mainly in regulatory and manufacturing activities and our general and administrative expenses.·The increase in other current assets between December 31, 2019 and December 31, 2018 primarily relates to an increase in the prepaid amount forDirector and Officer insurance premiums and prepaid conference expenses.·Current liabilities at December 31, 2019 increased from December 31, 2018 primarily due to an increase in accounts payable associated with ourcommercialization and manufacturing activities for the production of PEDMARKTM and related regulatory expenses at year-end 2019.·Working capital decreased between December 31, 2019 and December 31, 2018 by $9.7 million. The decrease was a result of cash used in operationsoffset by $0.3 million interest income and the capitalization of $0.3 million loan origination expenses. Cash outflows related to the regulatory andcommercial development of PEDMARKTM and general and administrative expenses. We expect increased cash outflows as we prepare regulatorysubmission and commercial preparation to launch PEDMARKTM. Selected Cash Flow Data(dollars and shares in thousands) Year EndedDecember 31,2019 Year EndedDecember 31,2018 Net cash used in operating activities $(9,060) $(7,826)Net cash provided from investing activities - - Net cash provided from financing activities (71) 2,347 Net cash flow $(9,131) $(5,479) The net cash flow used in operating activities for the year ended December 31, 2019 was approximately $9.1 million as compared to $7.8 million in 2018. Thisincrease relates to the regulatory and commercial development of PEDMARKTM. We continue to pursue various strategic alternatives including collaborations with other pharmaceutical and biotechnology companies. Our projections of furthercapital 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 otherpayments; results of our research and development activities; progress or lack of progress in our preclinical studies or clinical trials; unfavorable toxicology in ourclinical programs, our drug substance requirements to support clinical programs; change in the focus, direction, or costs of our research and developmentprograms; headcount expense; the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing our patent claims; competitive andtechnological advances; the potential need to develop, acquire or license new technologies and products; our business development activities; new regulatoryrequirements implemented by regulatory authorities; the timing and outcome of any regulatory review process; and commercialization activities, if any. We had cash and cash equivalents of approximately $13.7 million as of December 31, 2019. We currently anticipate that our available capital resources, includingour existing cash and cash equivalents and accounts receivable balances, will be sufficient to meet our expected working capital and capital expenditurerequirements as our business is currently conducted for at least the next 12 months. As of the date of this filing, we have secured the availability of an additional$12.5 million of debt financing which will be funded if we receive FDA approval of PEDMARKTM by no later than September 30, 2020. 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 toprotect the principal investment. At December 31, 2019, we had approximately $0.4 million in our cash accounts and $13.3 million in savings and money marketaccounts. We have never experienced any loss or write down of our money market investments since our inception. Our investment policy is to manage investments to achieve, in the order of importance, the financial objectives of preservation of principal, liquidity and return oninvestment. 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 appropriate to thepolicy. Securities must have a minimum Dun & Bradstreet rating of A for bonds or R1 low for commercial paper. The policy also provides for investment limitson concentrations of securities by issuer and maximum-weighted average time to maturity of twelve months. This policy applies to all of our financialresources. The policy risks are primarily the opportunity cost of the conservative nature of the allowable investments. As our main purpose is research anddevelopment, we have chosen to avoid investments of a trading or speculative nature. 51 We classify investments with original maturities at the date of purchase greater than three months which mature at or less than twelve months as current. We carryinvestments at their fair value with unrealized gains and losses included in other comprehensive income (loss); however, we have not held any instruments thatwere classified as short-term investments during the periods presented in this Annual Report. Off-Balance Sheet Arrangements Since our inception, we have not had any material off-balance sheet arrangements. Contractual Obligations and Commitments None. Critical Accounting Policies and Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expense during thereporting period. These estimates are based on assumptions and judgments that may be affected by commercial, economic and other factors. Actual results coulddiffer from these estimates. An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain atthe time the estimate is made, and if different estimates reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occurperiodically, could materially impact the financial statements. The following description of critical accounting policies, judgments and estimates should be read inconjunction with our December 31, 2019 consolidated financial statements. Stock-based Compensation The calculation of the fair values of our stock-based compensation plans requires estimates that require management’s judgments. Under ASC 718, the fair valueof each stock option is estimated on the grant date using the Black-Scholes option-pricing model. The valuation models require assumptions and estimates todetermine expected volatility, expected life, expected dividends and expected risk-free interest rates. The expected volatility was determined using historicalvolatility of our stock based on the contractual life of the award. The risk-free interest rate assumption was based on the yield on zero-coupon U.S. Treasury stripsat the award grant date. We also used historical data to estimate forfeiture experience. In valuing options granted in the fiscal years ended December 31, 2019 and2018, we used the following weighted average assumptions: Year EndedDecember 31,2019 Year EndedDecember 31,2018 Expected dividend 0% 0% Risk-free interest rate 1.63 – 2.70% 2.53 – 3.00% Expected volatility 125 – 179% 132– 151% Expected life 4.3 – 10.0 years 4.5 – 7.0 years Common shares and warrants Common shares are recorded as the net proceeds received on issuance after deducting all share issuance costs and the relative fair value of investorwarrants. Warrants are recorded at relative fair value and are deducted from the proceeds of common shares and recorded on the consolidated statements ofstockholders’ equity as additional paid-in capital. Derivative Instruments The Company applies ASC Topic 815-40, "Derivatives and Hedging" (ASC 815-40). One of the conclusions reached under ASC 815-40 was that an equity-linkedfinancial instrument would not be considered indexed to the entity's own stock if the strike price is denominated in a currency other than the issuer's functionalcurrency. The conclusion reached under ASC 815-40 clarified the accounting treatment for these and certain other financial instruments. ASC 815-40 specifiesthat a contract will not be treated as a derivative if it meets the following conditions: (a) indexed to our own stock; and (b) classified in stockholders' equity in ourstatement of financial position. Our options issued to consultants and denominated in Canadian dollars were not considered to be indexed to our own stock becausethe exercise price is denominated in Canadian dollars and our functional currency is United States dollars. Therefore, these options were treated as derivativefinancial instruments and recorded at their fair value as a liability. All other outstanding convertible instruments are considered to be indexed to our stock, becausetheir exercise price is denominated in the same currency as our functional currency, and are included in stockholders' equity. 52 During the year ended December 31, 2018, there were exercises of options to purchase 19 shares of our common shares, which were classified as derivativeinstruments. This resulted in gross proceeds of $26 and a non-cash gain on the extinguishment of the remaining derivative liability of $167. The fair value of theseoptions was estimated using the Black-Scholes option-pricing model and is summarized below. Gain/(Loss) on Derivative Instrument December 31, Derivative Options 2019 2018 Options (various expiration dates) - 167 Total - 167 Outstanding Share Information Our outstanding comparative share data at December 31, 2019 and December 31, 2018 is as follows (in thousands): Outstanding Share Type December 31,2019 December 31,2018 Common shares 19,896 19,896 Warrants to purchase common shares 39 - Options to purchase common shares 3,088 2,498 Total 23,023 22,394 Newly Adopted and Recent Accounting Pronouncements In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for FairValue Measurement. ASU 2018-13 removes certain disclosures, modifies certain disclosures and adds additional disclosures. The ASU is effective for us onJanuary 1, 2020, and interim periods within that fiscal year. Early adoption is permitted. Certain disclosures in ASU 2018-13 would need to be applied on aretrospective basis and others on a prospective basis. The Company concluded after evaluation that ASU 2018-13 will have no significant effect on ourconsolidated financial statements. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The new guidance requires the recognition of lease liabilities, representing future minimumlease payments, on a discounted basis, and corresponding right-of-use assets on a balance sheet for most leases, along with requirements for enhanced disclosuresto give financial statement users the ability to assess the amount, timing and uncertainty of cash flows arising from leasing arrangements. In July 2018, the FASBissued ASU 2018-10 and 2018-11 which permit application of the new guidance at the beginning of the year of adoption, recognizing a cumulative-effectadjustment to the opening balance of retained earnings in the period of adoption, in addition to the method of applying the new guidance retrospectively to eachprior reporting period presented. The ASU was effective for us on January 1, 2019. We concluded the impact of this guidance is negligible on our consolidatedfinancial statements, given we have no material leases. Item 7A.Quantitative and Qualitative Disclosures About Market Risk Money Market Investments We maintain an investment portfolio consisting of U.S. or Canadian obligations and bank securities and money market investments in compliance with ourinvestment policy. We do not hold any mortgaged-backed investments in our investment portfolio. Securities must have a minimum Dun & Bradstreet rating of Afor bonds or R1 low for commercial paper. The policy also provides for investment limits on concentrations of securities by issuer and maximum-weighted averagetime to maturity of twelve months. This policy applies to all of our financial resources. 53 At December 31, 2019, we had $13.3 million in money market investments and savings accounts as compared to $22.0 million at December 31, 2018; theseinvestments typically have minimal risk. We have not experienced any loss or write down of our money market investments for the years ended December 31,2019 and 2018. Our investment policy is to manage investments to achieve, in the order of importance, the financial objectives of preservation of principal, liquidity and return oninvestment. Our risk associated with fluctuating interest rates on our investments is minimal and not significant to the results of operations. We currently do notuse interest rate derivative instruments to manage exposure to interest rate changes. As our main purpose is research and development, we have chosen to avoidinvestments of a trade or speculative nature. Foreign Currency Exposure We are subject to foreign currency risks as we purchase goods and services which are denominated in Canadian dollars. To date, we have not employed the use ofderivative instruments; however, we do hold Canadian dollars which we use to pay vendors in Canada and other corporate obligations. At December 31, 2019, weheld approximately thirty thousand Canadian dollars. Item 8.Financial Statements and Supplementary Data The financial statements required to be filed pursuant to this Item 8 are appended to this Annual Report on Form 10-K. A list of the financial statements filedherewith is found at “Index to Financial Statements” on Page F-1. Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 9A.Controls and Procedures Evaluation of Disclosure Controls and Procedures Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness ofour disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based upon that evaluation, our Chief ExecutiveOfficer and Chief Financial Officer concluded that, as of December 31, 2019, our disclosure controls and procedures were effective in ensuring that informationrequired to be disclosed by us in the reports filed or submitted by us under the Exchange Act is (i) recorded, processed, summarized, and reported, within the timeperiods specified in the Commission’s rules and forms and (ii) accumulated and communicated to our management, including our principal executive and principalaccounting officers, or persons performing similar functions, as appropriate to allow timely decisions regarding requireddisclosure. Management's Annual Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting, asdefined in rules promulgated under the Exchange Act, is a process designed by, or under the supervision of, our Chief Executive Officer and Chief FinancialOfficer and affected by our Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reportingand the preparation of Consolidated Financial Statements for external purposes in accordance with GAAP. Internal control over financial reporting includes thosepolicies and procedures that: ·Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;·Provide reasonable assurance that transactions are recorded as necessary to permit preparation of Consolidated Financial Statements in accordance withGAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and our Board of Directors; and·Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have amaterial effect on our Consolidated Financial Statements. Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internalcontrol over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting fromhuman failures. Internal control over financial reporting can also be circumvented by collusion or improper override. Because of such limitations, there is a riskthat material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations areknown features of the financial reporting process, and it is possible to design into the process safeguards to reduce, though not eliminate, this risk. 54 Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2019. In making its assessment, management usedthe criteria established by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, in its 2013 Internal Control — IntegratedFramework. Based on its assessment, management has concluded that our internal control over financial reporting was effective as of December 31, 2019. Changes in Internal Control over Financial Reporting There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in connectionwith the evaluation of our internal control over financial reporting that occurred during the last fiscal quarter covered by this Annual Report that has materiallyaffected, or is reasonably likely to materially affect, our internal control over financial reporting. Inherent Limitation on the Effectiveness of Internal Controls The effectiveness of any system of internal control over financial reporting is subject to inherent limitations, including the exercise of judgment in designing,implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internalcontrol over financial reporting can only provide reasonable, not absolute, assurances. In addition, projections of any evaluation of effectiveness to future periodsare subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures maydeteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business but cannot assure that suchimprovements will be sufficient to provide us with effective internal control over financial reporting. Item 9B.Other Information None. 55 PART III Item 10.Directors, Executive Officers and Corporate Governance The following table sets forth the name of each of our executive officers and directors, such person’s principal occupation or employment, all other positions withus held by such person, if any, the year in which such person became a director of Fennec and such person’s age. Our Board has an Audit Committee, a Compensation Committee, and a Governance Committee. The current members of such committees are noted in the tablebelow: Name and Province/State and Country ofResidence, PositionCurrent Principal Occupation and Principal Occupation For Previous FiveYearsDirector SinceAge Rostislav Raykov, New Jersey, USA ChiefExecutive Officer, DirectorCEO of Fennec Pharmaceuticals Inc.; Co-Founder and Manager, DCML LLC;previously Portfolio Manager at Alchem Partners; previously Portfolio Managerat John Levin & CompanyJuly 200944Robert Andrade, Texas, USA Chief FinancialOfficerCFO of Fennec Pharmaceuticals; previously senior analyst at Magnetar Capital;previously Portfolio Manager at Millennium PartnersSeptember 2009-August 2013;November 2015-Present44Shubh Goel, New Jersey, USA Chief CommercialOfficerCCO of Fennec Pharmaceuticals Inc.; previously VP of Commercial Strategyand Operations at Odonate Therapeutics, Inc.; previously Executive Director,Global Early Commercialization at Celgene CorporationSeptember 201946Chris A. Rallis, North Carolina, USA Director(1)(2)Executive in-residence at Pappas Capital; previously CEO ofImmunoBiosciencesAugust 201165Marco Brughera, Milano, Italy Director(2)(3)CEO of Leadiant Biosciences SpA; previously Global Head Rare Disease andR&D at Sigma-tau; VP Preclinical Development at Nerviano Medical Sciences.August, 201663Adrian J. Haigh, Dublin, Ireland Director(1)(3)Senior Vice President and General Manager of EMEA Region at PTCTherapeutics; previously Chief Operating Officer at Gentium GmbH;previously Regional VP Commercial Operations at Biogen IdecApril 201459Khalid Islam, Zug, Switzerland Chairman of Board,Director(1)Founder/co-founder of Sirius Healthcare Partners GMbH; previously Chairmanand CEO of Gentium S.p.A.; previously CEO of Arpida AGApril 201463Jodi Cook, Cambridge, Massachusetts, Director (2)(3)SVP, Head of Gene Therapy Strategy PTC Therapeutics, Inc.September 201952 (1) Member of the Audit Committee(2) Member of the Compensation Committee(3) Member of the Governance Committee Rostislav RaykovMr. Raykov has served as a director of Fennec since July 2009 and as Chief Executive Officer since July 2009. From January 2006 to December 2007, Mr.Raykov was a portfolio manager for Alchem Investment Partners and John Levin & Co. Prior to founding Alchem, Mr. Raykov was a portfolio manager andsecurities analyst for John A. Levin & Co. Event Driven Fund (2002-2005). Prior to joining John A. Levin & Co., Mr. Raykov was a securities analyst for theMerger Fund at Tiedemann Investment Group (1999-2002) and an investment banking analyst at Bear Stearns (1998-1999). Mr. Raykov earned a B.S. in BusinessAdministration from the University of North Carolina at Chapel Hill. As a result of these and other professional experiences, Mr. Raykov has financial expertiseand experience with the Company as it has developed within the drug development industry and, as such, is able to provide us with unique insight and guidance. Robert AndradeMr. Andrade has served as Chief Financial Officer since November 2015. Mr. Andrade was previously Chief Financial Officer and Director of Fennec fromSeptember 2009 until August 2013. In addition to his role with Fennec, Mr. Andrade was a senior analyst at Magnetar Capital, a portfolio manager for MillenniumPartners and a senior analyst at Caxton Associates. Mr. Andrade graduated from University of Southern California, where he earned a Masters of Arts degree andBachelor of Arts degree in economics. 56 Shubh GoelMs. Goel has been employed by us since September 2019. Pursuant to an employment agreement dated September 9, 2019, Ms. Goel is employed as Fennec’sChief Commercial Officer and: (a) received an initial annual salary in the amount of $360,000, subject to annual adjustment by our Board of Directors, and (b)may receive annual bonus of up to 40% of her base salary per twelve month period, at the discretion of the CEO and the Board of Directors. If Ms. Goel’semployment is terminated by us for any reason other than “for cause”, we are obligated to pay Ms. Goel (i) severance in the amount of three months of employeesbase salary or if such termination occurs either (a) after the second anniversary of her employment or (b) as a result of a Change of Control a severance in theamount of six months, (ii) prorate share of any target bonus earned by Ms. Goel and, (iii) accelerated vesting of stock options. The initial term of the agreementwas for one year and the agreement automatically extends for additional one-year periods unless terminated by either party in accordance with the agreement. Chris A. RallisMr. Rallis has served as a director of Fennec since August 2011. Mr. Rallis has been an executive-in-residence at Pappas Capital, a life science venture capitalfirm since January 2008. Previously, Mr. Rallis was the President and Chief Executive Officer of ImmunoBiosciences, Inc. (“IBI”), a vaccine technology companyformerly located in Raleigh, North Carolina from April 2006 through June 2007. Prior to joining IBI, Mr. Rallis served as an executive in residence (part-time) forPappas Ventures, and as a consultant for Duke University and Panacos Pharmaceuticals, Inc. Mr. Rallis is the former President and Chief Operating Officer(“COO”) and director of Triangle Pharmaceuticals, Inc., which was acquired by Gilead Sciences in January 2003 for approximately $465 million. Prior toassuming the role of President and COO in March 2000, he was Executive Vice President, Business Development and General Counsel. While at Triangle, Mr.Rallis participated in 11 equity financings generating gross proceeds of approximately $500 million. He was also primarily responsible for allbusiness development activities which included a worldwide alliance with Abbott Laboratories and the in-licensing of ten compounds. Before joining Trianglein 1995, Mr. Rallis served in various business development and legal management roles with Burroughs Wellcome Co. over a 13-year period, including VicePresident of Strategic Planning and Business Development. Mr. Rallis also served on the boards of Aeolus Pharmaceuticals, a biopharmaceutical company locatedin Mission Viejo, California (no longer active) and Tenax Therapeutics, Inc., a biopharmaceutical company located in Morrisville, North Carolina. Mr. Rallisreceived his A.B. degree in economics from Harvard College and a J.D. from Duke University. As a result of these and other professional experiences, Mr. Rallispossesses particular healthcare industry knowledge and experience which strengthens the Board’s collective qualifications, skills, and experience. Marco BrugheraSince January 2011, Dr. Brughera has been CEO of Lediant Biosciences SpA and has held several positions for the Sigma-Tau Group, including CEO and GlobalHead of Sigma Tau Rare Disease, President of Sigma-Tau Research and President of Sigma-Tau Pharmaceuticals. He drove the commercial revival of a leadoncology product line resulting in its successful sale for a total of around $900M. He also successfully out-licensed the Defibrotide US rights to JazzPharmaceuticals. From 2004 to 2010, Dr. Brughera served as the Vice President of Preclinical Development at Nerviano Medical Sciences (NMS), apharmaceutical oncology-focused integrated discovery and development company. He also served as the Managing Director at Accelera, an independent contractresearch organization with the NMS Group. From 1999 to 2004, Dr. Brughera held several senior level positions in the areas of research and development withPharmacia and Pfizer. Prior to 1999, he held various positions at Pharmacia & Upjohn and Farmitalia Carlo Erba SpA, an Italian pharmaceutical company. Hecurrently serves on the Board of Solgenix and Lee’s Pharmaceutical and until early 2014 was a member of the Board of Gentium SpA. Dr. Brughera earned hisdegree in veterinary medicine from the University of Milan and is a European Registered Toxicologist Mr. Brughera has wide-spread experience and knowledgeof pharmaceutical drug development in international companies. His knowledge in particular, of clinical drug development in Europe, deepens the Board’scollective qualifications, skills and experience. Adrian J. HaighMr. Adrian Haigh has been Senior Vice President and General Manager of EMEA Region and Asia Pacific at PTC Therapeutics, Inc. since September 2014.Previously Mr. Haigh served as Senior Vice President, Commercial Operations and Chief Operating Officer of Gentium GmbH since March 2011. Prior to joiningGentium, Mr. Haigh served as Regional Vice President, Commercial Operations at Biogen Idec where he managed several affiliates and also the global distributorbusiness and prior to that was the General Manager of Amgen Nordis and Portugal. He served as the Executive Vice President of Global Marketing and CorporatePlanning at EUSA Pharma and joined EUSA from Amgen where he led the international oncology franchise. Mr. Haigh previously has held senior commercialand marketing positions at SmithKline Beecham, Schering Plough, Organon and Novo Nordisk. He has been a Director of Fennec Pharmaceuticals Inc. since April28, 2014 and a Director at Arch Biopartners Inc. since August 21, 2014. He received a Bachelor of Arts with Honors in Economic History from HuddersfieldPolytechnic, West Yorkshire, England and a Diploma in Marketing from the Institute of Marketing. As a result of these and other professional experiences, Mr.Haigh has extensive international oncology development expertise which strengthens the Board’s collective qualifications, skills and experience. 57 Dr. Khalid IslamDr. Khalid Islam was the Chairman and CEO of Gentium S.p.A. (a Nasdaq-listed company; 2009-2014) where he led the transition from a loss-making to a cash-flow positive and profitable company. Under his leadership, the company value increased from US$25 million leading to a successful all cash US$1 billion mergerwith Jazz Pharmaceuticals, plc. Subsequent to the sale of Gentium, Dr. Islam has been involved from both an advisory and board level in several public and privatehealthcare related companies. From 1999-2008, Dr. Islam was President and CEO of Arpida AG where he transitioned the early-stage start-up to a SWX-listedcompany and raised US$300 million in the IPO and follow-ons. From 1987-1999, he held various positions in HMR & MMD (now Sanofi-Aventis). From 1977-1987, Dr. Islam worked in academia at Imperial College (Univ. of London) and in Milan University, where he was a contract professor. Dr. Islam is a graduate ofChelsea College and received his Ph.D. from Imperial College, University of London. He holds several patents and has published over 80 articles in leadingjournals. He is an advisor to the venture group Kurma Biofund (Paris). He is a founder/co-founder of Sirius Healthcare Partners GmbH (Zurich), PrevAbr LLC(D.C.), BioAim LLC (L.A.) & Life Sciences Management GmbH (Zug). Dr. Islam is Board Chair at Minoryx Therapeutics (Spain). He serves on the board ofKarolinska Development (Sweden), MolMed S.p.A. (Italy) and Immunomedics Inc. (IMMU) all of which are traded publicly, and the private company OxThera(Sweden). He is also is Chairman of the board of Gain Therapeutics (Switzerland) a private company. In the past, he has served as Chairman of the Board ofDirectors of Pcovery Aps (Copenhagen), Adenium Aps (Copenhagen) and C10 Pharma AS (Oslo). Dr. Islam’s extensive international pharmaceutical expertise intransitioning companies from development to production strengthens the Board’s collective qualifications, skills and experience. Jodi CookDr. Cook currently serves as Head of Gene Therapy Strategy at PTC Therapeutics, Inc., a global biopharmaceutical company focused on the development andcommercialization of clinically differentiated medicines that provide benefits to patients with rare disorders. Prior to joining PTC Therapeutics, she was one of thefounding members and Chief Operating Officer of Agilis Biotherapeutics, a clinical-stage company focused on gene therapies for patients with rare diseases.Importantly, her career spans a wide range of experience relevant to Fennec’s business interests including Assistant Professor of Audiology and Director of theHearing Aid Program at Mayo Clinic, and executive positions in a number of successful biotech start-ups within the hearing industry. While at Agilis, she led thesale of the company to PTC Therapeutics in a deal that has represented significant value to all parties. Her extensive scientific, clinical and executive businessexperience deepens the Board’s collective qualifications, skills and experience. Audit Committee On behalf of the Board, the Audit Committee of the Board retains, oversees and evaluates our independent auditors, reviews the financial reports and otherfinancial information provided by us, including audited financial statements, and discusses the adequacy of disclosure with management and the auditors. TheAudit Committee also reviews the performance of the independent auditors in the annual audit and in assignments unrelated to the audit, assesses the independenceof the auditors, and reviews their fees. The Audit Committee is also responsible for reviewing our internal controls over financial reporting and disclosure. TheAudit Committee operates under a written charter adopted by the Board. The directors have appointed an Audit Committee consisting of three directors: Chris A. Rallis, Khalid Islam and Adrian Haigh, each of whom is independent andfinancially literate within the meaning of National Instrument 52-110 – Audit Committees and is independent under Rule 5605(a)(2) of the Nasdaq listingstandards. In addition, the Board has determined that Mr. Rallis qualifies as an “audit committee financial expert,” as defined in Item 407(d)(5) of Regulation S-Kpromulgated by the SEC based on his business and financial experience described above. Code of Ethics In February 2004, our Board adopted a Mandate of the Board of Directors, Corporate Governance Guidelines and a Code of Business Conduct and Ethics (the“Conduct and Ethics Code”) applicable to all of our officers, directors and employees. We are committed to adhering to applicable legal requirements andmaintaining the highest standards of conduct and integrity. The Conduct and Ethics Code sets out the legal and ethical standards of conduct for our personnel andaddresses topics such as: reporting obligations and procedures; honest and ethical conduct and conflicts of interest; compliance with applicable laws and Companypolicies and procedures; confidentiality of corporate information; use of corporate assets and opportunities; public disclosure and books and records; and non-retaliation. The Conduct and Ethics Code was updated in June of 2019 and is available on our website at www.fennecpharma.com. We will post any amendment to this code, as well as any waivers that are required to be disclosed by the rules of the SEC, on our website promptly following thedate of such amendment or waiver. We undertake to provide to any person without charge, upon request, a copy of the Conduct and Ethics Code by writing toAttn: Code of Ethics Request, Fennec Pharmaceuticals Inc., 68 TW Alexander Drive, PO Box 13628, Research Triangle Park, North Carolina 27709. Section 16(a) Beneficial Ownership Reporting Compliance Under Section 16(a) of the Exchange Act, our directors and executive officers and any person who beneficially owns more than 10% of our outstanding commonshares (“reporting persons”) are required to report their initial beneficial ownership of our common shares and any subsequent changes in that ownership to theSEC and Nasdaq. Reporting persons are required by SEC regulations to furnish to us copies of all reports they file in accordance with Section 16(a). Based solelyupon our review of the copies of such reports received by us, or written representations from certain reporting persons that no other reports were required, webelieve that during the fiscal year ended December 31, 2019, all Section 16(a) filing requirements applicable to our reporting persons were met. 58 Item 11.Executive Compensation Summary Compensation Table The following table sets out certain information respecting the compensation paid to our Chief Executive Officer and our Chief Financial Officer (“NamedExecutive Officers”) for the fiscal years ended December 31, 2019 and December 31, 2018. Name and Principal Position Year Salary ($) Bonus ($) OptionAwards ($)(1) Total ($) Rostislav Raykov, CEO 2019 488,692 157,500 830,944 1,476,536 2018 350,000 160,000 562,261 1,072,261 Robert Andrade, CFO 2019 325,211 100,000 438,555 863,766 2018 250,000 110,000 309,099 669,099 Shubh Goel, CCO(2) 2019 98,000 115,000 816,538 1,029,538 2018 - - - - (1)Represents the aggregate grant date fair value computed in accordance with FASB ASC Topic 718. Dollar value amounts are based on individual grantsto each of Mr. Raykov and Mr. Andrade of 150,000 and 100,000 and 80,000 and 50,000 options, respectively, on April 4, 2019 and February 6, 2018, atan exercise price of $4.38 and $8.38 per common share, respectively. The grant to Ms. Goel was dated September 9, 2019 at an exercise price of $4.74.All option grants expire 10 years after grant date. One-third of these options shall vest and may be exercised one year after the grant date (the “VestingCommencement Date”). The remaining two-thirds of the options shall vest monthly at a rate of 1/36th of the remaining grant and shall be exercisable asof the last day of each following month after the Vesting Commencement Date. As of the third anniversary of the grant date, all of the options shall bevested.(2)Ms. Goel was hired as our Chief Commercial Officer in September 2019 Rostislav RaykovMr. Raykov has been employed by us since July 2009. Pursuant to an employment agreement dated May 3, 2010 between Mr. Raykov and Fennec, Mr. Raykov isemployed as our Chief Executive Officer and: (a) received an initial annual salary in the amount of $140,000, subject to annual adjustment by our Board ofDirectors, (b) upon approval by shareholders of our amended stock option plan was granted options to purchase up to 5.0% of our common shares estimated by usto be outstanding upon completion of the 2010 Rights Offering, and (c) may receive annual bonuses at the sole discretion of the Board. If Mr. Raykov’semployment terminates due to a change of control of Fennec, Mr. Raykov’s remaining unvested options shall immediately vest and be fully exercisable. IfMr. Raykov is dismissed from employment by us for any reason other than “for cause,” we are obligated to pay Mr. Raykov severance compensation equal totwelve months of salary. The initial term of the agreement was for one year and the agreement automatically extends for additional one-year periods unlessterminated by either party in accordance with the agreement. Effective April 1, 2019, Mr. Raykov’s salary was increased to $400,000 per year. Robert AndradeMr. Andrade has been employed by us since November 2015. Mr. Andrade is employed as Fennec’s Chief Financial Officer. Pursuant to an employmentagreement dated November 13, 2015, Mr. Andrade (a) receives an initial annual salary in the amount of $165,000, and (b) may receive annual bonuses at the solediscretion of the Board. If Mr. Andrade’s employment terminates due to a change of control of the Fennec, Mr. Andrade’s remaining unvested options shallimmediately vest and be fully exercisable. If Mr. Andrade is dismissed from employment by us for any reason other than “for cause,” we are obligated to pay Mr.Andrade severance compensation equal to six months of salary. Effective April 1, 2019, Mr. Andrade’s salary was increased to $290,000 per year. Shubh GoelMs. Goel has been employed by us since September 2019. Pursuant to an employment agreement dated September 9, 2019, Ms. Goel is employed as Fennec’sChief Commercial Officer and: (a) received an initial annual salary in the amount of $360,000, subject to annual adjustment by our Board of Directors, and (b)may receive annual bonus of up to 40% of her base salary per twelve month period, at the discretion of the CEO and the Board of Directors. If Ms. Goel’semployment is terminated by us for any reason other than “for cause”, we are obligated to pay Ms. Goel (i) severance in the amount of three months of employeesbase salary, (ii) prorate share of any target bonus earned by Ms. Goel and, (iii) accelerated vesting of stock options. The initial term of the agreement was for oneyear and the agreement automatically extends for additional one-year periods unless terminated by either party in accordance with the agreement. In addition to their employment agreements, Mr. Raykov, Mr. Andrade and Ms. Goel are a party to a confidentiality and intellectual property agreement with theCompany. 59 In the employment agreements for each of Mr. Raykov, Mr. Andrade and Ms. Goel, “for cause” is generally defined as (1) material breach of the terms of theemployment or intellectual property agreements; (2) failure to perform the duties inherent in their position in good faith and in a reasonable and appropriatemanner; or (3) acts of fraud or embezzlement or other intentional misconduct which adversely affects our business. Payments on Termination The following table provides details regarding the estimated incremental payments from the Corporation to each of the current Named Executive Officersassuming termination without cause on December 31, 2019. Name Severance EstimatedBonus Value of benefits Rostislav Raykov, CEO $400,000 $- $400,000 Robert Andrade, CFO $145,000 $- $145,000 Shubh Goel, CCO $90,000 $115,000 $205,000 Payments on Change of Control The following table provides details regarding the estimated incremental payments from the Corporation to each of the current Executive Officers upon change ofcontrol. Name Change ofControlMultiple Estimated Bonus(1) Value of benefits Rostislav Raykov, CEO 2 X $1,070,000 $1,070,000 Robert Andrade, CFO 1.25 X $453,500 $453,500 (1)Change of control payments are calculated based on the two-year annualized average salary plus cash bonus as calculated as of December 31, 2019. In addition to the payments above, an incentive plan has been established pursuant to which, upon completion of a change in control transaction, 1% of thetransaction value (up to a maximum of $2,000,000) be set aside and paid to key personnel upon completion of such change in control transaction, with 50% ofsuch incentive pool being payable to the CEO and the balance to other key personnel as determined by the CEO in consultation with the Compensation Committee. Equity Grants, Exercises and Holdings The following table sets forth information concerning the number and value of unexercised options held by each Named Executive Officer as of December 31,2019. All executive awards, with the exception of those expiring 6/27/2027, 02/06/2028 and 04/04/2029 vest and are exercisable immediately. The current stockoption plan provides for grants denominated in US and CAD dollars. Number of Options Name Granted Exercisable Option Exercise Price Expiration DateRostislav Raykov 150,000 - USD$4.83 04/04/2029 100,000 63,888 USD$8.38 02/06/2028 100,000 83,336 USD$5.10 06/27/2027 150,000 150,000 USD$2.45 07/05/2026 25,000 25,000 USD$2.69 12/31/2024 83,333 83,333 USD$1.59 01/24/2024 16,666 16,666 USD$0.72 08/23/2023 50,000 50,000 USD$1.05 11/20/2022 323,961 323,961 CAD$2.43 08/18/2020 Robert Andrade 80,000 - USD$4.83 04/04/2029 50,000 31,843 USD$8.38 02/06/2028 50,000 41,668 USD$5.10 06/27/2027 75,000 75,000 USD$2.45 07/05/2026 323,961 323,961 CAD$2.43 08/18/2020Shubh Goel 175,000 - USD$4.74 09/09/2029 60 Compensation of Directors Director Compensation Table The following table summarizes the compensation earned by our non-executive directors for the year ended December 31, 2019. Name Fees paid inCash Stock Awards Option Awards(1)(2) Total Dr. Islam 85,000 – 105,190 190,190 Mr. Brughera 40.000 – 84,152 124,152 Mr. Haigh 40,000 – 84,152 124,152 Dr. Cook 9,421 – 103,013 112,434 Mr. Rallis 42,500 – 84,152 126,652 Total $216,921 $– $460,659 $677,580 (1)Represents the aggregate grant date fair value computed in accordance with FASB ASC Topic 718.(2)Detail of grants are presented in the following table: Name Date of Grant Number ofOptionsGranted Option ExercisePrice $USD Mr. Rallis June 18, 2019 20,000 4.26 Mr. Brughera June 18, 2019 20,000 4.26 Mr. Haigh June 18, 2019 20,000 4.26 Dr. Islam June 18, 2019 25,000 4.26 Jodi Cook November 13,2019 20,000 5.40 Total 105,000 The annual compensation considerations for non-executive directors also include the awarding of stock options. We believe that granting of options to the non-executive directors serves three primary purposes: (1) to recognize the significant time and effort commitments of being a member of our Board; (2) to providelong-term incentives for future efforts since the value of the options is directly dependent on our market valuation; and (3) to retain quality individuals. Whendetermining whether and how many new option grants will be made, the Compensation Committee takes into account the amount and terms of any outstandingoptions. We do not require our non-executive directors to own a specific amount of our common shares. Each of Adrian J. Haigh, Khalid Islam, Marco Brughera, Jodi Cook and Chris A. Rallis has entered into an Independent Director Agreement with the Company,which provides for cash compensation as set forth by the Compensation Committee commensurate with that member’s responsibilities. The CompensationCommittee may also remunerate members in the form of a grant of options to purchase shares of our common shares. The options immediately vest when grantedand are otherwise subject to the terms and conditions of our stock option plan, as amended. The Independent Director Agreements also provide for thereimbursement of such director’s reasonable travel and related expenses incurred in the course of attending board meetings. Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The following table sets forth information regarding our common shares beneficially owned as of February 11, 2020 by: (i) each of our officers and directors; (ii)all officers and directors as a group; and (iii) each person known by us to beneficially own five percent or more of our outstanding common shares. Except asindicated below, the security holders listed possess sole voting and investment power with respect to the shares beneficially owned by that person. Except asotherwise indicated below, the address for each listed shareholder is c/o Fennec Pharmaceuticals Inc., 68 TW Alexander Drive, PO Box 13628, Research TrianglePark, North Carolina 27709. Name Commonshares CommonsharesOptionsExercisableWithin 60Days Common sharesPurchaseWarrantsExercisableWithin 60 Days Total Stockand StockBasedHoldings(1) % Ownership(1) Adrian J. Haigh – 213,579 - 213,579 1.06%Dr. Khalid Islam – 288,825 – 288,825 1.43%Robert Andrade 17,050 578,961 – 596,011 2.91%Marco Brughera – 95,545 – 95,545 0.48%Jodi Cook - 20,000 - 20,000 0.10%Chris A. Rallis – 171,850 – 171,850 0.86%Shubh Goel - 175,000 - 175,000 5.06%Rostislav Raykov 57,790 998,960 – 1,056,750 11.67%All Officers and Directors as a Group 74,840 2,542,720 – 2,617,560 11.67%Southpoint Capital Advisors, LP.(2) 3,997,214 – – 3,997,214 20.09%Essetifin SpA(3) 3,225,694 – – 3,225,694 16.21%venBio Select Fund LLC(4) 1,105,999 - - 1,105,999 5.56% 61 (1)For purposes of this table “beneficial ownership” is determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, pursuant to whicha person or group of persons is deemed to have “beneficial ownership” of any common shares that such person or group has the right to acquire within 60days after February 11, 2020. For purposes of computing the percentage of outstanding common shares held by each person or group of persons namedabove, any shares that such person or group has the right to acquire within 60 days after February 11, 2020 are deemed outstanding but are not deemed to beoutstanding for purposes of computing the percentage ownership of any other person or group. As of February 11, 2020, there were 19,895,830 commonshares issued and outstanding.(2)Southpoint Capital Advisors, LP, 623 Fifth Avenue, Suite 2503, New York, New York 10022. John S. Clark, II holds dispositive power over the sharesowned by Southpoint Capital Advisors, LP.(3)Essetifin SpA, Via Sudafrica 20, Rome, Italy 00144. Mario Artali holds dispositive power over the shares owned by Essetifin SpA.(4)venBio Select Fund LLC, 110 Greene Street, Suite 800, New York, NY 10012. Scott Esptein holds dispositive power over the shares held by venBio SelectFund LLC Equity Compensation Plan Information The following table provides certain information with respect to securities authorized for issuance under equity incentive plans as of December 31, 2019 (shareamounts are in thousands): Plan Category (a)Number of securities to be issuedupon exercise of outstandingoptions warrants and rights (b)Weighted-average exercise price ofoutstanding options, warrants andrights (c)Number of securities remainingavailable for future issuance underequity compensation plans(excluding securities reflected inColumn (a)) Equity compensation plans approved bysecurity holders 3,127 USD $ 3.63* 1,886 Total 3,127 – 1,886 *Our current stock option plans allow for the issuance of stock options denominated in both U.S. dollars and Canadian dollars. This table presents the number andweighted-average exercise price of outstanding options by the currency associated with the original grants. At December 31, 2019, we had outstanding optionsto purchase 2.44 million of our common shares denominated in U.S. dollars with a weighted-average exercise price of $4.05 and outstanding options to purchase648,000 of our common shares denominated in CAD dollars with a weighted-average exercise price of CAD$2.43 (for total outstanding options to purchase3.10 million of our common shares with a combined weighted-average exercise price of USD$3.59 with Canadian denominated exercise prices converted usingthe December 31, 2019 exchange rate of 0.7682 CAD/USD). At December 31, 2019, there were 1.89 million common shares available for future grants underour current stock option plan. There were also 0.04 million warrants outstanding with an exercise price of $6.80. Item 13.Certain Relationships and Related Transactions, and Director Independence Related Party Transactions There were no reportable transactions with related parties during the year ended December 31, 2019 in which the amount involved exceeded the lesser of $120,000or one percent of the average of our total assets at year-end for the last two completed fiscal years. Director Independence The Board of Directors is composed of a majority of independent directors. The Board applies the definition of independence found in the Nasdaq listing standardsand in Canadian National Instrument 58-101 and National Policy 58-201. The Board has determined that Mr. Brughera, Haigh, Islam, Rallis and Ms. Cook are“independent.” Mr. Raykov, our Chief Executive Officer, is considered to have a material relationship with us by virtue of his executive officer position and istherefore not independent. We are of the view that the composition of our Board reflects a diversity of background and experience that are important for effectivecorporate governance. Other directorships held by Board members are described in this Annual Report under the heading “Directors and Executive Officers.” 62 Item 14.Principal Accounting Fees and Services The following presents the aggregate fees for professional services and other services rendered by our independent auditors, Haskell & White LLP in fiscal year2019 and 2018: Fiscal Year 2019 Fiscal Year 2018 Audit Fees(1) 74,500 76,006 Audit-Related Fees(2) – – Tax Fees(3) – – All Other Fees(4) 2,500 – Total $77,000 $76,006 (1)Audit Fees include fees for the standard audit work that needs to be performed each year in order to issue an opinion on the consolidated financial statementsof the Company. It also includes fees for services that can only be provided by the Company’s auditor such as auditing of non-recurring transactions.(2)Audit-Related Fees include fees assurance and related services that are reasonably related to the performance of the audit or review and are traditionallyperformed by the independent accountant.(3)Tax Fees(4)All Other Fees include fees for products and services other than Audit Fees, Audit Related Fees and Tax Fees. The Audit Committee does not have formal pre-approval policies and procedures; however, prior to their engagement by us, the Audit Committee approved all ofthe services performed by Haskell & White LLP as required by SEC regulation. 63 PART IV Item 15.Exhibits, Financial Statement Schedules (a) The following documents are included as part of this Annual Report filed on Form 10-K: 1. Financial Statements – See Index to Financial Statements on page F-1. 2. All schedules are omitted as the information required is inapplicable or the information is presented in the financial statements. 3. Exhibits: ExhibitNo. Description Location 3.1 Notice of Articles dated August 25, 2011 Exhibit 3.2I to the Form 8-K of the Company filed August 26, 2011 3.2 Articles dated August 25, 2011 Exhibit 3.2II to the Form 8-K of the Company filed August 26, 2011 3.3 Notice of Alteration Dated September 3, 2014 Exhibit 3.1 to the Form 8-K of the Company filed September 9, 2014 10.1 Fennec Amended and Restated Stock Option Plan* Exhibit 10.1 to the Form 8-K of the Company filed September 29,2017 10.2 Executive Employment Agreement dated May 3, 2010 by and betweenFennec and Rostislav Raykov* Exhibit 10.28 to the Form 10-Q of the Company filed May 14, 2010 10.3 Form of Independent Director Agreement, dated May 3, 2010 Exhibit 10.31 to the Form 10-Q of the Company filed May 14, 2010 10.4 Form of Subscription Agreement from June 8, 2017 Private Placement Exhibit 10.15 to the Form S-1 of the Company filed August 10, 2017 10.5 Subscription Agreement, dated November 15, 2013, between theCompany, Technologies Inc. and Manchester Management LLC Exhibit 10.19 to the Form 10K/A of the Company filed April 2, 2014 10.6 Form of Subscription Agreement from December 3, 2014 privateplacement Exhibit 10.20 to the Form 10K of the Company filed March 31, 2015 10.7 Executive Employment Agreement dated November 12, 2015 by andbetween Fennec and Robert Andrade* Exhibit 10.40 to the Form 10-Q of the Company filed November 12,2015 10.8 Subscription Agreement, dated April 8,2016, between FennecPharmaceuticals Inc. and Sigma Tau Finanzaria Exhibit 10.41 to the Form 10-Q of the Company filed May 12, 2016 10.9 Purchase Agreement, dated May 9, 2016, between FennecPharmaceuticals Inc. and Elion Oncology, LLC. Exhibit 10.42 to the Form 10-Q of the Company filed May 12, 2016 10.10 Loan and Security Agreement dated as of February 1, 2019 by andbetween Fennec Pharmaceuticals, Inc. and Western Alliance Bank Exhibit 10.1 to the Form 8-K of the Company filed February 4, 2019 16.1 Letter Regarding Change in Certifying Accountant Exhibit 16.1 to the Form 8-K of the Company filed May 17, 2017 21 Subsidiaries Filed herewith 64 ExhibitNo. Description Location 23.1 Consent of Haskell & White LLP Independent Registered PublicAccounting Firm Filed herewith 31.1 Certification of Chief Executive Officer of the Company in accordancewith Section 302 of the Sarbanes-Oxley Act of 2002 Filed herewith 31.2 Certification of Chief Financial Officer of the Company in accordancewith Section 302 of the Sarbanes-Oxley Act of 2002 Filed herewith 32.1 Certification of Chief Executive Officer and Chief Financial Officer ofthe Company in accordance with Section 906 of the Sarbanes-Oxley Actof 2002 Filed herewith 99.1 Press Release for Fiscal Year Ended December 31, 2019 Filed herewith 101.1 Interactive Data File Filed herewith * Indicates a management contract or compensatory plan.**The Company has received confidential treatment with respect to certain portions of this exhibit. Those portions have been omitted from this exhibit andare filed separately with the U.S. Securities and Exchange Commission. Item 16.Form 10-K Summary None. 65 SIGNATURES Pursuant to the requirements of Section 13 of 15(d) the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report to be signed on itsbehalf by the undersigned, thereunto duly authorized. Fennec Pharmaceuticals Inc. By: /s/ Rostislav Raykov Rostislav Raykov Chief Executive Officer and Director Date: February 14, 2020 We, the undersigned directors and officers of Fennec Pharmaceuticals Inc., do hereby constitute and appoint Rostislav Raykov, as our true and lawful attorney-in-fact and agent with power of substitution, to do any and all acts and things in our name and behalf in our capacities as directors and officers and to execute any andall instruments for us and in our names in the capacities indicated below, which such attorney-in-fact and agent may deem necessary or advisable to enable saidcorporation to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations and requirements of the Securities and ExchangeCommission, in connection with this Annual Report on Form 10-K, including specifically but without limitation, power and authority to sign for us or any of us inour names in the capacities indicated below, any and all amendments hereto; and we do hereby ratify and confirm all that said attorney-in-fact and agent, shall do orcause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated. Signatures Title Date /s/ Rostislav Raykov Chief Executive Officer February 14, 2020Rostislav Raykov (principal executive officer) and Director /s/ Robert Andrade Chief Financial Officer February 14, 2020Robert Andrade (principal financial officer and principalaccounting officer) /s/ Adrian J. Haigh Director February 14, 2020Adrian J. Haigh /s/ Dr. Khalid Islam Director February 14, 2020Dr. Khalid Islam /s/ Chris A. Rallis Director February 14, 2020Chris A. Rallis /s/ Marco Brughera Director February 14, 2020Marco Brughera /s/ Jodi Cook Director February 14, 2020Jodi Cook 66 FENNEC PHARMACEUTICALS INC.INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting FirmF-2 Consolidated Balance SheetsF-3 Consolidated Statements of OperationsF-4 Consolidated Statements of Cash FlowsF-5 Consolidated Statements of Shareholders’ EquityF-6 Notes to the Consolidated Financial StatementsF-7 F-1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Directors andFennec Pharmaceuticals Inc. Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Fennec Pharmaceuticals Inc. and subsidiaries (the “Company”) as of December 31, 2019 and2018, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the years then ended, and the related notes(collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements referred to above present fairly, in allmaterial respects, the consolidated financial position of the Company as of December 31, 2019 and 2018, and the consolidated results of its operations and its cashflows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’sconsolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (UnitedStates) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rulesand regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB and Canadian generally accepted auditing standards. Those standards require that weplan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we arerequired to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of theCompany’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, andperforming procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in theconsolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well asevaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/Haskell & White LLP HASKELL & WHITE LLP We have served as the Company’s auditor since 2017. Irvine, CaliforniaFebruary 14, 2020 F-2 Fennec Pharmaceuticals Inc.Consolidated Balance Sheets(U.S. dollars and shares in thousands) December 31, December 31, 2019 2018 Assets Current assets Cash and cash equivalents $13,650 $22,781 Prepaid expenses 226 168 Other current assets 8 1 13,884 22,950 Non-Current assets Deferred issuance cost 326 - Deferred issuance cost (amortization) (64) - 262 - Total assets $14,146 $22,950 Liabilities and Shareholders' Equity Current liabilities: Accounts payable $1,612 $1,032 Accrued liabilities 659 605 Total current liabilities 2,271 1,637 Total liabilities 2,271 1,637 Commitments and Contingencies (Note 9) Shareholders' equity: Common stock, no par value; unlimited shares authorized; 19,896 shares issued and outstanding (2018-19,896) 106,392 106,392 Additional paid-in capital 48,271 44,934 Accumulated deficit (144,031) (131,256)Accumulated other comprehensive income 1,243 1,243 Total shareholders’ equity 11,875 21,313 Total liabilities and shareholders’ equity $14,146 $22,950 (The accompanying notes are an integral part of these consolidated financial statements) F-3 Fennec Pharmaceuticals Inc.Consolidated Statements of Operations(U.S. dollars and shares in thousands, except per share information) Year Ended December 31, December 31, 2019 2018 Revenue $- $- Operating expenses: Research and development 5,607 5,008 General and administrative 7,402 5,401 Loss from operations (13,009) (10,409) Other income/(expense): Unrealized gain/(loss) on derivatives (Note 5) - 167 Amortization expense (64) - Other income/(loss) (17) 6 Net interest income 315 348 Total other income/(loss), net 234 521 Net loss $(12,775) $(9,888) Loss per common share, basic and diluted $(0.64) $(0.52)Weighted-average number of common shares outstanding basic and diluted (Note 3) 19,896 18,942 (The accompanying notes are an integral part of these consolidated financial statements) F-4 Fennec Pharmaceuticals Inc.Consolidated Statements of Cash Flows(U.S. dollars in thousands) Year Ended December 31, December 31, 2019 2018 Cash flows (used in) provided by: Operating activities: Net loss $(12,775) $(9,888)Adjustments to reconcile net (loss) to net cash used in operating activities: Unrealized (gain)/loss on derivatives - (167)Amortization of deferred issuance costs 64 - Stock-based compensation - consultants 417 272 Stock-based compensation - employees 2,665 1,825 Changes in operating assets and liabilities: Prepaid expenses (58) (40)Other assets (7) 12 Accounts payable 580 177 Accrued liabilities 54 (17)Net cash used in operating activities (9,060) (7,826) Financing activities: Cash paid for issuance costs (71) - Short swing profit judgment offset with settlement expense - 18 Issuance of shares, options exercise - 210 Issuance of shares, warrants exercise - 2,119 Net cash (used in)/provided by financing activities (71) 2,347 Increase in cash and cash equivalents (9,131) (5,479)Cash and cash equivalents - Beginning of year 22,781 28,260 Cash and cash equivalents - End of year $13,650 $22,781 Non-cash deferred issuance cost (warrant value) $255 $- (The accompanying notes are an integral part of these consolidated financial statements) F-5 Fennec Pharmaceuticals Inc.Consolidated Statements of Shareholders' Equity(U.S. dollars and shares in thousands) Accumulated Additional Other Total Common Stock Paid-in Accumulated Comprehensive Stockholders' Number (Note 7) Amount Capital Deficit Income Equity Balance at December 31, 2017 18,411 103,045 43,837 (121,368) 1,243 26,757 Short swing profit judgment offset with settlementexpense - - 18 - - 18 Stock options issued to consultants - - 272 - - 272 Stock options issued to employees - - 1,825 - - 1,825 Exercise of stock options 122 436 (226) - - 210 Exercise of warrants 1,363 2,911 (792) - - 2,119 Net loss - - - (9,888) - (9,888)Balance at December 31, 2018 19,896 $106,392 $44,934 $(131,256) $1,243 $21,313 Stock options issued to consultants - - 417 - - 417 Stock options issued to employees - - 2,665 - - 2,665 Warrants issued to consultants - - 255 - - 255 Net loss - - - (12,775) - (12,775)Balance at December 31, 2019 19,896 $106,392 $48,271 $(144,031) $1,243 $11,875 (The accompanying notes are an integral part of these consolidated financial statements) F-6 Fennec Pharmaceuticals Inc.Notes to the Consolidated Financial Statements(U.S. dollars and shares in thousands, except per share information) 1. Nature of Business and Liquidity Fennec Pharmaceuticals Inc. (“Fennec,” “the Company,” “we,” “us,” or “our”) was originally formed as a British Columbia corporation under the name AdherexTechnologies Inc. and subsequently changed its name on September 3, 2014. Fennec, together with its wholly owned subsidiaries Oxiquant, Inc. (“Oxiquant”) andFennec Pharmaceuticals, Inc., both Delaware corporations, and Cadherin Biomedical Inc. (“CBI”), a Canadian corporation and Fennec Pharmaceuticals (EU)Limited (“Fennec Limited”), collectively referred to herein as the “Company,” is a biopharmaceutical company with a product candidate under development foruse in the treatment of cancer. With the exception of Fennec Pharmaceuticals, Inc., all subsidiaries are inactive. These consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“USGAAP”) that are applicable to a going concern which contemplates that the Company will continue in operation for the foreseeable future and will be able torealize its assets and discharge its liabilities in the normal course of business. During the year ended December 31, 2019, the Company incurred a net loss from operations of $12,775 and still has not earned any revenue in its history. AtDecember 31, 2019 it had an accumulated deficit of $144,031 and had experienced negative cash flows from operating activities in the amount of $9,060 for theyear ended December 31, 2019. On February 1, 2019, Fennec entered into a Loan and Security Agreement with Bridge Bank, a division of Western Alliance Bank, an Arizona corporation,pursuant to which the Bank agreed to loan $12.5 million to the Company, to be made available upon New Drug Application NDA approval of PEDMARK by nolater than September 30, 2020. The proceeds from the loan will be used for working capital purposes and to fund general business requirements in accordance withthe terms of the Loan and Security Agreement. Interest under the Term Loans shall bear interest, on the outstanding daily balance thereof, at a floating per annumrate equal to the Effective Interest Rate (as defined in the Loan and Security Agreement) which is equal to the sum of the Prime Rate published in the Wall StreetJournal (currently 4.75%) plus one percent (1.00%). The debt facility is to have interest-only monthly payments due for the first eighteen months from the fundingdate and then monthly principal and interest payments are due through the remainder of the term which has a maturity date of October 1, 2023. In connection withthe facility, Fennec has agreed to grant Bridge Bank a warrant to purchase up to 39,130 common shares at an exercise price of $6.80 per common share, for a termof ten years from the date of issuance, subject to early termination under certain conditions. The Company believes the aforementioned raise, along with the current cash on hand, provides sufficient funding for the Company to carry-out its plannedactivities for the next fifteen to eighteen months as it continues its strategic development of PEDMARKTM. These financial statements do not reflect the potentially material adjustments in the carrying values of assets and liabilities, the reported expenses, and the balancesheet classifications used, that would be necessary if the going concern assumption were not appropriate. 2. Significant Accounting Policies Basis of presentation The consolidated financial statements include the accounts of Fennec and of all its wholly-owned subsidiaries. All inter-company transactions and balances havebeen eliminated upon consolidation. Use of estimates The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that impact the reported amountsof assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts ofrevenue and expense during the reporting period. Significant estimates include the valuation of derivative warrant liability and the valuation of stock-basedcompensation. Actual results could differ from those estimates. Cash and Cash Equivalents Cash equivalents consist of highly liquid investments with original maturities at the date of purchase of three months or less. The Company places its cash and cash equivalents in investments held by highly rated financial institutions in accordance with its investment policy designed toprotect the principal investment. At December 31, 2019, the Company had $13.7 million in cash and money market accounts (2018- $22.8 million). Money marketinvestments typically have minimal risks. The Company has not experienced any loss or write-down of its money market investments. F-7 Fennec Pharmaceuticals Inc.Notes to the Consolidated Financial Statements(U.S. dollars and shares in thousands, except per share information) Financial instrumentsFinancial instruments recognized on the balance sheets at December 31, 2019 and December 31, 2018 consist of cash and cash equivalents, accounts payable andaccrued liabilities, the carrying values of which, approximate fair value due to their relatively short time to maturity. The Company does not hold or issue financialinstruments for trading. The Company’s investment policy is to manage investments to achieve, in the order of importance, the financial objectives of preservation of principal, liquidityand return on investment. Investments, when made, are made in U.S. or Canadian 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 appropriate tothe policy. Securities must have a minimum Dun & Bradstreet rating of A for bonds or R1 low for commercial paper. The policy risks are primarily the opportunity cost of the conservative nature of the allowable investments. As the main purpose of the Company is research anddevelopment, the Company has chosen to avoid investments of a trading or speculative nature. Common shares and warrants The Company has warrants outstanding to purchase common shares that were denominated in both United States dollars (“USD”) and Canadian dollars (“CAD”),which resulted in the Company having warrants outstanding that were denominated outside of the Company’s U.S. dollar functional currency. The Company’s outstanding warrants denominated in Canadian dollars were not considered to be indexed to the Company’s own stock and should therefore betreated as derivative financial instruments and recorded at their fair value as a liability. During the year ended December 31, 2018, all warrants accounted for asderivatives were exercised. These exercises reduced the derivative liability to $0 as of December 31, 2018. At December 31, 2017, the derivative liabilities werevalued at approximately $167,000. There was an unrealized, non-cash gain on derivative liabilities of approximately $167,000 upon expiry for the year endedDecember 31, 2018. Revenue recognition At this time, the Company does not have any revenue. Research and development costs and investment tax credits Research costs, including employee compensation, laboratory fees, lab supplies, and research and testing performed under contract by third parties, are expensedas incurred. Development costs, including drug substance costs, clinical study expenses and regulatory expenses are expensed as incurred. Investment tax credits, which are earned as a result of qualifying research and development expenditures, are recognized when the expenditures are made, and theirrealization is reasonably assured. They are applied to reduce related capital costs and research and development expenses in the year recognized. Income taxes The Company accounts for income taxes using the asset and liability method to compute the differences between the tax basis of assets and liabilities and therelated financial amounts, using currently enacted tax rates. The Company has deferred tax assets, which are subject to periodic recoverability assessments.Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount that more likely than not will be realized. As of December 31,2019, we maintained a full valuation allowance against our deferred tax assets. The provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740-10, Uncertainty in Income Taxes, addressthe determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740-10, wemay recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxingauthorities, based on the technical merits of the position. F-8 Fennec Pharmaceuticals Inc.Notes to the Consolidated Financial Statements(U.S. dollars and shares in thousands, except per share information) Foreign currency translation The U.S. dollar is the functional currency for the Company’s consolidated operations. All gains and losses from currency translations are included in results ofoperations. Loss per share Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the year. Diluted net earnings pershare is computed using the same method, except the weighted average number of common shares outstanding includes convertible debentures, stock options andwarrants, if dilutive, as determined using the if-converted method and treasury methods. Accordingly, warrants to purchase 0.04 million of our common shares andoptions to purchase 3.1 million of our common shares at December 31, 2019, were not included in earnings per share. Such options would have an antidilutiveeffect. In 2018, options to purchase 2.5 million common shares were excluded from the computation of earnings per share as their inclusion would have beenantidilutive. Recent accounting pronouncements In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for FairValue Measurement. ASU 2018-13 removes certain disclosures, modifies certain disclosures and adds additional disclosures. The ASU is effective for us onJanuary 1, 2020, and interim periods within that fiscal year. Early adoption is permitted. Certain disclosures in ASU 2018-13 would need to be applied on aretrospective basis and others on a prospective basis. The Company concluded after evaluation that ASU 2018-13 will have no significant effect on ourconsolidated financial statements. In June 2018, the FASB issued ASU 2018-07 to expand the scope of ASC Topic 718, Compensation - Stock Compensation (Topic 718): Improvements toNonemployee Share-Based Payment Accounting, to include share-based payment transactions for acquiring goods and services from nonemployees. Thepronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018. We adopted this policy as ofJanuary 1, 2019. The Company concluded after evaluation that the impact of ASU 2018-07 on our consolidated financial statements and disclosures was deminimis. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The new guidance requires the recognition of lease liabilities, representing future minimumlease payments, on a discounted basis, and corresponding right-of-use assets on a balance sheet for most leases, along with requirements for enhanced disclosuresto give financial statement users the ability to assess the amount, timing and uncertainty of cash flows arising from leasing arrangements. In July 2018, the FASBissued ASU 2018-10 and 2018-11 which permit application of the new guidance at the beginning of the year of adoption, recognizing a cumulative-effectadjustment to the opening balance of retained earnings in the period of adoption, in addition to the method of applying the new guidance retrospectively to eachprior reporting period presented. The ASU was effective for us on January 1, 2019. We concluded the impact of this guidance is negligible on our consolidatedfinancial statements, given we have no material leases. 3. Loss per Share Loss per common share is presented under two formats: basic loss per common share and diluted loss per common share. Basic loss per common share iscomputed by dividing net loss attributable to common shareholders by the weighted average number of common shares outstanding during the period. Diluted lossper common share is computed by dividing net loss by the weighted average number of common shares outstanding during the period, plus the potentially dilutiveimpact of common shares equivalents (e.g. stock options and warrants). Dilutive common share equivalents consist of the incremental common shares issuableupon exercise of stock options and warrants. The following table sets forth the computation of basic and diluted net loss per share (in thousands except per sharedata): Year Ended December 31,2019 December 31,2018 Numerator: Net loss $(12,775) $(9,888) Denominator: Weighted-average common shares, basic 19,896 18,942 Dilutive effect of stock options – – Dilutive effect of warrants – – Incremental dilutive shares – – Weighted-average common shares, diluted 19,896 18,942 Net loss per share, basic and diluted $(0.64) $(0.52) F-9 Fennec Pharmaceuticals Inc.Notes to the Consolidated Financial Statements(U.S. dollars and shares in thousands, except per share information) The following outstanding options and warrants were excluded from the computation of basic and diluted net loss per share for the periods presented becauseincluding them would have had an anti-dilutive effect (in thousands): Year Ended December 31,2019 December 31,2018 Options to purchase common shares 3,088 2,498 Warrants to purchase common shares 39 - 4. Stock options The Compensation Committee of the Board of Directors administers the Company’s stock option plan. The Compensation Committee designates eligibleparticipants to be included under the plan and approves the number of options to be granted from time to time under the plan. On June 24, 2010, at the Company’sannual meeting, shareholders approved an amendment to the Company’s Stock Option Plan (the “Plan Maximum Amendment”). The Plan Maximum Amendmentrelates to changing the maximum number of common shares issuable under the stock option plan from a fixed number of 6.7 million to the number of shares thatrepresents twenty-five percent (25%) of the total number of all issued and outstanding common shares. Based upon the current shares outstanding, a maximum of5.0 million of our common shares are authorized for issuance under the plan. The option exercise price for all options issued under the plan is based on the fairvalue of the underlying shares on the date of grant. All options vest within three years or less and are exercisable for a period of ten years from the date ofgrant. The stock option plan, as amended, allows the issuance of Canadian and U.S. dollar grants. A summary of the stock option transactions, for both theCanadian and U.S. dollar grants, through the year ended December 31, 2019 is below. Summary of $CAD Option Activity Share Prices Reported in $CAD Number ofOptions(in thousands) Range WeightedAverage Outstanding and exercisable at December 31, 2017 712 $1.89 – 2.43 $2.38 Exercised (64) 1.89 – 2.43 1.83 Outstanding and exercisable at December 31, 2018 648 $2.43 $2.43 Outstanding and exercisable at December 31, 2019 648 $2.43 $2.43 Summary of $CAD Option Remaining Life Price $CAD Outstanding and Exercisable atDecember 31, 2019(in thousands) Weighted Average Remaining Life (years) $2.43 648 0.63 Summary of $USD Option Activity Number ofOptions (in thousands) Range WeightedAverage Outstanding and exercisable at December 31, 2017 1,603 $ 0.45 – 10.10 $2.70 Granted 305 8.38 – 12.59 9.23 Exercised (58) 1.05 – 3.67 2.06 Outstanding and exercisable at December 31, 2018 1,850 $0.45 – 12.59 $3.80 Granted 590 4.26 – 5.91 4.83 Outstanding and exercisable at December 31, 2019 2,440 $0.45 – 12.59 $3.59 F-10 Summary of $USD Option Remaining Life Price inUS Dollars Number Outstanding andExercisable atDecember 31, 2019(in thousands) Remaining Life(years) $0.45 11 2.63 $0.54 19 2.38 $0.60 17 2.26 Fennec Pharmaceuticals Inc.Notes to the Consolidated Financial Statements(U.S. dollars and shares in thousands, except per share information) Price inUS Dollars Number Outstanding and Exercisable atDecember 31, 2019(in thousands) Remaining Life(years) $0.72 50 3.65 $0.96 10 3.60 $1.05 93 2.89 $1.13 50 5.95 $1.23 8 5.87 $1.50 7 1.88 $1.59 133 4.07 $2.11 36 7.00 $2.30 4 5.36 $2.31 275 4.32 $2.35 4 5.59 $2.40 8 3.26 $2.44 49 6.44 $2.45 285 6.52 $2.51 4 5.21 $2.55 4 4.86 $2.69 114 5.01 $2.79 22 4.60 $2.94 3 3.38 $3.10 10 7.26 $3.60 3 4.38 $3.67 35 7.38 $4.26 85 9.47 $4.74 175 9.74 $4.83 260 9.27 $5.10 250 7.49 $5.40 20 9.88 $5.91 50 10.00 $6.72 21 7.63 $8.38 210 8.11 $10.10 20 7.88 $10.93 85 8.44 $12.59 10 8.26 Total 2,440 6.79 Stock compensation expense for the fiscal years ended December 31, 2019 and 2018 was $3.1 million and $2.1 million respectively. These amounts have beenincluded in the general and administrative expenses for the respective periods. The weighted average fair value per share of options granted and or vested duringthe fiscal years ended December 31, 2019 and 2018 was $4.83 and $9.12, respectively. The intrinsic value (being the difference between the share price atDecember 31, 2019 and exercise price) of stock options exercisable at December 31, 2019 was $9.1 million. The intrinsic value of options exercised during thefiscal year ended December 31, 2019 was $0.0 million. The fair value of all options vested during the fiscal year ended December 31, 2019 was $2.1 million. The fair values of options granted in fiscal years ended December 31, 2019 and 2018 were estimated on the date the options were granted based on the Black-Scholes option-pricing model, using the following weighted average assumptions for all options with a ten-year expiration: Year Ended December 31, 2019 Year Ended December 31, 2018 Expected dividend 0% 0% Risk-free interest rate 1.63– 2.70% 2.53– 3.00% Expected volatility 125 – 179% 132 – 151% Expected life 4.3 – 10.0 years 4.5 – 7 years The Company uses the historical volatility and adjusts for available relevant market information pertaining to the Company’s share price. F-11 Fennec Pharmaceuticals Inc.Notes to the Consolidated Financial Statements(U.S. dollars and shares in thousands, except per share information) Modification of Existing US Dollar Denominated Options In 2019, the Company modified the terms of all outstanding US denominated options extending the expiration date by a weighted average amount of 2.98 years.The Company recorded option modification expense of approximately $1.34 million in the year ended December 31, 2019, included in the $3.1 million of stockcompensation in general and administrative expense, discussed above. Some of the option grants were not fully vested, as a result, the Company will recognize$0.1 million in expense over the next nine quarters. The following table summarizes the effect of the June 18, 2019 transaction: ExercisePrice$USD Number ofOptions ExpirationDate Risk FreeRate ExpectedLife(Years) Volatility ExpenseRecognized$USD 6/18/19 ExpenseRecognized$USD After 6/18/19 0.45 11,111 08/17/2022 2.20% 3.16 71% 475 - 0.54 9,259 05/17/2022 2.04% 2.91 67% 670 - 0.60 8,333 04/04/2022 2.04% 2.80 68% 732 - 0.72 16,666 08/23/2023 2.04% 4.18 125% 20,642 - 0.96 3,063 08/06/2023 2.04% 4.13 126% 6,126 - 1.05 4,762 11/20/2022 2.04% 3.43 73% 1,886 - 1.05 83,333 11/20/2022 2.04% 3.43 73% 18,566 - 1.13 50,000 12/11/2025 1.80% 6.48 130% 33,193 - 1.23 4,062 11/10/2025 1.80% 6.40 131% 5,988 - 1.50 6,666 11/18/2021 2.20% 2.42 66% 2,247 - 1.59 132,954 01/24/2024 1.86% 4.60 122% 139,829 - 2.11 35,545 12/30/2026 1.83% 7.53 133% 12,331 - 2.30 4,346 05/11/2025 1.80% 5.90 127% 5,475 - 2.31 275,324 04/25/2024 1.86% 4.85 123% 404,154 - 2.35 4,254 08/03/2025 1.80% 6.13 133% 5,346 - 2.40 8,332 04/03/2023 2.04% 3.79 130% 13,640 - 2.44 49,180 06/06/2026 1.80% 6.98 136% 19,729 - 2.45 285,000 07/05/2026 1.83% 7.05 136% 114,692 526 2.51 3,984 03/16/2025 1.80% 5.74 127% 5,401 - 2.55 3,920 11/07/2024 1.86% 5.39 124% 5,529 - 2.69 114,000 12/31/2024 1.80% 5.54 125% 164,445 - 2.79 21,790 08/04/2024 1.86% 5.13 125% 35,363 - 2.94 3,400 05/17/2023 2.04% 3.91 129% 6,633 - 3.10 10,000 05/15/2024 1.83% 7.79 132% 3,839 - 3.60 2,778 04/03/2027 1.86% 4.91 123% 5,609 - 3.67 35,000 05/17/2027 1.83% 7.91 133% 14,951 - 4.83 260,000 04/04/2028 1.93% 9.80 153% 5,099 59,074 5.10 250,000 06/27/2027 1.83% 8.02 132% 94,204 26,291 6.72 21,150 08/17/2027 1.83% 8.16 131% 10,298 - 8.38 210,000 02/06/2028 1.83% 8.64 146% 58,434 67,273 10.10 20,000 11/16/2027 1.83% 8.41 137% 12,193 - 10.93 85,000 06/08/2028 1.83% 8.97 149% 51,289 - 12.59 10,000 04/03/2028 1.83% 8.79 147% 6,366 - 2,1102,313 1,285,374 153,064 Modification of Existing Canadian Dollar Denominated Options In 2018, the Company modified the terms of certain options granted to executives and directors by extending the expiration date by a weighted average amount of2.0 years. The Company recorded option modification expense of approximately $112,000 included in general and administrative expense. The expense wascalculated using the Black-Scholes valuation method with a June 7, 2018 exchange rate of $CAD/$USD 0.7715. The following table summarizes the effect of theJune 7, 2018 transaction: F-12 Fennec Pharmaceuticals Inc.Notes to the Consolidated Financial Statements(U.S. dollars and shares in thousands, except per share information) Number of Options ExpirationDate Risk Free Rate Exercise Price $CAD Share Price$CAD ExpectedLife (Years) Volatility ExpenseRecognized$USD 648 08/18/2020 1.90% 2.43 14.14 2.2 76% 112 648 112 5. Derivative Liabilities The Company's derivative instruments on January 1, 2018 included options to purchase 19,441 common shares, the exercise prices for which are denominated in acurrency other than the Company's functional currency, as follows: · Contractor options to purchase 17,394 common shares exercisable at CAD$1.62 per whole common share that expire on April 4, 2018;· Contractor options to purchase 2,047 common shares exercisable at CAD$2.43 per whole common share that expire on May 18, 2018. During the year ended December 31, 2018, all of these derivative options were exercised. This resulted in gross proceeds of $26,109, the issuance of 19,441common shares and a non-cash, realized gain on the extinguishment of the remaining derivative liability of $167,131. During the fiscal years ended December 31, 2011 and 2010, the Company issued 35,892 and 28,796, respectively, options to contractors with a Canadian dollardenominated strike price. Consequently, the Company had derivatives relating to these options since the strike price is denominated in a currency other than the USdollar functional currency of the Company. While there is an exception to this rule for employees in ASU 2010-13 "Compensation-Stock Compensation (Topic718): Effect of Denominating the exercise price of a share-based payment award in the currency of the market in which the underlying equity security trades", nosuch exception exists for contractors. These options were marked to market until the earlier of their expiry or exercise. All Canadian denominated options issued tocontractors fully vested at issuance and were to expire seven years from date of issuance. The fair value of these options at December 31, 2019 and December 31,2018 was $0. The unrealized gain for these options for the year ended December 31, 2018 was $167,131. The following is a summary of Canadian denominated contractor option activity for the year ended December 31, 2018 and 2019. Share Prices Reported in $CAD Number of OptionsOutstanding and Exercisable(in thousands) WeightedAverageExercise Price Outstanding and exercisable at December 31, 2017 19 $1.71 Exercised (19) $1.71 Outstanding and exercisable at December 31, 2018 – – Outstanding and exercisable at December 31, 2019 – – The following table presents gain on change in derivative valuation for the year ended December 31, 2019 and December 31, 2018: Derivative Warrants/Options Gain (in thousands) on DerivativeInstruments at December 31, 2019 2018 Options (various expiration dates) - 167 Total - 167 6. Fair Value Measurements The Company has adopted ASC 820 Fair Value Measurements and Disclosure Topic of the FASB. This Topic applies to certain assets and liabilities that are beingmeasured and reported on a fair value basis. The Fair Value Measurements Topic defines fair value, establishes a framework for measuring fair value in accordancewith US GAAP, and expands disclosure about fair value measurements. This Topic enables the reader of the financial statements to assess the inputs used todevelop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. The Topic requiresthat financial assets and liabilities carried at fair value be classified and disclosed in one of the following three categories: Level 1: Quoted market prices in active markets for identical assets or liabilities.Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.Level 3: Unobservable inputs that are not corroborated by market data. F-13 Fennec Pharmaceuticals Inc.Notes to the Consolidated Financial Statements(U.S. dollars and shares in thousands, except per share information) Assets/Liabilities Measured at Fair Value on a Recurring Basis Fair Value Measurement at December 31, (in thousands) Quoted Price in ActiveMarket for IdenticalInstruments Significant OtherObservable Inputs SignificantUnobservable Inputs Level 1 Level 2 Level 3 Total 2019 2018 2019 2018 2019 2018 2019 2018 Assets Cash and cash equivalents 347 (1) 770 (1) 13,303 22,011 - - 13,650 22,781 (1)The Company held approximately, $347,000 in cash as of December 31, 2019, of which approximately, $30,000 was in Canadian funds (translated intoU.S. dollars). As of December 31, 2018, the Company held approximately $770,000, of which approximately 121,000 was in Canadian funds (translatedinto U.S. dollars). 7. Stockholders’ Equity Authorized capital stock The Company’s authorized capital stock consists of an unlimited number of shares of no-par common shares. Warrants to Purchase Common Shares At December 31, 2019, the Company had 39,130 warrants outstanding to purchase common shares at an exercise price of $6.80. The following table summarizedour warrant activity. Number ofWarrants(in thousands) Range WeightedAverage Outstanding and exercisable at December 31, 2017 1,612 $ 1.50 – 3.00 $1.56 Exercised (1,612) $ 1.50 – 3.00 $1.56 Outstanding and exercisable at December 31, 2018 - - - Granted 39 $6.80 $6.80 Outstanding and exercisable at December 31, 2019 39 $6.80 $6.80 8. Related Party Transactions In the second quarter of 2018, the Company recorded approximately $25 related to the net recovery of short-swing profits from one of the Company’s shareholdersunder Section 16(b) of the Securities Exchange Act of 1934, as amended. The Company recognized these related party proceeds, net of $7 related legal fees andtaxes, as an increase to additional paid-in capital consolidated balance sheet as of December 31, 2018, as well as cash proceeds of approximately $18 as cashprovided by financing activities in the consolidated statement of cash flows for the period ended December 31, 2018. 9. Commitments and Contingencies Oregon Health & Science University Agreement On February 20, 2013, Fennec entered into a new exclusive license agreement with OHSU for exclusive worldwide license rights to intellectual property directedto thiol-based compounds, including STS and their use in oncology (the "OHSU Agreement"). OHSU will receive certain milestone payments, royalty on net salesfor licensed products and a royalty on any consideration received from sublicensing of the licensed technology. On May 18, 2015, Fennec negotiated an amendment ("Amendment 1") to the OHSU Agreement, which expands Fennec’s exclusive license to include the use ofN-acetylcysteine as a standalone therapy and/or in combination with STS for the prevention of ototoxicity induced by chemotherapeutic agents to treat cancers.Further, Amendment 1 adjusts select milestone payments entered in the OHSU Agreement including but not limited to the royalty rate on net sales for licensedproducts, royalty rate from sublicensing of the licensed technology and the fee payable upon the regulatory approval of a licensed product. The term of the OHSU Agreement as amended by Amendment 1 expires on the date of the last to expire claim(s) covered in the patents licensed to Fennec or 8years, whichever is later. In the event a licensed product obtains regulatory approval and is covered by the Orphan Drug Designation, the parties will in good faithamend the term of the agreement. STS is currently protected by methods of use patents that the Company exclusively licensed from OHSU that expire in Europein 2021 and are currently pending in the United States. The OHSU Agreement is terminable by either Fennec or OHSU in the event of a material breach of theagreement by either party after 45 days prior written notice. Fennec also has the right to terminate the OHSU Agreement at any time upon 60 days prior writtennotice and payment of all fees due to OHSU under the OHSU Agreement. F-14 Fennec Pharmaceuticals Inc.Notes to the Consolidated Financial Statements(U.S. dollars and shares in thousands, except per share information) Executive Severance In the event of his termination with us other than for cause, we will be obligated to pay Mr. Raykov a one-time severance payment equal to twelve months of salary(currently $400,000). In the event of his termination with us other than for cause, we will be obligated to pay Mr. Andrade a one-time severance payment equal tosix months of salary (currently $145,000). 10. Subsequent Events On February 11, 2020, Fennec announced it had completed its rolling submission of a New Drug Application (NDA) to the U.S. Food and Drug Administration(FDA) and submitted a Marketing Authorization Application (MAA) to the European Medicines Agency (EMA) for PEDMARKTM (sodium thiosulfate anhydrousinjection) for intravenous use. Management has evaluated subsequent events through February 14, 2020, the date the financial statements were available to be issued and has concluded there areno additional events that would require adjustment to our disclosure in the statements. 11. Income Taxes The Company operates in both U.S. and Canadian tax jurisdictions. Its income is subject to varying rates of tax and losses incurred in one jurisdiction cannot beused to offset income taxes payable in another. A reconciliation of the combined Canadian federal and provincial income tax rate with the Company’s effective taxrate is as follows (in thousands except for percentage rates): Year EndedDecember 31, Year EndedDecember 31, 2019 2018 Domestic (loss)/gain $(9,004) $(7,702)Foreign loss (3,734) (2,145)Loss before income taxes (12,738) (9,847) Expected statutory rate (recovery) 26.50% 26.50%Expected provision for (recovery of) income tax (3,376) (2,609)Permanent differences 901 512 Change in valuation allowance 2,193 2,042 Effect of foreign exchange rate differences – – Effect of change in future enacted tax rates – – Tax credits and other adjustments – – Effect of tax rate changes and other 280 55 Provision for income taxes $- $- The Canadian statutory come tax rate of 26.0 percent is comprised of federal income tax at approximately 15.0 percent and provincial income tax at approximately11.0 percent. The primary temporary differences which gave rise to future income taxes (recovery) at December 31, 2019 and December 31, 2018: December 31,2019 December 31,2018 Future tax assets: SR&ED expenditures $2,086 $2,195 Income tax loss carryforwards 23,182 21,452 Non-refundable investment tax credits 1,121 1,250 Share issue costs 99 45 Accrued expenses – – Fixed and intangible assets 1,083 1,065 Reserves - 13 27,572 26,020 Less: valuation allowance (27,572) (26,020)Net future tax assets $– $– F-15 Fennec Pharmaceuticals Inc.Notes to the Consolidated Financial Statements(U.S. dollars and shares in thousands, except per share information) Tax Cuts and Jobs Act On December 22, 2017, the United States government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and jobs Act (the “Tax Act”).The Tax Act reduces the corporate tax rate to 21%, effective January 1, 2018. The Securities and Exchange Commission issued Staff Accounting Bulletin No. 118(“SAB 118”) on December 23, 2017. SAB 118 provides a one-year measurement period from a registrant’s reporting period that includes the United States TaxAct’s enactment date to allow the registrant sufficient time to obtain, prepare and analyze information to complete the accounting required under ASC 740. Theultimate impact of the Tax Act on our reported results may differ from the estimates provided herein, possibly material, due to, among other things, changes ininterpretations and assumptions we have made, guidance that may be issued, and other actions we may take as a result of the Tax Act different from presentlycontemplated. There are no current income taxes owed, nor are any income taxes expected to be owed in the near term. At December 31, 2019 the Company has unclaimedScientific Research and Experimental Development ("SR&ED") expenditures, income tax loss carry-forwards and non-refundable investment tax credits. Theunclaimed amounts and their expiry dates are as listed below: Federal Province/State SR&ED expenditures (no expiry) $7,872 $- Income tax loss carryforwards (expiry date): 2020 - 6,169 2021 26 2,716 2022 233 4,219 2023 1,588 4,164 2024 4,849 2,116 2025 17,229 11,786 2026 6,690 4,698 2027 10,555 6,980 2028 10,250 6,724 2029 3,916 2,416 2030 3,243 3,376 2031 3,675 3,746 2032 1,755 996 2033 1,782 3,149 2034 1,685 4,600 2035 2,131 1,189 2036 3,901 2,882 2037 7,024 5,267 2038 5,687 5,687 No expiration 5,899 - Investment tax credits (expiry date): 2019 91 2020 52 2021 521 2022 379 2023 169 2024 189 2025 82 2026 86 2027 47 F-16 EXHIBIT 21Fennec Pharmaceuticals Inc. Subsidiaries Oxiquant, Inc., a Delaware corporation Fennec Pharmaceuticals, Inc., a Delaware corporation Cadherin Biomedical Inc., a Canadian corporation Fennec Pharmaceuticals (EU) Limited, an Irish Private Company Limited by Shares  Exhibit 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in the Registration Statements on Forms S-8 (file no. 333-221091), S-8 (on file no. 333-232353), S-3 (file no.333-221093) and S-3 (file no. 333-219884) of Fennec Pharmaceuticals Inc. (the "Company") of our report dated February 14, 2020 relating to the consolidatedfinancial statements as of December 31, 2019, which appear in the Annual Report on Form 10-K for the year ended December 31, 2019. /s/ HASKELL & WHITE LLP HASKELL & WHITE LLP Irvine, CaliforniaFebruary 14, 2020  Exhibit 31.1FENNEC PHARMACEUTICALS INCCERTIFICATIONI, Rostislav Raykov, certify that: 1.I have reviewed this annual report on Form 10-K for the period ended December 31, 2019 of Fennec Pharmaceuticals Inc.; 2.Based on my knowledge, this Annual Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to makethe statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisAnnual Report; 3.Based on my knowledge, the financial statements, and other financial information included in this Annual Report, fairly present in all material respectsthe financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Annual Report; 4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this Annual Report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this Annual Report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this Annual Report based on such evaluation; and (d)Disclosed in this Annual Report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant’s internal control over financial reporting. 5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting. Date: February 14, 2020 By: /s/ Rostislav Raykov Rostislav Raykov Chief Executive Officer  Exhibit 31.2FENNEC PHARMACEUTICALS INC.CERTIFICATION I, Robert Andrade, certify that: 1.I have reviewed this annual report on Form 10-K for the period ended December 31, 2019 of Fennec Pharmaceuticals Inc.; 2.Based on my knowledge, this Annual Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to makethe statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisAnnual Report; 3.Based on my knowledge, the financial statements, and other financial information included in this Annual Report, fairly present in all material respectsthe financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Annual Report; 4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this Annual Report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this Annual Report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this Annual Report based on such evaluation; and (d)Disclosed in this Annual Report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant’s internal control over financial reporting. 5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controlover financial reporting. Date: February 14, 2020 By: /s/ Robert Andrade Robert Andrade Chief Financial Officer  Exhibit 32.1 CERTIFICATION PURSUANT TO18 U.S.C. §1350AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Fennec Pharmaceuticals Inc. (the “Company”) on Form 10-K for the period ended December 31, 2019 (the “Report”),each of the undersigned, Rostislav Raykov, Chief Executive Officer of the Company, and Robert Andrade, Chief Financial Officer of the Company, herebycertifies pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany. Date: February 14, 2020 By: /s/ Rostislav Raykov Rostislav Raykov Chief Executive Officer Date: February 14, 2020 By: /s/ Robert Andrade Robert Andrade Chief Financial Officer Exhibit 99.1 FENNEC PROVIDES BUSINESS UPDATE ANDANNOUNCES FISCAL YEAR 2019 FINANCIAL RESULTS NDA (New Drug Application) and Marketing Authorization Application (MAA)completed in February 2020Commercial readiness activities in U.S. underway for potential launch of PEDMARKTM, if approved,in the second half of 2020Solid financial position with $13.7 million and no debt and the option to access $12.5 million in debt financing upon NDA approval of PEDMARK Research Triangle Park, NC, Feb. 14, 2020 – Fennec Pharmaceuticals Inc. (Nasdaq: FENC; TSX: FRX), a specialty pharmaceutical company focused on thedevelopment of PEDMARKTM (a unique formulation of sodium thiosulfate (STS)) for the prevention of platinum-induced ototoxicity in pediatric patients, todayreported its business update and financial results for the fiscal year ended December 31, 2019. "Fennec made great progress in 2019 preparing for some important milestones in 2020 including the recent announcement of regulatory submissions in both theU.S. and EU for PEDMARK” said Rosty Raykov, chief executive officer of Fennec. "During the year we also made solid progress in preparing for the potentiallaunch of PEDMARK including the hiring of a chief commercial officer and the preparation and execution of our commercial readiness plan. We look forward to anumber of significant milestones throughout 2020. If PEDMARK is granted a Priority Review, the Prescription Drug User Fee Act (PDUFA) action date isexpected in the third quarter of 2020.” Financial Results for the Fourth Quarter 2019 ·Cash Position - Cash and cash equivalents were $13.7 million as of December 31, 2019. The reduction in cash balance over the fiscal year is the result ofcash used for operating activities including regulatory expenses associated with the regulatory submissions of PEDMARK and expenses associated withcommercial launch preparation.·Research and Development (R&D) Expenses – R&D expenses were $1.2 million and $5.6 million, respectively, for the fourth quarter and year endedDecember 31, 2019, compared to $1.7 million and $5.0 million for the same period in 2018. The Company completed a significant part of the activitiesneeded for regulatory approval of PEDMARK during the fourth quarter of 2019.·General and Administrative (G&A) Expenses – G&A expenses were $2.5 million and $7.4 million, respectively, for the fourth quarter and year endedDecember 31, 2019, compared to $1.4 million and $5.4 million, respectively for the same periods in 2018. Fourth quarter increase in G&A was largelyattributable to the commercialization efforts as the Company prepares to bring PEDMARK, if approved, to market in the second half of 2020. An additionalincrease in G&A expenses is attributed to a small rise in compensation to officers, directors and key contract employees in fiscal 2019 as compared to fiscal2018. Shareholders passed a motion to increase the duration of all outstanding option contracts to a total of 10 years in 2019. This added $1.3 million inG&A in non-cash compensation over the prior year. Sales and marketing expenses increased by $0.4 million over the prior year as the Company began tofocus efforts to commercialize PEDMARK. The company incurred approximately $0.25 million in additional administrative expenses as it added positionsto the commercial team including the addition of a Chief Commercial Officer.·Net Loss - Net losses for the fourth quarter and year ended December 31, 2019 of $3.6 million ($0.18 per share) and $12.8 million ($0.64 per share),respectively, compared to $3.0 million ($0.15 per share) and $9.9 million ($0.52 per share), respectively, for the same periods in 2018.·Financial Guidance - The Company believes its cash and cash equivalents on hand as of December 31, 2019, along with the $12.5 million loan facilityavailable upon FDA approval of PEDMARKTM will be sufficient to fund the Company's planned commercial launch of PEDMARKTM in the second half of2020.  Financial Update The selected financial data presented below is derived from our unaudited condensed consolidated financial statements which were prepared in accordance withU.S. generally accepted accounting principles. The complete audited condensed consolidated financial statements for the period ended December 31, 2019 andmanagement's discussion and analysis of financial condition and results of operations will be available via www.sec.gov and www.sedar.com. All values arepresented in thousands unless otherwise noted. Audited Condensed ConsolidatedStatement of Operations:(U.S. Dollars in thousands except per share amounts) Three Months Ended Twelve Months Ended December 31, December 31, December 31, December 31, 2019 2018 2019 2018 Revenue $- $- $- $- Operating expenses: Research and development 1,172 1,723 5,607 5,008 General and administrative 2,481 1,382 7,402 5,401 Loss from operations (3,653) (3,105) (13,009) (10,409) Other (expense)/income Unrealized gain/(loss) on derivatives - - - 167 Amortization expense (18) - (64) - Other loss (8) 6 (17) 6 Net interest income 69 115 315 348 Total other (expense)/income, net 43 121 234 521 Net income/(loss) $(3,610) $(2,984) $(12,775) $(9,888) Basic net income/(loss) per common share $(0.18) $(0.15) $(0.64) $(0.52) Diluted net income/(loss) per common share $(0.18) $(0.15) $(0.64) $(0.52)  Fennec Pharmaceuticals Inc.Balance Sheets(U.S. Dollars in thousands) December 31, 2019 December 31, 2018 Assets Cash and cash equivalents $13,650 $22,781 Other current assets 234 169 Non-current assets, net 262 - Total Assets $14,146 $22,950 Liabilities and stockholders’ equity Current liabilities $2,271 $1,637 Total stockholders’ equity 11,875 21,313 Total liabilities and stockholders’ equity $14,146 $22,950 Working Capital Fiscal Year Ended Selected Asset and Liability Data: December 31, 2019 December 31, 2018 (U.S. Dollars in thousands) Cash and cash equivalents $13,650 $22,781 Other current assets 234 169 Current liabilities excluding derivative liability (2,271) (1,637)Working capital $11,613 $21,313 Selected Equity: Common stock & APIC $154,663 $151,326 Accumulated deficit (144,031) (131,256)Stockholders’ equity 11,875 21,313 Forward looking statementsExcept for historical information described in this press release, all other statements are forward-looking. Forward-looking statements are subject to certain risksand uncertainties inherent in the Company’s business that could cause actual results to vary, including such risks that regulatory and guideline developments maychange, scientific data may not be sufficient to meet regulatory standards or receipt of required regulatory clearances or approvals, clinical results may not bereplicated in actual patient settings, protection offered by the Company’s patents and patent applications may be challenged, invalidated or circumvented by itscompetitors, the available market for the Company’s products will not be as large as expected, the Company’s products will not be able to penetrate one or moretargeted markets, revenues will not be sufficient to fund further development and clinical studies, the Company may not meet its future capital requirements indifferent countries and municipalities, and other risks detailed from time to time in the Company’s filings with the Securities and Exchange Commission includingits Annual Report on Form 10-K for the year ended December 31, 2019. Fennec Pharmaceuticals, Inc. disclaims any obligation to update these forward-lookingstatements except as required by law. For a more detailed discussion of related risk factors, please refer to our public filings available at www.sec.gov and www.sedar.com.  About PEDMARK™ (Sodium Thiosulfate (STS)) Cisplatin and other platinum compounds are essential chemotherapeutic agents for many pediatric malignancies. Unfortunately, platinum-based therapies causeototoxicity, or hearing loss, which is permanent, irreversible and is particularly harmful to the survivors of pediatric cancer. In the U.S. and Europe, it is estimated annually that over 10,000 children may receive platinum-based chemotherapy. The incidence of ototoxicity depends uponthe dose and duration of chemotherapy, and many of these children require lifelong hearing aids. There is currently no established preventive agent for this hearingloss and only expensive, technically difficult and sub-optimal cochlear (inner ear) implants have been shown to provide some benefit. Infants and young childrenthat suffer ototoxicity at critical stages of development lack speech language development and literacy, and older children and adolescents lack social-emotionaldevelopment and educational achievement. PEDMARK has been studied by cooperative groups in two Phase 3 clinical studies of survival and reduction of ototoxicity, The Clinical Oncology Group ProtocolACCL0431 and SIOPEL 6. Both studies have been completed. The COG ACCL0431 protocol enrolled one of five childhood cancers typically treated withintensive cisplatin therapy for localized and disseminated disease, including newly diagnosed hepatoblastoma, germ cell tumor, osteosarcoma, neuroblastoma, andmedulloblastoma. SIOPEL 6 enrolled only hepatoblastoma patients with localized tumors. About Fennec Pharmaceuticals Fennec Pharmaceuticals Inc., is a specialty pharmaceutical company focused on the development of PEDMARK™ for the prevention of platinum-inducedototoxicity in pediatric patients. PEDMARK received Breakthrough Therapy and Fast Track Designation by the FDA in March 2018. Further, PEDMARK hasreceived Orphan Drug Designation in the U.S. for this setting. Fennec has a license agreement with Oregon Health and Science University (OHSU) for exclusiveworldwide license rights to intellectual property directed to STS and its use for chemoprotection, including the prevention of ototoxicity induced by platinumchemotherapy, in humans. For more information, please visit www.fennecpharma.com. For further information, please contact: Rosty RaykovChief Executive OfficerFennec Pharmaceuticals Inc.T: (919) 636-5144 Media:Elixir Health Public RelationsLindsay Rocco+1 862-596-1304lrocco@elixirhealthpr.com 

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