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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
British Columbia, Canada
(State or Other Jurisdiction of
Incorporation or Organization)
PO Box 13628, 68 TW Alexander Drive
Research Triangle Park, NC
(Address of Principal Executive Offices)
Commission File Number: 001-32295
FENNEC PHARMACEUTICALS INC.
(Exact Name of Registrant as Specified in Its Charter)
20-0442384
(I.R.S. Employer
Identification No.)
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
Common Shares, no par value
Trading Symbol
FENC
Name of each exchange on which registered
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 ⌧
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 ⌧
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 the preceding 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 the past 90 days. YES ⌧NO ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-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 ⌧ NO ☐
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 emerging growth company. See the definitions of
“large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Accelerated filer ☐
Non-accelerated filer ⌧
Smaller reporting company ⌧
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 or revised financial accounting standards
provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b)
of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to
previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers
during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ⌧
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’s Common Shares as reported on the Nasdaq
Capital Market on June 30, 2023 (the last business day of the registrant’s most recently completed second fiscal quarter) was $137,895,876 based upon a total of 15,616,747 shares held as of June 30,
2023 by persons believed to be non-affiliates of the registrant (for purposes of 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 March 25, 2024, there were 27,099,908 shares of the registrant’s Common Shares outstanding.
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FENNEC PHARMACEUTICALS INC.
2023 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 1C.
Cybersecurity
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
Mine Safety Disclosures
PART II
Item 5.
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer’s Purchases
of Equity Securities
Item 6.
Reserved
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Item 13.
Certain Relationships and Related Transactions and Director independence
Item 14.
Principal Accounting Fees and Services
PART IV
Item 15.
Exhibits and Financial Statement Schedules
Item 16.
Form 10-K Summary
SIGNATURES
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PART I
You are urged to read this Annual Report on Form 10-K (“Annual Report”) in its entirety. This Annual Report contains
forward-looking statements that involve risks and uncertainties. Our actual results may differ significantly from the
projected results discussed in these forward-looking statements. Factors that may cause such a difference include, but are
not limited to, those discussed below and in Item 1A, “Risk Factors,” and Item 7, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations – Caution Concerning Forward-Looking Statements.”
“We,” “our,” “ours,” “us,” “Fennec,” or the “Company,” when used herein, refers to Fennec Pharmaceuticals Inc., a
British Columbia corporation, and its wholly-owned subsidiary, Fennec Pharmaceuticals, Inc., a Delaware corporation.
Forward-Looking Statements
This Annual Report contains “forward-looking statements”, as that term is defined in the Private Securities Litigation
Reform Act of 1995. These include statements regarding our expectations, beliefs, plans or objectives for future
operations and anticipated results of operations. For this purpose, any statements contained herein that are not statements
of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, “believes”,
“anticipates”, “proposes”, “plans”, “expects”, “intends”, “may”, and other similar expressions are intended to identify
forward-looking statements. Such statements involve known and unknown risks, uncertainties and other factors that may
cause our actual results, performance or other achievements to be materially different from any future results,
performances or achievements expressed or implied by such forward-looking statements. Factors that might cause such
differences include, but are not limited to, those discussed in the section entitled “Item 1A – Risk Factors” and those
discussed in the section entitled “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of
Operations – Caution Concerning Forward-Looking Statements.”
Risk Factors Summary
The following is a summary of the principal risks that could adversely affect our business, operations, and financial results.
A more thorough discussion of these and other risks follows this summary.
Risks Related to Our Business
● We have a history of significant losses and have generated limited revenue from the sale of products since our
inception.
● We may be required to conduct additional clinical trials for PEDMARK®, which would be costly and time-
consuming to complete.
● We may require additional financing to obtain regulatory approval for and commercialize PEDMARK®, and a
failure to obtain this capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce, or
terminate further product development, other operations, or commercialization efforts.
● We are currently and may in the future be the target of securities litigation, which may be costly and time-
consuming to defend.
● We have only recently transitioned from a development stage biopharmaceutical company to a commercial
stage biopharmaceutical company, which may make it difficult for you to evaluate the success of our
business to date and to assess our future viability.
● Our business may be adversely affected by the ongoing COVID-19 pandemic.
● Our business involves environmental risks and potential exposure to environmental liabilities.
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Risks Related to Marketing Approval of Our Product Candidate
● PEDMARK® has received marketing approval from the FDA and from the European Commission, but not from
any additional foreign authorities. These approval processes are costly, time-consuming, and inherently
unpredictable, and it is possible that our applications for marketing approval will be denied.
Risks Related to Commercialization of Our Product Candidate
● Our success depends on our ability to successfully commercialize PEDMARK®. We are a single product
company with only limited commercial experience, which makes it difficult to evaluate our current business,
predict our future prospects and forecast our financial performance and growth.
● If we are unable to successfully commercialize PEDMARK®, our business, results of operations and financial
condition may be materially adversely affected.
● Our business is subject to substantial competition.
● Our business may require additional capital.
● The obligations incident to being a public company place significant demands on our management.
● We are highly dependent on our small number of key personnel and advisors.
● The ongoing COVID-19 pandemic and the worldwide attempts to contain it could harm our business and results
of operations and financial condition and we could be adversely impacted by it.
● We face a risk of product liability claims and may not be able to obtain adequate insurance.
● Business or economic disruptions or global health concerns could seriously harm our development efforts and
increase our costs and expenses.
● Now that we have received regulatory approvals for PEDMARK®, it remains subject to continued regulatory
review and could be subject to labeling and other restrictions.
● Sales of PEDMARK® will depend on reimbursement by payers and these payers are subject to pressures to
contain costs. In addition, coverage and reimbursement for PEDMARK® may be limited or unavailable in certain
market segments.
● PEDMARK® targets diseases with small patient populations and we may not be effective at identifying patients.
● We may not be able to gain or maintain market acceptance of PEDMARK® among the medical community,
patients, or payers.
● If we fail to comply with applicable healthcare laws and regulations, we may be subject to investigations and civil
or criminal penalties and could lose any regulatory approvals that we obtain for PEDMARK®.
● Changes in healthcare laws and regulations, as well as changes in healthcare policy, could adversely affect our
business.
Risks Related to Third Parties
● We rely on third parties to supply raw materials, to conduct clinical trials, and to manufacture PEDMARK®. If
these third parties fail to satisfactorily perform for us, or if they fail to comply with applicable legal and
regulatory requirements, it could have a material adverse effect on our business.
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Risks Related to Government Regulation
● The regulatory approval process is lengthy, and we may not be able to obtain all of the regulatory approvals
required to manufacture and commercialize PEDMARK® in all areas in which we are licensed to supply it.
● We may face significant delays in our clinical studies and trials due to an inability to recruit patients for our
clinical studies and trials or to retain patients in the clinical studies and trials we may perform.
● If our third-party suppliers or contract manufacturers do not maintain appropriate standards of manufacturing in
accordance with cGMP and other manufacturing regulations, our development and commercialization activities
could suffer significant interruptions or delays.
● PEDMARK® is subject to ongoing regulatory review. If we fail to comply with continuing United States and
applicable foreign regulations, we could lose those approvals, and our business would be severely harmed.
● Enacted and future legislation or judicial action may increase the difficulty and cost for us to commercialize
PEDMARK® or any other drug candidates we may acquire or license and affect the prices we may obtain.
● If we fail to obtain or subsequently maintain orphan drug exclusivity or regulatory exclusivity for PEDMARK®
and any other orphan drug candidates we may acquire or license, our competitors may sell products to treat the
same conditions at greatly reduced prices, and our revenues would be significantly adversely affected.
● Changes to the Orphan Drug Act or successful legal challenges to the FDA’s interpretation of the Orphan Drug
Act may affect our ability to obtain or subsequently maintain orphan drug exclusivity or may affect the scope
orphan drug exclusivity for our product.
● Our operations and relationships with healthcare providers, healthcare organizations, customers and third-party
payors are subject to applicable anti-bribery, anti-kickback, fraud and abuse, transparency and other healthcare
laws and regulations, which could expose us to, among other things, enforcement actions, criminal sanctions,
civil penalties, contractual damages, reputational harm, administrative burdens and diminished profits and future
earnings.
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 success will depend significantly on our ability to operate without infringing the patents and other proprietary
rights of third parties.
● We may incur substantial costs as a result of litigation or other proceedings relating to patent and other
intellectual property rights.
● If we cannot obtain new patents, maintain our existing patents, and protect our trade secrets and other intellectual
property, our business and competitive position may be harmed.
● Patent protection for PEDMARK® may expire before we are able to fully realize its commercial value.
● We are currently and may in the future be the target of patent litigation, which may be costly and time-consuming
to defend.
● Changes in United States patent law could diminish the value of patents in general, thereby impairing our ability
to protect PEDMARK®.
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● If we are found to be infringing third-party patents, we may be forced to pay damages and/or obtain a license. If
we cannot obtain a license, we may be prevented from the manufacture and sale of PEDMARK®.
● It is possible that we could lose market exclusivity for PEDMARK® earlier than expected.
Risks Related to Our Industry
● Drug development involves a lengthy and expensive process with an uncertain outcome, and results of earlier
studies and trials may not be predictive of future trial results.
● The biotechnology and pharmaceutical industry, and in particular the field of cancer therapeutics where we are
focused, is highly competitive. We face significant competition from other pharmaceutical, biopharmaceutical,
and biotechnology companies, many of which have significantly greater financial, technical, and human resources
than we do and may be better equipped to develop, manufacture, and market products.
There are also general risk factors relating to us that you should consider that relate to our business and to our common
stock.
Our current plans and objectives are based on assumptions relating to the continued commercialization of PEDMARK®.
Although we believe that our assumptions are reasonable, any of our assumptions could prove inaccurate. In light of the
significant uncertainties inherent in the forward-looking statements we have made herein, which reflect our views only as
of the date of this report, you should not place undue reliance upon such statements. We undertake no obligation to update
or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
Item 1. Business
Overview
We are a commercial-stage biopharmaceutical company focused on our only product candidate PEDMARK®. On
September 20, 2022, we received approval from the FDA for PEDMARK® (sodium thiosulfate injection) to reduce the risk
of ototoxicity associated with cisplatin in pediatric patients one month of age and older with localized, non-metastatic solid
tumors. This approval makes PEDMARK® the first and only treatment approved by the FDA in this area of significant
unmet medical need. On October 17, 2022, we announced commercial availability of PEDMARK® in the United States.
Further, PEDMARQSI® (PEDMARK® brand name outside of U.S.) received European Commission Marketing
Authorization in June 2023 and received U.K. approval in October 2023.
In March 2024, we announced that we entered into an agreement with Norgine, a leading European specialist
pharmaceutical company. This is an exclusive licensing agreement under which Norgine will commercialize
PEDMARQSI® in Europe, Australia and New Zealand. PEDMARQSI® is the first and only approved therapy in the EU and
U.K. for the prevention of ototoxicity (hearing loss) induced by cisplatin chemotherapy in patients 1 month to < 18 years of
age with localized, non-metastatic solid tumors.
Under the terms of the licensing agreement, Fennec will receive approximately $43 million in upfront consideration and up
to approximately $230 million in additional commercial and regulatory milestone payments and double-digit tiered
royalties on net sales of PEDMARQSI® in the licensed territories up to the mid-twenties. Norgine will be responsible for all
commercialization activities in the licensed territories and will hold all marketing authorizations in the licensed territories.
We sell our product through an experienced field force including Regional Pediatric Oncology Specialists and medical
science liaisons who are helping to educate the medical communities and patients about cisplatin induced ototoxicity and
our programs supporting patient access to PEDMARK®.
Further, we have established Fennec HEARS®, a comprehensive single source program designed to connect PEDMARK®
patients to both patient financial and product access support. The program offers assistance and resources, regardless of
insurance type, that can address co-pays or lack of coverage when certain eligibility requirements are met. Fennec
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HEARS® also provides access to care coordinators that can answer insurance questions about coverage for PEDMARK®
and provide tips and resources for managing treatment.
We received Orphan Drug Exclusivity for PEDMARK© in January 2023, which provides seven years of market exclusivity
from its FDA approval on September 20, 2022, until September 20, 2029. We have been granted three additional U.S.
patents that cover the PEDMARK® formulation, each of which have been listed in the U.S. FDA’s “Orange Book” (U.S.
Patent No. 11,291,728 (issued April 5, 2022), U.S. Patent No. 11,510,984 (issued November 29, 2022), and U.S. Patent No.
11,617,793 (issued April 4, 2023)), and additional United States patent applications from this family remain pending at the
USPTO. Our ‘363 issued patent covers a process of manufacture, which is a patent category that does not qualify for FDA
orange book listing. Seven additional US patent applications are pending, three of which cover methods of using our
PEDMARK® formulation and are eligible for listing on the FDA Orange Book if issued. We are also pursuing additional
patent applications in both the U.S. and internationally for PEDMARK®.
There can be no assurance that we do not or will not infringe on patents held by third parties or that third parties in the
future will not claim that we have infringed on their patents. In the event that our product or technologies infringe or
violate the patent or other proprietary rights of third parties, there is a possibility we may be prevented from pursuing
product development, manufacturing or commercialization of our product until the underlying patent dispute is resolved.
For example, there may be patents or patent applications held by others that contain claims that our product or operations
might be determined to infringe or that may be broader than we believe them to be. Given the complexities and
uncertainties of patent laws, there can be no assurance as to the impact that future patent claims against us may have on our
business, financial condition, results of operations, or prospects.
PEDMARK® Product Overview
PEDMARK® is the first and only FDA approved therapy indicated to reduce the risk of ototoxicity associated with
cisplatin treatment in pediatric patients with localized, non-metastatic, solid tumors. It is a unique formulation of sodium
thiosulfate in single-dose, ready-to-use vials for intravenous use in pediatric patients. PEDMARK® is also the only
therapeutic agent with proven efficacy and safety data with an established dosing paradigm, across two open-label,
randomized Phase 3 clinical studies, the Clinical Oncology Group (COG) Protocol ACCL0431 and SIOPEL 6.
In the U.S. and Europe, it is estimated that more than 10,000 children may receive platinum-based chemotherapy on an
annual basis. The incidence of ototoxicity depends upon the dose and duration of chemotherapy, and many of these
children require lifelong hearing aids. There is currently no established preventive agent for this hearing loss and only
expensive, technically difficult, and sub-optimal cochlear (inner ear) implants have been shown to provide some benefit.
Infants and young children that suffer ototoxicity at critical stages of development lack speech language development and
literacy, and older children and adolescents lack social-emotional development and educational achievement.
PEDMARK® has been studied by co-operative groups in two Phase 3 clinical studies of survival and reduction of
ototoxicity, COG ACCL0431 and SIOPEL 6. Both studies have been completed. The COG ACCL0431 protocol enrolled
childhood cancer patients typically treated with intensive cisplatin therapy for localized and disseminated disease,
including newly diagnosed hepatoblastoma, germ cell tumor, osteosarcoma, neuroblastoma, medulloblastoma, and other
solid tumors. SIOPEL 6 enrolled only hepatoblastoma patients with localized tumors.
Cisplatin Induced Ototoxicity
Cisplatin and other platinum compounds are essential chemotherapeutic agents for the treatment of many pediatric
malignancies. Unfortunately, platinum-based therapies can cause ototoxicity, or hearing loss, which is permanent,
irreversible, and particularly harmful to the survivors of pediatric cancer.
The incidence of ototoxicity depends upon the dose and duration of chemotherapy, and many of these children require
lifelong hearing aids or cochlear implants, which can be helpful for some, but do not reverse the hearing loss and can be
costly over time. Infants and young children that are affected by ototoxicity at critical stages of development lack speech
and language development and literacy, and older children and adolescents often lack social-emotional development and
educational achievement.
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European Commission Marketing Authorization
In August 2018, the Pediatric Committee (“PDCO”) of the European Medicines Agency (“EMA”) accepted our pediatric
investigation plan (“PIP”) for sodium thiosulfate with the trade name PEDMARQSI® for the condition of the prevention of
platinum-induced hearing loss. An accepted PIP is a prerequisite for filing a Marketing Authorization Application
(“MAA”) for any new medicinal product in Europe. The indication targeted by our PIP is for the prevention of platinum-
induced ototoxic hearing loss for standard risk hepatoblastoma (“SR-HB”). Additional tumor types of the proposed
indication will be subject to the Committee for Medicinal Products for Human Use (“CHMP”) assessment at the time of
the MAA. No deferred clinical studies were required in the positive opinion given by PDCO. We were also advised that
PEDMARQSI® is eligible for submission of an application for a Pediatric Use Marketing Authorization (“PUMA”). A
PUMA is a dedicated marketing authorization covering the indication and appropriate formulation for medicines developed
exclusively for use in the pediatric population and provides market protection up to10 years of exclusivity (8 years of data
exclusivity + 2 years of market exclusivity). Therefore, this decision allows us to proceed with the submission of a PUMA
in the European Union (“EU”) with incentives of automatic access to the centralized procedure and up to 10 years of data
and market protection.
In February 2020, we announced that we had submitted a MAA for the prevention of ototoxicity induced by cisplatin
chemotherapy patients 1 month to < 18 years of age with localized, non-metastatic, solid tumors. The EMA continues its
review of our MAA. In June 2023, we received European Commission Marketing Authorization for PEDMARQSI®
(known as PEDMARK® in the U.S.) Further, the decision included the receipt of a PUMA in the European Union (“EU”).
This PUMA exclusivity is effective until May 26, 2033. As stated earlier, in March 2024, Fennec and Norgine announced
an exclusive licensing agreement under which Norgine will commercialize PEDMARQSI® in Europe, Australia and New
Zealand.
Third-Party Reimbursement
Sales of drug products depend in significant part on the availability of coverage and adequate reimbursement by third party
payors, such as state and federal governments, including Medicare and Medicaid, managed care providers, private
commercial insurance plans and pharmacy benefit management (PBM) plans. Decisions regarding the extent of coverage
and the amount of reimbursement to be provided for PEDMARK® are expected to be made on a plan-by-plan, and in some
cases, on a patient-by-patient basis. Particularly given the small size of the pediatric cancer population, our experience has
been that securing coverage and appropriate reimbursement from third-party payors requires targeted education and highly
skilled insurance navigation experts that have experience with rare and orphan disease launches and medical exception
processes at insurance companies to provide patient coverage for important orphan disease therapies. To that end, we have
engaged a dedicated team of reimbursement experts as well as a patient service center staffed with experienced personnel
focused on ensuring that clinically-qualified patients have access to our product.
There can be no assurance, however, as to whether payors will continue to cover our product, and if so, at what level of
reimbursement. In that regard, we have advised payors that we will provide free medication to support titration and confirm
patient therapeutic benefit. Further, when necessary, we may provide patients with access to therapy at no charge while
those patients are awaiting coverage decisions.
Intellectual Property
Patent Coverage
Patents are important to developing and protecting our competitive position. Our general policy is to seek patent protection
in the United States, Europe, China, Japan, Canada and other jurisdictions as appropriate for our compounds and methods.
U.S. patents, as well as most foreign patents, are generally effective for 20 years from the date the earliest (priority)
application was filed. The duration of foreign patents may vary in accordance with local law.
Our current patent portfolio reflects our strategy to expand and diversify our intellectual property to obtain protection for
our PEDMARK® product. We currently wholly own two patent families directed to formulations that cover PEDMARK®
and other potential future sodium thiosulfate formulations, and methods of using and manufacturing the same. The USPTO
has now granted three additional U.S. patents that cover the PEDMARK® formulation, each of which have been listed in
the U.S. FDA’s “Orange Book” (U.S. Patent No. 11,291,728 (issued April 5, 2022), U.S. Patent No. 11,510,984 (issued
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November 29, 2022), and U.S. Patent No. 11,617,793 (issued April 4, 2023)), and additional United States patent
applications from this family remain pending at the USPTO. Our ‘363 issued patent covers a process of manufacture,
which is a patent category that does not qualify for FDA orange book listing. Seven additional US patent applications are
pending, three of which cover methods of using our PEDMARK® formulation and are eligible for listing on the FDA
Orange Book if issued. The four other applications cover additional sodium thiosulfate formulations for potential future
use. A patent in this family has been granted in Indonesia. Additional applications from these families are pending in
Australia, Brazil, Canada, China, the European Patent Office (EPO), Hong Kong, Israel, Japan, South Korea, Mexico,
Malaysia, New Zealand, Russia, Singapore, and Thailand. Applications from these patent families, where granted, valid,
and enforceable, will expire in July 2039, exclusive of any patent term adjustment or extension.
We have exclusively in-licensed from Oregon Health & Science University (“OHSU”) one patent family directed to the use
of sodium thiosulfate to reduce the occurrence of ototoxicity. This family includes the granted US ‘190 Patent and two
pending US patent application. The US ‘190 Patent had been listed in the FDA Orange Book. On April 18, 2023, the
PTAB invalidated the only claim of the‘190 Patent. The final written decision became effective June 20, 2023. In light of
PTAB’s final written decision on the invalidity of the ‘190 Patent, we requested that the FDA remove the ’190 Patent from
the Orange Book. Two United States patent applications claiming priority through the ‘190 Patent remain pending at the
United States Patent and Trademark Office (“USPTO”).
Our success is significantly dependent on our ability to obtain and maintain patent protection for PEDMARK®, both in the
United States and abroad. Our patent position and proprietary rights are subject to various risks and uncertainties. Please
read the “Risk Factors” in Item 1A of this Annual Report for information 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 our employees, consultants, outside scientific collaborators, and other advisers. In
the case of our employees, these agreements also provide, in compliance with relevant law, that inventions and other
intellectual property conceived by such employees during their employment shall be our exclusive property.
FDA Orange Book Listings
On April 5, 2022, the USPTO issued U.S. Patent No. 11,291,728 (the “US ‘728 Patent”) that covers the PEDMARK®
pharmaceutical formulation. On November 9, 2022, the USPTO issued U.S. Patent No. 11,510,984 (the “US ‘984 Patent”)
that also covers the PEDMARK® pharmaceutical formulation. On April 4, 2023, the USPTO issued U.S. Patent No.
11,617,793 (the “US ‘793”) that covers the PEDMARK® pharmaceutical formulation. We own three additional pending
US patent applications directed to methods of treatment using the PEDMARK® formulation, which, if granted, will be
eligible for listing in the Orange Book. These patents where granted will expire in July 2039, exclusive of patent term
adjustment and/or extension, unless held invalid or unenforceable by a court of final jurisdiction.
We have exclusively licensed from OHSU U.S. Patent No. 10,596,190 (“the US ‘190 Patent”) and two pending US patent
application directed to a method of reducing ototoxicity using sodium thiosulfate.
On April 18, 2023, the PTAB invalidated the only claim of the‘190 Patent. The final written decision became effective
June 20, 2023. The ‘190 Patent was previously listed in Orange Book. In light of PTAB’s final written decision on the
invalidity of the ‘190 Patent, we requested that the FDA remove the ’190 Patent from the Orange Book. Two United States
patent applications claiming priority through the ‘190 Patent remain pending at the United States Patent and Trademark
Office (“USPTO”), and if granted, will be eligible for listing in the Orange Book.
Orphan Drug Exclusivity and European Union Pediatric-Use marketing Exclusivity
We were granted Orphan Drug Exclusivity (“ODE”) in January 2023 for the use of PEDMARK® in the indication to
reduce the risk of ototoxicity, or hearing loss, associated with cisplatin use in pediatric patients one month of age and older
with localized, non-metastatic solid tumors. The ODE designation is effective as of September 20, 2022, and provides us
with seven years of market exclusivity in the PEDMARK® indication pursuant to Section 527 of the Federal Food, Drug,
and Cosmetic Act (21 U.S.C. § 360cc). We plan to pursue PUMA upon approval of the MAA, which would allow for 10
years of market exclusivity upon PUMA approval.
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Following the approval of PEDMARQSI® (EU Brand name for PEDMARK®) in Europe on May 26, 2023, we were
granted PUMA in the European Union pursuant to Regulation (EC) No. 1901/2006 and Regulation (EC) No. 1902/2006,
which provides for 10 years of exclusivity (8 years of data exclusivity + 2 years of market exclusivity). This exclusivity is
effective until May 26, 2033.
Hope Medical Enterprises, Inc. Inter Partes Review Challenges
On October 29, 2021, Hope Medical Enterprises, Inc. (“Hope”) filed a Petition for inter partes review (IPR2022-00123)
with the Patent Trial and Appeal Board (“PTAB”) of the USPTO to invalidate U.S. Patent No. 10,596,190 (the “‘190
Patent”), which is exclusively in-licensed from Oregon Health & Science University (“OHSU”) and relates to a method of
using PEDMARK®. The ‘190 Patent was issued on March 24, 2020. On April 18, 2023, the PTAB invalidated the only
claim of the‘190 Patent. The final written decision became effective June 20, 2023. The ‘190 Patent was previously listed
in the United States Approved Drug Products with Therapeutic Equivalence Evaluations (also known as the “Orange
Book”). In light of PTAB’s final written decision on the invalidity of the ‘190 Patent, we requested that the FDA remove
the ’190 Patent from the Orange Book. Two United States patent applications claiming priority through the ‘190 Patent
remain pending at the United States Patent and Trademark Office (“USPTO”).
On October 29, 2021, Hope Medical Enterprises, Inc. (“Hope”) filed a Petition for inter partes review (IPR2022-00125) to
invalidate our wholly owned U.S. Patent No. 10,792,363 (the “’363 Patent”), which relates to an anhydrous form of STS
and its method of manufacture, which is the active pharmaceutical ingredient in the PEDMARK® product. The ‘363 Patent
was issued October 6, 2020. During the ‘363 IPR, we disclaimed the patent claims directed to the anhydrous morphic form
of STS and continued with claims directed to its method of manufacture. Because the remaining claims in the ‘363 patent
are directed to a method of manufacture, the ‘363 patent is not eligible for listing in the Orange Book. In September 2023,
the PTAB issued a Final Written Decision in favor of Fennec and upholding the amended claim.
The USPTO has now granted three additional U.S. patents that cover the PEDMARK® formulation, each of which have
been listed in the U.S. FDA’s “Orange Book” (U.S. Patent No. 11,291,728 (issued April 5, 2022), U.S. Patent No.
11,510,984 (issued November 29, 2022), and U.S. Patent No. 11,617,793 (issued April 4, 2023)), and seven additional
United States patent applications from this family are pending at the USPTO. We plan to vigorously defend our intellectual
property rights to PEDMARK® if challenged. An invalidation of our patents covering PEDMARK® could have a material
adverse effect on our ability to protect our rights in PEDMARK® beyond periods of marketing exclusivity for
PEDMARK® in the United States under Orphan Drug Designation.
CIPLA ANDA Litigation
On December 1, 2022, we received a letter dated November 30, 2022, notifying us that CIPLA Ltd. and CIPLA USA
(“CIPLA”) submitted to the FDA an ANDA (ANDA No. 218028) for a generic version of PEDMARK® (sodium
thiosulfate solution) that contains Paragraph IV Certifications on two of our patents covering PEDMARK®: the OHSU
licensed ‘190 Patent, expiration date January 2038; and our US 11,291,728 Patent (the “’728 Patent”), expiration date July
2039. On January 6, 2023, we received a letter dated January 5, 2023, notifying us that CIPLA submitted to the FDA a
Paragraph IV Certification on our newly issued US 11,510,984 Patent (the “’984 Patent”). These patents are listed in FDA’s
list of Approved Drug Products with Therapeutic Equivalence Evaluations, commonly referred to as the Orange Book, for
PEDMARK®. The certifications allege these patents are invalid or will not be infringed by the manufacture, use, or sale of
CIPLA’s sodium thiosulfate solution.
Under the Food and Drug Cosmetic Act, as amended by the Drug Price Competition and Patent Term Restoration Act of
1984, as amended, after receipt of a valid Paragraph IV notice, the Company may bring a patent infringement suit in a
federal district court against CIPLA within 45 days from the receipt of the Notice Letter and if such a suit is commenced
within the 45-day period, the Company is entitled to a 30 month stay on the FDA’s ability to give final approval to any
proposed products that reference PEDMARK®. In addition to the 30-month stay, because we have received Orphan Drug
Exclusivity, the FDA may not approve CIPLA’s ANDA for at least 7 years from PEDMARK®’s FDA approval date of
September 20, 2022.
On January 10, 2023, we filed suit against the CIPLA entities in the United States District Court for the District of New
Jersey (Case No. 2:23-cv-00123), for infringement of the ‘190 Patent, the ‘728 Patent, and the ‘984 Patent. On April 20,
2023, we filed an Amended Complaint to assert infringement of the ‘728 patent and the ‘984 Patent. On April 4, 2023, we
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were granted US 11,617,793 Patent (the “’793 Patent”) covering the formulation of the PEDMARK® product, which was
listed in the Orange Book on or around April 17, 2023, and has an expiration date of July 2039. On May 11, 2023, we
received written notice of CIPLA’s Paragraph IV Certification as to the ’793 Patent, which was dated May 10, 2023, along
with an enclosed statement of alleged factual and legal bases for stating that the ’793 Patent is invalid, unenforceable,
and/or will not be infringed by CIPLA’s ANDA Product. On July 27, 2023, we filed a Second Amended Complaint to
assert the ‘793 Patent. The suit is ongoing.
PEDMARQSI® (EU Brand name for PEDMARK®) received European Commission approval in June 2023 and was
granted 10 years of market exclusivity in Europe under PUMA.
Our success is significantly dependent on our ability to obtain and maintain patent protection for PEDMARK®, both in the
United States and abroad. Our patent position and proprietary rights are subject to various risks and uncertainties. Please
read the “Risk Factors” in Item 1A of this Annual Report for information 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 our employees, consultants, outside scientific collaborators, and other advisers. In
the case of our employees, these agreements also provide, in compliance with relevant law, that inventions and other
intellectual property conceived by such employees during their employment shall be our exclusive property.
Manufacturing and Supply
We are licensed as a virtual drug manufacturer, which means that we have no in-house manufacturing capacity and we are
obligated to rely on contract manufacturers and packagers. We have no plans to build or acquire the manufacturing
capability needed to manufacture PEDMARK®, and we expect that PEDMARK® will be prepared by contractors with
suitable capabilities for these tasks and that we will enter into appropriate supply agreements with these contractors at
appropriate times in the development and commercialization of our product. Because we will use contractors to
manufacture and supply our product, we will be reliant on such contractors. Further, the contractors selected would have to
be inspected by the FDA and found to be in substantial compliance with federal regulations in order for an application for
one of our drug candidates to be approved, and there can be no assurance that the contractors we select would pass such an
inspection.
We have entered into agreements with a supplier of the active pharmaceutical ingredient (API) contained in PEDMARK®
for future requirements and we have contracted with a third-party contract manufacturer to manufacture PEDMARK® vials
for us.
Any significant change that we make for PEDMARK® must be approved by the FDA in a supplemental new drug
application (“sNDA”). If the manufacturing plan and data are insufficient, any sNDA we submit will not be approved.
Before an sNDA can be approved, our manufacturers must also demonstrate compliance with the FDA’s cGMPs
regulations and policies. Further, even if we receive approval of any sNDAs for PEDMARK®, if our manufacturers do not
follow cGMPs in the manufacture of our product, it may delay product launches or shipments and adversely affect our
business.
Since we contract with third parties to manufacture our product, our contract manufacturers are required to comply with all
applicable environmental laws and regulations that affect the manufacturing process. As a result, we do not believe that we
will have any significant direct exposure to environmental issues.
Corporate Relationships
License Agreement with Oregon Health & Science University
On February 20, 2013, we entered into an exclusive license agreement with OHSU for exclusive worldwide license rights
to intellectual property directed to thiol-based compounds, including PEDMARK®, and their use in oncology (the “OHSU
Agreement”). OHSU will receive certain milestone payments, royalty on net sales for licensed products and a royalty on
any consideration received from sublicensing of the licensed technology.
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On May 18, 2015, we negotiated an amendment (“Amendment 1”) to the OHSU Agreement, which expands our exclusive
license to include the use of N-acetylcysteine as a standalone therapy and/or in combination with sodium thiosulfate for the
prevention of ototoxicity induced by chemotherapeutic agents to treat cancers. Further, Amendment 1 adjusts select
milestone payments in the OHSU Agreement including but not limited to the royalty rate on net sales for licensed products,
royalty rate from sublicensing of the licensed technology and the fee payable upon the regulatory approval of a licensed
product.
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 us or 8 years, whichever is later. In the event a licensed product obtains regulatory approval and is
covered by the Orphan Drug Designation, the parties will in good faith amend the term of the agreement. PEDMARK® is
currently protected by methods of use patents that we exclusively license from OHSU that expire in the U.S. in 2038. The
OHSU Agreement is terminable by either us or OHSU in the event of a material breach of the agreement by the other party
after 45 days prior written notice. We also have the right to terminate the OHSU Agreement at any time upon 60 days prior
written notice and payment of all fees due to OHSU under the OHSU Agreement.
Competition
The biotechnology and pharmaceutical industries are extremely competitive. Our potential competitors are many in number
and include major and mid-sized pharmaceutical and biotechnology companies. Many of our potential competitors have
significantly more financial, technical and other resources than we do, which may give them a competitive advantage. In
addition, they may have substantially more experience in effecting strategic combinations, in-licensing technology,
developing drugs, obtaining regulatory approvals and manufacturing and marketing products. We cannot give any
assurances that we can compete effectively with these other biotechnology and pharmaceutical companies. Now that
PEDMARK® has regulatory approval for sale, it will compete on the basis of drug efficacy, safety, patient convenience,
reliability, ease of manufacture, price, marketing, distribution, and patent protection, among other variables. Our
competitors may develop technologies or drugs that are more effective, safer or more affordable than PEDMARK®.
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, which is the purpose of PEDMARK®. However, 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 PEDMARK® in
comparative studies; SPI-3005, an oral agent primarily being developed by Sound Pharmaceuticals for noise and age-
related hearing loss but in early Phase II trials for chemotherapy 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 PEDMARK®) in experimental systems; and Vitamin E, salicylate and tiopronin, which have all demonstrated
moderate activity in rat models to protect against cisplatin-induced ototoxicity, but no clinical trials have been completed,
and DB-020, a clinical stage candidate in an ongoing Phase1b trial being developed by Decibel Therapeutics. Cochlear
implants, which are small electronic devices that are surgically placed in the inner ear to assist 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 often suboptimal.
Finally, we are aware that sodium thiosulfate has been available from compounding pharmacies for many years and may
remain available, even though we have obtained FDA approval of PEDMARK®. Compounded sodium thiosulfate is likely
to be substantially less expensive than PEDMARK®. The Food and Drug Administration Modernization Act of 1997
included a new section, which clarified the status of pharmacy compounding under Federal law. Under Section 503A, drug
products that are lawfully compounded by a pharmacist or physician for an individual patient may be entitled to
exemptions from three key provisions of the FDCA: (1) the adulteration provision of section 501(a)(2)(B) (concerning
FDA’s cGMP regulations); (2) the misbranding provision of section 502(f)(1) (concerning the labeling of drugs with
adequate directions for use); and (3) the new drug provision of section 505 (concerning the approval of drugs under new
drug or abbreviated new drug applications).
To qualify for these statutory exemptions, a compounded drug product must satisfy several legal requirements. One of
these requirements restricts the universe of bulk drug substances that a compounder may use. Specifically, every bulk drug
substance used in compounding: (1) must comply with an applicable and current USP or NF drug monograph, if one exists,
as well as the current USP chapters on pharmacy compounding; (2) if such a monograph does not exist, the bulk drug
substance must be a component of an FDA-approved drug; or (3) if a monograph does not exist and the bulk drug
substance is not a component of an FDA-approved drug, it must appear on a list of bulk drug substances that may be used
in
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compounding (i.e., the “Section 503A bulk substances list 1”). While the advertising provisions in Section 503A were
ruled unconstitutional in part in the United States by the Supreme Court in 2002, the FDA, since 2013, has aggressively
regulated and exercised oversight over the practice of pharmacy compounding following the compounding incident at the
New England Compounding Center in Massachusetts that sickened hundreds and killed over 60 individuals.
In 2013, Congress removed the unconstitutional advertising provisions in Section 503A when it passed the Drug Quality
and Security Act of 2013 (DQSA), Title I (The Compounding Quality Act). The DQSA also created “outsourcing
facilities” under Section 503B of the Federal Food, Drug, and Cosmetic Act, which are drug compounders that voluntarily
register with FDA and may produce compounded formulations for office use (at least one of which must be sterile), but
must comply with FDA’s cGMP regulations and other requirements set forth in Section 503B. Section 503B outsourcing
facilities may also only compound from bulk substances if the product is on FDA’s drug shortage list, or the substance is on
FDA’s Section 503B list of bulk substances that may be used in compounding (i.e., the Section 503B bulk substances list
1”).
While the FDA has been aggressively enforcing Section 503A since its re-enactment, compounders may still compound
“near copies” (but not “essentially copies”) of approved drug products, under Section 503A, so long as the prescriber
makes a change to the compounded formulation that produces for that patient a significant difference between the
commercially available drug and the compounded version. Compounders may also copy commercially available products
if they do not do so in “regular or inordinate amounts.” In January 2018, FDA published a Final Guidance document titled,
“Compounded Drug Products That Are Essentially Copies of a Commercially Available Drug Product Under Section 503A
of the Federal Food, Drug, and Cosmetic Act.” This Final Guidance sets forth FDA’s enforcement policy concerning those
compounders that make essentially copies of commercially available drug products. FDA has defined the term “regular or
inordinate” in the Final Guidance to mean: “a drug product that is essentially a copy of a commercially available drug
product is compounded regularly or in inordinate amounts if it is compounded more frequently than needed to address
unanticipated, emergency circumstances, or in more than the small quantities needed to address unanticipated, emergency
circumstances.” FDA has further stated it will not take enforcement action, considering all the facts and circumstances,
against a compounder that compounds less than four “essentially copies” of a commercially available drug product in a
calendar month.
Factors affecting competition generally
In general, our ability to compete depends in large part upon:
● our ability to obtain regulatory approvals for our drug candidate outside the U.S.;
● the demonstrated efficacy, safety and reliability of our drug candidate;
● the timing and scope of regulatory approvals;
● product acceptance by physicians and other health care providers;
● the willingness of payors to reimburse for our product;
● protection of our proprietary rights and the level of generic competition;
● our ability to supply commercial quantities of our product to the market;
● our ability to obtain reimbursement from private and/or public insurance entities for product use in approved
indications;
● our ability to recruit and retain skilled employees; and
● the availability of capital resources to fund our development and commercialization activities, including the
availability of funding from the federal government.
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Government Regulation
The production and manufacture of our product and our research and development activities are subject to significant
regulation for safety, efficacy and quality by various governmental authorities around the world. Before new
pharmaceutical products may be sold in the U.S. and other countries, clinical trials of the product must be conducted, and
the results submitted to appropriate regulatory agencies for approval. Clinical trial programs must establish efficacy,
determine an 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 candidate product 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 FDA in the form of a Biologics License
Application or a NDA. In response to these submissions, the FDA may grant marketing approval, request additional
information or deny the application if it determines the application does not provide an adequate basis for approval. Similar
submissions are required by authorities 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, including the severity of the disease in question, the availability of alternative treatments
and the risks and benefits demonstrated in clinical trials. On occasion, regulatory authorities may require larger or
additional studies, leading to unanticipated delay or expense. Even after initial approval from the FDA or other regulatory
agencies has been obtained, further clinical trials may be required to provide additional data on safety and effectiveness.
Additional trials are required to gain clearance for the use of a product as a treatment for indications other than those
initially approved. Furthermore, the FDA and other regulatory agencies require companies to disclose clinical trial results.
Failure to disclose such results within applicable time periods could result in penalties, including civil monetary penalties.
In Canada, these activities are subject to regulation by Health Canada’s Therapeutic Products Directorate (“TPD”) and the
rules and regulations promulgated under the 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 and contract research facilities, carefully
controlled research and testing of products and governmental review and approval of results prior to marketing therapeutic
products. Additionally, the FDA requires adherence to current Good Laboratory Practices (“cGLP”) as well as current
Good Clinical Practices (“cGCP”) during clinical testing and cGMP and adherence to labeling and supply controls. The
systems of new drug approvals in Canada and the United States are substantially similar 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 administration to 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 as
information related to the chemistry and comprehensive descriptions of proposed human clinical studies are then
submitted as part of the Investigational New Drug Application (“IND”) to the FDA, a Clinical Trial Application
to the TPD, or similar submission to other foreign regulatory bodies. This is necessary in Canada, the United
States and most other countries prior to undertaking clinical studies. Additional preclinical studies are conducted
during clinical development 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 healthy human subjects to evaluate the drug’s safety, tolerability and
pharmacokinetics. In some cases, such as cancer indications, Phase 1 clinical trials are conducted 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 of patients, generally between 15 and 50, in a specific setting of targeted
disease or medical condition, in order to provide an estimate of the drug’s effectiveness in that specific setting.
This phase also provides additional safety data and serves to identify 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
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cancer. Some contemporary methods of developing drugs, particularly molecularly targeted therapies, do not
require broad testing in specific diseases, and instead permit testing in subsets of patients expressing the particular
marker. In some cases, such as cancer indications, the company sponsoring the new drug may submit a marketing
application to seek accelerated approval of the drug based on evidence of the drug’s effect on a “surrogate
endpoint” from Phase II clinical trials. A surrogate endpoint is a laboratory finding or physical sign that may not
be a direct measurement of how a patient feels, functions or survives, but is still considered likely to predict
therapeutic benefit for the patient. If accelerated approval is received, the company 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 patients suffering from the targeted condition or disease. These studies involve
conducting controlled testing and/or uncontrolled testing in an expanded patient population, numbering several
hundred to several thousand patients, at separate test sites, known as multi-center trials, to establish clinical safety
and effectiveness. These trials also generate information from which the overall benefit-risk relationship relating
to the drug can be determined and provide a basis 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 NDA in the United States. The marketing application is then reviewed
by the applicable regulatory body for approval to market the product. The review process generally takes twelve
to eighteen months.
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 may vary substantially and may be materially longer. In addition, the FDA and its
counterparts in other countries have considerable discretion to discontinue trials if they 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
and its counterparts in other countries may not (i) allow clinical trials to proceed at any time after receiving an IND,
(ii) allow further clinical development 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, the drug approval process in Europe differs from that in the U.S. and Canada and may
require us to perform additional preclinical or clinical testing regardless of 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 for FDA
or TPD approval. European Union Regulations and Directives generally classify health care products either as medicinal
products, medical devices or in vitro diagnostics. For medicinal products, marketing approval may be sought using either
the centralized procedure of the European Agency for the Evaluation of Medicinal Products (“EMEA”), or the
decentralized, mutual recognition process. The centralized procedure, which is mandatory for some biotechnology derived
products, results in an approval recommendation from the EMEA to all member states, while the European Union mutual
recognition process involves country by country approval.
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 sampling and distribution, advertising and
promotion, and adverse drug experience monitoring and reporting with the product. After approval, most changes to the
approved product labeling, such as adding new indications, are subject to prior FDA review and approval. Also, any post-
approval changes in the drug substance, drug product, 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 the
identity, 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. All manufacturing facilities, as well as records required to be maintained under FDA
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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 Drug Administration Amendments Act of 2007
gave the FDA the authority to require a REMS from drug manufacturers to manage a known or potential serious risk
associated 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, a patient 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 of the REMS.
In addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are
required to register their establishments with the 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 state regulatory authorities with jurisdiction
over their activities to determine compliance with regulatory requirements. A drug manufacturer is responsible for ensuring
that its third-party contractors operate in compliance with applicable laws and regulations including the cGMP regulation.
The failure of a drug manufacturer or any 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, such as an untitled letter, warning letter, recall,
suspension of manufacturing or distribution or both, suspension of state permit or license, seizure of product, import
detention, 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 drug manufacturer to conduct investigations and implement appropriate
corrective actions to address any deviations from cGMP requirements and impose reporting and documentation
requirements upon the manufacturer and any third-party contractors (including contract manufacturers and laboratories)
involved in the manufacture of a drug product. Accordingly, manufacturers must continue to expend significant time,
money and effort to maintain and ensure ongoing cGMP compliance 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 approved conditions 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 not shown 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 of approval,
shows there is a lack of substantial evidence of effectiveness; the approved application contains an untrue statement of
material fact; or that the required patient information was not submitted within 30 days after receiving notice from the FDA
of the failure to submit such information. Later discovery of previously unknown problems with a product, including
adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with
regulatory requirements, may result in revisions to the approved labeling to add new safety and risk information;
imposition of a post-market study requirement to assess new safety risks; or implementation of a REMS that may include
distribution or other restrictions.
The FDA closely regulates drug advertising and promotional activities, including promotion of an unapproved drug, direct-
to-consumer advertising, dissemination of 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 and
not misleading, provide fair balance, provide adequate risk information, and be consistent with the product labeling
approved by the FDA. Failure to comply with these requirements can lead to legal or regulatory actions including, among
other things, warning letters, corrective advertising, injunction, violation and related penalties 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 varied circumstances. The FDA does not regulate the
behavior of physicians in their choice of treatments for their individual patients. The FDA does, however, regulate
manufacturers’ communications about their drug products and interprets the Federal Food, Drug, and Cosmetic Act
(“FFDCA”) to prohibit pharmaceutical companies from promoting their FDA-approved drug products for uses that are not
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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
(“PDMA”), as amended by the Drug Supply Chain Security Act, which regulates the distribution of drug and drug samples
at the federal level, and sets minimum standards for the registration and regulation of wholesale drug distributors by the
states.
Good Clinical Practices
The 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 cGCP through periodic inspections of trial sponsors, principal investigators and trial sites. If our study
sites fail to comply with applicable cGCP, the clinical data generated in our clinical trials may be deemed unreliable and
relevant regulatory agencies may require us to perform additional clinical trials before approving our marketing
applications.
Good Manufacturing Practices
The FDA and other regulatory agencies regulate and inspect equipment, facilities and processes used in the manufacture of
pharmaceutical and biological products prior to approving a product. If, after receiving approval from regulatory agencies,
a company makes a material change in manufacturing equipment, location or process, additional regulatory review and
approval may be required. All facilities and manufacturing techniques that may be used for the manufacture of our product
must comply with applicable regulations governing the production of pharmaceutical products known as Good
Manufacturing Practices.
Orphan Drug Act
Under the Orphan Drug Act of 1983, the FDA may grant orphan drug designation to drugs intended to treat a “rare disease
or condition,” which generally is a disease or condition 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 approval for 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
application submitted 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 very limited circumstances, such as if the later product is shown to be
clinically superior to the approved product with orphan drug exclusivity. Legislation similar to the Orphan Drug Act has
been enacted in other countries, including within the European Union.
Pediatric Marketing Use Authorization
The PUMA approval is typically granted by the European Commission, based on a review by the European Medicines
Agency, and is intended exclusively for pediatric (patients under 18 years of age) use. Such PUMA approval is ultimately
valid in all countries within the European Economic Area (which excludes the United Kingdom as of February 1, 2020).
The PUMA was introduced by the EU Pediatric 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; and
● 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 drugs receive eight years of data protection plus two years of marketing protection and the
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applications are, in part, exempt from fees. The regulatory protection does not prevent off-label use of other drugs with the
same active substance and indication for adults, nor pharmacy compounding.
Other Laws
Our present and future business has been and will continue to be subject to various other laws and regulations. Various
laws, regulations and recommendations relating to safe working conditions, laboratory practices, the experimental use of
animals, and the purchase, storage, movement, import and export and use and disposal of hazardous or potentially
hazardous substances, including radioactive compounds and infectious disease agents, used in connection with our research
work are or may be applicable to our activities. Certain agreements entered into by us involving exclusive license rights
may be subject to national or supranational antitrust regulatory control, the effect of which cannot be predicted. The extent
of government regulation, which might result from future legislation or administrative action, cannot accurately be
predicted.
Orange Book Listing
In seeking approval for a drug through a New Drug Application (“NDA”), applicants are required to list with the FDA each
patent with claims covering the applicant’s product or approved methods of using the product. Upon approval of a drug,
each of the patents listed in the application for the drug are then published in the FDA’s Approved Drug Products with
Therapeutic Equivalence Evaluations, commonly known as the Orange Book. Drugs listed in the Orange Book can, in turn,
be cited by potential generic competitors in support of approval of an abbreviated new drug application, or ANDA. An
ANDA provides for marketing of a drug product that has the same active ingredients in the same strengths and dosage form
as the listed drug and has been shown to be bioequivalent to the listed drug. Other than the requirement for bioequivalence
testing, ANDA applicants are not required to conduct, or submit results of, pre-clinical or clinical tests to prove the safety
or effectiveness of their drug product. Drugs approved in this way are commonly referred to as “generic equivalents” to the
listed drug and can often be substituted by pharmacists under prescriptions written for the original listed drug.
The ANDA applicant is required to certify to the FDA concerning any patents listed for the approved product in the FDA’s
Orange Book. Specifically, the applicant must certify that: (i) the required patent information has not been filed; (ii) the
listed patent has expired; (iii) the listed patent has not expired but will expire on a particular date and approval is sought
after patent expiration; or (iv) the listed patent is invalid or will not be infringed by the new product. The ANDA applicant
may also elect to submit a section viii statement certifying that its proposed ANDA label does not contain (or carves out)
any language regarding the patented method-of-use rather than certify to a listed method-of-use patent. If the applicant
does not challenge the listed patents, the ANDA application will not be approved until all the listed patents claiming the
referenced product have expired.
A certification that the new product will not infringe the already approved product’s listed patents, or that such patents are
invalid, is called a Paragraph IV certification. If the ANDA applicant has provided a Paragraph IV certification to the FDA,
the applicant must also send notice of the Paragraph IV certification to the NDA and patent holders once the ANDA has
been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement lawsuit in
response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days of the
receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA until the earlier of 30
months, expiration of the patent, settlement of the lawsuit, or a decision in the infringement case that is favorable to the
ANDA applicant.
The ANDA application also will not be approved until any applicable non-patent exclusivity listed in the Orange Book for
the referenced product has expired.
Exclusivity
Upon NDA approval of a new chemical entity (“NCE”), which is a drug product that contains an active moiety that has
never been approved by FDA in any other NDA, that drug receives five years of marketing exclusivity during which FDA
cannot receive any ANDA seeking approval of a generic version of that drug. A drug may obtain a three-year period of
exclusivity for a particular condition of approval, or change to a marketed product, such as a new formulation for the
previously approved product, if one or more new clinical studies (other than bioavailability or bioequivalence studies) was essential to
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the approval of the application and was conducted/sponsored by the applicant. During this period of exclusivity, FDA
cannot approve an ANDA for a generic drug that includes the change.
An ANDA may be submitted one year before NCE exclusivity expires if a Paragraph IV certification is filed. If there is no
listed patent in the Orange Book, there cannot be a Paragraph IV certification, and, thus, no ANDA can be filed before the
expiration of the exclusivity period.
Section 505(b)(2) New Drug Applications
Most drug products obtain FDA marketing approval pursuant to an NDA or an ANDA. A third alternative is a special type
of NDA, commonly referred to as a Section 505(b)(2), or 505(b)(2), NDA, which enables the applicant to rely, in part, on
FDA’s previous approval of a similar product, or published literature, in support of its application.
505(b)(2) NDAs often provide an alternate path to FDA approval for new or improved formulations or new uses of
previously approved products. Section 505(b)(2) permits the filing of an NDA where at least some of the information
required for approval comes from studies not conducted by, or for, the applicant and for which the applicant has not
obtained a right of reference. If the Section 505(b)(2) applicant can establish that reliance on FDA’s prior findings of safety
and effectiveness or published literature is scientifically appropriate, it may eliminate the need to conduct certain pre-
clinical or clinical studies of the new product.
The FDA may also require companies to perform additional studies or measurements to support the change from the
approved product. The FDA may then approve the new product candidate for all, or some, of the label indications for
which the referenced product has been approved, as well as for any new indication sought by the Section 505(b)(2)
applicant.
To the extent that the Section 505(b)(2) applicant is relying on studies conducted for an already approved product, the
applicant is required to certify to the FDA concerning any patents listed for the approved product in the Orange Book to the
same extent that an ANDA applicant would. A Section 505(b)(2) NDA may be eligible for three years of marketing
exclusivity to the same extent that a Section 505(b)(1) NDA is.
Abbreviated New Drug Applications
Generic drugs may enter the market after the approval of an ANDA. The ANDA development process typically does not
require new pre-clinical or clinical studies, but it does typically require one or more bioequivalence studies to show that the
ANDA drug is bioequivalent to the previously approved brand name reference listed drug. Bioequivalence studies compare
the bioavailability of the proposed drug product with that of the approved listed product containing the same active
ingredient. Bioavailability is a measure of the rate and extent to which the active ingredient or active moiety is absorbed
from a drug product and becomes available at the site of action. A demonstration of bioequivalence means that the rate and
extent of absorption of the ANDA drug is not significantly different from the rate and extent of absorption of the brand
name reference listed drug when administered at the same molar dose under similar experimental conditions.
As noted above, generic drug products are generally introduced to the marketplace at the expiration of patent protection
and non-patent market exclusivity for the reference listed drug. However, if an ANDA applicant is the first ANDA
applicant to submit an ANDA containing a Paragraph IV certification, that ANDA may be eligible for a period of generic
marketing exclusivity on approval. This exclusivity, which under certain circumstances must be shared with other ANDA
applicants with Paragraph IV certifications, lasts for 180 days, during which the FDA cannot grant final approval to other
ANDA sponsors of an application for a generic equivalent to the same reference drug. Under certain circumstances,
eligibility for 180-day exclusivity may be forfeited.
Various types of changes to an approved ANDA must be requested in a prior approval supplement. In addition, some
changes may only be approved after new bioequivalence studies are conducted or other requirements are satisfied. In
addition, the ANDA applicant must demonstrate that manufacturing procedures and operations conform to FDA cGMP
requirements. Facilities, procedures, operations, and/or testing of products are subject to periodic inspection by the FDA
and other authorities. In addition, the FDA conducts pre-approval and post-approval reviews and inspections to determine
whether the systems and processes are in compliance with cGMP and other FDA regulations.
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There are also user fees for ANDA applicants, sponsors, and manufacturers. For fiscal year 2023, the application fees are
$240,582 per ANDA application and the facility fees are $213,134 per domestic finished dosage form facility, $228,134
per foreign finished dosage form facility, $37,544 per domestic active pharmaceutical ingredient facility, and $52,544 per
foreign active pharmaceutical ingredient facility. In addition, there is a new annual program fee based on the size of the
generic drug applicant. These user fees typically increase each fiscal year.
Other regulatory requirements
In addition to regulation by the FDA and certain state regulatory agencies, we are also subject to a variety of foreign
regulations governing clinical trials and the marketing of other products. Outside of the United States, our ability to market
our product depends upon receiving a marketing authorization from the appropriate regulatory agencies. The requirements
governing the conduct of clinical trials, marketing authorization, pricing and reimbursement vary widely from country to
country. In any country, however, we will only be permitted to commercialize our product if the appropriate regulatory
agency is satisfied that we have presented adequate evidence of safety, quality and efficacy. Whether or not FDA approval
has been obtained, approval of a product by the comparable regulatory authorities of foreign countries must be obtained
prior to the commencement of marketing of the product in those countries. The regulatory approval and oversight process
in other countries includes all of the risks associated with regulation by the FDA and certain state regulatory agencies as
described above.
Under the European Union regulatory system, applications for drug approval may be submitted either in a centralized or
decentralized manner. Under the centralized procedure, a single application to the European Medicines Agency leads to an
approval granted by the European Commission which permits marketing of the product throughout the European Union.
The decentralized procedure provides for mutual recognition of nationally approved decisions and is used for products that
do not comply with requirements for the centralized procedure. Under the decentralized procedure, the holders of national
marketing authorization in one of the countries within the European Union may submit further applications to other
countries within the European Union, who will be requested to recognize the original authorization based on an assessment
report provided by the country in which marketing authorization is held.
Pharmaceutical pricing and reimbursement
In both United States and foreign markets, our ability to commercialize our product successfully, and to attract
commercialization partners for our product, depends in significant part on the availability of adequate financial coverage
and reimbursement from third-party payors, including, in the United States, governmental payors such as Medicare and
Medicaid, managed care organizations, private commercial health insurers and PBMs. Third party payors are increasingly
challenging the prices charged for medicines and examining their cost effectiveness, in addition to their safety and efficacy.
We may need to conduct expensive pharmacoeconomic or other studies in order to further demonstrate the value of our
product. Even with the availability of such studies, our product may be considered less safe, less effective or less cost-
effective than alternative products, and third-party payors may not provide coverage and reimbursement for our drug
candidates, in whole or in part.
Political, economic and regulatory influences are subjecting the health care industry in the United States to fundamental
changes. There have been, and we expect there will continue to be, legislative and regulatory proposals to change the
healthcare system in ways that could significantly affect our business, including the Patient Protection and Affordable Care
Act of 2010 (the “Affordable Care Act”). In fact, there continue to be efforts in Congress to revise the Affordable Care Act
and replace it with another law. As a result, there is great uncertainty as to what changes will be made to United States
healthcare laws and there can be no assurance how changes to those laws may affect our business.
We anticipate that in the United States, Congress, state legislatures, and private sector entities will continue to consider and
may adopt healthcare policies intended to curb rising healthcare costs. These cost containment measures could include:
● controls on government-funded reimbursement for drugs;
● mandatory rebates or additional charges to manufacturers for their products to be covered on Medicare Part D
formularies;
● controls on healthcare providers;
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● controls on pricing of drug products, including the possible reference of the pricing of United States drugs to non-
United States drug pricing for the same product;
● challenges to the pricing of drugs or limits or prohibitions on reimbursement for specific products through other
means;
● reform of drug importation laws;
● entering into contractual
● agreements with payors; and
● expansion of use of managed-care systems in which healthcare providers contract to provide comprehensive
healthcare for a fixed cost per person.
We are unable to predict what additional legislation, regulations or policies, if any, relating to the healthcare industry or
third-party coverage and reimbursement may be enacted in the future or what effect such legislation, regulations or policies
would have on our business. Any cost containment measures, including those listed above, or other healthcare system
reforms that are adopted may have a material adverse effect on our business prospects.
Further, the pricing of drug products generally, and particularly the pricing of orphan drugs, has recently received scrutiny
from the press, and from members of Congress in both parties. The impact of this scrutiny on us and on the pricing of
orphan drugs and other drug products generally cannot be determined with any certainty at this time.
Orphan Drug Designation and Orphan Drug Exclusivity and Pediatric Exclusivity Designation
Some jurisdictions, including the United States and Europe, may designate drugs for relatively small patient populations as
orphan drugs. Under the ODA, the FDA may grant Orphan Drug Designation to drugs intended to treat a rare disease or
condition that affects fewer than 200,000 individuals in the United States, or more than 200,000 individuals in the United
States and for which there is no reasonable expectation that the cost of developing and making available in the United
States a drug for this type of disease or condition will be recovered from sales in the United States for that drug. In the
United States, Orphan Drug Designation must be requested before submitting an application for marketing approval. An
Orphan Drug Designation does not shorten the duration of the regulatory review and approval process. The grant of an
Orphan Drug Designation request does not alter the standard regulatory requirements and process for obtaining marketing
approval. Safety and efficacy of a compound must be established through adequate and well-controlled studies. If a product
which has been granted Orphan Drug Designation subsequently receives the first FDA approval for the indication for
which it has such designation, the product is entitled to an orphan drug exclusivity period, which means the FDA may not
approve any other application to market the same drug for the same disease or condition for a period of seven years, except
in limited circumstances, such as where an alternative product demonstrates clinical superiority to the product with orphan
exclusivity. In addition, holders of exclusivity for orphan drugs are expected to assure the availability of sufficient
quantities of their orphan drugs to meet the needs of patients. Failure to do so could result in the withdrawal of marketing
exclusivity for the drug.
The orphan drug exclusivity contained in the ODA has been the subject of recent scrutiny from the press, from some
members of Congress and from some in the medical community, and a recent proposed change to the ODA would limit the
availability of the benefits of the act for drugs that treat more than 200,000 individuals in the United States. There can be
no assurance that the exclusivity granted in ODA to orphan drugs approved by the FDA will not be modified in the future,
and as to how any such change might affect our product, if approved.
Pediatric exclusivity is another type of non-patent exclusivity in the United States and, if granted, provides for the
attachment of an additional six months of marketing protection to the term of any existing regulatory exclusivity, including
the five-year and three-year non-patent and seven-year orphan exclusivities. This six-month exclusivity may be granted if
an NDA sponsor submits pediatric data that fairly responds to a written request from the FDA for such data. The data do
not need to show the product to be effective in the pediatric population studied. If the FDA determines that information
relating to the use of the new drug in the pediatric population may produce health benefits in the population, the clinical
study is deemed to fairly respond to the FDA’s request and the reports of FDA-requested pediatric studies are submitted
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to and accepted by the FDA within the statutory time limits, whatever statutory or regulatory periods of exclusivity or
patent protection covering the product are extended by six months. This is not a patent term extension, but it effectively
extends the regulatory period during which the FDA cannot approve another application relying on the NDA sponsor’s
data.
The European Orphan Drug Regulation is considered for drugs intended to diagnose, prevent or treat a life-threatening or
very serious condition afflicting five or fewer per 10,000 people in the EU, including compounds that for serious and
chronic conditions would likely not be marketed without incentives due to low market return on the sponsor’s development
investment. The medicinal product considered should be of significant benefit to those affected by the condition. Benefits
of being granted Orphan Medicinal Product Designation are significant, including eight years of data exclusivity, two years
of marketing exclusivity and a potential one-year extension of both. The EU Community and Member States may not
accept or grant for ten years a new marketing authorization or application for another drug for the same therapeutic
indication as the orphan drug, although the ten-year period can be reduced to six years if, after the end of the fifth year,
available evidence establishes that the product is sufficiently profitable not to justify maintenance of the marketing
exclusivity. A supplementary protection certificate may extend the protection six months beyond patent expiration if that is
later than the orphan drug exclusivity period. To apply for the supplementary protection, a pediatric investigation plan, or
PIP, must be included in the market application. In Europe all drugs now seeking marketing authorization need to have a
PIP agreed with the European Medicines Agency (EMA) before it can be approved, even if it is a drug being developed
specifically for a pediatric indication. If a product is developed solely for use in the pediatric population, then a Pediatric
Use Marketing Authorization, or PUMA, may provide eight years of data exclusivity plus two additional years of
marketing exclusivity.
Disclosure of clinical trial information
Sponsors of clinical trials of FDA-regulated products, including drugs, are required to register and disclose certain clinical
trial information. Information related to the product, patient population, phase of investigation, study sites and
investigators, and other aspects of the clinical trial is then made public as part of the registration. Sponsors are also
obligated to disclose the results of their clinical trials after completion. Disclosure of results of these trials can be delayed
in certain circumstances for up to two years after the date of completion of the clinical trial. Competitors may use this
publicly-available information to gain knowledge regarding the progress of development programs.
Anti-Kickback, False Claims Laws & the Prescription Drug Marketing Act
In addition to FDA restrictions on marketing of drug products, other state and federal laws have been applied to restrict
certain marketing practices in the pharmaceutical industry in recent years. These laws include anti-kickback statutes and
false claims statutes. The federal healthcare program anti-kickback statute prohibits, among other things, knowingly and
willfully offering, paying, soliciting or receiving remuneration to induce or in return for purchasing, leasing, ordering or
arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other
federally financed healthcare programs. This statute has been interpreted to apply to arrangements between pharmaceutical
manufacturers on the one hand and patients, prescribers, purchasers and formulary managers on the other. Violations of the
anti-kickback statute are punishable by imprisonment, criminal fines, civil monetary penalties, and exclusion from
participation in federal healthcare programs. Although there are a number of statutory exemptions and regulatory safe
harbors protecting certain common activities from prosecution or other regulatory sanctions, the exemptions and safe
harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchases or
recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor.
Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for
payment to the federal government, or knowingly making, or causing to be made, a false statement to have a false claim
paid. Recently, several pharmaceutical and other healthcare companies have been prosecuted under these laws for allegedly
inflating drug prices they report to pricing services, which in turn were used by the government to set Medicare and
Medicaid reimbursement rates, and for allegedly providing free product to customers with the expectation that the
customers would bill federal programs for the product. In addition, certain marketing practices, including off-label
promotion, may also violate false claims laws. The majority of states also have statutes or regulations similar to the federal
anti-kickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state
programs, or, in several states, apply regardless of the payer.
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The Centers for Medicare & Medicaid Services (CMS) has issued a final rule that requires manufacturers of approved
prescription drugs to collect and report information on payments or transfers of value to physicians, physician assistants,
certain types of advanced practice nurses and teaching hospitals, as well as investment interests held by physicians and
their immediate family members. The information reported each year is made publicly available on a searchable website.
Failure to submit required information may result in civil monetary penalties.
In addition, several states now require prescription drug companies to report expenses relating to the marketing and
promotion of drug products, to report gifts and payments to individual physicians in these states and to report certain
pricing information, including price increases. Other states prohibit various other marketing-related activities. Still other
states require the posting of information relating to clinical studies and their outcomes. In addition, California, Connecticut,
Nevada, and Massachusetts require pharmaceutical companies to implement compliance programs and/or marketing codes.
Several additional states are considering similar proposals. Compliance with these laws is difficult and time consuming,
and companies that do not comply with these state laws face civil penalties.
Prescription drug advertising is subject to federal, state and foreign regulations. In the United States, the FDA regulates
prescription drug promotion, including direct-to-consumer advertising. Prescription drug promotional materials must be
submitted to the FDA in conjunction with their first use. Any distribution of prescription drug products and pharmaceutical
samples must comply with the United States Prescription Drug Marketing Act (PDMA), a part of the FDCA. In addition,
Title II of the Federal Drug Quality and Security Act of 2013, known as the Drug Supply Chain Security Act (DSCSA), has
imposed new “track and trace” requirements on the distribution of prescription drug products by manufacturers,
distributors, and other entities in the drug supply chain. The DSCSA requires product identifiers (i.e., serialization) on
prescription drug products in order to eventually establish an electronic interoperable prescription product to system to
identify and trace certain prescription drugs distributed in the United States and preempts existing state drug pedigree laws
and regulations on this topic. The DSCSA also establishes new requirements for the licensing of wholesale distributors and
third-party logistic providers, although FDA regulations addressing wholesale distributors and third party logistics
providers have not yet been promulgated. We serialize our product at both the package and homogeneous case level, pass
serialization and required transaction information to our customers, and believe that we comply with all such requirements.
Government Programs for Marketed Drugs
Medicaid, the 340B Drug Pricing Program, and Medicare
Federal law requires that a pharmaceutical manufacturer, as a condition of having its products receive federal
reimbursement under Medicaid and Medicare Part B, must pay rebates to state Medicaid programs for all units of its
covered outpatient drugs dispensed to Medicaid beneficiaries and paid for by a state Medicaid program under either a fee-
for-service arrangement or through a managed care organization. This federal requirement is effectuated through a
Medicaid drug rebate agreement between the manufacturer and the Secretary of Health and Human Services. CMS
administers the Medicaid drug rebate agreements, which provide, among other things, that the drug manufacturer will pay
rebates to each state Medicaid agency on a quarterly basis and report certain price information on a monthly and quarterly
basis. The rebates are based on prices reported to CMS by manufacturers for their covered outpatient drugs. For innovator
products, that is, drugs that are marketed under approved NDAs, the basic rebate amount is the greater of 23.1% of the
average manufacturer price (“AMP”) for the quarter or the difference between such AMP and the best price for that same
quarter. The AMP is the weighted average of prices paid to the manufacturer (1) directly by retail community pharmacies
and (2) by wholesalers for drugs distributed to retail community pharmacies. The best price is essentially the lowest price
available to non-governmental entities. Innovator products are also subject to an additional rebate that is based on the
amount, if any, by which the product’s current AMP has increased over the baseline AMP, which is the AMP for the first
full quarter after launch, adjusted for inflation. To date, the rebate amount for a drug has been capped at 100% of the AMP;
however, effective January 1, 2024, this cap will be eliminated, which means that a manufacturer could pay a rebate
amount on a unit of the drug that is greater than the average price the manufacturer receives for the drug. For non-innovator
products, generally generic drugs marketed under approved abbreviated new drug applications, the basic rebate amount is
13% of the AMP for the quarter. Non-innovator products are also subject to an additional rebate. The additional rebate is
similar to that discussed above for innovator products, except that the baseline AMP quarter is the fifth full quarter after
launch (for non- innovator multiple source drugs launched on April 1, 2013 or later) or the third quarter of 2014 (for those
launched before April 1, 2013). The terms of participation in the Medicaid drug rebate program impose an obligation to
correct the prices reported in previous quarters, as may be necessary. Any such corrections could result in additional or
lesser rebate liability, depending on the direction of the correction. In addition to retroactive rebates, if a manufacturer
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were found to have knowingly submitted false information to the government, federal law provides for civil monetary
penalties for failing to provide required information, late submission of required information, and false information.
A manufacturer must also participate in a federal program known as the 340B drug pricing program in order for federal
funds to be available to pay for the manufacturer’s drugs under Medicaid and Medicare Part B. Under this program, the
participating manufacturer agrees to charge certain federally funded clinics and safety net hospitals no more than an
established discounted price for its covered outpatient drugs. The formula for determining the discounted price is defined
by statute and is based on the AMP and the unit rebate amount as calculated under the Medicaid drug rebate program,
discussed above. Manufacturers are required to report pricing information to the Health Resources and Services
Administration (“HRSA”) on a quarterly basis. HRSA has also issued regulations relating to the calculation of the ceiling
price as well as imposition of civil monetary penalties for each instance of knowingly and intentionally overcharging a
340B covered entity.
Federal law also requires that manufacturers report data on a quarterly basis to CMS regarding the pricing of drugs that are
separately reimbursable under Medicare Part B. These are generally drugs, such as injectable products, that are
administered “incident to” a physician service and are not generally self-administered. The pricing information submitted
by manufacturers is the basis for reimbursement to physicians and suppliers for drugs covered under Medicare Part B. As
with the Medicaid drug rebate program, federal law provides for civil monetary penalties for failing to provide required
information, late submission of required information, and false information.
Medicare Part D provides prescription drug benefits for seniors and people with disabilities. Medicare Part D beneficiaries
once had a gap in their coverage (between the initial coverage limit and the point at which catastrophic coverage begins)
where Medicare did not cover their prescription drug costs, known as the coverage gap. However, beginning in 2019,
Medicare Part D beneficiaries pay 25% of brand drug costs after they reach the initial coverage limit—the same percentage
they were responsible for before they reached that limit—thereby closing the coverage gap. Most of the cost of closing the
coverage gap is being borne by innovator companies and the government through subsidies. Each manufacturer of a drug
approved under an NDA is required to enter into a Medicare Part D coverage gap discount agreement and provide a 70%
discount on those drugs dispensed to Medicare beneficiaries in the coverage gap, in order for its drugs to be reimbursed by
Medicare Part D.
Federal Contracting/Pricing Requirements
Manufacturers are also required to make their covered drugs, which are generally drugs approved under NDAs, available to
authorized users of the Federal Supply Schedule (“FSS”) of the General Services Administration. The law also requires
manufacturers to offer deeply discounted FSS contract pricing for purchases of their covered drugs by the Department of
Veterans Affairs, the Department of Defense (“DoD”), the Coast Guard, and the Public Health Service (including the
Indian Health Service) in order for federal funding to be available for reimbursement or purchase of the manufacturer’s
drugs under certain federal programs. FSS pricing to those four federal agencies for covered drugs must be no more than
the Federal Ceiling Price (“FCP”), which is at least 24% below the Non-Federal Average Manufacturer Price (“Non-
FAMP”) for the prior year.
The Non-FAMP is the average price for covered drugs sold to wholesalers or other middlemen, net of any price reductions.
The accuracy of a manufacturer’s reported Non-FAMPs, FCPs, or FSS contract prices may be audited by the government.
Among the remedies available to the government for inaccuracies is recoupment of any overcharges to the four specified
federal agencies based on those inaccuracies. If a manufacturer were found to have knowingly reported false prices, in
addition to other penalties available to the government, the law provides for civil monetary penalties of $100,000 per
incorrect item.
Finally, manufacturers are required to disclose in FSS contract proposals all commercial pricing that is equal to or less than
the proposed FSS pricing, and subsequent to award of an FSS contract, manufacturers are required to monitor certain
commercial price reductions and extend commensurate price reductions to the government, under the terms of the FSS
contract Price Reductions Clause. Among the remedies available to the government for any failure to properly disclose
commercial pricing and/or to extend FSS contract price reductions is recoupment of any FSS overcharges that may result
from such omissions.
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Tricare Retail Pharmacy Network Program
The DoD provides pharmacy benefits to current and retired military service members and their families through the Tricare
healthcare program. When a Tricare beneficiary obtains a prescription drug through a retail pharmacy, the DoD reimburses
the pharmacy at the retail price for the drug rather than procuring it from the manufacturer at the discounted FCP discussed
above. In order for the DoD to realize discounted prices for covered drugs (generally drugs approved under NDAs), federal
law requires manufacturers to pay refunds on utilization of their covered drugs sold to Tricare beneficiaries through retail
pharmacies in DoD’s Tricare network. These refunds are generally the difference between the Non-FAMP and the FCP and
are due on a quarterly basis. Absent an agreement from the manufacturer to provide such refunds, DoD will designate the
manufacturer’s products as Tier 3 (non-formulary) and require that beneficiaries obtain prior authorization in order for the
products to be dispensed at a Tricare retail network pharmacy. However, refunds are due whether or not the manufacturer
has entered into such an agreement.
Branded Pharmaceutical Fee
A branded pharmaceutical fee is imposed on manufacturers and importers of branded prescription drugs, generally drugs
approved under NDAs. In each year between 2011 and 2018, the aggregate fee for all such manufacturers ranged from $2.5
billion to $4.1 billion, and has remained at $2.8 billion in 2019 and subsequent years. This annual fee is apportioned among
the participating companies based on each company’s sales of qualifying products to or utilization by certain U.S.
government programs during the preceding calendar year. The fee is not deductible for U.S. federal income tax purposes.
Utilization of generic drugs, generally drugs approved under ANDAs, is not included in a manufacturer’s sales used to
calculate its portion of the fee.
Human Capital Management
We are dedicated to making a meaningful impact on the lives of those suffering from pediatric cancer, and we believe in
putting patients first in everything we do. To facilitate talent attraction and retention, we strive to make Fennec an
inclusive, safe, and healthy workplace, with opportunities to grow and develop in their careers, supported by strong
compensation, benefits, health and welfare programs. Our goal in selecting employees is to retain high quality personnel
with substantial prior experience who understand and support our mission as a company to develop and commercialize
innovative therapies for people with rare, debilitating, chronic neuromuscular and neurological diseases and who are
willing to work hard and in a collaborative manner to further that mission.
Employee Profile
As of December 31, 2023, we had approximately 29 employees, 21 of whom are in our commercial organization, two of
whom are in our R&D organization, and the rest of whom are in our G&A organization. We also utilize the services of
several full-time consultants who work with our commercial organization. None of our employees are covered by a
collective bargaining agreement. We believe our relationship with our employees and consultants is good.
Compensation and Benefits
Our compensation philosophy is to provide pay and benefits that are competitive in the biotechnology and pharmaceutical
industry where we compete for talent. We monitor our compensation programs closely and review them at least annually to
provide what we consider to be a very competitive mix of compensation and health, welfare and retirement benefits for all
our employees. Our compensation package for all employees includes market-competitive base salaries, annual
performance bonuses and stock option grants. Our benefits programs include company sponsored medical, dental and
vision health care coverage, life and AD&D insurance, and a 401(k) plan among others benefits.
Research and Development
Our research and development efforts have been focused on the development of PEDMARK® since 2013.
We have established relationships with contract research organizations (“CROs”), universities and other institutions, which
we utilize to perform many of the day-to-day activities associated with our drug development. Where possible, we have
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sought to include leading scientific investigators and advisors to enhance our internal capabilities. Research and
development issues are reviewed internally by our executive management and supporting scientific team.
Research and development expenses totaled $0.1 million and $3.5 million for the fiscal years ended December 31, 2023
and 2022, respectively. We have decreased our research and development expenses related to PEDMARK® as our efforts
have shifted to commercial readiness and launch activities.
PEDMARK® still requires significant, time-consuming and costly research and development, testing and regulatory
clearances. In developing PEDMARK®, we are subject to risks of failure that are inherent in the development of products
based on innovative technologies. For example, it is possible that our product candidate will be ineffective or toxic, or will
otherwise fail to receive the necessary regulatory clearances. There is a risk that PEDMARK® will be uneconomical to
manufacture or market or will not achieve market acceptance. There is also a risk that third parties may hold proprietary
rights that preclude us from marketing our product candidate or that others will market a superior or equivalent product. As
a result of these factors, we are unable to accurately estimate the nature, timing and future costs necessary to complete
future development of PEDMARK®.
Company Information
We incorporated under the Canada Business Corporations Act ("CBCA”) in September 1996. In August 2011, we
continued from the CBCA to the Business Corporations Act (British Columbia) (the “Continuance”). We have four wholly-
owned subsidiaries: Oxiquant, Inc. and Fennec Pharmaceuticals, Inc., both Delaware corporations, Cadherin
Biomedical Inc., a Canadian company, and Fennec Pharmaceuticals (EU) Limited (“Fennec Limited”), an Ireland company.
With the exception of Fennec Pharmaceuticals, Inc. and Fennec Limited 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 furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended
(“Exchange Act”), available on our website, free of charge, as soon as reasonably practicable after such material is
electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”). Members of the public may
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. To obtain 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 that contains the reports, proxy statements and other
information that we file or furnish electronically with the SEC. The Canadian securities regulatory authorities maintain a
website at www.sedar.com that contains our filings with the Canadian securities regulatory authorities. Our website and the
information contained therein 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 Canadian securities regulatory authorities.
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 to the 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 risks that 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 actual
results to differ materially from those expressed or implied by any of our forward-looking statements in this Annual
Report. These factors include, without limitation, the risk factors listed below, and other factors presented throughout this
Annual Report and any other documents filed by us with the SEC and the Canadian securities regulators on SEDAR.
Risks Related to Our Business
We have a history of significant losses and have had limited revenues to date through the sale of our product. If we
do not generate significant revenues, we will not achieve profitability.
To date, we have been engaged primarily in research and development activities. We have incurred significant operating
losses every year since our inception in September 1996. We reported a net loss of approximately $16.05 million for
the year ended December 31, 2023 and reported a net loss of approximately $23.71 million for the year ended
December 31, 2022. At December 31, 2023, we had an accumulated deficit of approximately $219.2 million. We anticipate
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incurring substantial additional losses due to the need to spend substantial amounts on activities required for
commercialization of PEDMARK® in the U.S. and regulatory approval of PEDMARK® outside of the U.S., as well as
commercial launch preparation of PEDMARK® outside of the U.S., anticipated research and development activities, and
general and administrative expenses, among other factors. We may never achieve or sustain profitability on an ongoing
basis.
PEDMARK® is currently our only product and there is no assurance that we will successfully develop
PEDMARK® into a commercially viable product.
Since our formation in September 1996, we have engaged in research and development programs. We have recently begun
to generate revenue from product sales in the United States after regulatory approval of PEDMARK® in late 2022.
PEDMARK® is currently our only product. There can be no assurance that the research we fund and manage will lead
PEDMARK® or any future product candidate to become a commercially viable product. We have completed two-Phase 3
studies for PEDMARK®. We anticipate substantial regulatory review prior to the commercialization of PEDMARK®
outside of the United States.
We may require additional financing to obtain marketing approval of PEDMARK® and commercialize
PEDMARK® abroad and a failure to obtain this capital when needed on acceptable terms, or at all, could force us
to delay, limit, reduce or terminate our product development, other operations or commercialization efforts outside
of the United States.
Based on available resources, we believe that our cash and cash equivalents of $13.3 million available as of December 31,
2023 are sufficient to fund our anticipated operating and capital requirements for at least the next 12 months. Moreover, we
expect to continue to incur losses for the foreseeable future as we continue our development of and seek marketing
approvals for PEDMARK® outside of the United States. We may not be able to obtain additional financing in sufficient
amounts or on acceptable terms when needed. 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 to
existing shareholders and may involve securities that have rights, preferences, or privileges that are senior to our common
shares or other securities. If we cannot raise sufficient capital when necessary, we will likely have to curtail operations and
you may lose part or all of your investment.
Our success depends on our ability to successfully commercialize PEDMARK®. We are a single product company
with only limited commercial experience, which makes it difficult to evaluate our current business, predict our
future prospects, and forecast our financial performance and growth.
We have invested a significant portion of our efforts and financial resources to date into the development and
commercialization of our only product, PEDMARK®. Our success depends on our ability to effectively commercialize
PEDMARK®, and we expect that all of our product revenues in the foreseeable future will be from sales of PEDMARK®.
Continued commercialization of PEDMARK® is subject to many risks. Until we launched PEDMARK®, we had never
launched or commercialized a product, and there is no guarantee that we will be able to achieve profitability and cash flow
positive based on our sales of PEDMARK®. There are numerous examples of unsuccessful product launches and failures to
meet high expectations of market growth potential, including by pharmaceutical companies with more resources and
experience than we have. The long term commercial success of PEDMARK® depends on the extent to which patients and
physicians accept and adopt PEDMARK® For example, if the expected patient population is smaller than we estimate or if
physicians are unwilling to prescribe or patients are unwilling to take PEDMARK®, or if patients discontinue from use of
the medication at rates that are higher than we expect, or if payers decide not to reimburse for our product, the commercial
potential of PEDMARK® will be limited. Thus, significant uncertainty remains regarding the ultimate commercial
potential of PEDMARK®.
Moreover, our ability to effectively generate significant product revenue from PEDMARK® will depend on our ability to,
among other things:
● educate patients and physicians successfully about efficacy expectations, side effects expectations, and how to
successfully dose and titrate the medication to optimal patient benefit in order to minimize discontinuation due to
perceived lack of efficacy or side effects;
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● educate pediatric cancer patients who will have cisplatin administration, and the physicians who treat them, as to
the benefits to such patients of treatment using PEDMARK® (in addition to the treatments they are receiving for
their cancer);
● achieve and maintain compliance with regulatory requirements, including those related to our required post-
approval studies, promotion and advertising requirements;
● increase awareness for and achieve market acceptance of PEDMARK® through our sales and marketing activities
and other arrangements established for the promotion of PEDMARK®;
● train, deploy, support, and retain a qualified field sales and marketing force;
● secure continued formulary approvals for PEDMARK® with a substantial number of targeted payors;
● ensure that our third-party manufacturers manufacture PEDMARK® in sufficient quantities, in compliance with
requirements of the FDA and at acceptable quality and pricing levels, in order to meet commercial demand;
● ensure that our third-party manufacturers develop, validate and maintain commercially viable manufacturing
processes that are compliant with cGMP regulations;
● implement and maintain agreements with wholesalers, distributors and group purchasing organizations on
commercially reasonable terms;
● ensure that our entire supply chain efficiently and consistently delivers PEDMARK® to our customers;
● provide co-pay assistance to help qualified patients with out-of-pocket costs associated with their PEDMARK®
prescription, and/or other programs to ensure patient access to our product, educate physicians and patients about
the benefits, administration and use of PEDMARK®, and obtain acceptance of PEDMARK® as safe and
effective by patients and the medical community;
● receive adequate levels of coverage and reimbursement for PEDMARK® from commercial health plans and
governmental health programs;
● generate positive experience with our Fennec HEARS® program in helping patients obtain access to
PEDMARK® at an acceptable patient out-of-pocket cost;
● maintain quality relationships with patient advocacy groups;
● influence the nature of publicity related to our product relative to the publicity related to our competitors’
products; and
● obtain regulatory approvals for additional indications for the use of PEDMARK® in treating other patient
populations.
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Any disruption in our ability to generate product revenue from the sale of PEDMARK® will have a material and adverse
impact on our results of operations.
If we are unable to continue to successfully commercialize PEDMARK®, our business, results of operations and
financial condition may be materially adversely affected.
Our strategy is to successfully commercialize PEDMARK® in the United States and abroad. There are risks involved both
with maintaining our own sales and marketing capabilities, and with entering into arrangements with third parties to
perform these services. For example, any efforts to maintain 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.
Similarly, as we enter into arrangements with third parties to perform sales, marketing and distribution services, our
product revenue or the profitability associated with any product revenue may be lower than if we were to market and sell
any product that we develop ourselves. In addition, we may not be successful in entering 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
control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market
our product effectively. Moreover, we may be negatively impacted by other factors outside of our control relating to such
third parties, including, but not limited to, their inability to comply with regulatory requirements. If we do not establish
sales, marketing and distribution capabilities successfully, either on our own or in collaboration with third parties, we will
not be successful in commercializing our product.
Finally, because we are using a very small group of exclusive specialty pharmacies to distribute our product, if the
organizations 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 adversely affected.
Our business is subject to substantial competition.
The biotechnology and pharmaceutical industries are highly competitive. Many of our competitors have substantially
greater financial and other resources, larger research and development staffs and more experience developing products,
obtaining FDA and other regulatory approvals of products and manufacturing and marketing products than we have. We
compete against pharmaceutical companies that are developing or currently marketing therapies that will compete with us.
In addition, we compete against biotechnology companies, universities, government agencies, and other research
institutions in the development of drug products. Our business could be negatively impacted if our competitors’ present or
future offerings are more effective, safer or less expensive than ours, or more readily accepted by regulators, healthcare
providers or third-party payors. Further, we may also compete with respect to manufacturing efficiency and marketing
capabilities.
For all of these reasons, we may not be able to compete successfully.
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If we do not maintain current or enter into new collaborations with other companies, we might not successfully
develop our product or generate 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, including an exclusive worldwide license from OHSU for PEDMARK®. We also rely on
collaborators for testing PEDMARK®, including SIOPEL and the Children’s Oncology 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 OHSU at any time upon prior written notice of specified durations to OHSU.
Termination of any of our collaborative arrangements could materially adversely affect our business. For example, if we
are unable to make the necessary payments under these agreements, the licensor might terminate the agreement which
might have a material 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 such collaborators, as well as any future collaborators. Collaborators might not commit
sufficient resources to the research and development or commercialization of our product candidate. Economic or
technological advantages of products being developed by others, among other factors, could lead our collaborators to
pursue other products or technologies in preference to those being developed in collaboration with us. There is a risk of
dispute with respect to ownership of technology developed under any collaboration. Our management of any collaboration
will require significant time and effort as well as an effective allocation of resources. We may not be able to simultaneously
manage a large number of collaborations. Any of these negative impacts on our current or future collaborations could have
a material adverse effect on our business and results of operations.
Regulatory approval of our product is time-consuming, expensive and uncertain, and could result in unexpectedly
high expenses and delay our ability to sell our product in the U.S. and abroad.
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 abroad. Our clinical studies might be delayed 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 outside of the United States, it will be limited to those indications for which
the product has been shown to be safe and effective, as demonstrated to the satisfaction of the FDA and foreign regulators
through clinical studies. Furthermore, approval abroad might entail ongoing requirements for post-marketing studies. Even
if regulatory approval is obtained outside for the United States, labeling and promotional activities are subject to continual
scrutiny by the FDA and state and foreign regulatory agencies and, in some circumstances, the Federal Trade Commission.
FDA enforcement policy prohibits the marketing of approved products for unapproved, 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 cGMP regulations, which include
requirements relating to quality control and quality assurance, as well as the corresponding maintenance of records and
documentation. Further, manufacturing facilities, 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 additional FDA inspection. The CRL that we received
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from the FDA in August 2020 and in November 2021 as a result of deficiencies in the third-party manufacturing facility
that manufactures PEDMARK® on our behalf is a specific example of the risks associated with our third-party
manufacturers.
If we fail to comply with any of the FDA’s continuing regulations, or any other regulations under which we may be
required to comply outside of the United States, 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, or other regulators, 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.
If our licenses to proprietary technology owned by others are terminated or expire, we may suffer increased
development costs and delays, and we may not be able to successfully commercialize our product.
The development of our drug 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. PEDMARK® is licensed under
agreements with OHSU. Although we have obtained licenses or rights with regard to the use 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, on favorable 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 only with 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, or if we infringe
upon the intellectual property rights of others, we may not be able to successfully maintain commercial status of our
product.
The value of our product will depend in part upon our ability, and those of our collaborators, to obtain patent protection or
licenses to patents, maintain trade secret protection and operate without infringing on the rights of third parties. Although
we have successfully pursued patent applications in the past, it is possible that:
● 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 first to 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.
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PEDMARK® is currently protected by three patents owned by us that expires in 2039. Further, patents are currently
pending in the United States and other territories. In addition, periods of marketing exclusivity for PEDMARK® have been
granted in the United States under orphan drug exclusivity and in Europe under PUMA.
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 would reduce our future income, if any. If licenses
cannot be obtained on an economical basis, we could suffer delays in market introduction of planned products or their
introduction could be prevented, in some cases after the expenditure of substantial funds. If we do not obtain such licenses,
we would have to attempt to design around patents of third parties, potentially causing increased costs and delays in
product development and introduction or precluding us from developing, manufacturing or selling 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’s proprietary rights. By example we have outstanding litigation against CIPLA. We
could incur substantial costs if litigation is required to defend ourselves in patent suits brought by third parties, if we
participate in patent suits 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 an interference to determine priority or other proceeding in a court
or patent office could subject us to significant liabilities, require disputed rights to be licensed from other 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 on our 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 meaningful protection of our trade secrets, know-how or other proprietary information in the event of
any unauthorized use or disclosure of information. In addition, others may independently develop or obtain similar
technology and may be able to market competing products and obtain regulatory approval through a showing of
equivalency to our product that has obtained regulatory approvals, without being required to undertake the same lengthy
and expensive clinical studies that we would have already completed.
If our third-party manufacturers breach or terminate their agreements with us, or if we are unable to secure
arrangements with third party manufacturers on acceptable terms as needed in the future, we may suffer
significant production delays and additional costs.
We have little experience manufacturing products and do not currently have the resources to manufacture any products that
we may develop. We currently have agreements with contract manufacturers for clinical supplies of PEDMARK®,
including drug substance providers and drug product suppliers, but they might not perform 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 be
required 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 and development, preclinical trials, human clinical trials and product commercialization,
and to perform their obligations in a timely manner and in accordance with applicable government regulations. If we
develop any product with commercial potential, we will need to develop the facilities to independently manufacture such
product or products or secure arrangements with third parties to manufacture them. We may not be able to independently
develop manufacturing capabilities or obtain favorable terms for the manufacture of our product. While we intend to
contract for the commercial manufacture of our product, we may not be able to identify and qualify contractors or obtain
favorable contracting terms. We or our contract manufacturers may also fail to meet required manufacturing standards,
which could result in delays or failures in product delivery, increased costs, injury or death to patients, product recalls or
withdrawals and other problems that could significantly hurt our business. The CRLs that we received from the FDA in
August 2020 and November 2021 as a result of deficiencies in the third-party manufacturing facility that manufactures
PEDMARK® on our behalf is a specific example of the risks associated with our third-party manufacturers. We intend to
maintain a second source for back-up commercial manufacturing, wherever feasible. However, if a replacement to our
future internal or contract manufacturers were required, the ability to establish second-sourcing or find a replacement
manufacturer may be difficult due to the lead times generally required to manufacture drugs and the need for FDA
compliance inspections and approvals of any replacement manufacturer, all of which factors could result in production
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delays and additional commercialization costs. Such lead times would vary based on the situation but might be
twelve months or longer.
We conduct our business internationally and are subject to laws and regulations of several countries which may
affect our ability to access regulatory agencies 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 other jurisdictions. There can be no assurance that any sovereign government will not
establish laws or regulations that will be deleterious to our interests. There is no assurance that we, as a British Columbia
corporation, will continue to have access to the regulatory agencies in any jurisdiction where we might want to conduct
clinical trials or obtain regulatory approval, and we might not be able to enforce our licenses or patent rights in foreign
jurisdictions. Foreign exchange controls may 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 particular country to meet obligations under licenses,
clinical trial agreements or other collaborations.
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 risks that the value and liquidity of our money market investments (the amounts of which
substantially exceed the $250,000 amount insured by the FDIC) could deteriorate significantly and the issuers of the
investments we hold could be subject to credit rating 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 will not occur in future periods.
With the clinical development process successfully completed in the United States, our ability to derive further
revenues from the sale of PEDMARK® will depend upon our obtaining foreign regulatory approvals, which are
subject to a number of unique risks and uncertainties.
Even if we are able to demonstrate the safety and efficacy of our product in clinical trials abroad, if we fail to gain timely
approval to commercialize PEDMARK® from foreign regulatory authorities, we will be unable to generate the revenues we
will need to build our business. Regulatory authorities in other countries may delay, limit or deny approval of
PEDMARK® for various reasons. For example, such authorities may disagree with the design, scope or implementation of
our clinical trials; or with our interpretation of data from our preclinical studies or clinical trials; or may otherwise take the
position that PEDMARK® fails to meet the requirements and standards for regulatory approval. During the course of
review, foreign regulatory bodies may request or require additional preclinical, clinical, chemistry, manufacturing, and
control (“CMC”), or other data and information, and the development and provision of these data and information may be
time consuming and expensive. Regulatory approvals may not be granted on a timely basis, if at all, and even if and when
they are granted, they may not cover all the indications for which we seek approval.
Further, while we may develop a product with the intention of addressing a large, unmet medical need, the foreign
regulatory bodies may only approve the use of the drug for indications affecting a relatively small number of patients, thus
greatly reducing the market size and our potential revenues. The approvals may also contain significant limitations in the
form of warnings, precautions or contraindications with respect to conditions of use, which could further narrow the size of
the market. In certain countries, even if the health regulatory authorities approve a drug, it cannot be marketed until pricing
for the drug is also approved. Finally, even after approval can be obtained, we may be required to recall or withdraw a
product as a result of newly discovered safety or efficacy concerns, either of which would have a materially adverse effect
on our business and results of operations.
We have been in the past and may in the future be the target of securities litigation, which may be costly and time-
consuming to defend.
Following periods of market volatility in the price of a company’s securities or the reporting of unfavorable news, security
purchasers have often instituted class action litigation. This risk is especially relevant for us because pharmaceutical
companies like us have experienced significant stock price volatility in recent years. Specifically, we were named in
putative securities class action complaints as a result of the decline in our stock price following the August 10, 2020
announcement that we had received a CRL from the FDA regarding our NDA for PEDMARK® and as result of the decline
in our stock price following the November 29, 2021 announcement that we expected to receive another CRL from the
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FDA regarding our NDA for PEDMARK®. Both of these cases have been dismissed and closed. Our insurance coverage
may be insufficient to cover all legal fees, judgments or settlements. If the outcome of any such litigation is unfavorable, it
could result in us paying significant damages or settlement payments, which could have a material adverse effect on our
financial condition.
We have only recently transitioned from a development stage biopharmaceutical company to a commercial stage
biopharmaceutical company, which may make it difficult for you to evaluate the success of our business to date and
to assess our future viability.
Other than the FDA approval for PEDMARK® received in the United States in September 2022 and in the European
Commission in June 2023 of PEDMARQSI®, we have no other product candidates in the development stage. We have
only recently demonstrated our ability, or our ability to arrange for a third party, to manufacture a commercial scale
medicine and conduct the sales and marketing activities necessary to commercialize a product. Consequently, any
predictions you make about our future success or viability may not be as accurate as they could be if we had more
experience commercializing PEDMARK®. In addition, as a relatively new commercial stage business, we may encounter
unforeseen expenses, difficulties, complications, delays and other known and unknown factors. To be profitable,
we will need to continue to successfully transition from a company with a research and development focus to a
company capable of supporting commercial activities. Ultimately, we may not be successful in such a transition.
There are limitations on the liability of our directors, and we may have to indemnify our officers and directors in
certain instances.
Our articles limit, to the maximum extent permitted under British Columbia law, the personal liability of our directors for
monetary damages for breach of their fiduciary duties as directors. Our articles provide that we will indemnify our officers
and directors and may indemnify our employees and other agents to the fullest extent permitted by law. These provisions
may be in some respects broader than the specific indemnification provisions under British Columbia law. The
indemnification provisions may require us, among other things, to indemnify such officers and directors against certain
liabilities that may arise by reason of their status or service as directors or officers (other than liabilities arising from willful
misconduct of a culpable nature), to advance their expenses incurred as a result of certain proceedings against them as to
which they could be indemnified and to obtain directors’ and officers’ insurance.
We believe that our limitation of officer and director liability assists us to attract and retain qualified employees and
directors. However, in the event an officer, a director or the board of directors commits an act that may legally be
indemnified under British Columbia law, we will be responsible to pay for such officer(s) or director(s) legal defense and
potentially any damages resulting there from. Furthermore, the limitation on director liability may reduce the likelihood of
derivative litigation against directors and may discourage or deter stockholders from instituting litigation against directors
for breach of their fiduciary duties, even though such an action, if successful, might benefit our stockholders and us. Given
the difficult environment and potential for incurring liabilities currently facing directors of publicly-held corporations, we
believe that director indemnification is in our and our stockholders’ best interests because it enhances our ability to attract
and retain highly qualified directors and reduce a possible deterrent to entrepreneurial decision-making.
Nevertheless, limitations of director liability may be viewed as limiting the rights of stockholders, and the broad scope of
the indemnification provisions contained in our certificate of incorporation and bylaws could result in increased expenses.
Our board of directors believes, however, that these provisions will provide a better balancing of the legal obligations of,
and protections for, directors and will contribute positively to the quality and stability of our corporate governance. Our
board of directors has concluded that the benefit to stockholders of improved corporate governance outweighs any possible
adverse effects on stockholders of reducing the exposure of directors to liability and broadened indemnification rights.
Our business and operations could be adversely affected by the effects of health epidemics, like the recent COVID-
19 pandemic.
Future health epidemics may affect the operations of government entities, such as the FDA, as well as contract research
organizations, third-party manufacturers, and other third-parties upon whom we rely. The extent of the impact on our
operations depends in part on the time these restrictions remain in place, and whether restrictions are reinstated as a result
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of rising cases. These and similar disruptions in our operations could negatively impact our business, operating results and
financial condition. Possible effects may include, but are not limited to, disruption to our product launch outside the United
States, which includes the ability of sales reps to communicate with oncologists, absenteeism in our labor workforce,
unavailability of products and supplies used in operations, and a decline in value of our assets, including inventories,
property and equipment, and marketable securities.
The global pandemic of COVID-19, and the ultimate impact of the COVID-19 pandemic or a similar health epidemic is
highly uncertain and subject to change. We do not yet know the full impact of potential delays or effects on our business,
our clinical trials, our ability to access the capital markets, or supply chains or on the global economy as a whole. However,
these effects could have a material impact on our operations, and we will continue to monitor the COVID-19 situation
closely.
Natural disasters, epidemic or pandemic disease outbreaks, trade wars, political unrest or other events could
disrupt our business or operations or those of our development partners, manufacturers, regulators or other third
parties with whom we conduct business now or in the future.
A wide variety of events beyond our control, including natural disasters, epidemic or pandemic disease outbreaks (such as
the COVID-19 pandemic), trade wars, political unrest or other events, could disrupt our business or operations or those of
our manufacturers, regulatory authorities, or other third parties with whom we conduct business. These events may cause
businesses and government agencies to be shut down, supply chains to be interrupted, slowed, or rendered inoperable, and
individuals to become ill, quarantined, or otherwise unable to work and/or travel due to health reasons or governmental
restrictions. These limitations could negatively affect our business operations and continuity, and could negatively impact
our development timelines and ability to timely perform basic business functions, including, without limitation, making
SEC filings and preparing financial reports. If our operations or those of third parties with whom we conduct business are
impaired or curtailed as a result of these events, the development and commercialization of our product and product
candidate could be impaired or halted, which could have a material adverse impact on our business.
Because the target patient population for PEDMARK® is small, we must achieve significant market share and
obtain relatively high per-patient prices for our product to achieve meaningful gross margins.
PEDMARK® targets a small patient population. A key component of the successful commercialization of a drug product
for these indications includes identification of patients and a targeted prescriber base for the drug product. Due to small
patient populations, we believe that we would need to have significant market penetration to achieve meaningful revenues
and identifying patients and targeting the prescriber base are key to achieving significant market penetration. Typically,
drugs for conditions with small prevalence have higher prices in order to generate a return on investment, and as a result,
the per-patient prices at which we sell PEDMARK® are relatively high in order for us to generate an appropriate return for
the investment in these product development programs and achieve meaningful gross margins, and high per patient prices
could drive physicians to seek out compounding pharmacies to provide compounded sodium thiosulfate to fill their
prescriptions rather than PEDMARK®, thereby lowering the PEDMARK® market share or penetration in the market. There
can be no assurance that we will be successful in achieving a sufficient degree of market penetration and/or obtaining or
maintaining high per-patient prices for PEDMARK® for a small patient populations. Further, even if we obtain significant
market share for PEDMARK® because the potential target populations are very small, we may not be able to obtain
profitability despite obtaining such significant market share.
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
drug products. Patients have received substantial damage awards in some jurisdictions against pharmaceutical companies
based on claims for injuries allegedly caused by the use of drug 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 sufficient to 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 any potential future products we may acquire and use in clinical trials or
after FDA approval and, therefore, the amount of insurance coverage we currently hold may not be adequate to cover all
liabilities we might incur. If we are sued for any injury allegedly caused by our product, our liability could exceed our
ability to pay the liability. Whether or not we are ultimately successful in any adverse litigation, such litigation could
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consume substantial amounts of our financial and managerial resources, all of which could have a material adverse effect
on our business, financial condition, results of operations, prospects and stock price.
Business or economic disruptions or global health concerns could seriously harm our development efforts and
increase our costs and expenses.
Broad-based business or economic disruptions could adversely affect our ongoing or planned research and development
activities. Global health concerns, such as the COVID-19 pandemic, could also result in social, economic, and labor
instability in the countries in which we or the third parties with whom we engage operate. We cannot presently predict the
scope and severity of any potential business shutdowns or disruptions, but if we or any of the third parties with whom we
engage, including the suppliers, clinical trial sites, regulators and other third parties with whom we conduct business, were
to experience shutdowns or other business disruptions, our ability to conduct our business in the manner and on the
timelines presently planned could be materially and negatively impacted. It is also possible that global health concerns such
as the COVID-19 pandemic could disproportionately impact the hospitals and clinical sites in which we conduct any of our
clinical trials, which could have a material adverse effect on our business and our results of operation and financial
condition.
Risks Related to the Clinical Development and Marketing Approval of Our Product outside the United States
The marketing approval processes of foreign authorities are lengthy, time-consuming and inherently unpredictable,
and if we are ultimately unable to obtain marketing approval for our product abroad, our business will be
substantially harmed.
Our current product has gained marketing approval for sale in the United States and in the European Commission, and we
cannot guarantee that we will ever have regulatory approval outside the United States and European Commission. Our
business is substantially dependent on our ability to complete the development of, obtain marketing approval for, and
successfully commercialize our product candidate in abroad a timely manner. We cannot commercialize our product
candidate outside of the United States without obtaining regulatory approval from comparable foreign regulatory
authorities. Our product could fail to receive marketing approval for many reasons, including the following:
● FDA comparable foreign regulatory authorities may disagree with the design or implementation of our clinical
trials;
● FDA comparable foreign regulatory authorities may find the human subject protections for our clinical trials
inadequate and place a clinical hold on an IND at the time of its submission precluding commencement of any
trials or a clinical hold on one or more clinical trials at any time during the conduct of our clinical trials;
● we may be unable to demonstrate to the satisfaction of the FDA comparable foreign regulatory authorities that a
product candidate is safe and effective for its proposed indication;
● the results of clinical trials may not meet the level of statistical significance required by the FDA comparable
foreign regulatory authorities for approval;
● we may be unable to demonstrate that a product’s clinical and other benefits outweigh its safety risks;
● FDA comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical
studies or clinical trials;
● the data collected from clinical trials of our product may not be sufficient to obtain marketing approval outside of
the United States;
● FDA comparable foreign regulatory authorities may find inadequate the manufacturing processes or facilities of
third-party manufacturers with which we contract for clinical and commercial supplies (for example, see the
discussion elsewhere concerning the CRLs we received from the FDA in August 2020 and November 2021); and
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● the approval policies or regulations of the FDA comparable foreign regulatory authorities may significantly
change in a manner that would delay marketing 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 outside the United States,
to the satisfaction of the foreign regulatory authorities, that the product is safe and effective for its intended use and that the
manufacturing facilities, processes, and controls are adequate to preserve the drug’s identity, strength, quality and purity. In
September 2022, we obtained approval of our NDA from the FDA. An NDA must include extensive preclinical and
clinical data and supporting information to establish the product’s safety and efficacy for each desired indication. The NDA
must also include significant information regarding the chemistry, manufacturing, and controls for the product. After the
submission of an NDA, but before approval of the NDA, the manufacturing facilities used to manufacture a product
candidate generally must be inspected by the FDA to ensure compliance with the applicable cGMP requirements (for
example, see the discussion elsewhere concerning the CRL we received from the FDA in August, 2020). The FDA and the
Competent Authorities of the Member States of the European Economic Area, or EEA, and comparable foreign regulatory
authorities, may also inspect our clinical trial sites and audit clinical study data to ensure that our studies are properly
conducted in accordance with the IND regulations, human subject protection regulations, cGCP. In June 2023, we obtained
approval for PEDMARQSI® in the European Union.
Regulatory authorities outside of the United States, such as in Europe and Japan and in emerging markets, also have
requirements for approval of drugs for commercial sale with which we must comply prior to marketing in those areas.
Regulatory requirements can vary widely from country to country and could delay or 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
by regulatory authorities in other countries, and obtaining regulatory approval in one country does not mean that regulatory
approval will be obtained in any other country. However, the failure to obtain regulatory approval in one jurisdiction could
have a negative impact on our ability to obtain approval in a different jurisdiction. Approval processes vary among
countries and can involve additional product candidate testing and validation and additional administrative review periods.
Seeking foreign regulatory approval could require additional non-clinical studies or clinical trials, which could be costly
and time-consuming. Foreign regulatory approval may include all of the risks associated with obtaining FDA approval. For
all of these reasons, we may not obtain foreign regulatory approvals on 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 United States, and approval is never guaranteed. The time required to obtain approval by the
FDA and comparable foreign authorities is unpredictable but typically takes many years following the commencement of
clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In
addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change
during the course of a product candidate’s clinical development and may vary among jurisdictions. Even if our product
were to successfully obtain approval from regulatory authorities outside the United States, any such approval might
significantly limit the approved indications for use, including more limited patient populations, require that precautions,
warnings or contraindications be included on the product labeling, including black box warnings, require expensive and
time-consuming post-approval clinical studies, risk evaluation 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, certain changes to the product, such as changes in manufacturing processes and additional labeling claims, as
well as new safety information, may require new studies and will be subject to additional FDA notification, or review and
approval. Also, marketing approval for any of our product may be withdrawn. If we are unable to obtain marketing
approval for our product in one or more jurisdictions, or any approval contains significant limitations, our ability to market
to our full target market will be reduced and our ability to realize the full market potential of our product will be impaired.
Furthermore, we may not be able to obtain sufficient funding or generate sufficient revenue and cash flows to continue or
complete the development of any future product candidates.
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Now that we have achieved marketing approval for our product in the United States, it will be subject to ongoing
obligations and continued regulatory review, which may result in significant additional expense. Our product could
be subject to labeling and other restrictions, and we may be subject to penalties and legal sanctions if we fail to
comply with regulatory requirements or experience unanticipated problems with our approved product.
Now that the FDA has approved our product, 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 safety and other post-marketing information and
reports, registration, as well as continued compliance with cGMP regulations and cGCP for any clinical trials that we
conduct post-approval. Any marketing approvals that we receive for our product candidate may also be subject to
limitations on the approved indicated uses for which the product may be marketed or to conditions of approval, or contain
requirements for potentially costly post-marketing testing, including Phase 4 clinical trials, 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 manufacturing operations or processes, or failure to comply with regulatory requirements, or
evidence of acts that raise questions about the integrity of data supporting the product approval, 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 and foreign regulatory agencies policies may change, and additional government regulations may be enacted
that could prevent, limit or delay marketing approval, manufacturing or commercialization of our product. We cannot
predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative
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 new requirements 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 not achieve 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 approved product labeling requirements. If we are found to have improperly promoted
PEDMARK® for uses beyond those that are approved, we may 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 prescription products, such as PEDMARK®. In particular, a product may not be promoted for uses that
are not approved by the FDA or comparable foreign regulatory authorities as reflected in the product’s approved labeling,
known as “off-label” use, nor may it be promoted prior to obtaining marketing approval. If we receive marketing approval
for our product for our proposed indications, physicians may nevertheless use our product for their patients in a manner
that is inconsistent with the approved label if the physicians personally believe in their professional medical judgment it
could be used in such manner. Although physicians may prescribe legally available drugs for off-label uses, manufacturers
may not market or promote such off-label uses.
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 FDA requires substantial evidence, which generally consists of two adequate and well-
controlled head-to-head clinical trials, for a company to make a claim that its product is superior to another product in
terms of safety or effectiveness. Generally, unless we perform clinical trials meeting that standard comparing our product
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to competitive products and these claims are approved in our product labeling, we will not be able promote our product as
superior to other 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 levied large civil and criminal fines against companies for alleged improper
promotion and has enjoined several companies from engaging in improper promotion. The FDA has also requested that
companies enter into consent decrees or corporate integrity agreements. The FDA could also seek permanent injunctions
under which specified promotional conduct is monitored, changed or curtailed.
Our current and future relationships with healthcare professionals, investigators, consultants, collaborators, actual
customers, potential customers and third-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 our drug post-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
and relationships through which we sell, market and distribute PEDMARK®. In addition, we may be subject to physician
payment transparency laws and patient privacy and security regulation by the federal government and by the U.S. states
and foreign jurisdictions in which 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 providing remuneration, 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
healthcare programs 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 civil penalties, including civil whistleblower or qui tam actions, against
individuals or entities for, among other things, knowingly presenting, or causing to be presented, to the federal
government, including the Medicare and Medicaid programs, claims for payment that are false or fraudulent or
making a false statement 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 or caused 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 claimed or is false or fraudulent;
● the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal
criminal statutes that prohibit knowingly and 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 the payor (e.g., public or private), knowingly and willfully embezzling or stealing from a healthcare
benefit program, willfully obstructing a criminal investigation of a healthcare offense and knowingly and
willfully falsifying, concealing or covering up by any trick or device a material fact or making any 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 respective business associates that create,
receive, maintain or transmit individually identifiable health information for or on behalf of a covered entity, with
respect to 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 and Education Reconciliation Act, or the Affordable Care Act, and its
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implementing regulations, which imposed annual reporting requirements for manufacturers of drugs, devices,
biologicals and medical supplies for certain payments and “transfers of value” provided to physicians and
teaching hospitals, 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 civil monetary 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 claims involving healthcare items or services reimbursed by non-governmental
third-party payors, including private insurers; state laws that require pharmaceutical companies to comply with
the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance
promulgated by the federal government or otherwise restrict payments that may be made to healthcare providers;
state and foreign laws that require drug manufacturers to report information related to payments and other
transfers of value to physicians and other healthcare providers or marketing expenditures; and state and foreign
laws governing the privacy and security of health information in certain circumstances, many of which differ
from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
Further, the Affordable Care Act, among other things, amended the intent requirement of the federal Anti-Kickback Statute
and certain criminal statutes governing healthcare 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 Act provided that the government may assert that
a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or
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 law involving 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 governmental
regulations 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 our operations, 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 and may 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 or delay marketing approval of PEDMARK®, restrict or regulate post-approval activities
and affect our ability to profitably sell PEDMARK®.
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 industry and new laws and judicial decisions, or new interpretations of existing laws or
decisions, related to healthcare availability, the method of delivery or payment for healthcare products and services could
negatively impact our business, financial condition, results of operations and prospects. There is significant interest in
promoting healthcare reform. Among other things, healthcare reform may contain provisions that may reduce the
profitability of drug products, including, for example, revising the methodology by which rebates owed by manufacturers
for covered outpatient drugs under the Medicaid Drug Rebate Program are calculated, extending the Medicaid Drug Rebate
Program to utilization of prescriptions of individuals enrolled in Medicaid managed care plans, imposing mandatory
discounts for certain Medicare Part D beneficiaries, and subjecting drug manufacturers to payment of an annual fee.
We expect that healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria
and in additional downward pressure on the price that we receive for our product. Any reduction in reimbursement from
Medicare or other government programs may result in a similar reduction in payments from private payors. The
implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate
revenue or commercialize our drugs.
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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. The continuing efforts of the government,
insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of
healthcare may adversely affect:
● the demand for our product;
● our ability to set a price that we believe is fair for our product;
● our ability to obtain coverage and reimbursement approval for our 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 could have 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 hazardous materials, including the components of our product and other hazardous
compounds. We and our manufacturers and suppliers are subject to laws and regulations governing the use, manufacture,
storage, handling, and disposal of these hazardous materials. In some cases, these hazardous materials and various wastes
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 in costly clean-up and liabilities under
applicable laws and regulations governing the use, storage, handling, and disposal of these materials and specified waste
products. Although we believe that the safety procedures utilized by us and our third-party manufacturers for handling and
disposing of these materials generally comply with the standards prescribed by these laws and regulations, we cannot
guarantee that this is the case or eliminate the risk of accidental contamination or injury 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 or
other applicable authorities may curtail our use of specified materials and/or interrupt our business operations.
Furthermore, environmental laws and regulations are complex, change frequently, and have tended to become more
stringent. We cannot predict the impact of such changes and cannot be certain of our future compliance. We do not
currently carry biological or hazardous waste insurance coverage.
Our employees, sales agents and consultants may engage in misconduct or other improper activities, including
noncompliance with regulatory standards and requirements.
We are exposed to the risk of fraud or other misconduct by our employees, sales agents or consultants. Misconduct could
include failures to comply with FDA regulations, provide accurate information to the FDA, comply with manufacturing
standards, comply with federal and state healthcare fraud and abuse laws and regulations, report financial information or
data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the
healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing, and
other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing
and promotion, sales commission, customer incentive programs, and other business arrangements. Misconduct could also
involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions
and serious harm to our reputation. It is not always possible to identify and deter such misconduct, and the precautions we
take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in
protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance
with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves
or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant
fines or other sanctions.
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Risks Related to Commercialization of Our Product
After regulatory approvals in the United States, European Union and other territories, the commercial success of
our product will depend on market awareness and acceptance of our product.
After obtaining marketing approval for PEDMARK®, it may not gain market acceptance among physicians, key opinion
leaders, healthcare payors, patients and the medical community. Market acceptance of PEDMARK® depends on a number
of factors, including:
● the timing of market introduction;
● its efficacy and safety, as demonstrated in clinical trials;
● the clinical indications for which it is approved, and the label approved by regulatory authorities for use with the
product, including any precautions, warnings or contraindications that may be required on the label;
● acceptance by physicians, key opinion leaders and patients of PEDMARK® 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. PEDMARK®, may be accepted in only limited capacities or
not at all. If PEDMARK® is not accepted by the market to the extent that we expect, we may not be able to generate
revenue and our business would suffer.
If the market opportunities for our product are smaller than we believe they are, then our revenues may be
adversely affected, and our business may suffer.
The market opportunities that our product is being developed to address are rare. Our projections of both the number of
people who are administered cisplatin, as well as the subset of people who have the potential to benefit from treatment with
our product, and our assumptions relating to pricing are based on estimates. Given the small number of patients that we are
targeting, our eligible patient population and pricing estimates may differ significantly from the actual market addressable
by our product.
Coverage and reimbursement may be limited or unavailable in certain market segments for our product, which
could make it difficult for us to sell our product profitably.
There is significant uncertainty related to third-party coverage and reimbursement of newly approved pharmaceuticals.
Market acceptance and sales of our product will depend significantly on the availability of coverage and adequate
reimbursement from third-party payors and may be affected by existing and future healthcare reform measures. Patients
who are prescribed treatments for their conditions and providers performing the prescribed services generally rely on third-
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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 and establish reimbursement levels. Increasingly, third-party payors are requiring that drug
companies provide them with predetermined discounts from list prices and are challenging the prices charged for drugs and
products. Coverage and reimbursement may not be available for PEDMARK® and, even if coverage is provided, the level
of reimbursement may not be satisfactory. Inadequate reimbursement levels may adversely affect the demand for, or the
price of, PEDMARK®.
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 other things:
● 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 that could require us to conduct expensive pharmacoeconomic studies and provide
supporting scientific, clinical and cost-effectiveness data for the use of our product to 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
the medical necessity and cost-effectiveness of new products, coverage may be limited to specific drug products on an
approved list, or formulary, which might not include all of the FDA-approved drug products for a particular indication.
There may also be formulary placements that result in lower reimbursement levels and higher 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
provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Adequate third-
party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on
our investment in product development. Additionally, coverage and reimbursement for 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 payors will 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 our product. Also, we cannot be sure that
reimbursement amounts will not reduce the demand for, or the price of, our product. If reimbursement is not available or is
available only to limited levels, we may not be able to commercialize our product. In the United States, third-party payors
are increasingly attempting to contain healthcare costs by limiting both coverage and the level of reimbursement of new
drugs. Third-party payors are increasingly challenging the prices charged for medical products and services, examining the
medical necessity and reviewing the cost-effectiveness of drug products and medical services and questioning safety and
efficacy. As a result, significant uncertainty 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 on the pricing of drugs. Additionally, emphasis on
managed care in the United States has increased and we expect will continue to increase the pressure on drug pricing. If
third-party payors do not consider our product to be cost-effective compared to other available therapies, they may not
cover our product or, if they do, the level of payment may not be sufficient to allow us to sell our product 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 these areas in the foreseeable future. Even if favorable coverage and reimbursement
status is attained for our product, less favorable coverage policies and reimbursement rates may be implemented in the
future.
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We face substantial competition, which may result in others discovering, developing or commercializing products
more successfully, than we do.
The life sciences industry is highly competitive, and we face significant competition from many pharmaceutical,
biopharmaceutical and biotechnology companies that are generally developing and marketing therapeutic products. Such
competition may include large pharmaceutical and biotechnology companies, specialty pharmaceutical and generic
companies and medical technology companies. Our future success depends on our ability to demonstrate and maintain a
competitive advantage with respect to the design, development and commercialization of our product for the treatment of
orphan and ultra-orphan diseases for which there is a small patient population in both the United States and in all other
potential markets. A drug designated an orphan drug may receive up to seven years of exclusive marketing in the United
States for that indication.
Many of our potential competitors have significantly greater financial, manufacturing, marketing, development, technical
and human resources than we do. Large pharmaceutical and biotechnology companies, in particular, have extensive
experience in clinical testing, obtaining regulatory approvals, recruiting patients and in manufacturing clinical products.
These companies also have significantly greater research and marketing capabilities than we do and may also have
products that have been approved or are in late stages of development, and have collaborative arrangements in our target
markets with leading companies and research institutions. Established companies may also invest heavily to accelerate
discovery and development of compounds that could make our product obsolete. As a result of all of these factors,
maintaining orphan drug designation for our product is essential to our viability since our competitors may, among other
things:
● have greater name and brand recognition, financial, manufacturing, marketing, development, technical 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.
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 to compete 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 maintain orphan drug designation as well
as:
● 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;
● our ability to commercialize and market our product;
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● our ability to manufacture and sell commercial quantities of our product;
● acceptance of our product by physicians, other healthcare providers and patients; and
● the cost of treatment in relation to alternative therapies.
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 be considerable 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 been obtained. Reference pricing used by various European Union member states and parallel
distribution, or arbitrage between low-priced and high-priced member states, 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 our product to other
available therapies in order to obtain or maintain reimbursement or pricing approval. Publication of discounts by third-
party payors or authorities may lead to further pressure on the prices or reimbursement levels within the country of
publication and other countries. If reimbursement of our product 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 product 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 that our product may be rendered obsolete or uneconomical by new discoveries before
we recover any expenses incurred in connection with their development. If our product is rendered obsolete by
advancements in pharmaceutical technologies, our prospects will suffer.
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 product. Patients have received substantial damage awards in some jurisdictions against pharmaceutical
companies based on claims for injuries allegedly caused by the use of pharmaceutical 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. However, our insurance may not reimburse us for certain
claims or the coverage may not be sufficient to cover claims made against us. We cannot predict all of the possible harms
or side effects that may result from the use of our drug and, therefore, the amount of insurance coverage we currently hold
may not be adequate to cover all liabilities we might incur. If we are sued for any injury allegedly caused by our product,
our liability could exceed our ability to pay the liability. Whether or not we are ultimately successful in any adverse
litigation, such litigation could consume substantial amounts of our financial and managerial 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 Government Regulation
PEDMARK® is subject to ongoing regulatory review. If we fail to comply with continuing United States and applicable
foreign regulations, we could lose those approvals, and our business would be severely harmed.
We are and will continue to be subject to continuing regulatory review for our product, including the review of our required
nonclinical and clinical post-marketing studies, and other clinical results which are reported after our drug becomes
commercially available. As greater numbers of patients use a drug following its approval, side effects and other problems
may be observed after approval that were not seen or anticipated during preapproval clinical studies and trials. In addition,
both we and the manufacturing facilities we use to make our product will also be subject to periodic review and inspection
by the FDA. The subsequent discovery of previously unknown problems with us, the manufacturing facilities or our
product may result in restrictions on us, the manufacturing facilities or our product, including withdrawal of our product
from the market. If we fail to comply with applicable continuing regulatory requirements, we may be subject to fines,
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suspension, or withdrawal of regulatory approval, product recalls and seizures, operating restrictions, and criminal
prosecutions.
Our product promotion and advertising are also subject to regulatory requirements and continuing regulatory review. In
particular, the marketing claims we will be permitted to make in labeling or advertising regarding our product will be
limited by the terms and conditions of the FDA-approved labeling and available scientific data. We must submit copies of
our advertisements and promotional labeling to the FDA at the time of initial publication or dissemination. If the FDA
believes these materials or statements promote our product for unapproved indications, or with unsubstantiated claims, or if
we fail to provide appropriate safety related information, the FDA could allege that our promotional activities misbrand our
product. Specifically, the FDA could issue an untitled letter or warning letter, which may demand, among other things, that
we cease such promotional activities and issue corrective advertisements and labeling to all recipients of the misbranded
materials. The FDA also could take enforcement action including seizure of allegedly misbranded product, injunction, or
criminal prosecution against us and our officers or employees. If we repeatedly or deliberately fail to submit such
advertisements and labeling to the agency, the FDA could withdraw our approvals. Moreover, the Department of Justice
can bring civil or criminal actions against companies and executives that promote drugs or biologics for unapproved uses,
based on the Federal Food, Drug, and Cosmetic Act, the False Claims Act, and other federal laws governing the marketing
and reimbursement for such products under federally supported healthcare programs such as Medicare and Medicaid.
Monetary penalties in such cases have often been substantial, and civil penalties can include costly mandatory compliance
programs and potential exclusion of a company’s products from federal healthcare programs.
Enacted and future legislation or judicial action may increase the difficulty and cost for us to commercialize
PEDMARK®
In the United States, there have been a number of court cases, legislative and regulatory changes, and other potential
changes relating to the healthcare system that restrict or regulate post-approval activities, which may affect our ability to
profitably sell PEDMARK® or any other drug candidates for which we obtain marketing approval.
The Medicare Prescription Drug Improvement and Modernization Act of 2003, or MMA, changed the way Medicare
covers and pays for drug products. The legislation expanded Medicare coverage for outpatient drug purchases by those
covered by Medicare under a new Part D and introduced a reimbursement methodology based on average sales prices for
Medicare Part B physician-administered drugs. In addition, this legislation authorized Medicare Part D prescription drug
plans to use formularies whereby they can limit the number of drugs that will be covered in any therapeutic class. As a
result of this legislation and the expansion of federal coverage of drug products, there is additional pressure to contain and
reduce costs. While the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow
Medicare coverage policy and payment limitations in setting their own reimbursement rates, and any reduction in
reimbursement that results from the MMA may result in a similar reduction in payments from private payors. These cost
reduction initiatives and other provisions of the MMA could decrease the coverage and reimbursement that we receive for
our product and could seriously harm our business. Manufacturers’ contributions to this area, including donut hole
coverage (as described below) or potential excise taxes, are increasing and are subject to additional changes in the future.
In 2010, former President Obama signed into law the Patient Protection and Affordable Care Act, as amended by the
Health Care and Education Reconciliation Act of 2010 (together, the “Health Care Reform Law”), a sweeping law intended
to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against
fraud and abuse, add new transparency requirements for healthcare and health insurance industries, impose new taxes and
fees on the health industry, and impose additional health policy reforms. The Health Care Reform Law, among other things,
revised the definition of Average Manufacturer Price used by the Medicaid Drug Rebate Program for reporting purposes,
imposed a significant annual fee on companies that manufacture or import branded prescription drug products and
established an annual non-deductible fee on entities that sell branded prescription drugs or biologics to specified
government programs in the United States. The Health Care Reform Law also expanded the 340B drug discount program
(excluding orphan drugs), including the creation of new penalties for non-compliance and included a discount (now 70%,
on brand name drugs for Medicare Part D participants in the coverage gap, or “donut hole.” The Health Care Reform Law
increased the Medicaid rebates for line extensions or reformulated drugs, which could substantially increase our Medicaid
rebate rate (in effect limiting reimbursement for these patients).
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Beginning in January 2017, former President Trump signed two Executive Orders and other directives designed to delay
the implementation of certain provisions of the Health Care Reform Law or otherwise circumvent some of the
requirements for health insurance mandated by the Health Care Reform Law. These actions include directing applicable
federal agencies to waive, defer, grant exemptions from, or delay the implementation of any provision of the Health Care
Reform Law that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or
manufacturers of pharmaceuticals or medical devices. On October 13, 2017, an Executive Order was signed terminating
the cost sharing subsidies that reimburse insurers under the Health Care Reform Law. Several state Attorneys Generals
filed suit to stop the administration from terminating the subsidies, but their request for a restraining order was denied by a
federal judge in California on October 25, 2017. Further, on June 14, 2018 the United States Court of Appeals for the
Federal Circuit ruled that the federal government was not required to pay more than $12.0 billion in Health Care Reform
Law risk corridor payments to third-party payors. The effects of this gap in reimbursement on third-party payors, the
viability of the Health Care Reform Law marketplace, providers, and our business, are not yet known. On December 18,
2019, the United States Court of Appeals for the Fifth Circuit ruled that the Health Care Reform Law’s individual mandate
is unconstitutional but sent the matter back down to a district court to determine whether that provision can be removed
from the rest of the Health Care Reform Law. On March 2, 2020, the U.S. Supreme Court agreed to review the Fifth
Circuit’s ruling, and oral argument was heard on November 10, 2020. On June 17, 2021, the U.S. Supreme Court dismissed
the challenge to the Health Care Reform Law in a 7-2 decision.
Additionally, in response to controversies regarding pricing of drug products, there has been a recent push to propose
legislation, both on state and federal levels, that would require greater disclosure as to the reasoning behind drug prices
and, in some cases, could give state or federal-level commissions the right to impose cost controls on certain drugs. These
and other new provisions are likely to continue the pressure on pharmaceutical pricing, may require us to modify our
business practices with healthcare practitioners, and may also increase our regulatory burdens and operating costs. In that
regard, President Biden and members of Congress in both parties have expressed concerns about high drug prices.
However, whether and to what extent any such positions will result in changes of the law, and how any such changes could
impact our business, cannot be determined at this time.
Legislative and regulatory proposals also have been made to expand post-approval requirements, restrict sales and
promotional activities for drug products, and with respect to orphan drug designation and exclusivity. In addition, increased
scrutiny by the United States Congress of the FDA’s approval process may subject us to more stringent product labeling
and post-marketing testing and other requirements. Delays in feedback from the FDA may affect our ability to quickly
update or adjust our label in the interest of patient adherence and tolerability. We cannot predict whether other legislative
changes will be adopted or how such changes would affect the pharmaceutical industry generally and specifically the
commercialization of PEDMARK®.
If we fail to obtain or subsequently maintain orphan drug exclusivity or regulatory exclusivity for PEDMARK®,
our competitors may sell products to treat the same conditions at greatly reduced prices, and our revenues would be
significantly adversely affected.
In the United States, orphan drug designation entitles a party to financial incentives such as opportunities for grant funding
towards clinical trial costs, tax advantages, and user-fee waivers. The company that first obtains FDA approval for a
designated orphan drug for a given rare disease receives marketing exclusivity for use of that drug for the stated disease or
condition for a period of seven years, with an additional six months of exclusivity if the product also qualifies for pediatric
exclusivity. Orphan drug exclusive marketing rights may be lost if the FDA later determines that the request for
designation was materially defective, a subsequent product is deemed clinically superior, or if the manufacturer is unable to
deliver sufficient quantity of the drug.
Because the extent and scope of patent protection for some of our drug products may be particularly limited, orphan drug
designation – and ultimately, orphan drug exclusivity – is especially important for our product. For eligible drugs, we plan
to rely on the orphan exclusivity period to maintain a competitive position. However, if we do not obtain orphan drug
exclusivity for our drug candidates or we cannot maintain orphan exclusivity for our drug candidates, our competitors may
then sell the same drug to treat the same condition and our revenues will be reduced. Also, without strong patent
protection, competitors may sell a generic version upon the expiration of orphan exclusivity if our patent position is not
upheld.
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Even after an orphan drug is approved, the FDA can subsequently approve a drug for the same condition if the FDA
concludes that the later drug is safer, more effective or makes a major contribution to patient care. The FDA can
discontinue orphan drug exclusivity after it has been granted if the orphan drug cannot be manufactured in sufficient
quantities to meet demand.
Finally, there can be no assurance that the exclusivity provisions currently in the law may not be changed in the future and
the impact of any such changes (if made) on us. The orphan drug exclusivity contained in the Orphan Drug Act has been
the subject of recent scrutiny from the press, from some members of Congress and from some in the medical community.
There can be no assurance that the exclusivity granted in the Orphan Drug Act to orphan drugs approved by the FDA will
not be modified in the future, and as to how any such change might affect our product.
Changes to the Orphan Drug Act or successful legal challenges to the FDA’s interpretation of the Orphan Drug Act
may affect our ability to obtain or subsequently maintain orphan drug exclusivity or affect the scope of orphan drug
exclusivity for our product.
There can be no assurance whether the exclusivity provisions in the Orphan Drug Act may be changed in the future and the
impact of such changes, if made on us.
The orphan drug exclusivity contained in the Orphan Drug Act has been the subject of recent scrutiny from the press, from
some members of Congress and from some in the medical community. Furthermore, the FDA’s interpretations of the
Orphan Drug Act have been successfully challenged in court and future court decisions could continue that trend. There
can be no assurance that the exclusivity granted in the Orphan Drug Act to orphan drugs approved by the FDA will not be
modified in the future, and as to how any such change might affect our product, if approved.
Our operations and relationships with healthcare providers, healthcare organizations, customers and third-party
payors are subject to applicable anti-bribery, anti-kickback, fraud and abuse, transparency and other healthcare
laws and regulations, which could expose us to, among other things, enforcement actions, criminal sanctions, civil
penalties, contractual damages, reputational harm, administrative burdens and diminished profits and future
earnings.
Our current and future arrangements with healthcare providers, healthcare organizations, third-party payors, customers, and
patients expose us to broadly applicable anti-bribery, fraud and abuse and other healthcare laws and regulations that may
constrain the business or financial arrangements and relationships through which we research, market, sell and distribute
our drug. In addition, we may be subject to patient data privacy and security regulation by the U.S. federal government and
the states and the foreign governments in which we conduct our business. Restrictions under applicable federal and state
anti-bribery and healthcare laws and regulations include the following:
•
the Federal health care program Anti-Kickback Statute, which prohibits individuals and entities from, among
other things, knowingly and willfully soliciting, offering, receiving or providing remuneration, 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, order or
recommendation of, any good or service, for which payment may be made under a federal and state healthcare program
such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the statute or specific intent
to violate it in order to have committed a violation;
•
the federal criminal and civil false claims and civil monetary penalties laws, including the federal False Claims
Act, which can be imposed through civil whistleblower or qui tam actions against individuals or entities, prohibits, among
other things, knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false
or fraudulent, knowingly making, using or causing to be made or used, a false record or statement material to a false or
fraudulent claim, or from knowingly making a false statement to avoid, decrease or conceal an obligation to pay money to
the federal government. In addition, certain marketing practices, including off-label promotion, may also violate false
claims laws. Moreover, the government may assert that a claim including items and services resulting from a violation of
the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act;
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•
HIPAA, which imposes criminal and civil liability, prohibits, among other things, knowingly and willfully
executing, or attempting to execute a scheme to defraud any healthcare benefit program, or knowingly and willfully
falsifying, concealing or covering up a material fact or making any materially false statement in connection with the
delivery of or payment for healthcare benefits, items or services; similar to the federal Anti-Kickback Statute, a person or
entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a
violation;
•
HIPAA, as amended by HITECH, which impose obligations on certain healthcare providers, health plans, and
healthcare clearinghouses, known as covered entities, as well as their business associates that perform certain services
involving the storage, use or disclosure of individually identifiable health information, including mandatory contractual
terms, with respect to safeguarding the privacy, security, and transmission of individually identifiable health information,
and require notification to affected individuals and regulatory authorities of certain breaches of security of individually
identifiable health information;
•
the federal legislation commonly referred to as the Physician Payments Sunshine Act, enacted as part of the ACA,
and its implementing regulations, which requires certain manufacturers of covered drugs, devices, biologics and medical
supplies that are reimbursable under Medicare, Medicaid, or the Children’s Health Insurance Program, with certain
exceptions, to report annually to CMS information related to certain payments and other transfers of value to physicians
(defined to include doctors, dentists, optometrists, podiatrists and chiropractors), physician assistants, certain types of
advanced care practice nurses and teaching hospitals, as well as ownership and investment interests held by the physicians
described above and their immediate family members, with the information made publicly available on a searchable
website;
•
the U.S. Foreign Corrupt Practices Act of 1977, as amended, which prohibits, among other things, U.S. companies
and their employees and agents from authorizing, promising, offering, or providing, directly or indirectly, corrupt or
improper payments or anything else of value to foreign government officials, employees of public international
organizations and foreign government owned or affiliated entities, candidates for foreign political office, and foreign
political parties or officials thereof;
•
analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, that may apply
to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental
third-party payors, including private insurers; and
•
certain state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary
compliance guidelines and the relevant compliance guidance promulgated by the federal government in addition to
requiring drug and therapeutic biologics manufacturers to report information related to payments to physicians and other
healthcare providers or marketing expenditures and pricing information, state and local laws that require the registration of
pharmaceutical sales representatives, and state laws governing the privacy and security of health information in certain
circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus
complicating compliance efforts.
If we or our collaborators, manufacturers or service providers fail to comply with applicable federal, state or foreign laws
or regulations, we could be subject to enforcement actions, which could affect our ability to develop, market and sell our
product successfully and could harm our reputation and lead to reduced acceptance of our product by the market. These
enforcement actions include not only civil and criminal penalties, but also exclusion from participation in government-
funded healthcare programs, and exclusion from eligibility for the award of government contracts for our product.
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Efforts to ensure that our current and future business arrangements with third parties comply with applicable healthcare
laws and regulations could involve substantial costs. It is possible that governmental authorities will conclude that our
business practices do not comply with current or future statutes, regulations, agency guidance or case law involving
applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any
such requirements, we may be subject to significant penalties, including civil, criminal and administrative penalties,
damages, fines, disgorgement, imprisonment, the curtailment or restructuring of our operations, loss of eligibility to obtain
approvals from the FDA, exclusion from participation in government contracting, healthcare reimbursement or other
government programs, including Medicare and Medicaid, integrity oversight and reporting obligations, or reputational
harm, any of which could adversely affect our financial results. Although effective compliance programs can mitigate the
risk of investigation and prosecution for violations of these laws, these risks cannot be entirely eliminated. Any action
against us for an alleged or suspected violation could cause us to incur significant legal expenses and could divert our
management’s attention from the operation of our business, even if our defense is successful. In addition, achieving and
sustaining compliance with applicable laws and regulations may be costly to us in terms of money, time and resources.
Risks Related to Third Parties
We rely on third-party suppliers and other third parties for production of our product and our dependence on these
third parties may impair the advancement of our research and development programs and the development of our
product.
We do not currently own or operate manufacturing facilities for clinical or commercial production of our product. We lack
the resources and the capability to manufacture our product on a clinical or commercial scale. Instead, we rely on, and
expect to continue to rely on, third parties for the supply of raw materials and manufacture of drug supplies necessary to
conduct our preclinical studies and clinical trials. Our reliance on third parties may expose us to more risk than if we were
to manufacture our current product or other products ourselves. Delays in production by third parties could delay our
clinical 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 and formulation of our product means that we are subject to the risk that the products may
have manufacturing defects that we have limited ability to prevent or control. Although we oversee these activities to
ensure compliance with our quality standards, budgets and timelines, we have had and will continue to have less control
over the manufacturing of our product than potentially would be the case if we were to manufacture our product. Further,
the third parties we deal with could have staffing difficulties, might undergo changes in priorities or may become
financially distressed, which would adversely affect the manufacturing and production of our product. In addition, a third
party could be acquired by, or enter into an exclusive arrangement with, one of our competitors, which would adversely
affect our ability to access the formulations we require.
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. In addition, it may be very challenging, and in some cases impossible, to find replacement
service providers that can develop and manufacture our drug in an acceptable manner and at an acceptable cost and on a
timely basis. The sale of products containing any defects or any delays in the supply of necessary services could adversely
affect our business, financial condition, results of operations, and prospects.
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 timeframe and at an acceptable cost or at
all.
We plan to rely on third parties to conduct clinical trials for our product. If these third parties do not successfully
carry out their contractual duties or meet expected deadlines, we may be unable to obtain marketing approval for
or commercialize our product outside of the United States.
Clinical trials must meet applicable foreign regulatory requirements. We do not have the ability to independently conduct
clinical trials for our product abroad. We expect to rely on third parties, such as CROs, medical institutions, clinical
investigators and contract laboratories, to conduct all of our clinical trials of our product; however, we remain responsible
for ensuring that each of our clinical trials is conducted in accordance with our investigational plan and protocol. Moreover,
the other foreign regulatory authorities require us to comply with IND and human subject protection regulations and cGCP
standards, for conducting, monitoring, recording, and reporting the results of clinical trials to ensure that the data and
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results are scientifically credible and accurate and that the trial subjects are adequately informed of the potential risks of
participating in clinical trials. Our reliance on third parties does not relieve us of these responsibilities and requirements.
Regulatory authorities enforce these cGCP through periodic inspections of trial sponsors, principal investigators and trial
sites. If we or any of our third-party contractors fail to comply with applicable cGCP, the clinical data generated in our
clinical trials may be deemed unreliable and the foreign regulatory authorities may require us to perform additional clinical
trials before approving our marketing applications. There is no assurance that upon inspection by a given regulatory
authority, such regulatory authority will determine that any of our clinical trials comply with cGCP. Our failure to comply
with these regulations may require us to repeat clinical trials, which would delay the marketing approval process abroad.
There are significant requirements imposed on us and on clinical investigators who conduct clinical trials that we sponsor.
Although we are responsible for selecting qualified CROs or clinical investigators, providing them with the information
they need to conduct the clinical trials properly, ensuring proper monitoring of the clinical trials, and ensuring that the
clinical trials are conducted in accordance with the general investigational plan and protocols contained in the IND, we
cannot ensure that the CROs or clinical investigators will maintain compliance with all regulatory requirements at all times.
The pharmaceutical industry has experienced cases where clinical investigators have been found to incorrectly record data,
omit data, or even falsify data. We cannot ensure that the CROs or clinical investigators in our trials will not make mistakes
or otherwise compromise the integrity or validity of data, any of which would have a significant negative effect 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 foreign regulatory
agencies to delay, suspend or terminate our clinical trials at any phase. These problems could include the possibility that we
may not be able to manufacture sufficient quantities of materials for use 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 or successfully
complete clinical trials in a timely fashion, if at all. Furthermore, we or foreign regulatory agencies may suspend clinical
trials of our product 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 adverse events occurring in our trials or otherwise, or if we or they find
deficiencies in the clinical trial process or conduct of the investigation.
The foreign regulatory agencies could also require additional clinical trials before or after granting of marketing approval
for our product, which would result in increased costs and significant delays in the development and commercialization of
our product and could result in the withdrawal of our product from the market after obtaining marketing approval. Our
failure to adequately demonstrate the safety and efficacy of our product in clinical development could delay or prevent
obtaining marketing approval of the product and, after obtaining marketing approval, data from post-approval studies could
result in our product being withdrawn from the market, either of which would likely have a material adverse effect on our
business.
Risks Related to Our Intellectual Property
Our commercial success will rely upon the strength of our patents to exclude competition.
Our commercial success will depend in large part on our ability to use patents and regulatory exclusivity to exclude others
from competing with our product. The patent position of emerging pharmaceutical companies like us can be highly
uncertain and involve complex legal and technical issues. Until our licensed patents are interpreted by a court, either
because we have sought to enforce them against a competitor or because a competitor has preemptively challenged them,
we will not know the breadth of protection that they will afford us. Our patents may not contain claims sufficiently broad to
prevent others from practicing our technologies or marketing competing products. Third parties may intentionally attempt
to design around our patents or design around our patents so as to compete with 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 be
invalidated 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.
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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 by third parties or that third parties will not claim that we have infringed on their
patents. In the event that our product infringe or violate the patent or other proprietary rights of third parties, we may be
prevented from pursuing product development, manufacturing or commercialization of our product. There may be patents
held by others of which we are unaware that contain claims that our product or operations infringe. In addition, given the
complexities 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 of the 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 are confidential 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 the infringement is deemed willful, or be required to discontinue or
significantly delay development, marketing, selling and licensing of our product and 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 commercially acceptable 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 time and 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 proprietary information to others. If our employees, consultants, contractors or others disclose our data to
others or use data belonging to others in connection with our business, 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 to defend claims of infringement brought by our competitors and others, and
we may institute litigation against others who we believe are infringing our intellectual property rights. The outcome of
intellectual property litigation is subject to substantial uncertainties and may, for example, turn on the interpretation of
claim language 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.
As discussed above under the section entitled “Item 3. Business– Intellectual Property,” we received a letter dated
November 30, 2022, notifying us that CIPLA submitted to the FDA an ANDA (ANDA No. 218028) for a generic version
of PEDMARK® (sodium thiosulfate solution) that contains Paragraph IV Certifications on two of our patents covering
PEDMARK®: the OHSU licensed 190 patent, expiration date January 2038; and the 728 patent, expiration date July 2039.
We received a letter dated January 5, 2023, notifying us that CIPLA submitted to the FDA a Paragraph IV Certification on
the 984 patent. These patents are listed in the FDA’s Orange Book for PEDMARK®. The certifications allege these patents
are invalid or will not be infringed by the manufacture, use, or sale of CIPLA’s sodium thiosulfate solution.
We plan to vigorously defend our intellectual property rights related to PEDMARK®. However, we are unable to predict
the outcome of these petitions, and an invalidation of one or both of these patents may have a material adverse effect on our
ability to protect our rights in PEDMARK® beyond the market exclusivity granted from Orphan Drug Designation and
PUMA.
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Further, on October 29, 2021, Hope filed a petition for inter partes review (IPR2022-00123) with the PTAB to invalidate
the 190 patent, which is exclusively in-licensed from OHSU and relates to a method of using PEDMARK®. The 190 patent
was issued on March 24, 2020. On December 5, 2022, we filed a Motion to Amend the single claim of the 190 patent
focusing on the treatment of medulloblastoma. On April 18, 2023, the PTAB invalidated the only claim of the 190 patent.
The final written decision became effective June 20, 2023. The 190 patent was listed in the Orange Book, but in light of
PTAB’s final written decision on the invalidity of the 190 patent, we requested that the FDA remove the 190 patent from
the Orange Book. Two U.S. patent applications claiming priority through the 190 patent remain pending at the USPTO.
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 all costs 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 them and may have a strong economic incentive to undertake substantial efforts to stop
or delay us from commercializing our product. 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 and
quickly consume our financial resources.
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 to participate in interference proceedings with the USPTO or in other
proceedings outside the United States, including oppositions, to determine priority of invention or patentability. Even if we
are successful in these proceedings, we may incur substantial costs, and the time and attention of our management and
scientific personnel will be diverted from product development or other more productive matters.
Our proprietary rights may not adequately protect our technologies and product.
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 adequate protection of other intellectual property for our technologies, product, and any future
products in the United States and other countries. If we do not adequately protect our intellectual property, competitors may
be able to use our technologies and erode or negate any competitive advantage we may have, which could 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 the same manner as United States laws, and we may encounter significant problems in protecting and
defending our proprietary rights in these countries. We will be able to protect our proprietary rights from unauthorized use
by third parties only to the extent that our proprietary technologies and product are covered by valid and enforceable
patents or are effectively maintained as trade secrets.
We apply for patents covering both our technologies and product, as we deem appropriate. However, we may fail to apply
for patents on important technologies or product in a timely fashion, or at all. Our existing patents and any future patents
we obtain may not be sufficiently broad to prevent others from practicing our technologies or from developing competing
products and technologies. We cannot be certain that our patent applications will be approved 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 selling PEDMARK®, 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 protection for PEDMARK®, our ability to develop
and commercialize PEDMARK® may be adversely affected and we may not be able to prevent competitors 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 legal principles are evolving and remain unresolved. As a result, the validity and
enforceability of patents cannot be predicted with certainty. In addition, we do not know whether:
● we or our licensors were the first to make the inventions covered by each of our issued patents and pending patent
applications;
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● we or our licensors were the first to file patent applications for these inventions;
● any of the patents that cover our product will be eligible to be listed in the FDA’s compendium of “Approved
Drug Products with Therapeutic Equivalence 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 of patent, the scope of its coverage, the availability of regulatory related extensions,
the availability of legal remedies in a particular country, the validity and enforceability of the patents and our financial
ability to enforce our patents and other intellectual property. Our ability to maintain and solidify our proprietary position
for our product will depend on our success in obtaining effective claims and enforcing those claims once granted. Our
issued patents and those that may issue in the future, or those licensed to us, may be challenged, narrowed, invalidated or
circumvented, and the rights granted under any issued patents may not provide us with proprietary protection or
competitive advantages against competitors with similar products.
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 adequate remedies in
respect of that disclosure. Enforcement of claims that a third party has illegally obtained and is using trade secrets is
expensive, time consuming and uncertain. In addition, foreign courts are sometimes less willing than United States courts
to protect trade secrets. If our competitors independently develop equivalent knowledge, methods and know-how, we
would not be able to assert our trade secrets against them and our business could be harmed.
We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on our product in all countries throughout the world would be prohibitively
expensive, and our intellectual property 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 do not protect intellectual property rights to the same
extent as federal and state laws in the United States. For example, many foreign countries have compulsory licensing laws
under which a patent owner must grant licenses to third parties. Consequently, we may not be able to prevent third parties
from practicing our inventions in all countries outside the United States, or from selling or importing products made using
our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions
where we have not obtained patent protection to develop their own products and further, may export otherwise infringing
products to territories where we have patent protection, but enforcement rights are not as strong as those in the United
States. These products may compete with our product in jurisdictions where we do not have any issued patents and our
patent claims or other intellectual rights may not 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 of certain countries do not favor the enforcement of patents and other intellectual property
protection, which could make it difficult for us to stop the infringement of our patents generally. Proceedings to enforce our
patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other
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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 could provoke 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 be commercially meaningful.
Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a
significant commercial advantage from the intellectual property that we develop or license.
Third parties may seek approval to market their own products similar to or otherwise competitive with our product. In these
circumstances, we may need to defend or assert our patents, including by filing lawsuits alleging patent infringement. For
example, we have received a Paragraph IV certification notice letter from CIPLA, Inc., or CIPLA, indicating that it has
submitted to FDA an abbreviated new drug application, or ANDA, seeking approval to manufacture and sell a generic
version PEDMARK® (sodium thiosulfate solution) prior to the expiration of certain Orange Book-listed patents protecting
PEDMARK®. In an ANDA, the applicant must certify for each listed patent that (1) the required patent information has not
been filed; (2) the listed patent has expired; (3) the listed patent has not expired, but will expire on a particular date and
approval is sought after patent expiration; or (4) the listed patent is invalid, unenforceable or will not be infringed by the
new product. A certification that the new product will not infringe the already approved product’s listed patent or that such
patent is invalid is known as a Paragraph IV certification. The CIPLA ANDA contains Paragraph IV certifications with
respect to two of our patents covering PEDMAR, U.S. Patent ‘190, expiration date May 2038; and ‘728, expiration date
May 2039. We filed a patent infringement lawsuit against CIPLA, and vigorously defend and enforce our intellectual
property rights protecting PEDMARK®, but we can offer no assurance that our efforts we will be successful in which case
our business may be materially and adversely affected.
The patent protection for our product may expire before we are able to maximize their commercial value, which
may subject us to increased competition and reduce or eliminate our opportunity to generate product revenue.
The patents for our product have varying expiration dates and, if these patents expire, we may be subject to increased
competition and we may not be able to recover our development costs or market any of our approved products profitably.
In some of the larger potential market territories, such as the United States and Europe, patent term extension or restoration
may be available to compensate for time taken during aspects of the product’s development and regulatory review. For
example, depending on the timing, duration and specifics of FDA marketing approval of our product, if any, one of the
United States patents covering 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. The Hatch-Waxman Act allows a maximum of one patent to be
extended per FDA-approved product. Patent term extension also may be available in certain foreign countries upon
regulatory approval of our product.
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 within applicable 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 though some 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 or obtain the exclusive time period. If we are unable to obtain patent
term extension/restoration or some other exclusivity, we could be subject to increased competition and our opportunity to
establish or maintain product revenue could be substantially reduced or eliminated. Furthermore, we may not have
sufficient time 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 imposed by 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 similar provisions during the patent prosecution process. Periodic maintenance fees,
renewal fees, annuity fees and various other governmental fees on any issued patent and/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 by other means in accordance with the applicable rules, there are many
situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in
partial or complete loss of patent rights in the relevant jurisdiction. If we fail to maintain the patents and patent applications
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directed to our product, our competitors might be able to enter the market earlier than should otherwise have been the case,
which would have a material adverse effect on our business.
We may become involved in lawsuits to protect our patents or other intellectual property rights, which could be
expensive, time-consuming and ultimately unsuccessful.
Competitors may infringe our patents or other intellectual property rights. To counter infringement or unauthorized use, we
may be required to file infringement claims, directly or through our licensors, which can be expensive and time consuming.
In addition, in an infringement proceeding, a court may decide that a patent of ours or of our licensors 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 cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of
our patents or the patents we license at risk of being invalidated or interpreted narrowly and could put our or 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 harmed if 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
result in substantial costs and distraction of our management and other employees. We may not be able to prevent, alone or
with our licensors, misappropriation of our proprietary rights, particularly in countries where the laws may not protect
those rights as fully as in the United States. In addition, potential infringers of our intellectual property rights may have
substantially more resources than we do to defend their position, which could adversely affect the outcome of any such
dispute.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation,
there is a risk that some of our confidential and proprietary information could be compromised by disclosure during this
type of litigation. In addition, there could be public announcements of the results of hearings, motions or other interim
proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a
substantial adverse effect on the price of our common stock.
Third-party claims of intellectual property infringement or misappropriation may adversely affect our business and
could impede our ability to profitably commercialize our product.
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, both within and outside the United States, involving patent and other intellectual property
rights in the biotechnology and pharmaceutical industries, including patent infringement lawsuits, interferences,
oppositions, ex-parte review and inter partes reexamination and post-grant review proceedings before the USPTO and
corresponding foreign patent offices. Numerous United States and foreign issued patents and pending patent applications
owned by third parties exist in the fields in which we are developing and may develop our product. As the biotechnology
and pharmaceutical industries expand and more patents are issued, the risk increases that our product may be subject to
claims of infringement of the patent rights of third parties. If a third party claims that we infringe on their 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 divert management’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 required to 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
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● 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 with claims to materials, formulations, methods of manufacture or methods for
treatment related to the use or manufacture of our product candidate that we failed to identify. For example, applications
filed before November 29, 2000 and certain applications filed after that date that will not be filed outside the United States
remain confidential until issued as patents. Except for the preceding exceptions, patent applications in the United States
and elsewhere are generally published only after a waiting period of approximately 18 months after the earliest filing.
Therefore, patent applications covering our product could have been filed by others without the knowledge of us or our
licensors. Additionally, pending patent applications which have been published can, subject to certain limitations, be later
amended in a manner that could cover our product or the use or manufacture of our product. We may also face a claim of
misappropriation if a third party believes that we inappropriately obtained and used trade secrets of such third party. If we
are found to have misappropriated a third party’s trade secrets, we may be prevented from further using such trade secrets,
and we may be required to pay damages.
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 for treatment, the holders of any such patents would be able to block our ability to
develop and commercialize our product until such patent expired 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 be nonexclusive, which
could result in our competitors gaining access to the same intellectual property.
Ultimately, we could be prevented from commercializing our product, or be forced to cease some aspect of our business
operations, if, as a result of actual or threatened 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 our product. 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 unanticipated costs. In addition, litigation or
threatened litigation could result in significant demands on the time and attention of our management team, distracting
them from the pursuit of other company business. In the event of a successful claim of infringement against us, we may
have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, pay royalties,
redesign our infringing products or obtain one or more licenses from third parties, which may be impossible or require
substantial time and monetary expenditure. In addition, the uncertainties associated with litigation could have a material
adverse effect on our ability to raise the funds necessary to continue our clinical trials, continue our research programs,
license necessary technology from third parties, or enter into development collaborations that would help us develop our
product’s market fully.
Changes in United States patent law could diminish the value of patents in general, thereby impairing our ability to
protect our product.
As is the case with other pharmaceutical companies, our success is heavily dependent on intellectual property, particularly
on obtaining and enforcing patents and patent rights. Obtaining and enforcing patents and patent rights in the
pharmaceutical industry involves both technological and legal complexity, and therefore, is costly, time-consuming and
inherently uncertain. In addition, the United States has recently enacted and is currently implementing wide-ranging patent
reform legislation. Further, several recent United States Supreme Court rulings have either narrowed the scope of patent
protection available in certain circumstances or weakened the rights of patent owners in certain situations. In addition to
increasing uncertainty with regard to our ability to obtain patents in the future, this combination 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 significant changes to United States patent law,
including provisions that affect the way patent applications will be prosecuted, reviewed after issuance, and may also affect
patent litigation. The USPTO is currently developing regulations and procedures to govern administration of the
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AIA, and many of the substantive changes to patent 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 its implementation could increase the
uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of patent rights,
all of which 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 which party 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 patent application 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 we had
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 patent application. Furthermore, our ability to obtain and maintain valid and enforceable patent
rights depends on whether the differences between the licensor’s or our technology 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 are confidential
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 product 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 opportunities for 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 a lower evidentiary standard in USPTO
proceedings compared to the evidentiary standard in United States federal court necessary to invalidate a patent claim, a
third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid as
unpatentable even though the same evidence may 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 to invalidate patent rights that would not have
been invalidated if first challenged by the third party as a defendant in a district court action.
Depending on decisions by the United States Congress, the federal courts, and the USPTO, the laws and regulations
governing patents could change in unpredictable 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 not adequately 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 but that are not covered by the claims of the
patents that we license from others 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 intellectual property 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 that we own or 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 of legal 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 and development safe harbor laws exist, and then use the information
learned from such activities to develop competitive products for sale in our major commercial 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.
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Confidentiality agreements with employees, consultants and others may not adequately prevent disclosure of trade
secrets and protect other proprietary information.
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 secrets and/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/or confidential 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 advisors to enter into confidentiality agreements with us. However, current or
former employees, consultants, contractors and advisers may unintentionally or willfully disclose our confidential
information to competitors, and confidentiality agreements may not provide an adequate remedy in the event of
unauthorized disclosure of confidential information. Enforcing a claim that a third party obtained illegally and is using
trade secrets and/or confidential know-how is expensive, time consuming 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, our competitors may independently develop substantially equivalent proprietary
information and may even apply for patent protection in respect of the same. If successful 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 commercially reasonable terms.
A third party may hold intellectual property, including patent rights, that are important or necessary to the development or
commercialization of our product. It may be necessary for us to use the patented or proprietary technology of third parties
to commercialize our product, in which case we would be 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 materially harm our business.
We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or
disclosed confidential information of third parties.
We have received confidential and proprietary information from third parties. In addition, we employ individuals who were
previously employed at other biotechnology or pharmaceutical companies. We may be subject to claims that we or our
employees, consultants or independent contractors have inadvertently or otherwise improperly used or disclosed
confidential information of these third parties or our employees’ former employers.
Further, we may be subject to ownership disputes in the future arising, for example, from conflicting obligations of
consultants or others who are involved in developing our product. We may also be subject to claims that former employees,
consultants, independent contractors, collaborators or other third parties have an ownership interest in our patents or other
intellectual property. Litigation may be necessary to defend against these and other claims challenging our 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 our rights 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 secrets will be misappropriated or disclosed.
Because we rely on third parties to assist with research and development and to manufacture our product, we must, at
times, share trade secrets with them. We seek to protect our proprietary technology in part by entering into confidentiality
agreements and, if applicable, material transfer agreements, consulting agreements or other similar agreements with our
advisors, employees, third-party contractors and consultants prior to beginning research or disclosing proprietary
information. These agreements typically limit the rights of the third parties to use or disclose our confidential information,
including our trade secrets. Despite the contractual provisions employed when working with third parties, the need to share
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trade secrets and other confidential information increases the risk that such trade secrets become known by our
competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these
agreements. 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 other unauthorized 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 to our trade secrets, although our agreements may contain certain limited
publication rights. For example, any academic institution that we may collaborate with in the 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 the
opportunity to delay publication for a limited time period in order for us to secure patent protection of intellectual property
rights arising from the collaboration, in addition to the opportunity to remove confidential or trade secret information from
any such publication. In the future, we may also conduct joint research and development programs that may require us to
share trade secrets under the terms of our research and development or similar agreements. Despite our efforts to protect
our trade secrets, our competitors may discover our trade secrets, either through breach of our agreements with third
parties, independent development or publication of information by any of our third-party collaborators. A competitor’s
discovery of our trade secrets would impair our competitive position and have an adverse impact on our business.
Risks Related to Our Industry
Drug development involves a lengthy and expensive process with an uncertain outcome, and results of earlier
studies and trials may not be predictive of future trial results.
Conducting clinical trials is a lengthy, time-consuming and expensive process. Before obtaining regulatory approvals for
the commercial sale of any products, we, or our potential partners, must demonstrate through preclinical testing and clinical
trials that our product candidates are safe and effective for their intended uses in humans. We have incurred and may
continue to incur substantial expense and devote a significant amount of time to preclinical testing and clinical trials.
The outcome of clinical testing is inherently uncertain. Failure can occur at any time during the clinical trial process. The
results of preclinical studies and early clinical trials of product candidates may not be predictive of the results of later-stage
clinical trials. In addition, regulations are not static, and regulatory agencies, including the FDA, alter their staff,
interpretations and practices and may in the future impose more stringent requirements than are currently in effect, which
may adversely affect our planned drug development and/or our commercialization efforts. Satisfying regulatory
requirements typically takes a significant number of years and can vary substantially based on the type, complexity and
novelty of the product candidate. Our business, results of operations and financial condition may be materially adversely
affected by any delays in, or termination of, our clinical trials. Factors that could impede our ability to generate
commercially viable products through the conduct of clinical trials include:
● insufficient funds to conduct clinical trials;
● the inability to find partners, if necessary, for support, including research, development, manufacturing or clinical
needs;
● the failure of clinical trials to demonstrate the safety and efficacy of our product to the extent necessary to obtain
regulatory approvals;
● the failure by us or third-party investigators, CROs, or other third parties involved in the research to adhere to
regulatory requirements applicable to the conduct of clinical trials;
● the failure of preclinical testing and early clinical trials to predict results of later clinical trials;
● any delay in completion of clinical trials caused by a regional disturbance where we or our collaborative partners
are enrolling patients in clinical studies, such as pandemic, terrorist activities, or war, or political unrest, a natural
disaster or any other reason or event, resulting in increased costs;
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● any delay in obtaining advice from the FDA or similar regulatory authorities; and
● the inability to obtain regulatory approval of our product candidate following completion of clinical trials, or
delays in obtaining such approvals.
There can be no assurance that if our clinical trials are successfully initiated and completed, we will be able to obtain
approval by regulatory authorities elsewhere in the world in a timely manner, if at all. For example, as described elsewhere,
we received a CRL from the FDA in August 2020 and November 2021, regarding our NDA for PEDMARK®, stating that
it was unable to approve the application in its current form based on deficiencies identified by the FDA after completion of
a pre-approval inspection of the manufacturing facility of our third-party drug product manufacturer. Although we are
successful in resolving the matters raised by the FDA in the CRL, there is no guarantee we will receive regulatory approval
elsewhere in the world for PEDMARK® on a timely basis or at all. If we fail to successfully develop and commercialize
PEDMARK® outside of the United States, we may be unable to generate sufficient revenues to attain profitability, and our
reputation in the industry and in the investment community would likely be damaged, each of which would cause our stock
price to decrease.
We use hazardous materials and chemicals in our research and development, and our failure to comply with laws
related to hazardous materials could materially harm us.
Our research and development processes, while outsourced, does involve the controlled use of hazardous materials, such as
flammable organic solvents, corrosive acids and corrosive bases. Accordingly, we are subject to federal, state, local and
foreign laws and regulations governing the use, manufacture, storage, handling and 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 laws and 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 profitability of our product.
Now that our product has achieved regulatory approval in the United States, we may be materially adversely affected by
the continuing efforts of governmental and third-party payers to contain or reduce health care costs. The constraints on
pricing and availability of competitive products may further limit our pricing and reimbursement policies as well as
adversely impact market acceptance and commercialization of our product.
In many markets, the pricing or profitability of healthcare products is subject to government control. In recent years,
federal, state, provincial and local officials and legislators have proposed or are proposing a variety of price-based reforms
to the healthcare systems in the United States, Canada and elsewhere. Some proposals include measures that would limit or
eliminate payments from third-party payors to the consumer for certain medical procedures and treatments or allow
government control of pharmaceutical pricing. The adoption of any such proposals or reforms could adversely affect the
commercial viability of our product.
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 Care Act 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 pay supplemental rebates and requiring prior authorization by the state program
for use of any drug for which supplemental rebates are not being paid. Managed care organizations continue to seek price
discounts and, in some cases, to impose restrictions on the coverage of particular drugs. Government efforts to reduce
Medicaid expenses may lead to increased use of managed care organizations by Medicaid programs. This may result in
managed care organizations influencing prescription decisions for a larger segment of the population and a corresponding
constraint on prices and reimbursement for our product.
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Since its enactment, there have been judicial and Congressional challenges to numerous aspects of the Affordable Care
Act. There may also be federal and state regulatory changes that impact the Affordable Care Act or healthcare programs,
insurance coverage or reimbursement generally. These efforts have increased uncertainty regarding the availability of
healthcare programs, insurance coverage and reimbursement as a general matter as well as for our product, and we cannot
predict how these events will impact our business.
In addition, there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their
marketed products, which have resulted in several recent Congressional inquiries and proposed bills designed to, among
other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient
programs, reduce the price of drugs under Medicare and reform government program reimbursement methodologies for
products. We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which
could limit the amounts that federal and state governments will pay for healthcare products and services, which could result
in reduced demand for our product or additional pricing pressures.
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 conduct business 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 for shareholders 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 TSX have rules for continued listing, including minimum market capitalization and
other requirements that we might not meet in the future. While we are exercising diligent efforts to maintain the listing of
our common shares on the NASDAQ Capital Market and TSX, there can be no assurance that we will be able to do so, and
our 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 obtain accurate 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 maker will make a market in our common
shares on the OTCBB or any other stock quotation system after delisting. Furthermore, securities quoted over-the-counter
generally 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, but also 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 resell shares 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 common
shares are more likely to be affected by broad market fluctuations, general market conditions, fluctuations in our operating
results, changes in the market’s perception of our business, and announcements made by us, our competitors or parties with
whom we have business relationships. Our ability to issue additional securities 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 the
limited market and low trading volume of our common shares.
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 significant price and volume fluctuations, some of which are unrelated to our operating
performance. From January 1, 2018 to March 25, 2024, the closing trading price of our stock fluctuated from a high of
$18.45 Canadian dollars (“CAD”) per share to a low of CAD$4.38 per share on the TSX. From September 13, 2017 (the
date our common shares were first listed on the Nasdaq Capital Market) to March 25, 2024, 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 volatility of 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.
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The market price of our common shares may be significantly affected by many factors, including without limitation:
● the commercialization of our sole product candidate, PEDMARK®;
● 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 our competitors;
● 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 requiring approval of our shareholders.
At March 25, 2024, our current shareholders separately representing more than 5% ownership of our common shares
collectively represented beneficial ownership of approximately 47.03% of our common shares. In particular, Southpoint
Capital Advisors LP (“Southpoint Capital”) owns or exercises control over approximately 4.0 million shares, representing
approximately 15.09% of our issued and outstanding common shares; Essetifin SpA, owns approximately 3.2 million
shares, or approximately 11.94% of our issued and outstanding common shares; Sonic Fund II, LP, owns approximately 2.4
million shares, or approximately 8.91% of our issued and outstanding common shares; and Solas Capital Management,
owns approximately 1.4 million shares, or approximately 5.1% of our issued and outstanding common shares; and
Southpoint Capital, Essetifin SpA, Sonic Fund II, LP, Solas Capital Management, and 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 a financing), an acquisition or merger
with another company, a sale of substantially all of our assets, the election and removal of directors, or amendments to our
incorporating documents. These shareholders might make decisions that are adverse to your interests. The concentration of
ownership could have the effect of delaying, preventing or deterring a change of control of our Company, which could
adversely affect the market price of our common shares or deprive our other shareholders 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 sold in 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 impair our ability to obtain additional financing. At March 25, 2024, we had
outstanding warrants to purchase approximately 0.2 million shares of our common shares at an exercise price of $11.00 per
common share. In addition, as of March 25, 2024, there were approximately 4.8 million common shares issuable upon
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the exercise of outstanding stock options with a weighted average exercise price of $6.27 per common share. We may also
issue further warrants as part of any future financings in addition to the additional 2.1 million options to acquire our
common shares currently remaining and available for future awards under our stock option plan.
We may need to raise additional funds in the future to continue our operations. Any equity offering could result in
significant dilution to the ownership interests 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 commercialize our product, we may need to raise additional funds
through either the sale of additional equity, the issuance of securities convertible into equity, the issuance of debt, the
establishment of collaborations that provide us with funding, the out-license or sale of certain aspects of our intellectual
property portfolio, or from other sources. The most likely sources of financing that may be available to us in the near term
are the sale 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 any such 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 of common shares, or securities convertible or
exercisable into common shares, could result in immediate and substantial dilution to present and prospective holders of
our common shares. Alternatively, we may rely on debt financing and assume debt obligations that require us to make
substantial interest and capital payments and 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 debt and 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 currently intend to use our available cash to commercialize our product in the United States
while continuing to seek regulatory approval for, and to invest in precommercial activities for PEDMARK® outside of the
United States. 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 have significant flexibility with respect to such use. The actual amounts and
timing of expenditures will vary significantly depending on a number of factors, including the 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 an adverse 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 be able to recoup your investment through the payment of dividends on your
common shares and the lack of a dividend payable on our common shares might depress the value of your
investment.
For the foreseeable future, we plan to use all available funds to finance the commercialization of our product and operate
our business. Our directors will determine 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 plans to 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 this Annual 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 income tax consequences and may be subject to
additional reporting requirements. We have not made the analysis necessary to determine whether or not we are currently a
PFIC 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 subsequent taxable year. 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”) may require, including a PFIC annual information
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statement, in order to enable the U.S. Holder to make and maintain a “qualified electing fund” election. For a more detailed
explanation of the tax consequences of PFIC classification to U.S. Holders, see the section of this Annual Report entitled
“Material U.S. Federal Income Tax Considerations.” This paragraph is qualified in its entirety by the discussion under that
heading. Each U.S. shareholder should consult its own tax advisors regarding the PFIC rules and the U.S. federal income
tax consequences of the 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 our business.
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, we are required to include in our Form 10-K a report by our management regarding the
effectiveness of our internal control over financial reporting. The report includes, among other things, an assessment of the
effectiveness of our internal control over financial reporting. The assessment must include disclosure of any material
weakness in our internal control over financial reporting identified by management.
As part of the evaluation undertaken by management pursuant to Section 404, our management concluded that our internal
control over financial reporting was effective as of December 31, 2023. However, if we fail to maintain an effective system
of disclosure controls or internal controls over financial reporting, we may discover material weaknesses that we 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 be able 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 investor confidence 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 material information otherwise required to be reported. The effectiveness of our controls and
procedures could also be limited by simple errors or faulty judgments. In addition, if we continue to expand, through either
organic growth or through acquisitions (or both), the challenges involved in implementing appropriate controls will
increase and may require that we evolve some or all of our internal control processes. Under applicable SEC rules, our
management’s assessment of the effectiveness of our internal control over financial reporting are not attested to by our
registered public accounting firm.
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 control processes, which may result in the expenditure of additional human and financial
resources.
Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
Cybersecurity Risk Management and Strategy
We, through our third- p a r t y service provider that manages our information technology systems and networks,
have developed and implemented a cybersecurity risk management program intended to protect the confidentiality,
integrity, and availability of our critical systems and information. Our cybersecurity risk management program
includes a cybersecurity incident response plan.
Our security policies and processes are based on industry best practices and are revisited regularly to ensure their
appropriateness based on risk, threats and current technological capabilities. We regularly assess our threat landscape and
monitor our systems and other technical security controls, maintain information security policies and procedures,
including a breach response plan, ensure maintenance of backup and protective systems, and engage with a Managed
Service Provider who has a team of security personnel managing our efforts and initiatives. We review System and
Organization Controls 1 (SOC 1 Type II) certifications where relevant from key third party partners and other service
providers with access to information assets at least annually.
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We maintain Information Systems Incident Management Standards that are intended to ensure information security events
and weaknesses associated with information systems are communicated and acted on in a timely manner. Our internal
controls and procedures address cybersecurity and include processes intended to ensure that security breaches are reported
to appropriate personnel and, if warranted, analyzed for potential disclosure. While we have experienced cybersecurity
attacks, such attacks to date have not materially affected the Company or our business strategy, results of operations, or
financial condition.
Our cybersecurity risk management program includes:
●
●
●
●
risk assessments designed to help identify material cybersecurity risks to our critical systems,
information, products, services, and our broader enterprise IT environment;
designated team members are responsible for managing (1) our cybersecurity risk assessment processes, (2)
our security controls, and (3) our response to cybersecurity incidents;
the use of external service providers, where appropriate, to assess, test or otherwise assist with aspects of our
security controls;
a cybersecurity incident response plan that includes procedures for responding to cybersecurity incidents; and
● Maintain insurance coverage that is intended to address certain aspects of cybersecurity risks.
To date, there have not been any cybersecurity threats that have materially affected the Company.
Cybersecurity Governance
Our Board considers cybersecurity risk as part of its risk oversight function and oversees our cybersecurity and other
information technology risks and management’s implementation of our cybersecurity risk management program.
Our Board receives periodic reports from management on our cybersecurity risks. In addition, management updates the
Board and the Audit Committee, as necessary, regarding any material cybersecurity incidents, as well as any incidents with
lesser impact potential.
Our management team, including our Chief Financial Officer, is responsible for assessing and managing our material risks
from cybersecurity threats. Our Chief Financial Officer has primary responsibility for our overall cybersecurity risk
management program and supervises our retained provider of IT services and external cybersecurity consultants. Our Chief
Financial Officer has experience supervising and managing company security and privacy departments.
Our management team supervises efforts to prevent, detect, mitigate, and remediate cybersecurity risks and incidents
through various means, which may include briefings from external security personnel; threat intelligence and other
information obtained from governmental, public or private sources, including external consultants engaged by us; and
alerts and reports produced by security tools deployed in the IT environment.
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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 $400 per month with no scheduled increases. This operating lease is terminable with
30 days’ notice and has no penalties or contingent payments due.
On January 23, 2020, we entered into an Office Service Agreement (the “Office Service Agreement”) with Regus to lease
office space at in Hoboken, New Jersey. Per the terms of the Office Service Agreement, the monthly rent payments are
$1,150. The Office Service Agreement had an initial term of January 27, 2020 to July 31, 2020 and thereafter automatically
renews for successive six-month periods. Either party is able to terminate the agreement by providing no less than
three months’ advance written notice of termination.
On August 1, 2023, the Company entered into a second Office Service Agreement (the “Second Office Service
Agreement”) with Regus to lease office space in Dublin, Ireland. Per the terms of the Second Office Service Agreement,
the monthly rent payments are €2,000. The Company was required to pay a security deposit of €4,000, which is the
equivalent of two months rent. The Second Office Service Agreement commenced on August 1, 2023 and terminates on
January 31, 2025, thereafter the lease may continue on a month-to-month basis with either party being able to terminate the
agreement by providing one months’ advance written notice of termination.
Item 3. Legal Proceedings
Hope Medical Enterprises, Inc. Inter Partes Review (IPR) Challenges
On October 29, 2021, Hope Medical Enterprises, Inc. (“Hope”) filed a Petition for inter partes review (IPR2022-00123)
with the Patent Trial and Appeal Board (“PTAB”) of the USPTO to invalidate U.S. Patent No. 10,596,190 (the “‘190
Patent”), which is exclusively in-licensed from Oregon Health & Science University (“OHSU”) and relates to a method of
using PEDMARK®. The ‘190 Patent was issued on March 24, 2020. On April 18, 2023, the PTAB invalidated the only
claim of the‘190 Patent. The final written decision became effective June 20, 2023. The ‘190 Patent was previously listed
in the United States Approved Drug Products with Therapeutic Equivalence Evaluations (also known as the “Orange
Book”). In light of PTAB’s final written decision on the invalidity of the ‘190 Patent, we requested that the FDA remove
the ’190 Patent from the Orange Book. Two United States patent applications claiming priority through the ‘190 Patent
remain pending at the United States Patent and Trademark Office (“USPTO”).
On October 29, 2021, Hope Medical Enterprises, Inc. (“Hope”) filed a Petition for inter partes review (IPR2022-00125) to
invalidate our wholly owned U.S. Patent No. 10,792,363 (the “’363 Patent”), which relates to an anhydrous form of STS
and its method of manufacture, which is the active pharmaceutical ingredient in the PEDMARK® product. The ‘363 Patent
was issued October 6, 2020. During the ‘363 IPR, we disclaimed the patent claims directed to the anhydrous morphic form
of STS and continued with claims directed to its method of manufacture. Because the remaining claims in the ‘363 patent
are directed to a method of manufacture, the ‘363 patent is not eligible for listing in the Orange Book. In September 2023,
the PTAB issued a Final Written Decision in favor of Fennec and upholding the amended claim.
The USPTO has now granted three additional U.S. patents that cover the PEDMARK® formulation, each of which have
been listed in the U.S. FDA’s “Orange Book” (U.S. Patent No. 11,291,728 (issued April 5, 2022), U.S. Patent No.
11,510,984 (issued November 29, 2022), and U.S. Patent No. 11,617,793 (issued April 4, 2023)), and seven additional
United States patent applications from this family are pending at the USPTO. We plan to vigorously defend our intellectual
property rights to PEDMARK® if challenged. An invalidation of our patents covering PEDMARK® could have a material
adverse effect on our ability to protect our rights in PEDMARK® beyond periods of marketing exclusivity for
PEDMARK® in the United States under Orphan Drug Designation.
CIPLA Litigation
On December 1, 2022, we received a letter dated November 30, 2022, notifying us that CIPLA Ltd. and CIPLA USA
(“CIPLA”) submitted to the FDA an ANDA (ANDA No. 218028) for a generic version of PEDMARK® (sodium
thiosulfate solution) that contains Paragraph IV Certifications on two of our patents covering PEDMARK®: the OHSU
licensed ‘190 Patent, expiration date January 2038; and our US 11,291,728 Patent (the “’728 Patent”), expiration date July
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2039. On January 6, 2023, we received a letter dated January 5, 2023, notifying us that CIPLA submitted to the FDA a
Paragraph IV Certification on our newly issued US 11,510,984 Patent (the “’984 Patent”). These patents are listed in FDA’s
list of Approved Drug Products with Therapeutic Equivalence Evaluations, commonly referred to as the Orange Book, for
PEDMARK®. The certifications allege these patents are invalid or will not be infringed by the manufacture, use, or sale of
CIPLA’s sodium thiosulfate solution.
Under the Food and Drug Cosmetic Act, as amended by the Drug Price Competition and Patent Term Restoration Act of
1984, as amended, after receipt of a valid Paragraph IV notice, the Company may bring a patent infringement suit in a
federal district court against CIPLA within 45 days from the receipt of the Notice Letter and if such a suit is commenced
within the 45-day period, the Company is entitled to a 30 month stay on the FDA’s ability to give final approval to any
proposed products that reference PEDMARK®. In addition to the 30-month stay, because we have received Orphan Drug
Exclusivity, the FDA may not approve CIPLA’s ANDA for at least 7 years from PEDMARK®’s FDA approval date of
September 20, 2022.
On January 10, 2023, we filed suit against the CIPLA entities in the United States District Court for the District of New
Jersey (Case No. 2:23-cv-00123), for infringement of the ‘190 Patent, the ‘728 Patent, and the ‘984 Patent. On April 20,
2023, we filed an Amended Complaint to assert infringement of the ‘728 patent and the ‘984 Patent. On April 4, 2023, we
were granted US 11,617,793 Patent (the “’793 Patent”) covering the formulation of the PEDMARK® product, which was
listed in the Orange Book on or around April 17, 2023, and has an expiration date of July 2039. On May 11, 2023, we
received written notice of CIPLA’s Paragraph IV Certification as to the ’793 Patent, which was dated May 10, 2023, along
with an enclosed statement of alleged factual and legal bases for stating that the ’793 Patent is invalid, unenforceable,
and/or will not be infringed by CIPLA’s ANDA Product. On July 27, 2023, we filed a Second Amended Complaint to
assert the ‘793 Patent. The suit is ongoing.
PEDMARQSI® (EU Brand name for PEDMARK®) received European Commission approval in June 2023 and was
granted eight year of market exclusivity plus two years of data exclusivity in Europe under PUMA.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer 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 trading symbol “FRX”.
Record Holders
As of March 25, 2024, there were approximately 26 shareholders of record of our common shares, one of which was
Cede & Co., a nominee for Depository Trust Company, and one of which was The Canadian Depository for Securities
Limited (“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. and CDS, respectively; in
respect of brokerage 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 expansion of business and do not anticipate paying any cash dividends in the foreseeable
future.
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Material United States Federal and Canadian Income Tax Consequences
Material U.S. Federal Income Tax Considerations
The following summary describes the material U.S. federal income tax consequences to U.S. Holders (as defined below) of
acquiring, owning, and disposing of our common shares, subject to the qualifications set forth herein.
General
Tax Consequences Not Addressed
This summary does not address all potential U.S. federal income tax considerations that may be relevant to a particular
U.S. Holder. In addition, this summary does not take into account the individual facts and circumstances that may affect the
U.S. federal income tax consequences to a particular U.S. Holder, including specific tax consequences under an applicable
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 respect to any U.S. Holder. This summary does not address any U.S. federal alternative minimum,
U.S. federal estate and gift, U.S. state and local, or non-U.S. tax considerations, and does not discuss tax reporting
requirements that may be applicable to any particular U.S. Holder. 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.
Authorities
This summary is based upon the provisions of the United States Internal Revenue Code (the “Code”), the United States
Treasury Regulations (whether final, temporary, or proposed) promulgated thereunder, the Convention Between Canada
and the United States of America with Respect to Taxes on Income and on Capital, signed September 26, 1980, as amended
(the “Canada-U.S. Tax Convention”), and administrative rulings and judicial decisions interpreting the Code and the
United States Treasury Regulations, all as currently in effect, and all subject to differing interpretations or change, possibly
on a retroactive basis. We have not sought, and will not seek, a ruling from the IRS regarding any matter discussed herein,
and no assurance can be given that the IRS would not assert, or that a court would not sustain, a position that is different
from, and contrary to, the positions taken in this summary. 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 the United 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 all substantial 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 in that 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, all of 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
preceding year are counted. Residents are taxed for U.S. federal income tax purposes as if they were U.S. citizens.
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Non-U.S. Holders Not Addressed
For purposes of this summary, a “non-U.S. Holder” is a beneficial owner of common shares that is not a U.S. Holder and is
not a partnership for U.S. federal income tax purposes. This summary does not address the U.S. federal income tax
consequences to non-U.S. Holders of acquiring, owning, and disposing our common shares. Each non-U.S. Holder 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 common shares as part of a straddle, hedging transaction, conversion transaction, constructive sale, or other
arrangement involving more than one position;
● acquired common shares in connection with the exercise of employee stock options or otherwise as compensation
for services;
● hold common shares other than as a capital asset within the meaning of section 1221 of the Code (generally,
property held for investment purposes);
● 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 shares of your company;
● are U.S. expatriates who are former citizens or 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 common shares in connection with
carrying on a business in Canada;
● 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 their own tax advisors regarding the U.S. federal income, U.S. federal alternative
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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.
The following summary is not a substitute for careful tax planning and advice. U.S. Holders of common shares are
urged to consult their own tax advisors concerning the U.S. federal income tax consequences of the issues discussed
herein, in light of their particular circumstances, as well as any considerations arising under the laws of any foreign,
state, local, or other taxing jurisdiction.
General Rules Applicable to the Ownership and Disposition of Common Shares
The following discussion describes the general rules applicable to the ownership and disposition of the common shares but
is subject in its entirety to the special rules described below under the headings entitled “Tax Consequences if We Are a
Passive Foreign Investment Company” and “Tax Consequences if We are a Controlled Foreign Corporation.”
Distributions on Common Shares
The gross amount of any distribution (including amounts, if any, withheld in respect of Canadian withholding tax) actually
or constructively received by a U.S. Holder with respect to our common shares will be taxable to the U.S. Holder as a
dividend to the extent of our current or accumulated earnings and profits as determined under U.S. federal income tax
principles. Distributions to a U.S. Holder in excess of earnings and profits will be treated first as a return of capital that
reduces a U.S. Holder’s tax basis in such common shares (thereby increasing the amount of gain or decreasing the amount
of loss that a U.S. Holder would recognize on a subsequent disposition of our common shares), and then as gain from the
sale or exchange of such common shares (see “Sale or Other Taxable Disposition of Our Common Shares”). The amount of
any distribution of property other than cash will be the fair market value of that property on the date of distribution. In the
event we make distributions to holders of common shares, we may or may not calculate our earnings and profits under U.S.
federal income tax principles. If we do not do so, any distribution may be required to be regarded as a dividend, even if that
distribution would otherwise be treated as a non-taxable return of capital or as capital gain. The amount of the dividend
will generally be treated as foreign-source dividend income to U.S. Holders.
Non-corporate U.S. Holders, including individuals, will generally be eligible for the preferential U.S. federal rate on
“qualified dividend income,” provided that we are a “qualified foreign corporation,” the stock on which the dividend is
paid is held for a minimum holding period, and other requirements are satisfied. A “qualified foreign corporation” includes
a foreign corporation that is not a PFIC in the year of the distribution or in the prior taxable year and that is eligible for the
benefits of an income tax treaty with the United States that contains an exchange of information provision and has been
determined by the United States Treasury Department to be satisfactory for purposes of the legislation (such as the Canada-
U.S. Tax Convention).
Distributions to U.S. Holders generally will not be eligible for the “dividends received deduction” generally allowed to
U.S. corporations in respect of dividends received from other U.S. corporations.
Sale or Other Taxable Disposition of Our Common Shares
Upon the sale, exchange, or other taxable disposition of our common shares, a U.S. Holder generally will recognize gain or
loss equal to the difference between the amount realized upon the sale, exchange, or other disposition and such U.S.
Holder’s tax basis in such common shares sold or otherwise disposed of. If the U.S. holder receives Canadian dollars in the
transaction, the amount realized will be the U.S. dollar value of the Canadian dollars received, which is determined for
cash basis taxpayers on the settlement date for the transaction and for accrual basis taxpayers on the trade date (although
accrual basis taxpayers can also elect the settlement date). A U.S. Holder’s tax basis in common shares generally will be
such holder’s U.S. dollar cost for such common shares. Gain or loss recognized on such sale or other disposition generally
will be long-term capital gain or loss if, at the time of the sale or other disposition, the common shares have been held for
more than one 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 for long-term capital gain of a corporate U.S. Holder. Deductions for capital losses
are subject to significant limitations under the Code. The gain or loss will generally be U.S.-source gain or loss for foreign
tax credit purposes.
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Additional Medicare Tax on Net Investment Income
Certain U.S. Holders that are individuals, estates, or trusts (other than trusts that are exempt from tax) are subject to a tax of
3.8% on “net investment income” (or undistributed “net investment income,” in the case of estates and trusts) for each
taxable year, with such tax applying to the lesser of such income or the excess of such person’s adjusted gross income (with
certain adjustments) over a specified amount. Net investment income includes dividends on the common shares and net
gains from the disposition of the common shares.
U.S. Holders that are individuals, estates, or trusts should consult their own tax advisors regarding the applicability
of this tax to any of their income or gains in respect of the 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 common shares, generally will 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 foreign currency is converted into U.S. dollars
at that time). If the foreign currency received is not converted into U.S. dollars on the date of receipt, a U.S. Holder will
have a tax 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 would be 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 who use 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 of receiving, owning, and disposing
of foreign currency.
Foreign Tax Credit
Subject to the PFIC rules discussed below, a U.S. Holder that pays (whether directly or through withholding) Canadian
income tax with respect to dividends paid on the 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 paid. 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’s
income 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 through withholding) 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 this limitation, 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 by a foreign corporation (including constructive dividends) should be treated as foreign source for this
purpose, and gains recognized on the sale of stock of a foreign corporation 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
under the Code. However, the amount of a distribution with respect to the common shares that is treated as a “dividend”
may be lower for U.S. federal income tax purposes 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 is calculated 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.
tax advisors regarding the foreign tax credit rules.
Information Reporting and Backup Withholding
Under U.S. federal income tax law, certain categories of U.S. Holders must file information returns with respect to their
investment in, or involvement in, a foreign corporation. For example, certain U.S. Holders who hold certain “specified
foreign financial assets” that exceed certain thresholds are required to report information relating to such assets. The
definition of “specified foreign financial assets” generally includes not only financial accounts maintained in foreign
financial institutions, but also, unless held in accounts maintained by a financial institution, any stock or security issued by
a non-U.S. person, any financial instrument or contract held for investment that has an issuer or counterparty other than a
U.S. person, and any interest in a foreign entity. U.S. Holders may be subject to these reporting requirements unless their
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common shares are held in an account at certain financial institutions. Significant penalties may apply for failure to satisfy
applicable reporting obligations.
Distributions paid with respect to common shares and proceeds from a sale, exchange, or redemption of common shares
made within the United States or through certain U.S.-related financial intermediaries may be subject to information
reporting to the IRS and possible U.S. backup withholding (at a rate of 28%). Backup withholding will not apply, however,
to a U.S. Holder who furnishes a correct U.S. taxpayer identification number and makes any other required certification on
IRS Form W-9 or that is a corporation or other entity that is otherwise exempt from backup withholding. Each U.S. Holder
should consult its own tax advisors regarding the application of the U.S. information reporting and backup withholding
rules. Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a
holder’s U.S. federal income tax liability, and such holder may obtain a refund of any excess amounts withheld under the
backup withholding rules by filing an appropriate claim for refund with the IRS and furnishing any required information 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 certain circumstances, such an extension may apply to
assessments of amounts unrelated to any unsatisfied reporting requirement. U.S. Holders should consult with their own tax
advisors regarding their reporting obligations, if any, as a result of their acquisition, ownership, or disposition of our
common shares.
Tax Consequences if We are a Passive Foreign Investment Company
A foreign corporation generally will be treated as a PFIC if, after applying certain “look-through” rules, either (i) 75% or
more of its gross income is passive income or (ii) 50% or more of the average value of its assets is attributable to assets that
produce or are held to produce passive income. Passive income for this purpose generally includes dividends, interest,
rents, royalties and gains from securities and commodities transactions. The look-through rules require a foreign
corporation that owns at least 25% by value of the stock of another corporation to treat a proportionate amount of assets
and income as held or received directly by the foreign corporation.
We have not made the analysis necessary to determine whether or not we are currently a PFIC or whether we have 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. If we were to
be treated as a PFIC, any gain recognized by a U.S. shareholder upon the sale (or certain other dispositions) of our common
shares (or the receipt of certain distributions) generally would be treated as ordinary income, and a U.S. shareholder may
be required, in certain circumstances, to pay an interest charge together with tax calculated at maximum rates on certain
“excess distributions,” including any gain on the sale or certain dispositions of our common shares. In order to avoid this
tax consequence, a U.S. shareholder (i) may be permitted to make a “qualified electing fund” election, in which case, in
lieu of such treatment, such shareholder would be required to include in its taxable income certain undistributed amounts of
our income or (ii) may elect to mark-to-market our common shares and recognize ordinary income (or possible ordinary
loss) each year with respect to such investment and on the sale or other disposition of the common shares. Additionally, if
we are deemed to be a PFIC, a U.S. shareholder who acquires our common shares from a decedent will be denied the
normally available step-up in tax basis to fair market value for the common shares at the date of the death and instead will
have a tax basis equal to the decedent’s tax basis if lower than fair market value. Neither we nor our advisors have the duty
to or will undertake to inform U.S. shareholders of changes in circumstances that would cause us to become a PFIC. U.S.
shareholders should consult their own tax advisors regarding the application of the PFIC rules including eligibility for and
the manner and advisability of making certain elections in the event we are determined to be a PFIC at any point in time.
We intend to take the action necessary for a U.S. shareholder to make a “qualified electing fund” election in the event we
are a PFIC.
Further, excess distributions treated as dividends, gains treated as excess distributions and mark-to-market inclusions and
deductions, all under the PFIC rules discussed above, are all included in the calculation of net investment income for
purposes of the 3.8% tax described above under the subheading entitled “Additional Medicare Tax on Net Investment
Income”. United States Treasury Regulations provide, subject to the election described in the following paragraph, that
solely for purposes of this additional tax, distributions of previously taxed 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 any capital gain from
the sale or other taxable disposition of common shares that will be subject to the additional tax on net investment
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income, a U.S. Holder who has made a “qualified electing fund” election will be required to recalculate its basis in the
common shares excluding basis adjustments resulting from the “qualified electing fund” election. Alternatively, a U.S.
Holder may make an election which will be effective with respect to all interests in a PFIC for which a “qualified electing
fund” election has been made and which is held in that year or acquired in future years. Under this election, a U.S. Holder
pays the additional 3.8% tax on income inclusions resulting from the “qualified electing fund” election and on gains
calculated after giving effect to related tax basis adjustments.
Tax Consequences if We are a Controlled Foreign Corporation
A foreign corporation will be treated as a “controlled foreign corporation” (“CFC”) for U.S. federal income tax purposes if,
on any day during the taxable year of such foreign corporation, more than 50% of the equity interests in such corporation,
measured by reference to the combined voting power or value of the equity of the corporation, is owned directly or by
application of the attribution and constructive ownership rules of Sections 958(a) and 958(b) of the Code by United States
Shareholders. For this purpose, a “United States Shareholder” is any United States person that possesses directly, or by
application of the attribution and constructive ownership rules of Sections 958(a) and 958(b) of the Code, 10% or more of
the combined voting power of all classes of equity in such corporation or 10% or more of the total value of shares of all
classes in such corporation. If a foreign corporation is a CFC on any day during any taxable year, each United States
Shareholder of our Company who owns, directly or indirectly, our common shares on the last day of the taxable year on
which we are a CFC will be required to include in its gross income for United States federal income tax purposes its pro
rata share of our “Subpart F income,” even if the Subpart F income is not distributed. Subpart F income generally includes
passive income but also includes certain related party sales, manufacturing and services income.
In addition to the inclusion of “Subpart F income” of a CFC in the gross income of a United States Shareholder, there may
be exposure to an additional tax under the recently enacted Global Intangible Low Tax Income regime (“GILTI”).
Specifically, the GILTI rules impose an annual minimum tax on U.S. Holders of their share of GILTI income generated
through CFCs. This GILTI income very generally equals a CFC’s income over a 10% return on the CFCs tangible
depreciable trade or business assets. The GILTI tax is 10.5% (until 2026 and 13.12% for tax years after) on U.S. Holders
who are C corporations, as they are entitled to a 50% deduction (37.5% after 2025) of the GILTI income as well as a
reduced foreign tax credit on foreign taxes paid on the GILTI income. U.S. Holders who are individuals, estates or trusts
may pay substantially more tax on GILTI income, as they are subject to ordinary tax rates (ranging from 10% to 37% plus
the net investment income tax of 3.8%). Such U.S. Holders are not entitled to a deduction on GILTI income or a reduced
foreign tax credit. There is, however, an election available to such U.S. Holders to mitigate the tax impact.
If we are a CFC, the PFIC rules set forth above, even if we are otherwise considered to be a PFIC, will not be applicable.
United States persons who might, directly, indirectly or constructively, acquire 10% or more of our common shares, and
therefore might be a United States Shareholder, should consider the possible application of the CFC rules and GILTI
rules and consult a tax advisor with respect to such matters.
Material Canadian Federal Income Tax Considerations
Non-Residents of Canada
The following portion of the summary is generally applicable to a U.S. Holder. Special rules, which are not discussed in
this summary, may apply to a U.S. Holder that is an insurer that carries on an insurance business in Canada and elsewhere.
Disposition of Common Shares
Upon the disposition by a U.S. Holder of common shares in our Company, the U.S. Holder will not be subject to tax under
the Tax Act in respect of any capital gain realized unless the common shares disposed of constitutes “taxable Canadian
property” of the U.S. Holder and the U.S. Holder is not entitled to relief under an applicable tax treaty or convention.
Common shares will generally not constitute “taxable Canadian property” of such U.S. Holder unless at any time in the
preceding 60 months 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 (a) directly
or indirectly hold membership interests, held shares and/or rights to acquire shares representing 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 derived
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directly or indirectly from one or any combination of (i) real or immovable property situated in Canada, (ii) Canadian
resource properties, (iii) timber resource properties, 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 particular circumstances.
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 under the Tax Act at a rate of 25% of the gross amount of the dividends, subject to
reduction by any applicable tax convention. Under the tax convention between Canada and the United States (the “Tax
Treaty”), 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. Holders that 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 Tax Treaty, however a member of
such entity will be considered to have received the dividend directly and to benefit from the reduced rates under the Tax
Treaty, 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 fiscally transparent 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 such entities are regarded as holding their proportionate
share of our common shares held by the entity for the purposes of the Tax Treaty.
Item 6. Reserved
Not applicable.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Caution Concerning Forward-Looking Statements
The following discussion and analysis of our financial condition and results of operations should be read in conjunction
with our consolidated financial statements and related notes appearing at the end of this Annual Report. Some of the
information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information
with respect to our plans and strategy for our business, includes forward looking statements that involve risks and
uncertainties. As a result of many factors, including those factors set forth in the sections entitled “Cautionary Note
Regarding Forward-Looking Statements” and “Item 1A - Risk Factors” of this Annual Report, our actual results could
differ materially from the results described in, or implied by, the forward-looking statements contained in the following
discussion and analysis.
Overview
We are a commercial-stage biopharmaceutical company focused on our only product candidate PEDMARK®. On
September 20, 2022, we received approval from the FDA for PEDMARK® (sodium thiosulfate injection) to reduce the risk
of ototoxicity associated with cisplatin in pediatric patients one month of age and older with localized, non-metastatic solid
tumors. This approval makes PEDMARK® the first and only treatment approved by the FDA in this area of unmet
medical need. On October 17, 2022, we announced commercial availability of PEDMARK® in the U. S. In addition, in
January 2023, PEDMARK® was included in the National Comprehensive Cancer Network (“NCCN”) clinical practice
guidelines for Adolescent and Young Adult (“AYA”) Oncology with a category 2A recommendation.
In June 2023, we received European Commission Marketing Authorization for PEDMARQSI® (known as PEDMARK® in
the U.S.) Further, the decision included the receipt of a PUMA in the EU with up to 8 years of data exclusivity plus 2 years
of market protection. In March 2024, the Company announced an exclusive licensing agreement with Norgine, which will
commercialize PEDMARQSI® in in Europe, Australia and New Zealand in 2024.
In the U.S., we sell our product through an experienced field force including Regional Pediatric Oncology Specialists and
medical science liaisons who are helping to educate the medical communities and patients about cisplatin induced
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ototoxicity and our programs supporting patient access to PEDMARK®. We have obtained applicable regulatory approval
to sell PEDMARK® in the U.S. and authorization from the European Commission Marketing Authorization for
PEDMARQSI® in the EU. Commercialization of PEDMARQSI® in Europe, Australia and New Zealand will be
undertaken by Norgine. The Company recognizes there may still be a need to establish collaborations that provide us with
up-front payments, licensing fees, milestone payments, royalties, or other revenue to further commercialize our product
around the world.
Further, we have established Fennec HEARS®, a comprehensive single source program designed to connect PEDMARK®
patients to both patient financial and product access support. The program offers assistance and resources, regardless of
insurance type, that can address co-pays or lack of coverage when certain eligibility requirements are met. Fennec HEAR®
also provides access to care coordinators that can answer insurance questions about coverage for PEDMARK® and
provide tips and resources for managing treatment.
We received Orphan Drug Exclusivity for PEDMARK® in January 2023, which provides seven years of market exclusivity
from the date of its FDA approval on September 20, 2022 until September 20, 2029. We currently have three patents listed
for PEDMARK® in the FDA’s Orange Book. In September 2022, the USPTO issued the 728 patent, in December 2022, the
USPTO issued the 984 patent and in April 2023, the USPTO issued the 793 patent, each that cover PEDMARK®
pharmaceutical formulation. The 728 patent, the 984 patent and the 793 patent will expire in 2039. We are also pursuing
additional patent applications in both the U.S. and abroad for PEDMARK®.
PEDMARK® Product Overview
PEDMARK® is the first and only therapy approved by the FDA indicated to reduce the risk of ototoxicity associated with
cisplatin treatment in pediatric patients with localized, non-metastatic, solid tumors. Further, PEDMARQSI®, known as
PEDMARK® in the U.S. was granted marketing authorization by the European Commission in June 2023. PEDMARK®
is a unique formulation of sodium thiosulfate in single-dose, ready-to-use vials for intravenous use in pediatric patients.
PEDMARK® is also the only therapeutic agent with proven efficacy and safety data with an established dosing paradigm,
across two open-label, randomized Phase 3 clinical studies, the Clinical Oncology Group (“COG”) Protocol ACCL0431
and SIOPEL 6.
In the U.S. and Europe, it is estimated that more than 10,000 children annually may receive platinum-based chemotherapy.
The incidence of ototoxicity depends upon the dose and duration of chemotherapy, and many of these children require
lifelong hearing aids. There is currently no established preventive agent for this hearing loss and only expensive,
technically difficult, and sub-optimal cochlear (inner ear) implants have been shown to provide some benefit. Infants and
young children that suffer ototoxicity at critical stages of development lack speech language development and literacy, and
older children and adolescents lack social-emotional development and educational achievement.
PEDMARK® has been studied by co-operative groups in two Phase 3 clinical studies of survival and reduction of
ototoxicity, COG ACCL0431 and SIOPEL 6. Both studies have been completed. The COG ACCL0431 protocol enrolled
pediatric patients with cancers typically treated with intensive cisplatin therapy for localized and disseminated disease,
including newly diagnosed hepatoblastoma, germ cell tumor, osteosarcoma, neuroblastoma, medulloblastoma, and other
solid tumors. SIOPEL 6 enrolled only hepatoblastoma patients with localized tumors.
Cisplatin Induced Ototoxicity
Cisplatin and other platinum compounds are essential chemotherapeutic agents for the treatment of many pediatric
malignancies. Unfortunately, platinum-based therapies can cause ototoxicity, or hearing loss, which is permanent,
irreversible, and particularly harmful to the survivors of pediatric cancer.
The incidence of ototoxicity depends upon the dose and duration of chemotherapy, and many of these children require
lifelong hearing aids or cochlear implants, which can be helpful for some, but do not reverse the hearing loss and can be
costly over time. Infants and young children that are affected by ototoxicity at critical stages of development lack speech
and language development and literacy, and older children and adolescents often lack social-emotional development and
educational achievement.
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Now that we have obtained applicable regulatory approval to sell PEDMARK® in the United States, we recognize there
may still be a need to establish collaborations that provide us with up-front payments, licensing fees, milestone payments,
royalties or other revenue.
We generated a net loss of approximately $16.05 million for the fiscal year ended December 31, 2023, and a net loss of
$23.71 million for the fiscal year ended December 31, 2022. As of December 31, 2023, our accumulated deficit was
approximately $219.2 million ($203.2 million at December 31, 2022).
We believe that our cash and cash equivalents as of December 31, 2023, which totaled $13.3 million, cash from product
sales, plus the remaining Petrichor Financing of $15 million in convertible notes, which are subject to mutual agreement
between us and Petrichor (see Note 1 and Note 8 to consolidated financial statements contained elsewhere in this Annual
Report), along with the approximately $43 million we received in the Norgine licensing deal will be sufficient to meet our
cash requirements through at least the next twelve months. We anticipate the Norgine licensing deal will alleviate the need
to find alternative sources of financing and help us to fund operations while we expand our markets to areas outside of
U.S., Europe, Australia and New Zealand. We continue to look to establish collaborations that will provide us with funding,
for the out-license or sale of certain aspects of our intellectual property portfolio or from other sources.
Our operating expenses will depend on many factors, including the progress of our commercialization 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, consulting fees, sponsored research
costs, toxicology studies, license fees, milestone payments, and other fees and costs related to the commercialization of our
product, will depend on the availability of financial resources, the results of our clinical trials, and any directives from
regulatory agencies, which are difficult to predict. Our general and administration expenses include expenses associated
with the compensation of employees, stock-based compensation, professional fees, consulting fees, insurance and other
administrative matters associated in support primarily of our commercialization of PEDMARK®.
Results of Operations
Fiscal 2023 versus Fiscal 2022
In thousands of U.S. Dollars
PEDMARK(R) product sales, net
Cost of product sales
Gross profit
Operating expenses:
Research and development
Selling and marketing
General and administrative
Total operating expense
Loss from operations
Unrealized loss on securities
Amortization expense
Interest expense
Unrealized foreign exchange gain/(loss)
Interest income
Net loss
Fiscal Year Ended
Fiscal Year Ended
December 31, 2023 %
December 31, 2022 %
$
$
21,252
(1,259)
19,993
56
12,123
20,585
32,764
12,771
(39)
(287)
(3,394)
5
441
(16,045)
$
0 %
37 %
63 %
100 %
$
1,535
(86)
1,449
3,531
2,785
17,722
24,038
22,589
(184)
(149)
(978)
(9)
195
(23,714)
$
Increase
(Decrease)
19,717
(1,173)
18,544
14 %
12 %
74 %
100 %
$
(3,475)
9,338
2,863
8,726
(9,818)
145
(138)
(2,416)
14
246
7,669
● Commercial launch of PEDMARK® commenced in October 2022. The Company recorded net product sales of
$21.3 million in fiscal 2023 compared to $1.5 million in 2022. The Company recorded discounts and allowances
against sales in the amount of $2.5 million and cost of products sold of $1.3 million in 2023. The Company had
gross profit of $20.0 million for fiscal year ended 2023. In fiscal 2022, the Company had gross profit of $1.4
million.
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● Research and development expense decreased by $3.5 million in fiscal 2023 as compared to fiscal 2022. The
Company reduced research and development costs when it received FDA approval of PEDMARK®. Once FDA
approval was obtained for PEDMARK®, almost all research and development activities ceased.
● The Company began incurring selling and marketing expenses when it expanded its payroll to include an internal
sales force. Selling and marketing expenses include distribution costs, logistics, shipping and insurance,
advertising, wages commissions and out-of-pocket expenses. The Company recorded $12.1 million in selling and
marketing expenses in fiscal 2023, compared to $2.8 million in fiscal year 2022. The increase relates to increased
headcount and marketing expenses associated with the launch of PEDMARK as well as distribution and other
fees paid to certain distributors in connection with the sales of our products.
● There was a $2.9 million increase in general and administrative expenses in fiscal 2023 compared to fiscal 2022.
Non-cash expenses associated with equity remuneration increased by $1.3 million in fiscal year 2023 over 2022.
Payroll and benefits related expenses rose by $0.7 million in fiscal 2023 compared to fiscal 2022. There was an
increase in consulting and professional costs of $0.8 million in fiscal 2023 over fiscal 2022.
● The value of our Processa shares declined by $0.04 million for the year ended December 31, 2023. For fiscal year
ended December 31, 2022, there was a loss of $0.2 million. We acquired the Processa shares on October 30,
2020. The Processa shares are marked to market at each balance sheet date with the resulting change in value
being booked as an unrealized gain or loss.
● Amortization expense increased $0.1 million in fiscal 2023.
● Interest expenses were up by $2.4 million in fiscal 2023 compared to fiscal 2022. The increase was driven mainly
by higher average debt balances and higher interest rates on long-term debt.
● Interest income increased in fiscal 2023 as compared to fiscal 2022 by $0.2 million, due to higher rates on money
market accounts for the comparable periods.
Quarterly Information
The following table presents selected consolidated financial data for each of the last eight quarters through December 31,
2023, as prepared under generally accepted accounting principles within the United States, or U.S. GAAP (dollars in
thousands, except per share information).
Period
March 31, 2022
June 30, 2022
September 30, 2022
December 31, 2022
March 31, 2023
June 30, 2023
September 30, 2023
December 31, 2023
Net (Loss)/Income for the Basic Net (Loss)/Income per Diluted Net (Loss)/Income per
Period
Common Share
Common Share
(0.14)
(0.19)
(0.31)
(0.26)
(0.23)
(0.21)
(0.07)
(0.10)
(0.14)
(0.19)
(0.31)
(0.26)
(0.23)
(0.21)
(0.07)
(0.10)
(3,696)
(5,072)
(8,089)
(6,857)
(6,052)
(5,444)
(1,867)
(2,682)
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Quarter ended December 31, 2023 versus 2022
In thousands of U.S. Dollars
PEDMARK(R) product sales, net
Cost of product sales
Gross profit
Operating expenses:
Research and development
Selling and marketing
General and administration
Total operating expense
Loss from operations
Unrealized (loss)/gain on securities
Interest income
Amortization expense
Interest expense
Other (loss), net
Net loss
Quarter Ended
Quarter Ended
December 31, 2023 %
December 31, 2022 %
$
$
9,735
(685)
9,050
32
3,868
6,968
10,868
1,818
4
115
(70)
(915)
2
(2,682)
$
0.3 %
36 %
64 %
100 %
$
1,535
(86)
1,449
117
2,785
4,682
7,584
6,135
(58)
153
(70)
(744)
(3)
(6,857)
$
Increase
(Decrease)
8,200
(599)
7,601
36 %
— %
64 %
100 %
$
(85)
1,083
2,286
3,284
(4,317)
62
(38)
—
(171)
5
4,175
Revenues reported for the three months ended December 31, 2023, were $9.7 million, which is an increase of $8.2 million
over the same period in 2022. Gross profit from sales of PEDMARK® increased by $7.6 million for the three months
ended December 31, 2023, over the same period in 2022. We reported a loss from operations of $1.8 million for the
three months ended December 31, 2023, compared to a loss from operations of $6.1 million for the same period in 2022.
Research and development expenses decreased by $0.09 for the three months ended December 31, 2023, over the same
period in 2022. The Company recorded selling and marketing expenses of $3.9 million in the quarter ended December 31,
2023, as compared to $2.8 million in the same period in 2022. General and administrative expenses increased by $2.3
million in the three months ended December 31, 2023, as compared to the same period in 2022. There was an increase of
$1.8 million related to commercial spending and consulting, $0.3 million related to increased payroll and benefits and $0.1
million in legal fees. These increases were offset by a decrease in non-cash equity expenses of $318. There was an
unrealized loss of $0.004 million on the Processa shares for the quarter ended December 31, 2023. Interest income
increased $0.04 million for the quarter ended December 31, 2023, compared to the same period a year prior. Amortization
and interest expenses were up $0.17 million for the quarter ended December 31, 2023 over the same period in 2022. The
vast majority of this is interest and is driven by larger debt load and higher interest rates.
As at
As at
Selected Asset and Liability Data (thousands):
Cash and equivalents
Other current assets
Current liabilities
Working capital (1)
(1) [Current assets – current liabilities]
Selected Equity:
Common stock and additional paid in capital
Accumulated deficit
Shareholders’ (deficit) equity
Liquidity and Capital Resources
$
December 31, 2023 December 31, 2022
23,774
2,954
(4,608)
22,120
13,269
13,589
(7,553)
19,305
$
206,380
(219,245)
(11,622)
199,388
(203,200)
(2,569)
● There was a $10.5 million net decrease in cash and cash equivalents between December 31, 2023, and
December 31, 2022. The net decrease was the result of cash operating expenses, offset by the collection of
accounts receivable in the amount of $7.8 million, net $5.0 million received from the Petrichor note and $1.7
million received from the exercise of 2,058 options. During the period ended December 31, 2023, cash for
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operations was used mainly on the pre-commercialization activities of PEDMARK® prior to FDA approval and
then commercialization activities post NDA approval.
● The increase in other current assets of $10.6 million between December 31, 2022, and December 31, 2023,
primarily relates to an increase of $7.3 million in accounts receivable, an increase of $1.6 million in inventory and
an increase of $1.8 million in pre-paid expenses and the value of Processa shares.
● Current liabilities at December 31, 2023 increased $2.9 million compared to December 31, 2022. Accounts
payable was up $1.4 million over prior year highlighting EU commercialization activity. Accrued expenses were
up $1.5 million over prior year primarily due to a $0.7 million increase in sales and inventory related items and
$0.5 million increase in anticipated bonus payments and employee paid time off.
● Working capital decreased by $2.8 million between December 31, 2023, and December 31, 2022. The decrease
was a result of cash used in operations offset by net inflow of cash from collections of accounts receivable of $7.8
million, $5.0 million received from the Petrichor Note, and $1.7 million received from stock option exercises and
interest income.
Selected Cash Flow Data
(dollars and shares in thousands)
Year Ended
December 31, 2023
Year Ended
December 31, 2022
Net cash used in operating activities
Net cash provided by investing activities
Net cash provided by financing activities
Net cash flow
$
$
(17,143) $
—
6,638
(10,505) $
(18,058)
—
20,732
2,674
The net cash flow used in operating activities for the year ended December 31, 2023 was approximately $17.1 million as
compared to $18.1 million in 2022. There was a decrease in net loss of $7.7 million in fiscal 2023 compared to fiscal 2022.
In 2023, non-cash items added back to net loss increased by $1.1 million over 2022 and net changes in balance sheet
accounts subtracted $6.8 million in 2023. Net financing activities in 2023 provided approximately $14.1 million less than
in 2022. This was mainly from the funding of the Petrichor Note, net of fees, and approximately $0.8 million arising from
various option exercises.
We continue to pursue various strategic alternatives including collaborations with other pharmaceutical and biotechnology
companies. Our projections of further capital requirements are subject to substantial uncertainty. Our working capital
requirements may fluctuate in future periods depending upon numerous factors, including: our ability to obtain additional
financial resources; our ability to enter into collaborations that provide us with up-front payments, milestones or other
payments; results of our research and development activities; progress or lack of progress in our preclinical studies or
clinical trials; unfavorable toxicology in our clinical programs, our drug substance requirements to support clinical
programs; change in the focus, direction, or costs of our research and development programs; headcount expense; the costs
involved in preparing, filing, prosecuting, maintaining, defending and enforcing our patent claims; competitive and
technological advances; the potential need to develop, acquire or license new technologies and products; our business
development activities; new regulatory requirements implemented by regulatory authorities; the timing and outcome of any
regulatory review process; and commercialization activities, if any.
We had cash and cash equivalents of approximately $13.3 million as of December 31, 2023. We currently anticipate that
our available capital resources, including our existing cash and cash equivalents, accounts receivable balances and the
remaining $15 million available under the SPA and subject to mutual agreement between the Company and Petrichor, will
be sufficient to meet our expected working capital and capital expenditure requirements as our business is currently
conducted for at least the next 12 months. In March of 2024, we announced a licensing deal with Norgine. The deal with
Norgine provided the Company with approximately $43 million cash with approximately another $229 million in the future
from milestone payments and royalties.
Financial Instruments
We invest excess cash and cash equivalents in high credit quality investments held by financial institutions in accordance
with our investment policy designed to protect the principal investment. At December 31, 2023, we had approximately $1.4
million in our cash accounts and $11.9 million in savings and money market accounts. While we have never
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experienced any loss or write down of our money market investments since our inception, the amounts we hold in money
market accounts are substantially above the $250,000 amount insured by the FDIC and may lose value.
Our investment policy is to manage investments to achieve, in the order of importance, the financial objectives of
preservation of principal, liquidity and return on investment. Investments may be made in U.S. or Canadian obligations and
bank securities, commercial paper of U.S. or Canadian industrial companies, utilities, financial institutions and consumer
loan companies, and securities of foreign banks provided the obligations are guaranteed or carry ratings appropriate to the
policy. Securities must have a minimum Dun & Bradstreet rating of A for bonds or R1 low for commercial paper. The
policy also provides for investment limits on concentrations of securities by issuer and maximum-weighted average time to
maturity of twelve months. This policy applies to all of our financial resources. The policy risks are primarily the
opportunity cost of the conservative nature of the allowable investments. Until the company is cash flow positive from
operations, we have chosen to avoid investments of a trading or speculative nature.
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 carry investments at their fair value with unrealized gains and losses included in other
comprehensive income (loss); however, we have not held any instruments that were 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, other than the OHSU Agreement and lease agreements described in notes to our consolidated financial statements
contained elsewhere in this Annual Report, and the severance amounts as disclosed in the Annual Report.
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 and liabilities and disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenue and expense during the reporting period. These estimates are based on
assumptions and judgments that may be affected by commercial, economic and other factors. Actual results could differ
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 at the 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 occur periodically, could materially impact
the financial statements. The following description of critical accounting policies, judgments and estimates should be read
in conjunction with our December 31, 2023 consolidated financial statements.
Revenue Recognition
Under Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, the Company
recognizes revenue when its customers obtain control of promised goods or services, in an amount that reflects the
consideration which the Company determines it expects to receive in exchange for those goods or services. To determine
revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company
performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligation(s) in
the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the
contract; and (v) recognize revenue when (or as) the Company satisfies its performance obligation(s). As part of the
accounting for these arrangements, the Company must make significant judgments, including identifying performance
obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating
the transaction price to each performance obligation.
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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 value of each stock option is estimated on the grant date using the Black-Scholes
option-pricing model. The valuation models require assumptions and estimates to determine expected volatility, expected
life, expected dividends and expected risk-free interest rates. The expected volatility was determined using historical
volatility 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 strips at the award grant date. We also used historical data to estimate forfeiture
experience. In valuing options granted in the fiscal years ended December 31, 2023 and 2022, we used the following
weighted average assumptions:
Expected dividend
Risk-free interest rate
Expected volatility
Expected life
Common shares and warrants
Year Ended
December 31,
2023
— %
3.58 - 5.31% %
59 - 167 %
1.50 - 6 years
Year Ended
December 31,
2022
— %
1.18 - 3.96 %
150 - 181 %
5 - 6 years
Common shares are recorded as the net proceeds received on issuance after deducting all share issuance costs and the
relative fair value of investor warrants. Warrants are recorded at relative fair value and are deducted from the proceeds of
common shares and recorded on the consolidated statements of shareholders’ equity as additional paid-in capital.
Outstanding Share Information
Our outstanding comparative share data at December 31, 2023 and December 31, 2022 is as follows (in thousands):
December 31, December 31,
Outstanding Share Type
Common shares
Warrants
Stock options
Total
2023
27,027
150
4,798
31,975
2022
26,361
150
4,539
31,050
Change
666
—
259
925
Newly Adopted and Recent Accounting Pronouncements
In August 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-06, Debt—Debt with Conversion and Other
Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). The new
standard eliminates the current models that require separation of beneficial conversion and cash conversion features from
convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of
contracts in an entity's own equity. The new standard also introduces additional disclosures for convertible debt and
freestanding instruments that are indexed to and settled in an entity's own equity. This ASU will be effective for the year
ended December 31, 2024. The Company adopted this ASU in Q1 of 2023.
In June 2022, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2022-03,
Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale
Restrictions, which (1) clarifies the guidance in Topic 820 on the fair value measurement of an equity security that is
subject to contractual restrictions that prohibit the sale of an equity security and (2) requires specific disclosures related to
such an equity security. This ASU will be effective for the year ended December 31, 2024. The Company is currently
evaluating the effect the adoption of this ASU will have on the consolidated financial statements.
In June 2022, the FASB issued Accounting Standards Update ("ASU") 2022-03, Fair Value Measurement (Topic 820): Fair
Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, which (1) clarifies the guidance in Topic
820 on the fair value measurement of an equity security that is subject to contractual restrictions that prohibit the
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sale of an equity security and (2) requires specific disclosures related to such an equity security. This ASU will be effective
for the year ended December 31, 2024. The Company adopted this ASU in 2023.
In December 2023, the Financial Accounting Standards Board issued Accounting Standards Update No. 2023-09, “Income
Taxes (Topic 740): Improvements to Income Tax Disclosures,” which improves the transparency of income tax disclosures
by requiring consistent categories and greater disaggregation of information in the effective tax rate reconciliation and
income taxes paid disaggregated by jurisdiction. This guidance will be effective for the annual periods beginning the year
ended December 31, 2025. The Company is currently evaluating the effect the adoption of this ASU will have on the
consolidated financial statements.
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 our investment policy. We do not hold any mortgaged-backed investments in our
investment portfolio. Securities must have a minimum Dun & Bradstreet rating of A for bonds or R1 low for commercial
paper. The policy also provides for investment limits on concentrations of securities by issuer and maximum-weighted
average time to maturity of twelve months. This policy applies to all of our financial resources.
At December 31, 2023, we had $11.9 million in money market investments and savings accounts as compared to $23.5
million at December 31, 2022; these investments typically have minimal risk. We have not experienced any loss or write
down of our money market investments for the years ended December 31, 2023 and 2022; however, the amounts we hold
in money market accounts are substantially above the $250,000 amount insured by the FDIC and may lose value.
Our investment policy is to manage investments to achieve, in the order of importance, the financial objectives of
preservation of principal, liquidity and return on investment. Our risk associated with fluctuating interest rates on our
investments is minimal and not significant to the results of operations. We currently do not use interest rate derivative
instruments to manage exposure to interest rate changes. As our main purpose is research and development, we have
chosen to avoid investments 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 and
Euros. To date, we have not employed the use of derivative instruments; however, we do hold Canadian dollars and Euros
which we use to pay vendors in Canada and the EU in addition to other corporate obligations. At December 31, 2023, we
held approximately CAD$0.47 and €0.1.
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. A list of the
financial statements filed herewith 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
The Company’s management, with the participation of our Chief Executive Officer and Chief Financial Officer, has
conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-
15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act") as of December 31,
2023. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed
in the reports the Company files under the Exchange Act is recorded, processed, summarized and reported within the time
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periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to the
Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, to allow for timely
decisions regarding required disclosures. In designing and evaluating our disclosure controls and procedures, the
Company’s management recognizes that disclosure controls and procedures, no matter how well conceived and operated,
can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are
met. Our disclosure controls and procedures have been designed to meet reasonable assurance standards. In addition, the
design of disclosure controls and procedures must reflect the fact that there are resource constraints that require the
Company’s management to apply its judgment in evaluating the benefits of possible controls and procedures relative to
their costs. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under
all potential future conditions.
Based on this evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that, as
of December 31, 2023, the Company's disclosure controls and procedures were not effective because of a material
weakness in the Company's internal control over financial reporting related to fees and allowances paid to distributors for
distinct services.
Management's Report on Internal Control over Financial Reporting
The Company's management is responsible for establishing and maintaining adequate internal control over financial
reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company's management evaluated the
effectiveness of its internal control over financial reporting based on the framework in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based
on that evaluation, the Company’s management has concluded that, as of December 31, 2023, our internal controls over
financial reporting were not effective because of the existence of a material weakness in internal control over financial
reporting related to fees and allowances paid to distributors for distinct services.
Material Weaknesses in Internal Control Over Financial Reporting
A material weakness is defined as a deficiency or combination of deficiencies in internal control over financial reporting
such that there is a reasonable possibility that a material misstatement of annual or interim consolidated financial
statements will not be prevented or detected on a timely basis.
With respect to the fees and allowances paid to distributors for distinct services, the execution of the controls over the
application of accounting literature did not operate effectively with respect to:
● Measurement and classification of fees paid to customers for distinct services under ASC 606 Revenue from
Contracts with Customers.
● Measurement of services received and expensed in a reporting period, measurement of services that pertain to
future periods, and the periods of attribution for those future services.
Remediation Process
The Company is evaluating the material weaknesses and developing a plan of remediation to strengthen the effectiveness
of the design and operation of its internal control environment. The remediation plan will include the following actions:
● Enhance the formality of its review procedures with respect to accounting for new contracts with customers.
● Strengthen the review process to improve the operation of accounting and review controls with respect to
complex and non-recurring ransactions, as well as those transactions that require significant estimates and
judgments.
● Engaging additional service providers or hiring additional full-time employees may be necessary and advisable to
address these weaknesses.
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The actions that the Company is taking are subject to ongoing senior management review as well as Audit Committee
oversight. The Company is committed to maintaining a strong internal control environment and believes that these
remediation efforts will represent significant improvements in its controls. The Company has started to implement these
steps; however, some of these steps will take time to be fully integrated and confirmed to be effective and sustainable.
Additional controls may also be required over time. Until the remediation steps set forth above are fully implemented and
tested, the material weakness described above will continue to exist.
Changes in Internal Control over Financial Reporting
There were no changes to the Company’s internal control over financial reporting during the fourth quarter of 2023 that
materially affected, or are reasonably likely to materially affect, the Company’s 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 internal control over financial reporting can only provide
reasonable, not absolute, assurances. In addition, projections of any evaluation of effectiveness to future periods are 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 may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or
appropriate for our business but cannot assure that such improvements will be sufficient to provide us with effective
internal control over financial reporting.
Item 9B. Other Information
Insider Adoption or Termination of Trading Arrangements
During the fiscal quarter ended December 31, 2023, Rostislav Raykov, informed us of the adoption of a 10b5-1 trading
arrangement for 133,000 shares to be sold with a termination date of December 13, 2024. No additional directors or
officers informed us of the adoption, modification or termination of a “Rule 10b5-1 trading arrangement” or “non-Rule
10b5-1 trading arrangement,” as those terms are defined in Regulation S-K, Item 408.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
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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 with us 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 table below:
Current Principal Occupation and Principal
Occupation
For Previous Five Years
CEO of Fennec Pharmaceuticals Inc.
Director Since
July 2009
Name and Province/State and
Country of Residence, Position
Rostislav Raykov, New Jersey,
USA
Chief Executive Officer, Director
Robert Andrade, Texas, USA
Chief Financial Officer
Adrian J. Haigh, Dublin, Ireland
Chief Operating Officer
Chris A. Rallis, North Carolina,
USA
Director(1)(2)(3)
Marco Brughera, Milano, Italy
Director(1(2)(3)
Khalid Islam, Lugano, Switzerland
Chairman of Board, Director(1)
Jodi A. Cook, PhD South Carolina, USA,
Director(2)(3)
Age
47
48
64
70
68
68
N/A
N/A
August 2011
August, 2016
April 2014
September 2019
56
CFO of Fennec Pharmaceuticals
Senior Vice President and General Manager
of EMEA Region at PTC Therapeutics;
previously Chief Operating Officer at
Gentium GmbH; previously Regional VP
Commercial Operations at Biogen Idec
Executive-in-residence at Pappas Capital;
previously CEO of ImmunoBiosciences
Former Group CEO of Leadiant Biosciences
SpA; previously Global Head Rare Disease
and R&D at Sigma-tau; VP Preclinical
Development at Nerviano Medical Sciences.
Founder and Chairman of Gain
Therapeutics ; previously Chairman and
CEO of Gentium S.p.A.; previously CEO of
Arpida AG
CEO of Skylark Bio Inc, Former SVP, Head
of Gene Therapy Strategy PTC
Therapeutics, Inc, Former COO Agilis
Biotherapeutics, Former Assistant Professor
of Audiology Mayo Clinic
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Governance Committee
Rostislav Raykov
Mr. 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 and securities 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 the Merger Fund
at Tiedemann Investment Group (1999-2002) and an investment banking analyst at Bear Stearns (1998-1999). Mr. Raykov
earned a B.S. in Business Administration from the University of North Carolina at Chapel Hill. As a result of these and
other professional experiences, Mr. Raykov has financial expertise and experience with the Company as it has developed
within the drug development industry and, as such, is able to provide the Company with unique insight and guidance.
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Robert Andrade
Mr. Andrade has served as Chief Financial Officer of Fennec since November 2015. Mr. Andrade was previously Chief
Financial Officer and a director of Fennec from September 2009 until August 2013. In addition to his role with Fennec,
Mr. Andrade was a private investor in 2015, and a senior analyst at Magnetar Capital from 2013 - 2014. Mr. Andrade
graduated from University of Southern California, where he earned a Masters of Arts degree and Bachelor of Arts degree
in economics.
Adrian J. Haigh
Mr. Haigh has served as Chief Operating Officer of Fennec since August 2023. Mr. Haigh served as a director of Fennec
from April 2014 through July of 2023. Mr. Haigh retired from PTC Therapeutics on December 31, 2022, where his last role
at PTC was Senior Vice President and Head of International. He joined PTC in 2014 as Head of EMEA and built its
international organization. Previously, Mr. Haigh served as Chief Operating Officer at Gentium GmbH since March 2011.
Prior to joining Gentium, Mr. Haigh served as Regional VP Commercial Operations at Biogen Idec where he managed
several affiliates and also the global distributor business and prior to that he was the General Manager of Amgen Nordic
and Portugal. He served as the Executive Vice President of Global Marketing and Corporate Planning at EUSA Pharma
and joined EUSA from Amgen where he led the international oncology franchise. Mr. Haigh previously has held senior
commercial and marketing positions at SmithKline Beecham, Schering Plough, Organon and Novo Nordisk. He has been a
director of Fennec since April 2014. He received a Bachelor of Arts with Honors in Economic History from Huddersfield
Polytechnic, West Yorkshire, England, a Diploma in Marketing from the Institute of Marketing and a Diploma in Company
Direction from the Institute of Directors.
Chris A. Rallis
Mr. 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 capital firm since January 2008. Previously, Mr. Rallis was the President and Chief
Executive Officer of ImmunoBiosciences, Inc. (“IBI”), a vaccine technology company formerly 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) for Pappas Capital, 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 to assuming 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 all business development activities which included a worldwide alliance with Abbott Laboratories
and the in-licensing of ten compounds. Before joining Triangle in 1995, Mr. Rallis served in various business development
and legal management roles with Burroughs Wellcome Co. over a 13-year period, including Vice President of Strategic
Planning and Business Development. Mr. Rallis also serves on the board of Lung Cancer Initiative of NC, located in
Raleigh, North Carolina. Mr. Rallis received 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. Rallis possesses particular healthcare industry
knowledge and experience which strengthens the Board’s collective qualifications, skills, and experience.
Dr. Marco Brughera
Dr. Brughera has been a director of Fennec since August 2016. Currently, he is the founder at Brucon srls and Strategic
Advisor at Essetifin. From 2011 until 2021, Dr. Brughera had been CEO of Lediant Biosciences and has held several
positions for the Sigma-Tau Group, including CEO and Global Head of Sigma Tau Rare Disease, President of Sigma-Tau
Research and President of Sigma-Tau Pharmaceuticals. He drove the commercial revival of a lead oncology product line
resulting in its successful sale for a total of around $900M. He also successfully out-licensed the Defibrotide US rights to
Jazz Pharmaceuticals. From 2004 to 2010, Dr. Brughera served as the Vice President of Preclinical Development at
Nerviano Medical Sciences (NMS), a pharmaceutical oncology-focused integrated discovery and development
company. He also served as the Managing Director at Accelera, an independent contract research organization with the
NMS Group. From 1999 to 2004, Dr. Brughera held several senior level positions in the areas of research and development
with Pharmacia and Pfizer. Prior to 1999, he held various positions at Pharmacia & Upjohn and Farmitalia Carlo Erba SpA,
an Italian pharmaceutical company. He currently serves on the Board of Leadiant Biosciences Inc and Limited;
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advisor and biotech champion at Indaco Ventures Partners SGR. Previously was a Board member of Gentium, Exelead,
Soligenix, Lee’s Pharmaceuticals and Naicons.
Dr. Brughera earned his degree in veterinary medicine from the University of Milan and is a European Registered
Toxicologist. Dr. Brughera has wide-spread experience and knowledge of pharmaceutical drug development in
international companies. His knowledge in particular, of clinical drug development in Europe, deepens the Board’s
collective qualifications, skills and experience.
Dr. Khalid Islam
Dr. Islam has been a director of Fennec since April 2014 and is our current Chairman of the Board. Dr. 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 merger with 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 private healthcare
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-listed company 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 of Chelsea College
and received his Ph.D. from Imperial College, University of London. He holds several patents and has published over 80
articles in leading journals. He is an advisor to the venture group Kurma Biofund (Paris). He is a founder/co-founder of
Gain Therapeutics Inc. (GANX), 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) and Gain Therapeutics
Inc. (GANX), a public company. . In the past, he has served on the Board of Directors of Immunomedics (USA), Processa
Pahramacueticals (PCSA), Pcovery Aps (Denmark), Adenium Aps (Denmark), C10 Pharma AS (Norway), Karolinska
Development (KDEV, Sweden) and MolMed S.p.A. (MLMI, Italy). Dr. Islam’s extensive international pharmaceutical
expertise in transitioning companies from development to production strengthens the Board’s collective qualifications,
skills and experience.
Dr. Jodi Cook
Dr. Cook has been a director of Fennec since September 2019. Dr. Cook is currently CEO of Skylark Bio Inc, an early-
stage Company working on gene therapy for genetic disorders. Dr. Cook previously served as SVP and Head of Gene
Therapy Strategy at PTC Therapeutics from August 2018 until February 2020. Previously she was one of the founding
members and Chief Operating Officer of Agilis Biotherapeutics, a clinical-stage company focused on gene therapies for
rare diseases of the central nervous system, from December 2013 until its acquisition by PTC Therapeutics in August 2018.
While at Agilis she led the sale of the company to PTC in a deal that represented significant value to all parties. Dr. Cook’s
career spans a wide range of experiences including VP of Clinical Research at InSound Medical and Director of Audiology
at Songbird Hearing, both successful biotech start-up companies within the hearing industry. She has been Assistant
Professor of Audiology and Director of the Hearing Aid Program at Mayo Clinic. Dr. Cook earned a BA from Loyola
University in Maryland, M.Aud. from University of South Carolina, and PhD from Arizona State University in Hearing
Science. She completed a clinical fellowship at Johns Hopkins School of Medicine in Baltimore, MD. Her extensive
scientific, clinical and executive business experience strengthens the Board’s collective qualifications, skills and expertise.
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 other financial information provided by us, including audited financial statements, and
discusses the adequacy of disclosure with management and the auditors. The Audit Committee also reviews the
performance of the independent auditors in the annual audit and in assignments unrelated to the audit, assesses the
independence of the auditors, and reviews their fees. The Audit Committee is also responsible for reviewing our internal
controls over financial reporting and disclosure. The Audit 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 and financially literate within the meaning of National Instrument 52-110 – Audit
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Committees and is independent under Rule 5605(a)(2) of the Nasdaq listing standards. 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-
K promulgated 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 and maintaining the highest standards of
conduct and integrity. The Conduct and Ethics Code sets out the legal and ethical standards of conduct for our personnel
and addresses topics such as: reporting obligations and procedures; honest and ethical conduct and conflicts of interest;
compliance with applicable laws and Company policies 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 the date 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 to Attn: Code of Ethics Request, Fennec
Pharmaceuticals Inc., 68 TW Alexander Drive, PO Box 13628, Research Triangle Park, North Carolina 27709.
Insider Trading Policy
The Company has adopted an insider trading policy which governing the purchase, sale and/or other dispositions of its
securities by directors, officers and employees (or the company itself) that are reasonably designed to promote compliance
with insider trading laws, rules and regulations and any applicable listing standards. The policy has been filed as Exhibit
10.16 to this Annual Report.
Item 11. Executive Compensation
Summary Compensation Table
The following table sets out certain information respecting the compensation paid to our Chief Executive Officer, our Chief
Financial Officer, and our former Chief Commercial Officer (“Named Executive Officers”) for the fiscal years ended
December 31, 2023 and December 31, 2022.
Name and Principal Position
Rostislav Raykov, CEO
Robert Andrade, CFO
Adrian Haigh, COO
Shubh Goel, CCO
Year
2023
2022
2023
2022
2023
2022
2023
2022
Salary ($)
607,061
503,436
439,764
364,698
183,940
—
—
8,637
Restricted Share Option Awards
($)(1)
927,873
—
397,660
—
Bonus ($) Unit Awards ($)(2)
728,000
278,006
110,725
—
312,000
161,113
—
64,221
— 1,003,009
167,753
—
—
—
—
—
—
—
—
—
Total ($)
2,540,940
614,161
1,310,537
428,919
1,354,702
—
—
8,637
(1) Represents the aggregate grant date fair value computed in accordance with FASB ASC Topic 718. Dollar value
amounts are based on individual grants to each of Mr. Raykov, Mr. Andrade and Mr. Haigh of 175,000, 75,000 and
200,000 options, respectively. Such option grants were received on March 31, 2023 for Mr. Raykov and Mr. Andrade
and August 7, 2023 for Mr. Haigh. March grants have an exercise price of $8.32, while the August grant was at an
exercise price of $8.03. On March 31, 2023, Mr. Raykov and Mr. Andrade were also awarded 87,500 and 37,500
Restricted Share Units each, respectively. All option grants expire 10 years after the grant date. All equity awards vest
in the following manner: one-third of these options shall vest and may be exercised one year after the grant date (the
“Vesting Commencement Date”). The remaining two-thirds of the options shall vest monthly at a rate of 1/24th of the
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remaining grant and shall be exercisable as of 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 be vested.
Rostislav Raykov
Mr. 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 is employed 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 of Directors, (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 us to be
outstanding upon completion of our 2010 rights offering, and (c) may receive annual bonuses at the sole discretion of the
Board. If Mr. Raykov’s employment terminates due to a change of control of Fennec, Mr. Raykov’s remaining unvested
equity shall immediately vest and be fully exercisable. If Mr. Raykov is dismissed from employment by us for any reason
other than “for cause,” we are obligated to pay Mr. Raykov severance compensation equal to twelve months of salary. The
initial term of the agreement was for one year and the agreement automatically extends for additional one-year periods
unless terminated by either party in accordance with the agreement. Effective December 31, 2023, Mr. Raykov’s salary is
$585,276 per year.
Robert Andrade
Mr. Andrade has been employed by us since November 2015. Pursuant to an employment agreement dated November 13,
2015, Mr. Andrade is employed as our Chief Financial Officer and: (a) received an initial annual salary in the amount of
$165,000, and (b) may receive annual bonuses at the sole discretion of the Board. If Mr. Andrade’s employment terminates
due to a change of control of Fennec, Mr. Andrade’s remaining unvested equity shall immediately 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 December 31, 2023, Mr. Andrade’s
salary is $423,982 per year.
Adrian Haigh
Mr. Haigh has been employed by us since August of 2023. Mr. Haigh was a director of the Company from April 2014
through July of 2023. Mr. Haigh is employed by us as our Chief Operating Officer and: (a) received an initial annual salary
in the amount of €400,000 (Approximately $441,000 translated on December 31, 2023), and (b) may receive annual
bonuses at the sole discretion of the Board. If Mr. Haigh’s employment terminates due to a change of control of Fennec,
Mr. Haigh’s remaining unvested options shall immediately vest and be fully exercisable. If Mr. Haigh is dismissed from
employment by us for any reason other than “for cause,” we are obligated to pay Mr. Haigh severance compensation equal
to three month’s salary. Effective December 31, 2023, Mr. Haigh’s salary is €400,000 per year.
Shubh Goel
Ms. Goel commenced employment with us in September 2019. Pursuant to an employment agreement dated September 9,
2019, Ms. Goel was employed as our Chief 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) was eligible to receive an 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’s
employment was terminated by us for any reason other than “for cause”, we would have been obligated to pay Ms. Goel
(i) severance in the amount of six months of employees base salary, (ii) prorated share of any target bonus earned by
Ms. Goel and, (iii) accelerated vesting of stock options. The initial term of the agreement was for one year and the
agreement automatically extended for additional one-year periods unless terminated by either party in accordance with the
agreement. Ms. Goel tendered her resignation on January 31, 2022.
In addition to their employment agreements, Mr. Raykov, Mr. Andrade, Mr. Haigh and Ms. Goel are a party to a
confidentiality and intellectual property agreement with the Company.
In the employment agreements for each of Mr. Raykov, Mr. Andrade, Mr. Haigh and Ms. Goel, “for cause” is generally
defined as (1) material breach of the terms of the employment or intellectual property agreements; (2) failure to perform
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the duties inherent in their position in good faith and in a reasonable and appropriate manner; 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 us to each of the Named
Executive Officers assuming termination without cause on December 31, 2023. Ms. Goel’s resignation was voluntary and
there is no severance owed.
Name
Rostislav Raykov, CEO
Robert Andrade, CFO
Adrian Haigh, COO1
Severance Estimated Bonus Value of benefits
885,067
380,995
278,117
$ 607,061
$ 219,882
$ 110,364
278,006
161,113
167,753
$
$
$
$
$
$
(1) Mr. Haigh’s severance figures translated to U.S. dollars as of December 31, 2023.
Payments on Change of Control
The following table provides details regarding the estimated incremental payments from us to each of the Named
Executive Officers upon change of control.
Name
Rostislav Raykov, CEO
Robert Andrade, CFO
Adrian Haigh, COO
Change of Control
Multiple
Estimated Bonus(1) Value of benefits
1,645,204
696,463
87,923
1,645,204
696,463
87,923
$
$
$
2 X $
1.25 X $
0.5X $
(1) Change of control payments are calculated based on the two-year annualized average salary plus cash bonus as
calculated as of December 31, 2023. Mr. Haigh’s figures translated to U.S. dollars as of December 31, 2023.
In addition to the payments above, an incentive plan has been established pursuant to which, upon completion of a change
in control transaction prior to December 31, 2024, 1% of the transaction value up to $350 million and 1.25% of the
transaction value in excess of $350 million up to $400 million and 1.5% of transaction value in excess of $400 million,
with 50% of such incentive pool being payable to the CEO, 30% to the CFO and the balance to other key personnel as
determined by the CEO in consultation with the Compensation Committee.
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Equity Grants, Exercises and Holdings
The following table sets forth information concerning the number and value of unexercised options held by each Named
Executive Officer as of December 31, 2023. All executive awards, with the exception of those expiring 03/31/2033,
06/02/2031 and 08/07/2033, are exercisable immediately. Grants expiring 12/20/2031 fully vested upon FDA approval of
PEDMARK®. Our current stock option plan provides for equity awards and grants denominated in US and CAD dollars.
Number of Options
Granted Exercisable Option Exercise Price
Name
Rostislav Raykov
Robert Andrade
Adrian Haigh
USD$
USD$
USD$
—
275,491
215,280
150,000
100,000
100,000
150,000
25,000
83,333
175,000
300,000
250,000
250,000 222,224 USD$
150,000
100,000
100,000
150,000
25,000
83,333
16,666
50,000
75,000
75,000
100,000
125,000
80,000
50,000
50,000
75,000
200,000
20,000
20,000
20,000
20,000
20,000
20,000
20,000
10,246
10,000
133,333
USD$
USD$
USD$
USD$
USD$
USD$
— USD$
— USD$
USD$
—
USD$
50,491
USD$
85,617
USD$
23,671
USD$
24,961
USD$
39,116
USD$
50,000
USD$
15,816
USD$
—
USD$
20,000
USD$
20,000
USD$
20,000
USD$
20,000
USD$
20,000
USD$
20,000
USD$
20,000
USD$
10,246
USD$
10,000
USD$
133,333
Expiration Date
03/31/2033
8.32
12/20/2031
4.08
7.53
06/02/2031
6.93 05/15/2030
04/04/2029
4.83
02/06/2028
8.38
06/27/2027
5.10
07/05/2026
2.45
12/31/2024
2.69
01/24/2024
1.59
08/23/2023
0.72
11/20/2022
1.05
03/31/2033
8.32
12/20/2031
4.08
06/02/2031
7.53
05/15/2030
6.93
04/04/2029
4.83
02/06/2028
8.38
06/27/2027
5.10
07/05/2026
2.45
08/07/2033
8.03
06/12/2033
8.78
06/14/2032
5.59
06/29/2031
7.52
08/13/2030
6.17
06/18/2029
4.26
06/08/2028
10.93
06/27/2027
5.10
06/09/2026
2.44
12/31/2024
2.69
04/25/2024
2.31
Compensation of Directors
Director Compensation Table
The following table summarizes the compensation earned by our non-executive directors for the year ended December 31,
2023.
Name
Dr. Islam
Mr. Brughera
Mr. Haigh
Dr. Cook
Mr. Rallis
Total
Fees paid in Cash Stock Awards Option Awards(1)(2)
96,250
63,125
42,500
50,625
70,000
322,500
$
—
—
—
—
—
— $
128,979
103,183
103,183
103,183
103,183
541,711
$
90
Total
225,229
166,308
145,683
153,808
173,183
$ 864,211
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(1) Represents the aggregate grant date fair value computed in accordance with FASB ASC Topic 718.
(2) Detail of option grants are presented in the following table:
Name
Mr. Rallis
Mr. Brughera
Mr. Haigh
Dr. Islam
Dr. Cook
Total
Date of Grant
June 12, 2023
June 12, 2023
June 12, 2023
June 12, 2023
June 12, 2023
Number of Options Granted
20,000
20,000
20,000
25,000
20,000
105,000
Option Exercise Price $USD
8.78
8.78
8.78
8.78
8.78
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 provide long-term incentives for future efforts since the
value of the options is directly dependent on our market valuation; and (3) to retain quality individuals. When determining
whether and how many new option grants will be made, the Compensation Committee takes into account the amount and
terms of any outstanding options. We do not require our non-executive directors to own a specific amount of our common
shares.
Each of current directors 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 Compensation Committee may also remunerate
members in the form of a grant of options to purchase shares of our common shares. The options immediately vest when
granted and are otherwise subject to the terms and conditions of our stock option plan, as amended. The Independent
Director Agreements also provide for the reimbursement 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 March 25, 2024 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 as indicated below, the security holders
listed possess sole voting and investment power with respect to the shares beneficially owned by that person. Except as
otherwise indicated below, the address for each listed shareholder is c/o Fennec Pharmaceuticals Inc., 68 TW Alexander
Drive, PO Box 13628, Research Triangle Park, North Carolina 27709.
Name
Adrian J. Haigh
Dr. Khalid Islam
Robert Andrade
Marco Brughera
Jodi Cook
Chris A. Rallis
Rostislav Raykov
All Officers and Directors as a Group
Southpoint Capital Advisors, LP.(2)
Essetifin SpA(3)
Sonic Fund II, LP.(4)
Solas Capital Management, LLC(5)
Common shares
Purchase
Warrants
Exercisable
Common shares
Options
Exercisable
Common shares Within 60 Days Within 60 Days
—
—
—
—
—
—
—
—
—
—
—
—
—
213,825
105,746
—
—
51,896
287,471
658,938
4,077,214
3,225,694
2,407,357
1,378,513
293,579
175,000
556,391
175,545
100,000
178,450
1,386,114
2,865,079
—
—
—
—
Total Stock and
Stock Based
Holdings(1)
%
Ownership(1)
293,579
388,825
662,137
175,545
100,000
230,346
1,673,585
3,524,017
4,077,214
3,225,694
2,407,357
1,378,513
1.07 %
1.43 %
2.39 %
0.64 %
0.37 %
0.84 %
588.00 %
12.04 %
15.05 %
11.90 %
8.88 %
5.09 %
(1) For purposes of this table “beneficial ownership” is determined in accordance with Rule 13d-3 under the Exchange
Act, pursuant to which a 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 60 days after March 25, 2023. For purposes of computing
91
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the percentage of outstanding common shares held by each person or group of persons named above, any shares that
such person or group has the right to acquire within 60 days after March 25, 2023 are deemed outstanding but are not
deemed to be outstanding for purposes of computing the percentage ownership of any other person or group. As of
March 25, 2024 there were 27,099,908 common shares issued and outstanding.
(2) Southpoint Capital Advisors, LP, 623 Fifth Avenue, Suite 2503, New York, New York 10022. John S. Clark, II holds
voting and investment power over the shares owned by Southpoint Capital Advisors, LP.
(3) Essetifin SpA, Via Sudafrica 20, Rome, Italy 00144. Roberto Capriata holds voting and investment power over the
shares owned by Essetifin SpA.
(4) Sonic Fund II, LP, 400 Hobron Lane, Suite 3709, Honolulu, HI 96815. Lawrence Kam holds voting and investment
power over the shares held by Sonic Fund II, LP.
(5) Solas Capital Management, LLC, 1063 Post Road, 2nd Floor Darien, CT 06820. Frederick Tucker Golden hold voting
and investment power over the shares held by Solas Capital Management, 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, 2023.
(share amounts are in thousands):
(a)
(b)
Number of securities to be issued Weighted-average exercise price of
outstanding options, warrants and
rights
upon exercise of outstanding
options warrants and rights
Plan Category
Equity compensation
plans approved by
security holders
Total
* Our current stock option plan allows for the issuance of equity awards and grants denominated in both U.S. dollars and
Canadian dollars. As of December 31, 2023, there were 1.7 million common shares available for future grants under
our current stock option plan.
USD $6.31
1,741
1,741
4,948
4,948
—
(c)
Number of securities remaining
available for future issuance under
equity compensation plans
(excluding securities reflected in
Column (a))
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, 2023 in which the amount
involved exceeded the lesser of $120,000 or one percent of the average of our total assets at year-end for the last two
completed fiscal years.
Indemnifications Related to Officers and the Board of Directors.
We have agreed to indemnify members of our Board of Directors (the “Board”) and certain of our officers if they are
named or threatened to be named as a party to any proceeding by reason of the fact that they acted in such capacity. We
maintain directors’ and officers’ (“D&O”) insurance coverage to protect against such losses. We have not historically
incurred any losses related to these types of indemnifications. Presently, we are defending a suit against our Board and
certain named officers. Management is unable to estimate a dollar value related to the suit, nor can it determine the
probability of an outcome either in favour or against the Company. As a result, we have not recorded any liabilities related
to such indemnifications as of December 31, 2023. In addition, as a result of D&O insurance policy coverage, we believe
these indemnification agreements are not significant to our results of operations.
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 standards and in Canadian National Instruments 52-110 and 58-101 and National
92
Table of Contents
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 is therefore not independent. We are of the view that the composition of our Board reflects a diversity
of background and experience that are important for effective corporate governance. Other directorships held by Board
members are described in this Annual Report under the heading “Directors and Executive Officers.”
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 (PCAOB ID# 200), in fiscal year 2023 and 2022:
Audit Fees(1)
Audit-Related Fees(2)
Tax Fees(3)
All Other Fees(4)
Total
Fiscal Year
2023
$ 132,750
14,000
—
—
$ 146,750
$
$
Fiscal Year
2022
86,250
7,500
—
—
93,750
(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 statements of 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 traditionally performed 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 of the services performed by Haskell & White LLP as required by SEC regulation.
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Table of Contents
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) The following documents are included as part of this Annual Report:
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:
Description
Location
Notice of Articles dated August 25, 2011
Articles dated August 25, 2011
Notice of Alteration Dated September 3, 2014
Exhibit 3.2I to the Form 8-K of the
Company filed August 26, 2011
Exhibit 3.2II to the Form 8-K of the
Company filed August 26, 2011
Exhibit 3.1 to the Form 8-K of the
Company filed September 9, 2014
Fennec Pharmaceuticlas, Inc. Description of the Registrant’s
Securities
Filed herewith
Exhibit
No.
3.1
3.2
3.3
4.1
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
Exhibit 10.28 to the Form 10-Q of the
between Fennec and Rostislav Raykov*
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
Executive Employment Agreement dated November 12, 2015
Exhibit 10.40 to the Form 10-Q of the
by and between Fennec and Robert Andrade*
Company filed November 12, 2015
10.5
Purchase Agreement, dated May 9, 2016, between Fennec
Exhibit 10.42 to the Form 10-Q of the
Pharmaceuticals Inc. and Elion Oncology, LLC.
Company filed May 12, 2016
10.6
10.7
10.8
10.9
Loan and Security Agreement dated as of February 1, 2019 by
and between Fennec Pharmaceuticals, Inc. and Western
Alliance Bank
Exhibit 10.1 to the Form 8-K of the
Company filed February 4, 2019
First Amendment to Loan and Security Agreement dated as of
June 25, 2020 by and between Fennec Pharmaceuticals, Inc.
and Western Alliance Bank
Exhibit 10.1 to the Form 8-K of the
Company filed June 26, 2020
Second Amendment to Loan and Security Agreement dated as
of June 24, 2021 by and between Fennec Pharmaceuticals, Inc
and Western Alliance Bank
Exhibit 10.1 to the form 8-K of the
Company filed June 24, 2021
Third Amendment to Loan and Security Agreement dated as of
January 27, 2022 by and between Fennec Pharmaceuticals, Inc
and Western Alliance Bank
Exhibit 10.1 to the form 8-K of the
Company filed January 31, `
94
Table of Contents
Exhibit
No.
10.10
Description
Location
At The Market Offering Agreement, dated October 30, 2020,
between Fennec Pharmaceuticals Inc. and H.C. Wainwright &
Co., LLC
Exhibit 1.1 to the Form 8-K of the
Company filed October 30, 2020
10.11
Executive Employment Agreement of Shubh Goel
First Closing of Financing Transaction, dated August 22, 2022,
by and between Fennec Pharmaceuticals Inc. and Petrichor
Opportunities Fund I LP
Exhibit 10.1 to the form 8-K of the
Company filed September 9, 2019
Exhibit 4.1 to the form 8-K of the
Company filed August 22, 2022
Second Closing of Financing Transaction, dated September 23,
2022, by and between Fennec Pharmaceuticals Inc. and
Petrichor Opportunities Fund I LP
Exhibit 4.1 to the form 8-K of the
Company filed September 26, 2022
Share Registration Agreement, dated as of December 1, 2022,
between Fennec Pharmaceuticals,
and Petrichor
Opportunities Fund I LP
First Amendment to Securities Purchase Agreement and Third
Closing of Financing Transaction, dated as of December 4,
2023, between Fennec Pharmaceuticals, Inc. and Petrichor
Opportunities Fund I LP
Inc.
Exhibit 4.5 to the Form S-3 of the
Company filed December 1, 2022
Exhibit 4.6 to the form 8-K of the
Company filed December 6, 2023.
Fennec Pharmaceuticals, Inc. Insider Trading Policy, dated July
11, 2009.
Filed herewith
10.12
10.13
10.14
10.15
10.16
16.1
Letter Regarding Change in Certifying Accountant
Exhibit 16.1 to the Form 8-K of the
21
Subsidiaries
Company filed May 17, 2017
Exhibit 21 to the 10-K of the Company
filed February 14, 2020
23.1
Consent of Haskell & White LLP, Independent Registered
Filed herewith
Public Accounting Firm
31.1
31.2
32.1
97
99.1
101.1
Certification of Chief Executive Officer of the Company in
accordance with Section 302 of the Sarbanes-Oxley Act of
2002
Certification of Chief Financial Officer of the Company in
accordance with Section 302 of the Sarbanes-Oxley Act of
2002
Filed herewith
Filed herewith
Certification of Chief Executive Officer and Chief Financial
Officer of the Company in accordance with Section 906 of the
Sarbanes-Oxley Act of 2002
Filed herewith
Fennec Pharmaceuticals, Inc. Incentive Compensation
Recovery Policy
Filed herewith
Press Release for Fiscal Year Ended December 31, 2022
Filed herewith
Interactive Data File
Filed herewith
95
Table of Contents
Exhibit
No.
104
Description
Location
Cover Page Interactive Data File – The cover page interactive
data file does not appear in the Interactive Data File because its
XBRL tags are embedded within the Inline XBRL document
Filed herewith
*
Indicates a management contract or compensatory plan.
Item 16. Form 10-K Summary
None.
96
Table of Contents
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 its behalf by the undersigned, thereunto duly authorized.
Fennec Pharmaceuticals Inc.
By:
Date: March 29, 2024
/s/ Rostislav Raykov
Rostislav Raykov
Chief Executive Officer and Director
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 and all 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
said corporation to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission, 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 in our 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 or cause 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 the registrant and in the capacities and on the dates indicated.
Signatures
Title
/s/ Rostislav Raykov
Rostislav Raykov
/s/ Robert Andrade
Robert Andrade
/s/ Adrian J. Haigh
Adrian J. Haigh
/s/ Dr. Khalid Islam
Dr. Khalid Islam
/s/ Chris A. Rallis
Chris A. Rallis
/s/ Marco Brughera
Marco Brughera
/s/ Jodi Cook
Jodi Cook
Chief Executive Officer
(principal executive officer) and
Director
Chief Financial Officer
(principal financial officer and
principal
accounting officer)
Chief Operating Officer
(principal operations office)
Director
Director
Director
Director
97
Date
March 29, 2024
March 29, 2024
March 29, 2024
March 29, 2024
March 29, 2024
March 29, 2024
March 29, 2024
Table of Contents
FENNEC PHARMACEUTICALS INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Shareholders’ Deficit
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
F-1
F-2
F-4
F-5
F-6
F-7
F-8
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors
Fennec 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, 2023 and 2022, and the related consolidated statements of operations, shareholders’
deficit, 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 all material
respects, the consolidated financial position of the Company as of December 31, 2023 and 2022, and the consolidated
results of its operations and its cash flows 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’s consolidated financial statements based on our audits. We are a public accounting
firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated 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 are required to obtain an understanding of
internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the
Company’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, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our
audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable
basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts
or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on
the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Estimated Product Allowances and Discounts
Critical Audit Matter Description
As described in Note 2 to the consolidated financial statements, the Company recognizes revenues based on the net sales
price, which includes estimates of variable consideration for which reserves are established primarily from rebates,
chargebacks, discounts, returns, and other allowances. In addition, certain distributors provide distinct and estimable
services to the Company in exchange for product discounts. The estimated fair value of distinct and estimable services
F-2
Table of Contents
performed by the distributor and the attribution of those amounts to the period of benefit are important factors in the
determination of net sales price and requires subjective management assumptions. Allowances totaled $2.5 million for the
year ended December 31, 2023, and distinct and estimable distributor services totaled $6.3 million for the year ended
December 31, 2023, of which $2.0 million is presented as a prepaid expense as of December 31, 2023.
How the Critical Audit Matter was Addressed in the Audit
Auditing the Company’s estimated allowances was complex and judgmental because the estimates involve subjective
management assumptions about the product’s end users at the time of product distribution. Auditing estimates of the
amount and timing of distinct distributor services provided to the Company was complex and judgmental because the
estimates involve significant measurement uncertainty about the fair value of services received by the Company and when
such services were rendered to the Company. Reductions to gross product revenue are sensitive to changes in
management’s assumptions. Furthermore, PEDMARK® is the Company’s first commercial product, and as a result,
management has limited Company-specific historical experience to make estimates. A high degree of auditor judgment,
subjectivity and effort was required in performing procedures and evaluating evidence related to management’s
assumptions in these areas.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our
overall opinion on the consolidated financial statements. These procedures included, among others:
◾ Through interviews, inquiries, and observations, we obtained an understanding of the significant management
assumptions behind the potentially significant components of the allowances, including the nature of each
allowance and the amounts estimated by management. Through interviews, inquiries, and observations, we
obtained an understanding of the significant management assumptions supporting the fair value estimates of
distinct distributor services and the timing of performance.
◾ We assessed the methodologies used to determine the allowances and the fair value of distinct distributor services
and tested estimated percentages by corroborating the underlying data used to develop the estimate, which
included evaluating the completeness and accuracy of such data. Our testing of allowances included comparing
key assumptions to customer contracts, payment data, and other third-party sources, as applicable. Our testing of
the fair value of distinct distributor services included evaluating management’s estimate of costs to perform
necessary services and assessing the reasonableness of estimated timeframes associated with the performance of
those services.
◾ We evaluated information subsequent to the balance sheet date to determine whether there was any new
information that would require adjustment to the previously estimated amounts.
We have served as the Company’s auditor since 2017.
Irvine, California
March 29, 2024
/s/ Haskell & White LLP
HASKELL & WHITE LLP
F-3
Table of Contents
Fennec Pharmaceuticals Inc.
Consolidated Balance Sheets
(U.S. dollars and shares in thousands)
Assets
Current assets
Cash and cash equivalents
Accounts receivable, net
Prepaid expenses
Inventory
Other current assets
Total current assets
Non-current assets
Deferred issuance cost
Deferred issuance cost (amortization)
Total non-current assets
Total assets
Liabilities and shareholders’ deficit
Current liabilities:
Accounts payable
Accrued liabilities
Operating lease liability - current
Total current liabilities
Non-current liabilities
Term loan
PIK interest
Debt discount
Operating lease liability - net of current portion
Total non-current liabilities
Total liabilities
Commitments and contingencies (Note 7)
December 31, December 31,
2023
2022
$
$
$
$
$
$
13,269
8,814
2,575
2,156
44
26,858
816
(810)
6
26,864
3,778
3,754
21
7,553
30,000
1,219
(288)
2
30,933
38,486
23,774
1,545
770
576
63
26,728
809
(598)
211
26,939
2,390
2,219
—
4,609
25,000
260
(361)
—
24,899
29,508
Shareholders’ deficit:
Common shares, no par value; unlimited shares authorized; 27,027 shares issued and
outstanding (2022 ‑26,361)
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive income
Total shareholders’ deficit
Total liabilities and shareholders’ deficit
144,307
62,073
(219,245)
1,243
(11,622)
26,864
$
142,591
56,797
(203,200)
1,243
(2,569)
26,939
$
(The accompanying notes are an integral part of these consolidated financial statements)
F-4
Table of Contents
Fennec Pharmaceuticals Inc.
Consolidated Statements of Operations
(U.S. dollars and shares in thousands, except per share information)
Revenue
PEDMARK(R) product sales, net
Cost of products sold
Gross profit
Operating expenses:
Research and development
Selling and marketing
General and administrative
Total operating expenses
Loss from operations
Other (expense)/income
Unrealized foreign exchange gain/(loss)
Amortization expense
Unrealized loss on securities
Interest income
Interest expense
Total other (expense)/income
Net loss
Basic net loss per common share
Diluted net loss per common share
Weighted-average number of common shares outstanding basic
Weighted-average number of common shares outstanding diluted
Year Ended
December 31,
2023
December 31,
2022
$
$
21,252
(1,259)
19,993
1,535
(86)
1,449
56
12,123
20,585
3,531
2,785
17,722
32,764
(12,771)
24,038
(22,589)
5
(287)
(39)
441
(3,394)
(3,274)
(16,045)
(0.60)
(0.60)
26,574
26,574
$
$
$
(9)
(149)
(184)
195
(978)
(1,125)
(23,714)
(0.90)
(0.90)
26,275
26,275
$
$
$
(The accompanying notes are an integral part of these consolidated financial statements)
F-5
Table of Contents
Balance at December 31, 2021
Stock options issued to consultants
Stock options issued to employees
Warrants issued in connection with
term loan
Issuance of securities
Exercise of stock options
Restricted stock release
Net loss
Balance at December 31, 2022
Stock options and restricted share
units issued to employees
Exercise of stock options
Restricted stock release
Net loss
Balance at December 31, 2023
Fennec Pharmaceuticals Inc.
Consolidated Statements of Shareholders’ Deficit
(U.S. dollars and shares in thousands)
Common Stock
Number (Note 6) Amount
26,014
$ 140,801
Additional
Paid-in
Capital
Accumulated
Other
Accumulated Comprehensive
Deficit
Income
Total
Shareholders’
Deficit
$ 53,214
133
4,087
—
—
$ (179,486) $
—
—
1,243
$
—
—
15,772
133
4,087
—
—
—
—
273
74
—
—
588
78
—
—
—
1,790
441
(862)
(216)
—
—
—
—
—
—
—
—
(23,714)
(203,200)
26,361
142,591
56,797
—
5,354
1,716
—
—
—
(78)
—
—
—
—
(16,045)
$ (219,245) $
27,027
$ 144,307
$ 62,073
—
—
—
—
—
1,243
—
—
—
—
$
1,243
441
(862)
1,574
—
(23,714)
(2,569)
5,354
1,716
(78)
(16,045)
(11,622)
(The accompanying notes are an integral part of these consolidated financial statements)
F-6
Table of Contents
Fennec Pharmaceuticals Inc.
Consolidated Statements of Cash Flows
(U.S. dollars in thousands)
Cash flows (used in) provided by:
Operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of debt access fees
Amortization of debt discount
Unrealized loss on securities
Stock-based compensation - consultants
Stock-based compensation - employees
Changes in operating assets and liabilities:
Accounts receivable, net
Prepaid expenses
Inventory
Other assets
Accounts payable
Accrued liabilities
Net cash used in operating activities
Financing activities:
Issuance of shares, options exercise
Proceeds from long-term debt
Long term debt paid
Debt discount
Cash paid for taxes on restricted share release
Capitalized deferred issuance costs
Net cash provided by financing activities
(Decrease)/increase in cash and cash equivalents
Cash and cash equivalents - Beginning of year
Cash and cash equivalents - End of year
Non-cash investing and financing activities:
Financed insurance policy
Warrants issued in connection with term loan
Year Ended
December 31,
2023
December 31,
2022
$
(16,045)
$
(23,714)
221
66
39
—
5,354
(7,269)
104
(1,580)
3
1,388
576
(17,143)
1,716
4,997
—
3
(78)
—
6,638
(10,505)
23,774
13,269
$
132
17
184
133
4,087
(1,545)
264
(576)
6
1,612
1,342
(18,058)
928
24,935
(5,000)
238
(194)
(175)
20,732
2,674
21,100
23,774
403
$
— $
550
441
$
$
$
(The accompanying notes are an integral part of these consolidated financial statements)
F-7
Table of Contents
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 Adherex Technologies Inc. and subsequently changed its name on September 3, 2014. Fennec,
together with its wholly owned subsidiaries Oxiquant, Inc. (“Oxiquant”) and Fennec Pharmaceuticals, Inc., both Delaware
corporations, and Cadherin Biomedical Inc. (“CBI”), a Canadian corporation and Fennec Pharmaceuticals (EU) Limited
(“Fennec Limited”), collectively referred to herein as the “Company,” is a biopharmaceutical company with one FDA
approved product developed to reduce the risk of ototoxicity associated with cisplatin in pediatric patients one month of
age and older with localized, non-metastatic solid tumors. With the exception of Fennec Pharmaceuticals, Inc., and Fennec
Pharmaceuticals (EU) Limited, all subsidiaries are inactive.
These consolidated financial statements have been prepared in accordance with generally accepted accounting principles in
the United States of America (“US GAAP”) that are applicable to a going concern which contemplates that the Company
will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the
normal course of business.
During the year ended December 31, 2023, the Company incurred a net loss from operations of $16,045. At December 31,
2023, it had an accumulated deficit of $219,245 and had experienced negative cash flows from operating activities in the
amount of $17,143 for the year ended December 31, 2023.
On August 1, 2022, the Company entered into a Securities Purchase Agreement (the “SPA”) with Petrichor Opportunities
Fund I LP (the “Investor”) in connection with the issuance of up to $45,000 of senior secured floating rate convertible
notes (the “Notes”), issuable in multiple tranches (the “Note Financing”). On August 19, 2022, the Company closed on the
initial tranche of $5,000 (the “First Closing Note”) which has an Initial Conversion Price equal to $8.11 per share, which
was calculated based on a 20% premium of the 5-day volume weighted average price of the Company’s common shares as
traded on the Nasdaq Capital Market (the “VWAP”) immediately prior to the announcement of the Securities Purchase
Agreement (“SPA”) dated August 1, 2022. In connection with the first closing, the Company repaid in full its secured
indebtedness with Bridge Bank in the amount of $5,000.
On September 23, 2022, the Company closed on the second tranche of the Note Financing in the amount of $20,000 (the
“Second Closing Note”), which has an Initial Conversion Price equal to $7.89 per share, which was calculated based on
a 20% premium of the 5-day VWAP immediately prior to September 20, 2022, which was the date the Company
obtained FDA approval of PEDMARK®.
A commitment fee of 2.0% of the Notes was payable under the SPA. Half of such fee was paid by the issuance on the
first closing of warrants to purchase 55,498 Fennec common shares (“First Closing Warrant”) and half was payable in
cash or warrants of 55,498 Fennec common shares (“Second Closing Warrant”), at our election, on the second closing.
The warrants are exercisable at a price per share of $8.11 and have a term of five years from the date of the grant. The
Company elected to have all the commitment fee of the Notes payable in warrants.
On December 4, 2023, the Company closed a third tranche under the SPA in the amount of $5,000,000 (the “Third
Closing Note”), which has an Initial Conversion Price equal to $7.89 per share, which was calculated based on a 20%
premium of the 5-day VWAP immediately prior to September 20, 2022, which was the date the Company obtained FDA
approval of PEDMARK®.
Also on December 4, 2023, the Company entered into a First Amendment to the Securities Purchase Agreement (the “SPA
Amendment”) with the Investor, which, among other things, extends the period that the Company may draw the remaining
$15,000,000 under the SPA from December 31, 2023, to December 31, 2024. Subsequent draws are subject to mutual
agreement of the Company and the Investor and will be represented by Notes that will also be convertible at a price equal
F-8
Table of Contents
to $7.89 per share.
Fennec Pharmaceuticals Inc.
Notes to the Consolidated Financial Statements
(U.S. dollars and shares in thousands, except per share information)
The Company believes current funds, which include funds from the First, Second and Third Closing Notes, provide
sufficient funding for the Company to carry out its planned activities, including the continuation of commercialization
efforts for at least the next twelve months of PEDMARK®. In addition to the aforementioned, the Company announced in
March of 2024 that is had secured an exclusive licensing agreement with Norgine to commercialize PEDMARQSI in
Europe, Australia and New Zealand. The deal provided the Company with approximately $43 million up front, with the
potential of approximately another $230 million in future royalties and milestone payments.
These financial statements do not reflect the potentially material adjustments in the carrying values of assets and liabilities,
the reported expenses, and the balance sheet classifications used, that would be necessary if the going concern assumption
were not appropriate.
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 have been 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 amounts of assets and liabilities and disclosure of contingent assets and liabilities as
of the date of the consolidated financial statements and the reported amounts of revenue and expense during the reporting
period. Significant estimates include revenue recognition, amount and timing of marketing and other services performed by
certain distributors, allowance against trade receivables, measurement of stock-based compensation over the next twelve
months from the date of issuance of the consolidated financial statements. Actual results could differ from those estimates.
Segment and Geographic Information
Operating segments are defined as components of an enterprise engaging in business activities for which discrete financial
information is available and regularly reviewed by the chief operating decision maker in deciding how to allocate resources
and in assessing performance. The Company views its operations and manages its business in one operating segment
principally in the United States. As of December 31, 2023, the Company had an operating lease in Ireland. This is the only
asset located outside of the United States.
Stock-Based Compensation
Under the Company’s stock-based compensation programs, the Company periodically grants stock options and
restricted stock to employees, directors and consultants. The Company also issues shares under an employee stock
purchase plan. The fair value of each award is recognized in the Company’s statements of operations over the
requisite service period for such award.
The Company uses the Black-Scholes option pricing model to value stock option awards without market conditions,
which requires the Company to make certain assumptions regarding the expected volatility of its common stock price,
the expected term of the option grants, the risk-free interest rate and the dividend yield with respect to its common
stock. The Company calculates volatility using its historical stock price data. Due to the lack of the Company’s own
historical data, the Company elected to use the “simplified” method for “plain vanilla” options to estimate the expected
term of the Company’s stock option grants. Under this approach, the weighted-average expected life is presumed to be the
average of the vesting term and the contractual term of the option. The risk-free interest rate used for each grant is
based on the United States Treasury yield curve in effect at the time of grant for instruments with a similar expected
life. The Company utilizes a dividend yield of zero based on the fact that the Company has never paid cash dividends
and at present, has no intention to pay cash dividends.
F-9
Table of Contents
Inventory
Fennec Pharmaceuticals Inc.
Notes to the Consolidated Financial Statements
(U.S. dollars and shares in thousands, except per share information)
Inventories are valued under a standard costing methodology on a first-in, first-out basis and are stated at the lower of cost
or net realizable value. The Company capitalizes inventory costs related to products to be sold in the ordinary course of
business. The Company makes a determination of capitalizing inventory costs for a product based on, among other factors,
status of regulatory approval, information regarding safety, efficacy and expectations relating to commercial sales and
recoverability of costs. Capitalized costs of inventories mainly include third party manufacturing, logistics and distribution
costs. The Company assesses recoverability of inventory each reporting period to determine any write down to net
realizable value resulting from excess or obsolete inventories. The manufacturing costs for PEDMARK® prior to regulatory
approval were not capitalized as inventory but were expensed as research and development costs. The Company expensed
pre-launch inventory as it could not reasonably anticipate FDA approval of PEDMARK®.
Revenue Recognition
Under Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, the Company
recognizes revenue when its customers obtain control of promised goods or services, in an amount that reflects the
consideration which the Company determines it expects to receive in exchange for those goods or services. To determine
revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company
performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligation(s) in
the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the
contract; and (v) recognize revenue when (or as) the Company satisfies its performance obligation(s). As part of the
accounting for these arrangements, the Company must make significant judgments, including identifying performance
obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating
the transaction price to each performance obligation.
Net Product Revenue
On September 20, 2022, the FDA approved PEDMARK® in the United States to reduce the risk of ototoxicity associated
with cisplatin in pediatric patients one month of age and older with localized, non-metastatic solid tumors. PEDMARK®
became commercially available on October 17, 2022. PEDMARK® is the Company’s first commercial product. The
Company sells its products through select specialty distributors in the U.S. and through distributors purchasing PEDMARK
product globally. These Customers subsequently resell the Company’s products to health care providers and patients. In
addition to distribution agreements with Customers, the Company enters into arrangements with health care providers and
payors that provide for government-mandated and/or privately- negotiated rebates, chargebacks and discounts with respect
to the purchase of the Company’s products. Revenues from product sales are recognized when the Customer obtains
control of the Company’s product, which occurs at a point in time, typically upon delivery to the Customer.
Product Sales Discounts and Allowances
The Company records U.S. based revenues from product sales at the net sales price (transaction price), which includes
estimates of variable consideration for which reserves are established primarily from discounts, chargebacks, rebates, co-
pay assistance, returns and other allowances that are offered within contracts between the Company and its Customers,
health care providers, payors and other indirect customers relating to the sales of its products. These reserves are based on
the amounts to be claimed on the related sales and are classified as a contra-asset or a current liability. Where appropriate,
these estimates take into consideration a range of possible outcomes that are probability-weighted for relevant factors such
as current contractual and statutory requirements, specific known market events and trends, industry data, forecasted
Customer buying and payment patterns, and the Company’s historical experience that will develop over time as
PEDMARK® is the Company’s first commercial product. Overall, these reserves reflect the Company’s best estimates of
the amount of consideration to which it is entitled based on the terms of its contracts. The amount of variable consideration
that is included in the transaction price may be constrained, and is included in the net sales price only to the extent that it is
probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period.
Actual amounts of consideration ultimately received may differ from the Company’s estimates. If actual results in the
future vary from the Company’s estimates, the Company will adjust these estimates, which would affect net product
revenues and earnings in the period such variances become known.
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Fennec Pharmaceuticals Inc.
Notes to the Consolidated Financial Statements
(U.S. dollars and shares in thousands, except per share information)
The Company also utilizes select distributors to introduce its product into global markets. These distributors take on the
function of shipping, storage, marketing and other services related to the sale of our product. We record distribution and
other fees paid to these distributors as a reduction of revenue, unless the payment is for a distinct good or service from the
customer and we can reasonably estimate the fair value of the goods or services received. If both conditions are met, we
record the consideration paid to the distributor as an operating expense. These costs are typically known at the time of sale,
resulting in minimal adjustments subsequent to the period of sale.
Chargebacks: Chargebacks are discounts that occur when contracted customers purchase directly from a specialty
distributor. Contracted customers, which currently consist of Public Health Service institutions and Federal government
entities purchasing via the Federal Supply Schedule, generally purchase the product at a discounted price. The specialty
distributor, in turn, charges back to the Company the difference between the price initially paid by the specialty distributor
and the discounted price paid to the specialty distributor by its contracted customer. The allowance for chargebacks is
based on actual chargebacks received and an estimate of sales by the specialty distributor to its contracted customers.
Discounts for Prompt Payment: The Customers receive a discount of 0.65% for prompt payment. The Company expects its
Customers will earn 100% of their prompt payment discounts and, therefore, the Company deducts the full amount of these
discounts from total product sales when revenues are recognized.
Rebates: Allowances for rebates include mandated discounts under the Medicaid Drug Rebate Program and other
government programs. Rebate amounts owed after the final dispensing of the product to a benefit plan participant are based
upon contractual agreements or legal requirements with public sector benefit providers, such as Medicaid. The allowance
for rebates is based on statutory or contractual discount rates and expected utilization. The Company’s estimates for the
expected utilization of rebates are based on Customer and payer data received from the specialty distributors and historical
utilization rates that will develop over time as PEDMARK® is the Company’s first commercial product. Rebates are
generally invoiced by the payor and paid in arrears, such that the accrual balance consists of an estimate of the amount
expected to be incurred for the current quarter’s shipments to the Customers, plus an accrual balance for known prior
quarters’ unpaid rebates. If actual future rebates vary from estimates, the Company may need to adjust its accruals, which
would affect net product revenues in the period of adjustment.
Co-payment Assistance: Patients who have commercial insurance and meet certain eligibility requirements may receive co-
payment assistance. The Company accrues a liability for co-payment assistance based on actual program participation and
estimates of program redemption using Customer data provided by the third party that administers the copay program.
Other Customer Credits: The Company pays fees to its Customers for account management, data management and other
administrative services. To the extent the services received are distinct from the sale of products to its Customers, the
Company classifies these payments in selling and marketing expenses in its Consolidated Statements of Operations.
Distribution and Other Fees: We pay distribution and other fees to certain customers in connection with the sales of our
products. We record distribution and other fees paid to our customers as a reduction of revenue, unless the payment is for a
distinct good or service from the customer and we can reasonably estimate the fair value of the goods or services received.
If both conditions are met, we record the consideration paid to the customer as an operating expense. These costs are
typically known at the time of sale, resulting in minimal adjustments subsequent to the period of sale.
The following table summarizes net product revenues for PEDMARK® in the years ended December 31, 2023, and 2022,
respectively:
Product revenues:
Gross product revenues
Discounts and allowances
Net product revenues
F-11
Year Ended
December 31,
December 31,
2023
2022
$
$
23,782
(2,530)
21,252
$
$
1,769
(234)
1,535
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Fennec Pharmaceuticals Inc.
Notes to the Consolidated Financial Statements
(U.S. dollars and shares in thousands, except per share information)
For the years ended December 31, 2023 and 2022, the Company had 4 distributors and 3 distributors that represented more
than 10% of net sales, respectively.
The activities and ending allowance balances for each significant category of discounts and allowances for PEDMARK®
(which constitute variable consideration) for the year ended December 31, 2023, and 2022 were as follows:
In thousands
Balance at December 31, 2021
Provision related to sales made in:
Current period
Prior periods
Payments and customer credits issued
Balance at December 31, 2022
Provision related to sales made in:
Current period
Prior periods
Payments and customer credits issued
Balance at December 31, 2023
Chargebacks,
Discounts for
Prompt Pay and
Rebates, Customer
Fees/Credits
and Co-Pay
Other Allowances
—
$
$
Assistance
—
Totals
$ —
72
—
(1)
71
1,164
—
(870)
365
$
$
163
—
—
163
600
—
(333)
430
$
$
235
—
(1)
$ 234
1,764
—
(1,203)
$ 795
The allowances for chargebacks, fees due to Customers, rebates and discounts for prompt payment are recorded as a
contra-asset to accounts receivable, while Medicaid rebates and return allowances are in accrued liabilities in the
accompanying Consolidated Balance Sheets.
Trade Receivables
The Company records gross trade receivables at the time of product sale to its Customers, both specialty and other select
global distributors. Amounts estimated for the associated chargebacks, cash discounts for prompt payment and any
allowances for credit losses are booked as a reserve against accounts receivable and reduction of revenue. The Company
determines its allowance methodology by pooling receivable balances at the Customer level. The Company considers
various factors, including loss history, individual credit risk associated with each Customer, and the current and future
condition of the general economy. These credit risk factors are monitored on a quarterly basis and updated as necessary. To
the extent that any individual debtor is identified whose credit quality has deteriorated, the Company establishes
allowances based on the individual risk characteristics of such a Customer. Customers categorized as specialty distributors,
and accordingly, the Company considers the risk of potential credit losses to be low. Sales to other select global distributors
have the potential for losses. The Company evaluates the risk of credit losses on sales on an individual basis using the
above mentioned criteria. The Company had a balance in allowance for credit losses of $0.3 million as of December 31,
2023.
Cost of Products Sold
Cost of products sold is related to the Company's product revenues for PEDMARK® and consists primarily of product
production costs associated with finished goods inventory and royalty (1% of net sales), payments the Company is
required to pay to Oregon Health & Science University (“OHSU”) on all net sales of PEDMARK®. Cost of products sold
also consists of shipping and other third-party logistics and distribution costs for the Company’s product. The Company
considered regulatory approval of its product candidate to be uncertain and product manufactured prior to regulatory
approval could not have been sold unless regulatory approval was obtained. As such, the manufacturing costs for
PEDMARK® incurred prior to regulatory approval were not capitalized as inventory but were expensed as research and
development costs. After FDA approval in September 2022, the Company had various lots of PEDMARK® in various
stages of production in connection with the fourth quarter product launch. As of December 31, 2023, the Company
capitalized approximately $2.2 million of costs as inventory on the Consolidated Balance Sheet. Of the items
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Fennec Pharmaceuticals Inc.
Notes to the Consolidated Financial Statements
(U.S. dollars and shares in thousands, except per share information)
capitalized, $1.4 million was capitalized as work in process and raw materials, $0.8 million was capitalized into finished
goods.
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 to protect the principal investment. As of December 31, 2023, the Company had $13.3
million in cash and money market accounts (2022- $23.8 million). Money market investments typically have minimal
risks. While the Company has not experienced any loss or write-down of its money market investments, the amounts it
holds in money market accounts are substantially above the $250,000 amount insured by the FDIC and may lose value.
Financial Instruments
Financial instruments recognized on the balance sheets at December 31, 2023 and 2022, consist of cash and cash
equivalents, accounts receivable, accounts payable, accrued liabilities and term loans, the carrying values of which
approximate fair value due to their relatively short time to maturity or interest rates that approximate market interest
rates. The Company does not hold or issue financial instruments for trading.
The Company’s investment policy is to manage investments to achieve, in the order of importance, the financial objectives
of preservation of principal, liquidity and return on investment. Investments, 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 to the
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. The Company
has chosen to avoid investments of a trading or speculative nature to preserve cash.
Common Shares and Warrants
The Company has 0.2 million warrants with a weighted average strike price of $7.71 outstanding to purchase common
shares that have a weighted average life of 4.05 years.
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 expensed as 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 their realization is reasonably assured. They are applied to reduce related capital costs
and research and development expenses in the year recognized.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to credit risk primarily consist of cash and cash equivalents,
and accounts receivable. The Company maintains deposits in highly-rated, federally-insured financial institutions in
excess of federally insured limits. The Company’s investment strategy is focused on capital preservation. The
Company invests in instruments that meet the high credit quality standards outlined in the Company’s investment
policy. This policy also limits the amount of credit exposure to any one issue or type of instrument.
F-13
Table of Contents
Fennec Pharmaceuticals Inc.
Notes to the Consolidated Financial Statements
(U.S. dollars and shares in thousands, except per share information)
The Company’s trade receivables includes amounts billed to Customers, both specialty and select global distributors, for
product sales of PEDMARK®. Both specialty and select global distributors are a limited group of distributors, and
accordingly, the Company considers the risk of potential credit losses to be low.
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 the related 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, 2023,
and 2022, we maintained a full valuation allowance against our deferred tax assets.
The provisions of the Financial Accounting Standards Board (“FASB”) ASC 740-10, Uncertainty in Income Taxes, address
the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the
financial statements. Under ASC 740-10, we may recognize the tax benefit from an uncertain tax position only if it is more
likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of
the position.
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 of operations.
Loss Per Share
Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding
during the year. Diluted net loss per share is computed using the same method, except the weighted average number of
common shares outstanding includes convertible debentures, restricted share units, stock options and warrants, if dilutive,
as determined using the if-converted method and treasury methods. Accordingly, warrants to purchase 0.2 million of our
common shares, restricted share units of 0.2 million to obtain our common shares, and options to purchase 4.8 million of
our common shares at December 31, 2023, were not included in loss per share. Such options would have an antidilutive
effect. In 2022, warrants to purchase 0.2 million of our common shares, restricted share units to obtain 0.04 million of our
common shares and options to purchase 4.5 million common shares were excluded from the computation of loss per share
as their inclusion would have been antidilutive.
Recent Accounting Pronouncements
In August 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-06, Debt—Debt with Conversion and Other
Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). The new
standard eliminates the current models that require separation of beneficial conversion and cash conversion features from
convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of
contracts in an entity's own equity. The new standard also introduces additional disclosures for convertible debt and
freestanding instruments that are indexed to and settled in an entity's own equity. This ASU will be effective for the year
ended December 31, 2024. The Company adopted this ASU in Q1 of 2023.
In June 2022, the FASB issued Accounting Standards Update ("ASU") 2022-03, Fair Value Measurement (Topic 820): Fair
Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, which (1) clarifies the guidance in Topic
820 on the fair value measurement of an equity security that is subject to contractual restrictions that prohibit the sale of an
equity security and (2) requires specific disclosures related to such an equity security. This ASU will be effective for the
year ended December 31, 2024. The Company adopted this ASU in 2023.
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13,
Financial Instruments – Credit Losses (Topic 326) and subsequently related amendments (ASU 2018-19, ASU 2019-04,
ASU 2019-05, ASU 2019-10, ASU 2019-11 and ASU 2022-02). This guidance replaces the existing incurred loss
impairment guidance and establishes a single allowance framework for financial assets carried at amortized cost based on
F-14
Table of Contents
Fennec Pharmaceuticals Inc.
Notes to the Consolidated Financial Statements
(U.S. dollars and shares in thousands, except per share information)
expected credit losses. The estimate of expected credit losses requires the incorporation of historical information, current
conditions, and reasonable and supportable forecasts. This ASU will be effective for the year ended December 31, 2023.
The Company is currently evaluating the effect the adoption of this ASU will have on the consolidated financial
statements.
In December 2023, the Financial Accounting Standards Board issued Accounting Standards Update No. 2023-09, “Income
Taxes (Topic 740): Improvements to Income Tax Disclosures,” which improves the transparency of income tax disclosures
by requiring consistent categories and greater disaggregation of information in the effective tax rate reconciliation and
income taxes paid disaggregated by jurisdiction. This guidance will be effective for the annual periods beginning the year
ended December 31, 2025. The Company is currently evaluating the effect the adoption of this ASU will have on the
consolidated financial statements.
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 is computed by dividing net loss attributable to common shareholders by the weighted
average number of common shares outstanding during the period. Diluted loss per common share is computed by dividing
net loss by the weighted average number of common shares outstanding during the period, plus the potentially dilutive
impact of common shares equivalents (e.g. stock options and warrants). Dilutive common share equivalents consist of the
incremental common shares issuable upon 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 share data):
Numerator:
Net loss
Denominator:
Weighted-average common shares, basic
Dilutive effect of stock options
Dilutive effect of warrants
Dilutive effect of restricted share units
Incremental dilutive shares
Weighted-average common shares, diluted
Net loss per share, basic and diluted
Year Ended December 31,
2022
2023
$
(16,045)
$
(23,714)
26,574
—
—
—
—
26,574
(0.60)
$
$
26,275
—
—
—
—
26,275
(0.90)
The following outstanding options, restricted share units, and warrants were excluded from the computation of basic and
diluted net loss per share for the periods presented because including them would have had an anti-dilutive effect (in
thousands):
Options to purchase common shares
Restricted share units to obtain common shares
Warrants to purchase common shares
4. Stock Options
Year Ended December 31,
2023
2022
4,798
218
150
4,539
35
150
The Compensation Committee of the Board of Directors administers the Company’s 2020 Equity Incentive Plan (The
“Plan”). The Compensation Committee designates eligible participants 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’s annual meeting,
shareholders approved an amendment to the Company’s Stock Option Plan (the “Plan Maximum Amendment”). The Plan
Maximum Amendment relates 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 that represents twenty-five percent (25%) of the total number of
all issued and outstanding common shares. Based upon the current shares outstanding, a maximum of 6.8 million of our
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Table of Contents
Fennec Pharmaceuticals Inc.
Notes to the Consolidated Financial Statements
(U.S. dollars and shares in thousands, except per share information)
common shares are authorized for issuance under the plan. The option exercise price for all options issued under the plan is
based on the fair value 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 of grant. The stock option plan, as amended, allows the issuance of
Canadian and U.S. dollar grants. A summary of the stock option transactions, U.S. dollar grants, for the years ended
December 31, 2023 and 2022 is below. There are no outstanding $CAD denominated options.
Summary of $USD Option Activity
Outstanding and exercisable at December 31, 2021
Granted
Exercised
Forfeited
Outstanding and exercisable at December 31, 2022
Granted
Exercised
Forfeited
Outstanding and exercisable at December 31, 2023
Summary of $USD Option Remaining Life
Number of
Options
(in thousands)
4,259
1,015
(273)
(462)
4,539
1,245
(586)
(400)
4,798
Range
$ 0.45 – 12.59
5.59 - 8.10
0.45 - 8.38
5.59 - 8.10
$ 0.45 – 12.59
7.35 - 9.05
0.72 - 7.99
4.08 - 8.32
$ 4.08 - 10.96
Weighted
Average
$
$
$
5.13
6.50
3.29
6.79
5.43
8.25
3.18
7.45
6.27
Number Outstanding and Exercisable at
December 31, 2023
Weighted Average Strike Price
December 31, 2023
(in thousands)
4,798
US Dollars
$6.27
Weighted Average
Remaining Life
(years)
5.58
Stock compensation expense for the fiscal years ended December 31, 2023, and 2022 was $5.4 million and $4.2 million,
respectively. These amounts have been included in general and administrative expenses for the respective periods. The
weighted average fair value per share of options granted and or vested during the fiscal years ended December 31, 2023,
and 2022 was $4.73 and $5.43, respectively. The intrinsic value (being the difference between the share price at
December 31, 2023 and exercise price) of stock options exercisable at December 31, 2023 was $23.8 million. The intrinsic
value of options exercised during the fiscal year ended December 31, 2023, was $2.97 million.
The fair value of all options vested during the fiscal year ended December 31, 2023, was $6.4 million. The fair values of
options granted in fiscal years ended December 31, 2023 and 2022 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:
Expected dividend
Risk-free interest rate
Expected volatility
Expected life
Year Ended December 31, 2023 Year Ended December 31, 2022
- %
3.58 - 5.31 %
59 - 167 %
- %
1.18 - 3.96 %
150 - 181 %
5 - 6 years
1.50 - 6 years
The Company uses the historical volatility and adjusts for available relevant market information pertaining to the
Company’s share price.
Restricted Share Units Activity
The Plan allows for the issuance of restricted share units (“RSUs”). The following is a summary of RSU activity for the
years ended December 31, 2023, and 2022. Prior to June 2021, there was no activity involving RSUs. During the year
ended December 31, 2023, 365 RSUs were awarded, 96 were forfeited and 86 were released from restriction. The
Company
F-16
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Fennec Pharmaceuticals Inc.
Notes to the Consolidated Financial Statements
(U.S. dollars and shares in thousands, except per share information)
recognized $1.3 million in RSU expense for the year ended December 31, 2023, and $0.3 million for the same period in
2022. Standard vesting of RSUs is over three years with 1/3 vesting on the first anniversary date of the grant and then 1/24
on the last day of each subsequent month. The Compensation Committee may also award RSUs with alternative vesting.
US Denominated RSU's
Outstanding at December 31, 2021
Awarded
Forfeited
Released
Outstanding at December 31, 2022
Awarded
Forfeited
Released
Outstanding at December 31, 2023
5. Fair Value Measurements
Number of Restricted
Share Units (thousands)
219
—
(86)
(98)
35
365
(96)
(86)
218
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 being measured and reported on a fair value basis. The Fair Value Measurements Topic
defines fair value, establishes a framework for measuring fair value in accordance with US GAAP, and expands disclosure
about fair value measurements. This Topic enables the reader of the financial statements to assess the inputs used to
develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to
determine fair values. The Topic requires that 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.
Financial assets and liabilities are classified in their entirety within the fair value hierarchy based on the lowest level
of input that is significant to the fair value measurement. The Company measures the fair value of its Processa common
shares by taking into consideration valuations obtained from public financial markets. The Company uses Yahoo
Finance to obtain share price data and Oanda for foreign currency pricing services to estimate fair value. These inputs
include reported trades of and broker- dealer quotes on the same or similar securities, issuer credit spreads, benchmark
securities and other observable inputs.
As of December 31, 2023, the Company had financial assets valued based on Level 1 inputs consisting of cash and
cash equivalents and had financial assets based on Level 2 inputs consisting of Processa common shares. During
the year ended December 31, 2023, the Company did not have any transfers of financial assets between Levels 1 and
2.
F-17
Table of Contents
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, 2023 and December 31, 2022
(in thousands)
Quoted Price in Active
Market for Identical
Instruments
Level 1
2023
2022
Significant Other
Observable Inputs
Level 2
2023
2022
Significant
Unobservable Inputs
Level 3
Total
2023
2022
2023
2022
$ 1,340 (1)
17 (2)
307 (1) 11,929
—
56
23,467
—
—
—
— 13,269
—
17
23,774
56
Assets
Cash and cash equivalents
Processa common shares
(1) The Company held approximately, $1,340 in cash as of December 31, 2023, of which approximately $473 was in
Canadian funds and $97 in Euro (both translated into U.S. dollars). As of December 31, 2022, the Company held
approximately $307, of which approximately $33 was in Canadian funds (translated into U.S. dollars).
(2) The Company has 41 unrestricted common shares of Processa (PSCA).
6. 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, 2023, the Company had 150 warrants outstanding to purchase common shares at a weighted average
exercise price of $7.71.
The following table summarized our warrant activity for the fiscal years ended December 31, 2023 and 2022.
Outstanding and exercisable at December 31, 2021
Granted
Outstanding and exercisable at December 31, 2022
Granted
Outstanding and exercisable at December 31, 2023
7. Commitments and Contingencies
Oregon Health & Science University (“OHSU”) Agreement
$
Number of
Warrants
(in thousands)
39
111
150
$
—
$
150
$
$
$
Range
Weighted
Average
$
6.80
8.11
7.71
$
—
$
7.71
6.80
8
7.71
—
7.71
On February 20, 2013, Fennec entered into a new exclusive license agreement with OHSU for exclusive worldwide license
rights to intellectual property directed to thiol-based compounds, including PEDMARK® and their use in oncology (the
"OHSU Agreement"). OHSU will receive certain milestone payments, royalty on net sales for licensed products and a
royalty on any consideration received from sublicensing of the licensed technology.
On May 18, 2015, Fennec negotiated an amendment ("Amendment 1") to the OHSU Agreement, which expands Fennec's
exclusive license to include the use of N-acetylcysteine as a standalone therapy and/or in combination with PEDMARK®
for the prevention of ototoxicity induced by chemotherapeutic agents to treat cancers. Further, Amendment 1 adjusts select
milestone payments entered in the OHSU Agreement including but not limited to the royalty rate on net sales for licensed
products, royalty rate from sublicensing of the licensed technology and the fee payable upon the regulatory approval of a
licensed product. Certain milestone payments are due upon FDA approval and achievement of sufficient positive EBITDA
F-18
Table of Contents
Fennec Pharmaceuticals Inc.
Notes to the Consolidated Financial Statements
(U.S. dollars and shares in thousands, except per share information)
over a specified period. PEDMARK® received FDA approval in September 2022, however at this time, due to significant
uncertainty surrounding timing and magnitude of certain milestones, the Company has only recorded a royalty liability
associated with net revenue.
The term of the OHSU Agreement as amended by Amendment 1 expires on the date of the last to expire claim(s) covered
in the patents licensed to Fennec or 8 years, whichever is later. The Company now has a licensed product with regulatory
approval that is covered by the Orphan Drug Designation, the parties amended the term of the agreement. Sodium
thiosulfate is currently protected by methods of use patents that the Company exclusively licensed from OHSU that expired
in Europe in 2021 and that expire in the United States in 2038. The OHSU Agreement is terminable by either Fennec or
OHSU in the event of a material breach of the agreement by either party after 45 days prior written notice. Fennec also has
the right to terminate the OHSU Agreement at any time upon 60 days prior written notice and payment of all fees due to
OHSU under the OHSU Agreement. The Company had accrued approximately $106 (1% net sales) in royalty expense to
OHSU at December 31, 2023.
Securities Class Action Suit
Hope Medical Enterprises, Inc. Inter Partes Review (IPR) Challenges
On October 29, 2021, Hope Medical Enterprises, Inc. (“Hope”) filed a Petition for inter partes review (IPR2022-00123)
with the Patent Trial and Appeal Board (“PTAB”) of the USPTO to invalidate U.S. Patent No. 10,596,190 (the “‘190
Patent”), which is exclusively in-licensed from Oregon Health & Science University (“OHSU”) and relates to a method of
using PEDMARK®. The ‘190 Patent was issued on March 24, 2020. On April 18, 2023, the PTAB invalidated the only
claim of the‘190 Patent. The final written decision became effective June 20, 2023. The ‘190 Patent was previously listed
in the United States Approved Drug Products with Therapeutic Equivalence Evaluations (also known as the “Orange
Book”). In light of PTAB’s final written decision on the invalidity of the ‘190 Patent, we requested that the FDA remove
the ’190 Patent from the Orange Book. Two United States patent applications claiming priority through the ‘190 Patent
remain pending at the United States Patent and Trademark Office (“USPTO”).
On October 29, 2021, Hope Medical Enterprises, Inc. (“Hope”) filed a Petition for inter partes review (IPR2022-00125) to
invalidate our wholly owned U.S. Patent No. 10,792,363 (the “’363 Patent”), which relates to an anhydrous form of STS
and its method of manufacture, which is the active pharmaceutical ingredient in the PEDMARK® product. The ‘363 Patent
was issued October 6, 2020. During the ‘363 IPR, we disclaimed the patent claims directed to the anhydrous morphic form
of STS and continued with claims directed to its method of manufacture. Because the remaining claims in the ‘363 patent
are directed to a method of manufacture, the ‘363 patent is not eligible for listing in the Orange Book. In September 2023,
the PTAB issued a Final Written Decision in favor of Fennec and upholding the amended claim.
The USPTO has now granted three additional U.S. patents that cover the PEDMARK® formulation, each of which have
been listed in the U.S. FDA’s “Orange Book” (U.S. Patent No. 11,291,728 (issued April 5, 2022), U.S. Patent No.
11,510,984 (issued November 29, 2022), and U.S. Patent No. 11,617,793 (issued April 4, 2023)), and seven additional
United States patent applications from this family are pending at the USPTO. We plan to vigorously defend our intellectual
property rights to PEDMARK® if challenged. An invalidation of our patents covering PEDMARK® could have a material
adverse effect on our ability to protect our rights in PEDMARK® beyond periods of marketing exclusivity for
PEDMARK® in the United States under Orphan Drug Designation.
CIPLA Litigation
On December 1, 2022, we received a letter dated November 30, 2022, notifying us that CIPLA Ltd. and CIPLA USA
(“CIPLA”) submitted to the FDA an ANDA (ANDA No. 218028) for a generic version of PEDMARK® (sodium
thiosulfate solution) that contains Paragraph IV Certifications on two of our patents covering PEDMARK®: the OHSU
licensed ‘190 Patent, expiration date January 2038; and our US 11,291,728 Patent (the “’728 Patent”), expiration date July
2039. On January 6, 2023, we received a letter dated January 5, 2023, notifying us that CIPLA submitted to the FDA a
Paragraph IV Certification on our newly issued US 11,510,984 Patent (the “’984 Patent”). These patents are listed in FDA’s
list of Approved Drug Products with Therapeutic Equivalence Evaluations, commonly referred to as the Orange Book, for
PEDMARK®. The certifications allege these patents are invalid or will not be infringed by the manufacture, use, or sale of
CIPLA’s sodium thiosulfate solution.
F-19
Table of Contents
Fennec Pharmaceuticals Inc.
Notes to the Consolidated Financial Statements
(U.S. dollars and shares in thousands, except per share information)
Under the Food and Drug Cosmetic Act, as amended by the Drug Price Competition and Patent Term Restoration Act of
1984, as amended, after receipt of a valid Paragraph IV notice, the Company may bring a patent infringement suit in a
federal district court against CIPLA within 45 days from the receipt of the Notice Letter and if such a suit is commenced
within the 45-day period, the Company is entitled to a 30 month stay on the FDA’s ability to give final approval to any
proposed products that reference PEDMARK®. In addition to the 30-month stay, because we have received Orphan Drug
Exclusivity, the FDA may not approve CIPLA’s ANDA for at least 7 years from PEDMARK®’s FDA approval date of
September 20, 2022.
On January 10, 2023, we filed suit against the CIPLA entities in the United States District Court for the District of New
Jersey (Case No. 2:23-cv-00123), for infringement of the ‘190 Patent, the ‘728 Patent, and the ‘984 Patent. On April 20,
2023, we filed an Amended Complaint to assert infringement of the ‘728 patent and the ‘984 Patent. On April 4, 2023, we
were granted US 11,617,793 Patent (the “’793 Patent”) covering the formulation of the PEDMARK® product, which was
listed in the Orange Book on or around April 17, 2023, and has an expiration date of July 2039. On May 11, 2023, we
received written notice of CIPLA’s Paragraph IV Certification as to the ’793 Patent, which was dated May 10, 2023, along
with an enclosed statement of alleged factual and legal bases for stating that the ’793 Patent is invalid, unenforceable,
and/or will not be infringed by CIPLA’s ANDA Product. On July 27, 2023, we filed a Second Amended Complaint to
assert the ‘793 Patent. The suit is ongoing.
PEDMARQSI® (EU Brand name for PEDMARK®) received European Commission approval in June 2023 and was
granted 10 years of market exclusivity in Europe under Pediatric Use (“PUMA”).
Executive Severance
In the event of Mr. Raykov's termination with the Company other than for cause, the Company will be obligated to pay him
a one-time severance payment equal to twelve months of salary (currently $585). In the event of Mr. Andrade’s termination
with the Company other than for cause, the Company will be obligated to pay him a one-time severance payment equal to
six months of salary (currently $212). In the event of Mr. Haigh’s termination with the Company other than for cause, the
Company will be obligated to pay him a one-time severance payment equal to three months of salary (currently
approximately $110 as translated into U.S. dollars at December 31, 2023).
Leases
The Company has an operating lease in Research Triangle Park, North Carolina utilizing a small space within a
commercial building. The operating lease has payments of $0.4 per month with no scheduled increases. This operating
lease is terminable with 30 days’ notice and has no penalties or contingent payments due.
On January 23, 2020, the Company entered into an Office Service Agreement (the “Office Service Agreement”) with
Regus to lease office space in Hoboken, New Jersey. Per the terms of the Office Service Agreement, the monthly rent
payments are $1. The Company was required to pay a security deposit of $2, which is the equivalent to two months of
rent. The Office Service Agreement commenced on January 27, 2020, and terminated on July 31, 2020, thereafter the lease
has been continuing on a month-to-month basis with either party being able to terminate the agreement by providing one
months’ advance written notice of termination.
On August 1, 2023, the Company entered into a second Office Service Agreement (the “Second Office Service
Agreement”) with Regus to lease office space in Dublin, Ireland. Per the terms of the Second Office Service Agreement,
the monthly rent payments are $2. The Company was required to pay a security deposit of $5, which is the equivalent of
two months rent. The Second Office Service Agreement commenced on August 1, 2023 and terminates on January 31,
2025, thereafter the lease may continue on a month-to-month basis with either party being able to terminate the agreement
by providing one month’s advance written notice of termination.
The Second Office Service Agreement does not provide an implicit rate, and therefore the Company uses its incremental
borrowing rate as the discount rate when measuring the operating lease liability. The incremental borrowing rate represents
an estimate of the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease
payments on a collateralized basis over the term of the lease within a particular currency environment. The Company uses
an incremental borrowing rate consisting of the current prime rate plus 150 basis points for operating leases that
F-20
Table of Contents
Fennec Pharmaceuticals Inc.
Notes to the Consolidated Financial Statements
(U.S. dollars and shares in thousands, except per share information)
commenced after August 2023. The depreciable lives of operating leases and leasehold improvements are limited by the
expected lease term.
Remaining lease terms (in months)
Discount rate
Maturities of lease liabilities as of December 31, 2023 were as follows (in thousands):
Year Ending December 31,
2024
2025
Less imputed interest
Total lease liabilities
Current operating lease liabilities
Non-current operating lease liabilities
Total lease liabilities
Employee Benefit Plan
December 31, 2023
13
10 %
23
2
25
2
23
21
2
23
$
$
$
$
In May 2021, the Company established the Fennec Pharmaceuticals, Inc. 401(k) Plan (the “401(k) Plan”) for its employees,
which is designed to be qualified under Section 401(k) of the Code. Eligible employees are permitted to contribute to the
401(k) Plan within statutory and 401(k) Plan limits. As of December 31, 2023 the Company does not offer matching
contributions.
8. Term Loans
On August 1, 2022, the Company entered into the SPA with the Investor in connection with the issuance of up to $45,000
of Notes, issuable in multiple tranches. On August 19, 2022, the Company closed on the initial tranche of $5,000, which
has an Initial Conversion Price equal to $8.11 per share, which was calculated based on a 20% premium of the 5-day
VWAP immediately prior to the announcement of the SPA. In connection with the first closing, the Company repaid in full
its secured indebtedness with Bridge Bank in the amount of $5,000. The Notes become due on the maturity date, which is
August 19, 2027.
On September 23, 2022, the Company closed on the second tranche of the Note Financing in the amount of $20,000 (the
“Second Closing Note”), which has an Initial Conversion Price equal to $7.89 per share, which was calculated based on
a 20% premium of the 5-day VWAP immediately prior to September 20, 2022, which was the date the Company
obtained FDA approval of PEDMARK®.
A commitment fee of 2.0% of the Notes was payable under the SPA. Half of such fee was paid by the issuance on the
first closing of warrants to purchase 55,498 Fennec common shares (“First Closing Warrant”) and half was payable in
cash or warrants of 55,498 Fennec common shares (“Second Closing Warrant”), at our election, on the second closing.
The warrants are exercisable at a price per share of $8.11 and have a term of five years from the date of the grant. The
Company elected to have all the commitment fee of the Notes payable in warrants.
On December 4, 2023, the Company closed a third tranche under the SPA in the amount of $5,000,000 (the “Third
Closing Note”), which has an Initial Conversion Price equal to $7.89 per share, which was calculated based on a 20%
premium of the 5-day VWAP immediately prior to September 20, 2022, which was the date the Company obtained
F-21
Table of Contents
Fennec Pharmaceuticals Inc.
Notes to the Consolidated Financial Statements
(U.S. dollars and shares in thousands, except per share information)
FDA approval of PEDMARK®.
Also on December 4, 2023, the Company entered into a First Amendment to the Securities Purchase Agreement (the “SPA
Amendment”) with the Investor, which, among other things, extends the period that the Company may draw the remaining
$15,000,000 under the SPA from December 31, 2023, to December 31, 2024. Subsequent draws are subject to mutual
agreement of the Company and the Investor and will be represented by Notes that will also be convertible at a price equal
to $7.89 per share.
Cash interest on outstanding principal shall accrue at a rate of prime, plus 4.5% per annum, from the date of funding (11%
as of December 31, 2023). Cash interest is due on the first business day of each calendar quarter (“Interest Date”).
Payment-in-kind (“PIK”) interest will commence on funding date and accrue at a rate of 3.5% per annum. PIK interest will
stop accruing on August 24, 2024. Any accrued PIK interest shall remain outstanding and be payable on each Interest Date
and be added to the outstanding principal amount. The Company has accrued $1,219 in PIK interest and has classified the
PIK interest in long-term liabilities.
The SPA notes are convertible into fully paid, non-assessable share of common shares at any point after their issuance dates
and before the maturity date. Any amount of the SPA notes may be converted into common shares so long as it does not
create partial shares. The conversion rate is determined by dividing the conversion amount by the conversion price.
Provisions of the PSA create legal, valid and enforceable liens on, and security interests in, all of the Company’s and each
of its subsidiaries’ assets.
Aggregate annual payments due on the SPA as of December 31, 2023, are as follows (in thousands):
Years Ending December 31,
2024
2025
2026
2027
Total future payments
Add: PIK interest
Less: unamortized debt discount
Total term loan, net of debt discount
$
$
Amount
—
—
—
30,000
30,000
1,219
(288)
30,931
In the event of default or change of control, all unpaid principal and all accrued and unpaid interest amounts (if any)
become immediately due and payable. Events of default include, but are not limited to, a payment default, a material
adverse change, and insolvency. The SPA facility is secured by all of the Company’s assets, including all capital stock held
by the Company.
Debt issuance costs of $175 were paid in cash for legal fees and to the Investor in 2022 and warrants valued at $441 were
granted the Investor to secure access to the SPA. These amounts were capitalized and are being amortized over the access
period of the SPA. Upon drawing tranche 1 through 3, the Company recorded a debt discount of $314, which was based on
a pro-rata allocation of the issue costs to secure the SPA, reducing the capitalized amount by the same amount. The debt
discount is being amortized over the life of the SPA.
F-22
Table of Contents
9. Income Taxes
Fennec Pharmaceuticals Inc.
Notes to the Consolidated Financial Statements
(U.S. dollars and shares in thousands, except per share information)
The Company operates in U.S., Canadian and Ireland tax jurisdictions. Its income is subject to varying rates of tax and
losses incurred in one jurisdiction cannot be used to offset income taxes payable in another. A reconciliation of the
combined Canadian federal and provincial income tax rate with the Company’s effective tax rate is as follows (in
thousands except for percentage rates):
Domestic loss
Foreign loss
Loss before income taxes
Expected statutory rate
Expected provision for (recovery of) income tax
Permanent differences
Change in valuation allowance
Effect of tax rate changes and other
Provision for income taxes
$
Year Ended
December 31,
2023
(12,301)
(3,744)
(16,045)
$
Year Ended
December 31,
2022
(10,548)
(13,117)
(23,665)
26.50 %
(4,252)
1,553
2,038
661
— $
26.50 %
(6,271)
1,170
4,669
432
—
$
The Canadian statutory income tax rate of 26.5 percent is comprised of federal income tax at approximately 15.0 percent
and provincial income tax at approximately 11.5 percent.
The primary temporary differences which gave rise to future income taxes (recovery) at December 31, 2023 and
December 31, 2022:
Future tax assets:
SR&ED expenditures
Income tax loss carryforwards
Non-refundable investment tax credits
Share issue costs
Fixed and intangible assets
Debt discount
Less: valuation allowance
Net future tax assets
Tax Cuts and Jobs Act
December 31,
2023
December 31,
2022
$
$
2,086
37,143
297
73
1,083
62
40,744
(40,718)
26
$
$
2,086
30,007
700
77
1,083
—
33,953
(33,927)
26
On December 22, 2017, the then President of the United States signed into law an Act to provide for reconciliation
pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018 (commonly known as “the Tax
Cuts and Jobs Act” (“TCJA”)), which introduced a comprehensive set of tax reforms. The Tax Cuts and Jobs Act
significantly revises U.S. tax law by, among other provisions, lowering the Company’s corporate tax rate from 34% to 21%
and eliminating or reducing certain income tax deductions.
In December 2017, in accordance with the SEC Staff Accounting Bulletin (“SAB”) 118–Income Tax Accounting
Implications of the TCJA, the Company recorded tax effects on a provisional basis based on a reasonable estimate. The
TCJA did not have a material impact on the Company's financial statements because its deferred temporary differences are
fully offset by a valuation allowance and the Company does not have any offshore earnings from which to record the
F-23
Table of Contents
Fennec Pharmaceuticals Inc.
Notes to the Consolidated Financial Statements
(U.S. dollars and shares in thousands, except per share information)
mandatory transition tax. During 2018, the Company completed its analysis under SAB 118 and no additional tax effects
due to rate-remeasurement were required to be recorded.
There are no current income taxes owed, but the Norgine deal will cause the Company to be closer to using its historical
tax losses. Once those losses are used up, the Company will owe income taxes. As of December 31, 2023, the Company
has unclaimed Scientific Research and Experimental Development ("SR&ED") expenditures, income tax loss carry-
forwards and non-refundable investment tax credits. The unclaimed amounts and their expiry dates are as listed below:
SR&ED expenditures (no expiry)
Income tax loss carryforwards (expiry date):
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
No expiration
Investment tax credits (expiry date):
2024
2025
2026
2027
Province/
State
—
—
—
—
—
—
2,116
700
789
651
655
617
941
1,013
1,638
-
-
-
-
-
24,837
Federal
$
7,872
$
4,849
6,143
13,868
8,136
10,509
8,185
2,608
3,378
3,491
1,789
1,812
1,803
2,208
4,641
7,427
9,587
15,009
13,556
18,798
—
37,204
189
82
86
47
10. Revision to Prior Period Financial Statements
In preparing the annual report on Form 10-K for the year ended December 31, 2023, the Company determined that it
overstated sales and marketing expenses associated with select distributors, which does not accurately match the expense
to the proper period that related sales and marketing expenses were received. The Company determined that, based on the
timeline of services provided by these distinct distributors, it would be more accurate to defer a portion of the sales and
marketing expenses to future periods and amortize the remaining expense over the expected service period. The Company
also determined that a portion of such expenses would be more accurately characterized as distribution fees and has
presented such amounts as a reduction of revenues. These revisions resulted in adjustments to net product sales, sales and
marketing expenses and current assets as previous reported in the Company’s September 30, 2023 condensed consolidated
financial statements. Net product sales were adjusted down in the amount of $0.2 million, sales and marketing expenses
were decreased by $1.2 million and current assets increased by $1.0 million as of September 30, 2023. The effect on our
September 30, 2023 financial results are presented below.
F-24
Table of Contents
Fennec Pharmaceuticals Inc.
Notes to the Consolidated Financial Statements
(U.S. dollars and shares in thousands, except per share information)
The effect of the revisions to the unaudited condensed consolidated financial statements is as follows (amount in
thousands):
Condensed Consolidated Balance Sheet (Unaudited)
Prepaid expenses
Total current assets
Total assets
Accumulated deficit
Total shareholders' deficit
Total liabilities and shareholder's deficit
As of September 30, 2023
As
Previously
Reported
247
18,946
19,028
Adjustments
950
$
950
950
$
(216,563)
(10,531)
(19,028)
$
$
(950)
(950)
(950)
$
$
$
$
As Revised
1,197
19,896
19,978
(215,613)
(9,581)
(19,978)
$
$
$
$
Condensed Consolidated Statements of Operations (Unaudited)
Three Months Ended
September 30, 2023
Nine Months Ended
September 30, 2023
As
Previously
Reported Adjustments Revised Reported Adjustments Revised
As
Previously
As
As
PEDMARK® product sales, net
Sales and marketing expense
Net loss
Net loss attributable to common
shareholders
Basic net loss per common share
Diluted net loss per common share
$
$
$
$
$
6,515
3,384
(1,867)
(219) $ 6,296
2,215
(917)
(1,169)
950
$ 11,517
8,255
(13,363)
$
(219) $ 11,298
7,086
(12,413)
(1,169)
950
(1,867) $
950
$ (917) $ (13,363) $
950
$ (12,413)
(0.07) $
(0.07) $
0.04
0.04
$ (0.03) $
$ (0.03) $
(0.50) $
(0.50) $
0.03
0.03
$
$
(0.47)
(0.47)
F-25
Table of Contents
Fennec Pharmaceuticals Inc.
Notes to the Consolidated Financial Statements
(U.S. dollars and shares in thousands, except per share information)
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
For the Three Months Ended
September 30, 2023
Total
For the Nine Months Ended
September 30, 2023
Total
Stockholders’
Equity
Deficit
Stockholders’ Accumulated
Equity
As Previously Reported
Net loss
Balance at September 30, 2023
Adjustments
As Revised
Net loss
Balance at September 30, 2023
Accumulated
Deficit
$
$
(1,867)
(216,563)
$
950
$
$
(917)
(215,613)
Condensed Consolidated Statement of Cash Flows (Unaudited)
Cash Flows from Operating Activities:
Net loss
Reconciliation of net loss to net cash used in operating activities:
Prepaid expenses
Subtotal of non-cash charges
Net cash used in operating activities
11. Subsequent Events
$
$
$
$
$
(1,867)
(10,531)
950
(917)
(9,581)
$
$
$
$
$
(13,363)
(216,563)
950
(12,413)
(215,613)
$
$
$
$
$
(13,363)
(10,531)
950
(12,413)
(9,581)
For the Nine Months Ended
September 30, 2023
As
Previously
Reported Adjustments As Revised
$
(13,363)
$
950
$
(12,413)
523
1,080
(12,283)
$
$
(950)
(950)
-
$
(427)
130
(12,283)
On March 17, 2024, the Company announced it had entered into an exclusive licensing agreement with Norgine to
commercialize PEDMARQSI® in Europe, Australia, and New Zealand. The Company received approximately $43 million
up front with the potential of up to approximately $230 million related to royalty and milestone payments.
F-26
DESCRIPTION OF THE REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934
Exhibit 4.1
The following summary of the terms of Fennec Pharmaceuticals Inc.’s capital stock does not purport to be complete and is
subject to and qualified in its entirety by reference to our Notice of Articles and Articles, each of which may be further amended from
time to time and both of which are incorporated herein by reference.
General
As of March 25, 2024, our authorized capital stock consists of an unlimited number of common shares, no par value per share,
of which 27,099,908 common shares were issued and outstanding as of that date.
Common Shares
Pursuant to our Notice of Articles and Articles, we are authorized to issue an unlimited number of common shares, no par value.
Each holder of a common share is entitled to one vote for each common share held on all matters submitted to a vote of shareholders. We
have not provided for cumulative voting for the election of directors in our Notice of Articles or Articles. This means that the holders of a
majority of the shares voted can elect all of the directors then standing for election. The holders of outstanding our common shares are
entitled to receive dividends out of assets legally available at the times and in the amounts that our board of directors may determine
from time to time.
Holders of common shares have no preemptive subscription, redemption or conversion rights or other subscription rights. Upon
our liquidation, dissolution or winding-up, the holders of common shares are entitled to share in all assets remaining after payment of all
liabilities. The rights of the holders of our common shares are subject to, and may be adversely affected by, the rights of holders of shares
of any preferred stock that we may designate and issue in the future. Each outstanding common share is, and all common shares to be
issued in this offering, when they are paid for, will be fully paid and non-assessable.
Computershare is the transfer agent for our common shares.
Our common shares are listed on Nasdaq under the symbol “FENC” and on the TSX under the symbol “FRX”.
Exchange Controls, Restrictions on Voting or Ownership
There is currently no law, governmental decree or regulation in Canada that restricts the export or import of capital, or which
would affect the remittance of dividends, interest or other payments by us to a non-resident holder of our common shares, other than
applicable tax requirements.
There is currently no limitation imposed by the laws of Canada or by our Notice of Articles or Articles on the right of a non-
resident to hold or vote our common shares, other than those imposed by the Investment Canada Act and the Competition Act (Canada).
These acts will generally not apply except where control of an existing Canadian business or company, which has Canadian assets or
revenue over a certain threshold, is acquired and will not apply to trading generally of securities listed on a stock exchange. A reviewable
acquisition may not proceed unless the relevant minister is satisfied that the investment is likely to be of net benefit to Canada.
Shareholders' Rights Plan
We adopted a shareholder rights plan agreement (the “Rights Plan”) on June 27, 2017. The Rights Plan was adopted to ensure,
to the extent possible, that all of our shareholders are treated fairly and equally in connection with any take-over bid or other acquisition
of control. Generally stated, the Rights Plan is designed to address this purpose by requiring any potential transaction that will result in a
person (an “Acquirer”) owning, in the aggregate, 20% or more of our outstanding common shares (inclusive of any common shares held
by the Acquirer, its associates and affiliates, and any person acting jointly or in concert with any of them (collectively, the “Acquirer
Group”)) to be structured as a formal take-over bid that satisfies certain minimum requirements relating primarily to the manner in which
the bid must be made, the minimum number of days the bid must remain open, and the minimum number of shares that must be acquired
under the bid. Non-compliant transactions may, through the operation of the Rights Plan and the rights issued thereunder, result in the
Acquirer Group’s common share position in us being substantially diluted. Consequentially, the Rights Plan incentivizes the Acquirer to
structure its proposed transaction in a manner that complies with the minimum requirements prescribed by the Rights Plan, thereby
helping fulfill the purpose of the Rights Plan. One right (a “Right”) is issued and attached to each common share. This includes all
common shares issued as of the effective date of the Rights Plan and all common shares issued after the effective date of the Rights Plan
but prior to the eighth trading day after the earlier of public announcement of a take-over bid (other than a take-over bid that is a
permitted bid or a competing permitted bid, as the case may be, under the Rights Plan) or the date upon which a permitted bid or
competing permitted bid under the Rights Plan ceases to be such, or such later date as may be determined by our board of directors.
-2-
Exhibit 10.16
STATEMENT of POLICY and PROCEDURE
Financial
INSIDER TRADING
All Manual Holders
Compliance Officer
SPP No.
Issued:
Effective:
Page:
Replaces:
Dated:
FI 2.01.4
July 11, 2009
July 11, 2009
1 of 11
FI 2.01.3
August 30, 2004
Chapter:
Section:
Subject:
Issue to:
Issued by:
1
POLICY
1.01
1.02
1.03
In General
Directors, officers and other employees of Fennec Pharmaceuticals Inc. (“Fennec”) will often receive information about Fennec
plans, prospects, operations and operating results in the normal course of their duties. This information is a confidential asset of
Fennec and must not be used for trading in Fennec securities nor disclosed to others except through regular Fennec channels that
assure fair access to all persons interested in the prospects of Fennec and its securities. This Policy also imposes specific
restrictions on trading Fennec securities by particular people or at particular times.
Purpose
Securities regulators (the "Regulators") continue to focus attention on the obligations of a corporation and its employees
concerning the release of significant corporate information. Because of their concern with the accuracy and completeness of
statements made by or on behalf of companies, the Regulators pursue a vigorous program of enforcement against persons who
trade in securities on the basis of material non-public information that is not yet generally known to the marketplace. The
penalties for violation of the securities laws and regulations are severe. They may apply not only to the person concerned, but
also to Fennec and its supervisory personnel. Such trading may also be the target of private lawsuits.
Persons Subject to this Policy
Unless otherwise indicated, all restrictions and other procedures of this Policy apply to each director, officer and employee of
Fennec and also apply with equal force to (i) all family members or other persons living in the same household as such person;
(ii) any other person or entity, including a trust, corporation or partnership with respect to which such person has or shares
investment control; and (iii) any consultant or other outsider designated by Fennec because he, she or it has access to material
non-public information concerning Fennec.
2.
PROHIBITION ON INSIDER TRADING
2.01
General Prohibitions
It is against the law and Fennec policy for any person subject to this Policy who is aware of material non-public (“inside”)
information regarding Fennec to purchase or sell any securities of Fennec. This prohibition also applies to trading in the
securities of any company with which Fennec has a business relationship when a person is negotiating an agreement or
transaction with that company or is aware of inside information regarding that company.
It is also against Fennec policy, and may be illegal, to disclose or "tip" such information to any other person if it is reasonably
foreseeable that he or she will trade in the company’s securities.
The concepts of “material” and “non-public” information are explained in Section 2.04 below.
Chapter:
Section:
Subject:
Issue to:
Issued by:
STATEMENT of POLICY and PROCEDURE
Financial
INSIDER TRADING
All Manual Holders
Compliance Officer
SPP No.
Issued:
Effective:
Page:
Replaces:
Dated:
FI 2.01.3
August 30, 2004
August 30, 2004
2 of 11
FI 2.01
November 1, 2003
2.02
Securities Covered
This Policy applies to any and all transactions in common shares, options to purchase common shares, and any other security
that Fennec may issue, such as preferred shares, convertible debentures, and other derivative securities. It also applies to
securities issued by third parties the value of which relate to Fennec securities, such as exchange-traded options.
2.03
Specific Restrictions on Trading Fennec Securities
(a) Blackout Periods. No person may make any purchase or sale of Fennec securities during a blackout period beginning on
the last day of the last month of each fiscal quarter and extending until the second business day after the public release of
quarterly earnings.
● Exercises of Fennec stock options for cash are not subject to the blackout period restrictions and can be effected at any
time.
● However, (i) the use of Fennec shares to pay the price of, or tax withholding on, an option exercise and (ii) any sale of
the underlying shares, including a "cashless exercise" in which the shares are sold to generate the exercise price, are
subject to the blackout period restrictions.
● Bona fide gifts and charitable donations of Fennec securities may be made during a blackout period. However, they
require special care and attention by the donor. For example, if the donee sells the securities during the blackout period,
there may be an allegation that he, she or it did so on the basis of inside information tipped by the Fennec donor.
(b) Other Trading Freezes. In addition to “blackout periods” relating to earnings announcements, Fennec may from time to
time impose a trading freeze on some or all directors and employees due to significant unannounced corporate
developments. These trading freezes will vary in length and will be established by the Chief Executive Officer or
Compliance Officer and communicated to affected personnel.
The only exception to the prohibition on trading during such a trading freeze would be for transactions pursuant to a Rule
10b5-1 plan established in accordance with Section 4.04.
(c) Personal Responsibility for Compliance. Each person must ensure that any trade he or she is contemplating will not take
place during a blackout period or other trading freeze. Fennec will have no liability to any person who is prevented from
trading in Fennec securities by this Policy.
2.04
“Material” and “Non-Public”
(a) "Material information" generally means:
Chapter:
Section:
Subject:
Issue to:
Issued by:
STATEMENT of POLICY and PROCEDURE
Financial
INSIDER TRADING
All Manual Holders
Compliance Officer
SPP No.
Issued:
Effective:
Page:
Replaces:
Dated:
FI 2.01.3
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August 30, 2004
3 of 11
FI 2.01
November 1, 2003
(1) information that is likely to affect the market price of Fennec securities or the securities of any other company; and
(2) information that an investor could consider significant in making a decision to buy, sell or hold Fennec securities or the
securities of any other company.
Examples of material information include earnings estimates or revisions to previously published estimates, merger or other
significant transaction proposals, significant new products or technological discoveries, a significant license or other
agreement, litigation, extraordinary turnover in management, impending financial or liquidity problems, and significant
orders to buy or sell securities. Other matters may also be material; no complete list can be given.
It is important to note that, in the event of a dispute about whether information is material, the courts will determine what is
material after the fact, with the benefit of hindsight.
(b) Information remains "non-public" or “inside” until it has been released to the public and investors have had enough time to
absorb and evaluate the information. The amount of time required may depend on the type of information. For example,
earnings releases will generally have been pre-announced, so the quarterly blackout period ends on the second business day
after such a release. However, other announcements may receive less publicity, so a formal or informal trading freeze may
not be lifted until, say, the third business day.
A person having knowledge of material information may not attempt to "beat the market" by trading simultaneously with or
shortly after the official release of such information.
The fact that information may appear in a trade publication or in an announcement made by a licensee, manufacturing
partner, competitor or governmental agency is often not enough. Insider trading is not made permissible because material
information is reflected in rumors or other unofficial statements in the press or marketplace. When employees become
aware of rumors or other unofficial statements concerning Fennec, the Compliance Officer or a member of the Insider
Trading Compliance Committee (see section 5.01) should be notified immediately so that an appropriate response can be
determined.
Any question as to whether information is material or non-public must be discussed with the Compliance Officer prior to any
trade.
3.
PRECLEARANCE REQUIREMENT FOR CERTAIN PERSONNEL
In order to avoid inadvertent insider trading violations and to promote compliance with legal requirements, directors, executive
officers and employees with regular access to material non-public information, as designated by Fennec from time to time, may
not purchase or sell any Fennec security without first obtaining written approval for such transaction from the Compliance
Officer or, in such officer’s case, from the Chief Financial Officer. Transactions directly with Fennec (including stock option
exercises)
Chapter:
Section:
Subject:
Issue to:
Issued by:
STATEMENT of POLICY and PROCEDURE
Financial
INSIDER TRADING
All Manual Holders
Compliance Officer
SPP No.
Issued:
Effective:
Page:
Replaces:
Dated:
FI 2.01.3
August 30, 2004
August 30, 2004
4 of 11
FI 2.01
November 1, 2003
are exempt from this requirement. Any such approval is effective only for the day for which it is granted. The Company will
notify each individual in writing affected by this requirement.
4.
OTHER TRADING POLICIES AND RESTRICTIONS
4.01
Short-Selling; Exchange-Traded Options
Because of legal restrictions and the possible negative market perception, no person may engage in short-selling of Fennec
securities or any trading in exchange-traded options with respect to Fennec securities. Any director or executive officer who
wishes to enter into another type of hedging arrangement must consult with the Compliance Officer as legal restrictions and/or
public disclosures may be required.
4.02 Mutual Funds
Nothing in this Policy prohibits trading in registered mutual funds.
4.03 Margin Loans and Other Pledges
Margin loans using Fennec securities and other pledges of Fennec securities present the risk that the pledgee will foreclose and
sell the securities at a time when Fennec personnel are prohibited from trading, with possibly serious collateral consequences.
For this reason, such an arrangement may be risky and should not be undertaken without the prior written approval of the
Compliance Officer.
4.04
Rule 10b5-1 Plans
SEC Rule 10b5-1 protects one from insider trading liability under U.S. federal securities law for transactions made at a time the
insider has material non-public information so long as the transactions are made under a previously established contract, plan or
instruction meeting the requirements of the rule and entered into at a time when the person was not aware of material non-public
information.
Because of the complex considerations involved, Fennec personnel must submit 10b5-1 plans for Company review before they
are established. At minimum, each 10b5-1 plan should provide for the following:
● no transactions during an Fennec blackout period unless specifically approved by the Compliance Officer;
● suspension of sales in connection with underwriting or other "lock-ups" or if necessary under SEC rules;
● suspension of purchases if required by SEC rules in connection with distributions and purchases by issuers and
certain of their affiliates;
● provision for sales to terminate automatically if a third party publicly announces its intent to acquire a substantial
percentage of Fennec’s outstanding stock;
● suspension of trading at Fennec’s request;
● mechanisms to assure compliance with applicable SEC reporting requirements; and
● a suitable time period (such as 90 days) between establishing the plan and the first purchase or sale under the plan,
in order to minimize allegations that the insider was in possession of material non-public information at the time
he or
Chapter:
Section:
Subject:
Issue to:
Issued by:
she established the plan.
STATEMENT of POLICY and PROCEDURE
Financial
INSIDER TRADING
All Manual Holders
Compliance Officer
SPP No.
Issued:
Effective:
Page:
Replaces:
Dated:
FI 2.01.3
August 30, 2004
August 30, 2004
5 of 11
FI 2.01
November 1, 2003
Fennec also reserves the right to publicly announce 10b5-1 plans and purchases and sales made under those plans if it
determines it advisable to publicize that information in order to minimize adverse reaction to insider sales activity.
Please note that a 10b5-1 plan provides no legal protection against claims brought under Canadian law.
4.05
Hardship Exceptions
The Compliance Officer may, on a case-by-case basis, in exceptional circumstances but without any obligation to do so,
authorize trading in Fennec securities during a blackout period or other trading freeze due to financial hardship or other
hardships only after:
(a)
the person trading has notified the Compliance Officer in writing of the circumstances of the hardship and the amount and
nature of the proposed trades;
(b) the person trading has certified to the Compliance Officer in writing that he or she is not in possession of material non-
public information concerning Fennec; and
(c)
the Compliance Officer has approved the trade(s) in writing.
The Compliance Officer will report all such approvals to the Insider Trading Compliance Committee in writing and in most
instances will seek the prior input and approval of the Committee.
5
ADMINISTRATION
5.01
Fennec has designated the Chief Financial Officer as its Insider Trading Compliance Officer (the "Compliance Officer"). The
Insider Trading Compliance Committee (the "Committee") consists of the Compliance Officer, the Chief Executive Officer, the
President and the Chief Financial Officer of Fennec. The duties of the Compliance Officer include the following:
(1) Administering this Policy and monitoring and enforcing compliance with all Policy provisions and procedures.
(2) Responding to all inquiries relating to the Policy and its procedures.
(3) Designating and announcing trading freezes.
(4) Providing copies of this Policy and other appropriate materials to all current and new directors, officers and employees, and
such other persons whom the Compliance Officer determines have access to material non-public information concerning
Fennec.
Chapter:
Section:
Subject:
Issue to:
Issued by:
STATEMENT of POLICY and PROCEDURE
Financial
INSIDER TRADING
All Manual Holders
Compliance Officer
SPP No.
Issued:
Effective:
Page:
Replaces:
Dated:
FI 2.01.3
August 30, 2004
August 30, 2004
6 of 11
FI 2.01
November 1, 2003
(5) Administering, monitoring and enforcing compliance with all insider trading laws and regulations and assisting in the
preparation and filing of all reports required by the Regulators relating to insider trading in Fennec securities.
(6) Revising the Policy as necessary to reflect changes in insider trading laws and regulations.
(7) Maintaining originals or copies of all documents required by the provisions of this Policy or the procedures set forth herein,
and copies of all reports required by Regulators relating to insider trading.
The Compliance Officer may designate one or more individuals who may perform the duties of the Compliance Officer or the
duties of the other members of the Committee in the event that the Compliance Officer or other Committee members are unable
or unavailable to perform such duties.
5.02
A copy of this Policy will be delivered to all directors, officers, employees and designated outsiders at the start of their
employment or relationship with Fennec and upon any revision. Upon receiving a copy of this Policy or any revised versions,
the recipient must sign an acknowledgement that he or she has read, understands and agrees to comply with the terms of this
Policy in the form attached hereto as Appendix I.
6
PROCEDURE
6.01
6.02
6.03
Civil and Criminal Penalties
The seriousness of insider trading is reflected in the penalties that it carries. Both Fennec itself and directors, officers or
employees may be held liable for the activities of other personnel. If the insider trading of individual directors, officers or
employees is found to be a wilful violation of the insider trading rules and laws, he or she may be subject to severe penalties,
including imprisonment.
Reporting Violations
Any director, officer or employee who violates the prohibitions against insider trading, or who knows of such violation by any
other person, must report the violation immediately to the Compliance Officer. Fennec may be required to report the violation to
an appropriate governmental authority.
Inquiries
If you have any question as to any of the matters discussed in this Policy, do not hesitate to ask for advice and do not act until
you have an answer. Requests for advice should be directed to the Compliance Officer.
7
ATTACHMENTS
Appendix A – Insider Trading Policy Acknowledgement Form
Appendix B – Frequently Asked Questions on Insider Trading
Chapter:
Section:
Subject:
Issue to:
Issued by:
STATEMENT of POLICY and PROCEDURE
Financial
INSIDER TRADING
All Manual Holders
Compliance Officer
SPP No.
Issued:
Effective:
Page:
Replaces:
Dated:
FI 2.01.3
August 30, 2004
August 30, 2004
7 of 11
FI 2.01
November 1, 2003
ACKNOWLEDGMENT
Appendix A
The undersigned hereby certifies to Fennec Technologies Inc. that he/she has read and understands the Fennec Corporate Policy
and Procedure on Insider Trading, a copy of which has been retained by the undersigned, and agrees to comply with the terms of such
policy and procedure.
By:
Date:
Name (please print):
Please return a signed copy of this form to Robert Andrade, the Insider Trading Compliance Officer.
Chapter:
Section:
Subject:
Issue to:
Issued by:
STATEMENT of POLICY and PROCEDURE
Financial
INSIDER TRADING
All Manual Holders
Compliance Officer
SPP No.
Issued:
Effective:
Page:
Replaces:
Dated:
FI 2.01.3
August 30, 2004
August 30, 2004
8 of 11
FI 2.01
November 1, 2003
Appendix B
Transactions Subject to the Policy
Frequently Asked Questions on Insider Trading
Does the Policy apply only to trades in Fennec common shares?
No. The Policy applies to any security of Fennec. This includes securities issued by third parties, such as traded options (puts or
calls) and any other security whose market value is tied to the value of Fennec securities.
Can I exercise employee stock options during the "blackout" period?
The exercise of employee stock options for cash is exempt from the insider trading policy because the exercise price of an
option is fixed at the time of grant and does not fluctuate with the market. As a result, you may adopt an "exercise and hold" strategy
during the "blackout" period. Note, however, that the sale of the underlying shares is subject to the Policy. Thus, the use of Fennec shares
to pay the exercise price of an option and a "cashless exercise" of an option are subject to the Policy.
Can I trade in options or other derivative securities involving Fennec securities?
No. The options we are referring to are "put" and "call" options, whether or not market- traded, and any similar instruments, and
not the employee stock options granted to you by Fennec.
Tipping
What is tipping?
Tipping refers to the transmission of material non-public information from an insider to another person. Sometimes this involves
a deliberate conspiracy in which the tipper passes on information in exchange for a portion of the "tippee's" illegal trading profits. Even if
there is no expectation of profit, however, a tipper can have liability if it is reasonable to predict that the information may be misused.
Tipping inside information to another person is like putting your life in that person's hands. The safest choice is: don't.
Materiality
I know all sorts of things about Fennec. How do I know what is "material"?
Information is material if a reasonable investor would consider it important in deciding whether to buy or sell a security. At
Fennec we have determined that our quarterly earnings information is generally material, which is why we have instituted a formal
"blackout" period policy. Other information — acquisitions, new product announcements, etc. — is evaluated on a case-by-case basis but
could include the following:
(1)
significant changes in financial results and/or financial condition and financial projections;
Chapter:
Section:
Subject:
Issue to:
Issued by:
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
STATEMENT of POLICY and PROCEDURE
Financial
INSIDER TRADING
All Manual Holders
Compliance Officer
SPP No.
Issued:
Effective:
Page:
Replaces:
Dated:
FI 2.01.3
August 30, 2004
August 30, 2004
9 of 11
FI 2.01
November 1, 2003
news of major new contracts, technological breakthroughs, possible loss of business;
dividends or stock splits, changes in business;
changes in management or control;
significant mergers, acquisitions, reorganizations, dispositions of assets or joint ventures;
changes in research and development funding or policy;
significant litigation developments;
significant increases or decreases in the amount of outstanding securities or indebtedness;
transactions with directors, officers or principal security holders; and
(10)
the granting or payment of a significant amount of options or other compensation to directors or officers.
If you are at all unsure about whether you have material inside information, the safe approach is to discuss it with the
Compliance Officer.
The Quarterly "Blackout" Period
Why do we define the "blackout" period the way we do?
Even if one is not personally aware of inside information, it may be difficult to establish that fact after the announcement of a
corporate transaction or development. For example: since the release of financial information at the end of a quarter may have an impact
on the market price of Fennec's securities, individuals with access to sensitive financial information who trade near the end of a quarter
risk allegations that they had insider information at the time.
To provide some protection, we have adopted blackout periods tied to our quarterly earnings cycle. The period will begin the
last day of the applicable quarter and continue until the second trading day after the announcement of the immediately preceding
quarterly earnings. The two-day waiting period is designed to allow the market to assimilate the earnings announcement before
employees are permitted to trade.
Am I always permitted to trade outside of the "blackout" period?
Not necessarily. Sometimes we may impose a trading freeze on all employees due to a material unannounced transaction or
other development, such as a significant agreement or an acquisition. Such a freeze may result in one or more quarters in which
employees are not permitted to trade at all.
Chapter:
Section:
Subject:
Issue to:
Issued by:
STATEMENT of POLICY and PROCEDURE
Financial
INSIDER TRADING
All Manual Holders
Compliance Officer
SPP No.
Issued:
Effective:
Page:
Replaces:
Dated:
FI 2.01.3
August 30, 2004
August 30, 2004
10 of 11
FI 2.01
November 1, 2003
Is there an exception for personal emergencies?
Yes. Hardship trades may be permitted in exceptional circumstances with the prior written approval of the Compliance Officer.
However, you will be required to represent in writing to the Compliance Officer that you are not in possession of material non-public
information.
I'm planning to buy a house next quarter and will want to sell shares at that time. How should the insider trading policy affect my
planning?
The important thing to keep in mind is that you cannot always count on being able to sell shares precisely when you want to. If,
for example, you are asked to work on a material unannounced transaction or contract negotiation, you may be subject to a trading freeze
that will prevent you from selling.
However, you may be able to enter into a prearranged trading plan under SEC Rule 10b5-1 that could permit such sales. Such a
plan must be consistent with Fennec policy, as determined by the Compliance Officer.
Other Considerations
The Policy prohibits certain trading in the securities of Fennec partners, licensees and other companies. Will I be asked to sell shares I
hold in these companies?
No. This is a trading restriction, not an ownership restriction. In addition, you are not expected to know every company with
which Fennec has a relationship at any given time and no such list will be published. However, if you are privy to negotiations with, or
you are aware of any other inside information of, such a company, that is not public knowledge, you should not trade in the securities of
the other company until the second trading day after the deal or other information is announced or the negotiations cease.
You will not be required to sell securities of a corporation that you hold at any time simply because Fennec establishes a
relationship or otherwise commences negotiations with that company.
I plan to buy some shares and sell them in a few months to pay for a new roof on my house. Is this O.K.?
While each case must be judged independently, some trading activities are inherently speculative and should be avoided.
Selling shares to pay for one's expenses generally would not be considered a speculative trading activity. However, "day-trading" and
other short- term holding strategies intended to take advantage of short-term share price fluctuations should be avoided. Purchases and
sales within short periods of time will be closely scrutinized by the Regulators. If you have specific questions about a particular
transaction or trading practice, you should contact the Compliance Officer.
My spouse is employed by a publicly-traded corporation and we own shares in my spouse's employer. Does the Policy prohibit us from
trading in shares of my spouse's employer?
The Policy would not prohibit you or your spouse from trading in securities of your spouse's employer, unless Fennec at that
time has a relationship with your spouse's employer to which you or your spouse are privy. However, the same penalties apply to any
insider trading in those shares, so you should carefully review the insider trading policy of your spouse's employer to be sure that you are
complying with both policies in all of your trades.
Chapter:
Section:
Subject:
Issue to:
Issued by:
STATEMENT of POLICY and PROCEDURE
Financial
INSIDER TRADING
All Manual Holders
Compliance Officer
SPP No.
Issued:
Effective:
Page:
Replaces:
Dated:
FI 2.01.3
August 30, 2004
August 30, 2004
11 of 11
FI 2.01
November 1, 2003
What types of events might warrant a trading freeze?
Generally, trading freezes are necessitated by material unannounced transactions or other developments. These developments
could include, but are certainly not limited to, any of the events cited under the definition of materiality above.
Will trading freezes be announced?
Yes. Trading freezes will always be announced to affected personnel when they are deemed necessary by the Compliance
Officer.
What will happen if I trade during a trading freeze?
The easy answer is "don't". Trading during a trading freeze puts both you and Fennec at greater risk of investigation and
prosecution by the Regulators. Furthermore, Fennec may discipline you, including termination of your employment for "cause", which
may result in the forfeiture of all of your stock options, vested and unvested.
Enforcement Practices
I only own a few hundred shares. The Regulators don't go after small fish like me, right?
Wrong. The Regulators have prosecuted numerous cases involving relatively small amounts of money.
If I pass information to others but don't trade myself, no one will be able to figure it out, right?
Wrong again. The Regulators have sophisticated and ingenious methods for identifying unusual trading patterns and tracing
them to their source. They have the ability to subpoena telephone records, bank and brokerage statements, personal files, electronic mail
files and anything else that may help them to make a case. Whether it is your second cousin in New Brunswick or your college
roommate's stepfather, the Regulators have the resources to establish the connection to you.
Further Information
Who should I contact if I have questions regarding our insider trading policy?
Please call the Compliance Officer. The telephone number of James A. Klein, Jr., the current Compliance Officer, is (919) 536-
3100.
Where do I go for the most current version of the insider trading policy?
Check Fennec's shared drive or contact the Compliance Officer.
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements on Form S-8 (File Nos. 333-221091 and 333-232353) and
the Registration Statements on Form S-3 (File Nos. 333-268632, 333-219884 and 333-249775) of Fennec Pharmaceuticals Inc. (the
“Company”) of our report dated March 29, 2024, relating to the consolidated financial statements as of December 31, 2023 and 2022 and
for each of the years then ended, which appear in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31,
2023.
/s/ Haskell & White LLP
HASKELL & WHITE LLP
Irvine, California
March 29, 2024
Exhibit 31.1
I, Rostislav Raykov, certify that:
FENNEC PHARMACEUTICALS INC
CERTIFICATION
1.
I have reviewed this annual report on Form 10-K for the period ended December 31, 2023 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 make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this Annual Report;
3. Based on my knowledge, the financial statements, and other financial information included in this Annual Report, fairly present in
all material respects the 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 in Exchange 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, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, 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 our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes 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 the effectiveness 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 most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially 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 the registrant’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 reasonably likely 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 control over financial reporting.
Date: March 29, 2024
By:/s/ Rostislav Raykov
Rostislav Raykov
Chief Executive Officer
Exhibit 31.2
I, Robert Andrade, certify that:
FENNEC PHARMACEUTICALS INC.
CERTIFICATION
1.
I have reviewed this annual report on Form 10-K for the period ended December 31, 2023 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 make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this Annual Report;
3. Based on my knowledge, the financial statements, and other financial information included in this Annual Report, fairly present in
all material respects the 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 in Exchange 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, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, 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 our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes 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 the effectiveness 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 most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially 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 the registrant’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 reasonably likely 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 control over financial reporting.
Date: March 29, 2024
By:/s/ Robert Andrade
Robert Andrade
Chief Financial Officer
CERTIFICATION PURSUANT TO
18 U.S.C. §1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of Fennec Pharmaceuticals Inc. (the “Company”) on Form 10-K for the period ended
December 31, 2023 (the “Report”), each of the undersigned, Rostislav Raykov, Chief Executive Officer of the Company, and Robert
Andrade, Chief Financial Officer of the Company, hereby certifies 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
the Company.
Date: March 29, 2024
Date: March 29, 2024
By:/s/ Rostislav Raykov
Rostislav Raykov
Chief Executive Officer
By:/s/ Robert Andrade
Robert Andrade
Chief Financial Officer
Exhibit 99.1
FENNEC PHARMACEUTICALS REPORTS FULL YEAR AND FOURTH QUARTER
2023 FINANCIAL RESULTS AND PROVIDES BUSINESS UPDATE
~ Achieved PEDMARKÒ Full-Year 2023 Net Product Sales of $21.3 Million, Including $9.7 Million in Net
Product Sales in the Fourth Quarter of 2023 ~
~ Entered Into Exclusive Licensing Agreement to Commercialize PEDMARQSIÔ in Europe, Australia and New
Zealand for Approximately $43 Million Upfront and Up to Approximately $230 Million in Additional Commercial
and Regulatory Milestones, and Tiered Royalties Up to the Mid-Twenties ~
~ Pro forma fourth quarter cash in excess of $55 million ~
~ Management to Host Conference Call Today at 8:30 a.m. ET ~
Research Triangle Park, NC, March 21, 2024 – Fennec Pharmaceuticals Inc. (NASDAQ:FENC; TSX: FRX), a
specialty pharmaceutical company, today reported its financial results for the fiscal year ended December 31,
2023 and provided a business update.
“It was an exciting year for Fennec given the strong performance with PEDMARKÒ in the first full fiscal year
following its U.S. commercial launch. We are pleased with our execution against strategic plans and our
momentum in 2023, which sets the stage for further success in 2024 and beyond. We also received European
Commission and U.K. approvals of PEDMARQSIÔ, which led to the recent announcement of an exclusive
licensing agreement with Norgine for Europe, Australia and New Zealand,” said Rosty Raykov, Chief Executive
Officer of Fennec Pharmaceuticals. “We have significantly strengthened our balance sheet through the agreement
with Norgine, and we remain dedicated to further growing our revenues as we expand the availability of
PEDMARKÒ to patients and providers globally.”
Recent Developments and Highlights:
● Entered into exclusive licensing agreement to commercialize PEDMARQSIÔ in Europe, Australia and
New Zealand. Fennec received approximately $43 million upfront and has the potential to receive up
to approximately $230 million in additional commercial and regulatory milestones, and double-digit
tiered royalties up to the mid-twenties. PEDMARQSI was granted EU marketing authorization by the
European Commission in June 2023, and received UK approval from the MHRA in October 2023.
● Achieved PEDMARK net product revenue of approximately $9 million and $21 million for the fourth
quarter and full year 2023, respectively. Additionally, anticipate continued increasing utilization of the
earlier endorsement from the NCCN for PEDMARK® in the adolescent and young adult (AYA)
population.
● In January 2024, the FDA issued a public reminder to healthcare providers that PEDMARK (sodium
thiosulfate injection) is not substitutable with other sodium thiosulfate products as explicitly directed in
its prescribing label.
Financial Results for the Fourth Quarter and Fiscal Year Ended December 31, 2023
● Net Sales – Net product sales of $21.3 million in fiscal 2023 compared to $1.5 million in 2022. The
Company had gross profit of $20.0 million for fiscal year ended 2023. The increase in sales reflects
strong growth in new patient starts and accounts.
● Cash Position – Cash and cash equivalents were $13.2 million as of December 31, 2023. There was a
$10.5 million decrease in cash and cash equivalents between December 31, 2023 and December 31,
2022 as a result of cash outlays for operating expenses related to the promotion and marketing of
PEDMARK®, general and administrative expenses and the preparation for the commercial launch of
PEDMARQSI in Europe. These cash outflows were offset by cash inflows primarily from product
sales. In addition, as announced this week, we received approximately $43 million from the licensing
of Europe, Australia and New Zealand to Norgine. Inclusive of these events, the pro forma December
31, 2023 cash balance is in excess of $55 million. We anticipate that our cash, cash equivalents and
investment securities as of December 31, 2023, when coupled with PEDMARK revenue assumptions
and the recently announced license agreement for Europe, will be sufficient to fund our planned
operations for at least the next twelve months.
● Research and Development Expenses (R&D) Expenses – R&D expenses decreased by $3.5 million
in fiscal 2023 as compared to fiscal 2022. The Company reduced research and development costs when
it received FDA approval of PEDMARK® in September 2022. The majority of traditional research
and development expenses associated with PEDMARK® are now recorded as general and
administrative expenses or capitalized into inventory and eventually recorded to costs of product sales.
● Selling and Marketing Expenses – Selling and marketing expenses include remuneration of our sales
and marketing employees, dollars spent on marketing campaigns (sponsorships, trade shows,
presentations, etc.), and any activities to support marketing and sales activities. The Company
recorded $12.1 million in selling and marketing expenses in fiscal 2023, compared to $2.8 million in
fiscal year 2022.
● General and Administrative (G&A) Expenses – For fiscal 2023, G&A expenses increased by $2.3
million compared to fiscal 2022. Non-cash expenses associated with equity remuneration increased by
$1.4 million in fiscal year 2023 over 2022. Payroll and benefits related expenses rose by $1.1 million
in fiscal 2023 compared to fiscal 2022. There was an increase in consulting and professional costs of
$0.8 million in fiscal 2023 over fiscal 2022.
● Net Loss – Net losses for the fourth quarter and year ended December 31, 2023, of $2.7 million ($0.10
per share) and $16.0 million ($0.60 per share), respectively, compared to $6.9 million ($0.26 per share)
and $23.7 million ($0.90 per share), respectively, for the same periods in 2022.
Financial Update
The selected financial data presented below is derived from our unaudited, condensed consolidated financial
statements, which were prepared in accordance with U.S. generally accepted accounting principles. The complete
audited, condensed consolidated financial statements for the period ended December 31, 2023, and management's
discussion and analysis of financial condition and results of operations, will be available via www.sec.gov and
www.sedar.com. All values are presented in thousands unless otherwise noted.
Audited Consolidated
Statements of Operations:
(U.S. Dollars in thousands except per share amounts)
Revenue
PEDMARK product sales, net
Cost of products sold
Gross profit
Operating expenses:
Research and development
Selling and marketing
General and administrative
Total operating expenses
Loss from operations
Other (expense)/income
Unrealized foreign exchange loss
Amortization expense
Unrealized (loss) on securities
Interest income
Interest expense
Total other (expense)/income
Net loss
Basic net loss per common share
Diluted net loss per common share
Weighted-average number of common shares outstanding basic
Weighted-average number of common shares outstanding diluted
Three Months Ended
Twelve Months Ended
December 31, December 31, December 31, December 31,
2023
2022
2023
2022
$
$
$
$
9,735
(685)
9,050
32
3,868
6,968
10,868
(1,818)
2
(70)
4
115
(915)
(864)
(2,682)
(0.10)
(0.10)
26,833
26,833
$
$
1,535
(86)
1,449
21,252
(1,259)
19,993
$
1,535
(86)
1,449
117
2,785
4,682
7,584
(6,135)
(58)
(70)
(3)
153
(744)
(722)
$
$
$
$
$
$
(6,857)
(0.26)
(0.26)
26,275
26,275
56
12,123
20,585
3,531
2,785
17,722
32,764
(12,771)
24,038
(22,589)
5
(287)
(39)
441
(3,394)
(3,274)
(16,045)
(0.60)
(0.60)
26,574
26,574
(9)
(149)
(184)
195
(978)
(1,125)
(23,714)
(0.90)
(0.90)
26,275
26,275
$
$
$
Audited Consolidated Balance Sheets:
(U.S. Dollars in thousands)
Assets
Current assets
Cash and cash equivalents
Accounts receivable, net
Prepaid expenses
Inventory
Other current assets
Total current assets
Non-current assets
Deferred issuance cost, net amortization
Total non-current assets
Total assets
Liabilities and shareholders’ (deficit) equity
Current liabilities:
Accounts payable
Accrued liabilities
Total current liabilities
Long term liabilities
Term loan
PIK interest
Debt discount
Total long term liabilities
Total liabilities
Commitments and Contingencies
Shareholders’(deficit) equity:
Common stock, no par value; unlimited shares authorized; 26,361 shares issued and outstanding
(2022 ‑26,014)
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive income
Total shareholders’ (deficit) equity
Total liabilities and shareholders’ (deficit) equity
December 31, December 31,
2023
2022
$
$
$
$
$
$
$
13,269
8,814
583
2,156
21
24,843
2,021
2,021
26,864
3,799
3,754
7,553
30,000
1,219
(286)
30,933
38,486
23,774
1,545
770
576
63
26,728
211
211
26,939
2,390
2,219
4,609
25,000
260
(361)
24,899
29,508
144,307
60,073
(219,245)
1,243
(13,622)
24,864
$
142,591
56,797
(203,200)
1,243
(2,569)
26,939
Working capital
Selected Asset and Liability Data:
(U.S. Dollars in thousands)
Cash and equivalents
Other current assets
Current liabilities
Working capital
Selected Equity:
Common stock and additional paid in capital
Accumulated deficit
Shareholders’ equity
Fiscal Year Ended
December 31, 2023 December 31, 2022
$
$
13,269
11,574
(7,553)
17,290
$
$
23,774
2,954
(4,608)
22,120
206,380
(219,245)
(11,622)
199,388
(203,200)
(2,569)
About Cisplatin-Induced Ototoxicity
Cisplatin and other platinum compounds are essential chemotherapeutic agents for the treatment of many pediatric
malignancies. Unfortunately, platinum-based therapies can cause ototoxicity, or hearing loss, which is permanent,
irreversible, and particularly harmful to the survivors of pediatric cancer.i
The incidence of ototoxicity depends upon the dose and duration of chemotherapy, and many of these children
require lifelong hearing aids or cochlear implants, which can be helpful for some, but do not reverse the hearing
loss and can be costly over time.ii Infants and young children that are affected by ototoxicity at critical stages of
development lack speech and language development and literacy, and older children and adolescents often lack
social-emotional development and educational achievement.iii
PEDMARK® (sodium thiosulfate injection)
PEDMARK® is the first and only U.S. Food and Drug Administration (FDA) approved therapy indicated to
reduce the risk of ototoxicity associated with cisplatin treatment in pediatric patients with localized, non-
metastatic, solid tumors. It is a unique formulation of sodium thiosulfate in single-dose, ready-to-use vials for
intravenous use in pediatric patients.7 PEDMARK is also the only therapeutic agent with proven efficacy and
safety data with an established dosing paradigm, across two open-label, randomized Phase 3 clinical studies, the
Clinical Oncology Group (COG) Protocol ACCL0431 and SIOPEL 6.
In the U.S. and Europe, it is estimated that, annually, more than 10,000 children may receive platinum-based
chemotherapy. The incidence of ototoxicity depends upon the dose and duration of chemotherapy, and many of
these children require lifelong hearing aids. There is currently no established preventive agent for this hearing loss
and only expensive, technically difficult, and sub-optimal cochlear (inner ear) implants have been shown to
provide some benefit. Infants and young children that suffer ototoxicity at critical stages of development lack
speech language development and literacy, and older children and adolescents lack social-emotional development
and educational achievement.
PEDMARK has been studied by co-operative groups in two Phase 3 clinical studies of survival and reduction of
ototoxicity, COG ACCL0431 and SIOPEL 6. Both studies have been completed. The COG ACCL0431 protocol
enrolled childhood cancers typically treated with intensive cisplatin therapy for localized and disseminated
disease,
tumor, osteosarcoma, neuroblastoma,
medulloblastoma, and other solid tumors. SIOPEL 6 enrolled only hepatoblastoma patients with localized tumors.
including newly diagnosed hepatoblastoma, germ cell
Indications and Usage
PEDMARK® (sodium thiosulfate injection) is indicated to reduce the risk of ototoxicity associated with cisplatin
in pediatric patients 1 month of age and older with localized, non-metastatic solid tumors.
Limitations of Use
The safety and efficacy of PEDMARK have not been established when administered following cisplatin infusions
longer than 6 hours. PEDMARK may not reduce the risk of ototoxicity when administered following longer
cisplatin infusions, because irreversible ototoxicity may have already occurred.
Important Safety Information
PEDMARK is contraindicated in patients with history of a severe hypersensitivity to sodium thiosulfate or any of
its components.
Hypersensitivity reactions occurred in 8% to 13% of patients in clinical trials. Monitor patients for
hypersensitivity reactions. Immediately discontinue PEDMARK and institute appropriate care if a hypersensitivity
reaction occurs. Administer antihistamines or glucocorticoids (if appropriate) before each subsequent
administration of PEDMARK. PEDMARK may contain sodium sulfite; patients with sulfite sensitivity may have
hypersensitivity reactions, including anaphylactic symptoms and life-threatening or severe asthma episodes.
Sulfite sensitivity is seen more frequently in people with asthma.
PEDMARK is not indicated for use in pediatric patients less than 1 month of age due to the increased risk of
hypernatremia or in pediatric patients with metastatic cancers.
Hypernatremia occurred in 12% to 26% of patients in clinical trials, including a single Grade 3 case. Hypokalemia
occurred in 15% to 27% of patients in clinical trials, with Grade 3 or 4 occurring in 9% to 27% of patients.
Monitor serum sodium and potassium levels at baseline and as clinically indicated. Withhold PEDMARK in
patients with baseline serum sodium greater than 145 mmol/L.
Monitor for signs and symptoms of hypernatremia and hypokalemia more closely if the glomerular filtration rate
(GFR) falls below 60 mL/min/1.73m2.
Administer antiemetics prior to each PEDMARK administration. Provide additional antiemetics and supportive
care as appropriate.
The most common adverse reactions (≥25% with difference between arms of >5% compared to cisplatin alone) in
SIOPEL 6 were vomiting, nausea, decreased hemoglobin, and hypernatremia. The most common adverse reaction
(≥25% with difference between arms of >5% compared to cisplatin alone) in COG ACCL0431 was hypokalemia.
Please see full Prescribing Information for PEDMARK® at: www.PEDMARK.com.
About Fennec Pharmaceuticals
Fennec Pharmaceuticals Inc. is a specialty pharmaceutical company focused on the development and
commercialization of PEDMARK® to reduce the risk of platinum-induced ototoxicity in pediatric patients.
Further, PEDMARK received FDA approval in September 2022 and has received Orphan Drug Exclusivity in the
U.S. Fennec has a license agreement with Oregon Health and Science University (OHSU) for exclusive
worldwide license rights to intellectual property directed to sodium thiosulfate and its use for chemoprotection,
including the reduction of risk of ototoxicity induced by platinum chemotherapy, in humans. For more
information, please visit www.fennecpharma.com.
Forward Looking Statements
Except for historical information described in this press release, all other statements are forward-looking. Words
such as “believe,” “anticipate,” “plan,” “expect,” “estimate,” “intend,” “may,” “will,” or the negative of those
terms, and similar expressions, are intended to identify forward-looking statements. These forward-looking
statements include statements about our business strategy, timeline and other goals, plans and prospects,
including our commercialization plans respecting PEDMARK®, the market opportunity for and market impact of
PEDMARK®, its potential impact on patients and anticipated benefits associated with its use, and potential access
to further funding after the date of this release. Forward-looking statements are subject to certain risks and
uncertainties inherent in the Company’s business that could cause actual results to vary, including the risks and
uncertainties that regulatory and guideline developments may change, scientific data and/or manufacturing
capabilities may not be sufficient to meet regulatory standards or receipt of required regulatory clearances or
approvals, clinical results may not be replicated in actual patient settings, unforeseen global instability, including
political instability, or instability from an outbreak of pandemic or contagious disease, such as the novel
coronavirus (COVID-19), or surrounding the duration and severity of an outbreak, protection offered by the
Company’s patents and patent applications may be challenged, invalidated or circumvented by its competitors, 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 more targeted markets, revenues will not be sufficient to fund further development and
clinical studies, our ability to obtain necessary capital when needed on acceptable terms or at all, the Company
may not meet its future capital requirements in different countries and municipalities, and other risks detailed
from time to time in the Company’s filings with the Securities and Exchange Commission including its Annual
Report on Form 10-K for the year ended December 31, 2023. Fennec disclaims any obligation to update these
forward-looking statements 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.
PEDMARK® and Fennec® are registered trademarks of Fennec Pharmaceuticals Inc.
©2023 Fennec Pharmaceuticals Inc. All rights reserved. FEN-1604-v1
For further information, please contact:
Investors:
Robert Andrade
Chief Financial Officer
Fennec Pharmaceuticals Inc.
+1 919-246-5299
Corporate and Media:
Lindsay Rocco
Elixir Health Public Relations
+1 862-596-1304
lrocco@elixirhealthpr.com
i Rybak L. Mechanisms of Cisplatin Ototoxicity and Progress in Otoprotection. Current Opinion in
Otolaryngology & Head and Neck Surgery. 2007, Vol. 15: 364-369.
ii Landier W. Ototoxicity and Cancer Therapy. Cancer. June 2016 Vol. 122, No.11: 1647-1658.
iii Bass JK, Knight KR, Yock TI, et al. Evaluation and Management of Hearing Loss in Survivors of Childhood
and Adolescent Cancers: A Report from the Children's Oncology Group. Pediatric Blood & Cancer. 2016
Jul;63(7):1152-1162.
FENNEC PHARMACEUTICALS INC.
Compensation Recovery Policy
Exhibit 97
Policy Overview
The purpose of this Compensation Recovery Policy (this “Policy”) of Fennec Pharmaceuticals Inc. (the “Company”) is to provide for
the recoupment of certain executive compensation in the event of an accounting restatement resulting from material noncompliance with
financial reporting requirements under United States federal securities laws (“Securities Laws”). This Policy is designed to comply with
Section 10D of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Nasdaq Listing Rule 5608 (or the equivalent
rules of any other national securities exchange upon which the Company’s securities may from time to time be listed, the “Clawback
Listing Standards”).
This Policy is binding upon any person who is or was an “Executive Officer” (as such term is defined in Rule 10D-1 adopted under the
Exchange Act and the Clawback Listing Standards) of the Company or any of its subsidiaries (each, a “Covered Executive”).
Administration
This Policy shall be administered by the Board or, if so designated by the Board, the Compensation Committee, in which case references
herein to the Board shall be deemed references to the Compensation Committee. Any determinations made by the Board shall be final
and binding on all affected individuals.
Recoupment; Accounting Restatement
In the event the Company is required to prepare an accounting restatement of its financial statements due to the Company’s material
noncompliance with any financial reporting requirement under the Securities Laws, including any required accounting restatement to
correct an error in previously issued financial statements that is material to the previously issued financial statements or that would result
in a material misstatement if the error were corrected in the current period or left uncorrected in the current period, the Board will require
reimbursement or forfeiture of any excess Incentive Compensation (as defined below) received by any Covered Executive during the
three completed fiscal years immediately preceding the date on which the Company is required to prepare an accounting restatement.
Incentive Compensation
For purposes of this Policy, “Incentive Compensation” shall mean any of the following; provided that, such compensation is granted,
earned, or vested based wholly or in part on the attainment of a financial reporting measure:
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Annual bonuses and other short- and long-term cash incentives.
Stock options.
Stock appreciation rights.
Restricted stock.
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Restricted stock units.
Performance shares.
Performance units.
A “financial reporting measure” means a measure that is determined and presented in accordance with Generally Accepted Accounting
Principles which are used in preparing the Company’s financial statements, and any measure that is derived wholly or in part from such
measures. Stock price and total shareholder return are also financial reporting measures for this purpose. For avoidance of doubt, a
financial reporting measure need not be presented within the Company’s financial statements or included in a filing with the Securities
and Exchange Commission (“SEC”).
Excess Incentive Compensation: Amount Subject to Recovery
The amount to be recovered will be the excess of the Incentive Compensation paid to the Covered Executive based on the erroneous data
over the Incentive Compensation that would have been paid to the Covered Executive had it been based on the restated results, as
determined by the Board, without regard to any taxes paid by the Covered Executive in respect of the Incentive Compensation paid based
on the erroneous data.
For recoverable Incentive Compensation based on stock price or total shareholder return, where the amount of erroneously awarded
Incentive Compensation is not subject to mathematical recalculation directly from the information in a restatement, the amount must be
based on a reasonable estimate by the Board of the effect of the restatement on the stock price or total shareholder return, as applicable,
upon which the recoverable Incentive Compensation was received, and the Company must maintain documentation of that reasonable
estimate and provide such documentation to Nasdaq.
Method of Recoupment
The Board will determine, in its sole discretion, the method for recouping Incentive Compensation hereunder which may include,
without limitation:
(a) requiring reimbursement of cash Incentive Compensation previously paid;
(b) seeking recovery of any gain realized on the vesting, exercise, settlement, sale, transfer, or other disposition of any equity-based
awards;
(c) offsetting the recouped amount from any compensation otherwise owed by the Company to the Covered Executive;
(d) cancelling outstanding vested or unvested equity awards; and
(e) taking any other remedial and recovery action permitted by law, as determined by the Board.
No Indemnification
The Company shall not indemnify any Covered Executives against the loss of any incorrectly awarded Incentive Compensation.
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Interpretation
The Board is authorized to interpret and construe this Policy and to make all determinations necessary, appropriate, or advisable for the
administration of this Policy. It is intended that this Policy be interpreted in a manner that is consistent with the requirements of Section
10D of the Exchange Act, any applicable rules or standards adopted by the SEC, and the Clawback Listing Standards.
Effective Date
This Policy shall be effective as of December 1, 2023 (the “Effective Date”) and shall apply to Incentive Compensation that is received
by Covered Executives on or after October 2, 2023, even if such Incentive Compensation was approved, awarded, or granted to Covered
Executives prior to October 2, 2023. For the purposes of this Policy, Incentive Compensation will be deemed to be received in the fiscal
period during which the financial reporting measure specified in the applicable Incentive Compensation award is attained, even if the
payment or grant occurs after the end of that period.
Amendment; Termination
The Board may amend this Policy from time to time in its discretion and shall amend this Policy as it deems necessary to reflect final
regulations adopted by the SEC under Section 10D of the Exchange Act and to comply with the Clawback Listing Standards and any
other rules or standards adopted by a national securities exchange on which the Company’s securities are listed. The Board may
terminate this Policy at any time.
Other Recoupment Rights
Any right of recoupment under this Policy is in addition to, and not in lieu of, any other remedies or rights of recoupment that may be
available to the Company pursuant to the terms of any similar policy in any employment agreement, equity award agreement, or similar
agreement and any other legal remedies available to the Company.
Relationship to Other Plans and Agreements
The Board intends that this Policy will be applied to the fullest extent of the law. The Board may require that any employment
agreement, equity award agreement, or similar agreement entered into on or after the Effective Date shall, as a condition to the grant of
any benefit thereunder, require a Covered Executive to agree to abide by the terms of this Policy; provided, however, that this Policy
shall apply to any applicable Incentive Compensation regardless of whether the Covered Executive agrees to abide by the terms of this
Policy . In the event of any inconsistency between the terms of the Policy and the terms of any employment agreement, equity award
agreement, or similar agreement under which Incentive Compensation has been granted, awarded, earned or paid to a Covered
Executive, whether or not deferred, the terms of the Policy shall govern.
Acknowledgment
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At the request of the Board, the Covered Executive shall sign an acknowledgment form in which they acknowledge that they have read
and understand the terms of the Policy and are bound by the Policy.
Impracticability
The Board shall recover any excess Incentive Compensation in accordance with this Policy unless such recovery would be impracticable,
as determined by the Board in accordance with Rule 10D-1 of the Exchange Act and the Clawback Listing Standards.
Successors
This Policy shall be binding and enforceable against all Covered Executives and their beneficiaries, heirs, executors, administrators or
other legal representatives.
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