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EX-32.1 - EXHIBIT 32.1 - FENNEC PHARMACEUTICALS INC.v416858_ex32-1.htm
EX-31.2 - EXHIBIT 31.2 - FENNEC PHARMACEUTICALS INC.v416858_ex31-2.htm
EX-99.1 - EXHIBIT 99.1 - FENNEC PHARMACEUTICALS INC.v416858_ex99-1.htm
EX-31.1 - EXHIBIT 31.1 - FENNEC PHARMACEUTICALS INC.v416858_ex31-1.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

x          QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2015

 

OR

 

¨          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from____ to ____

 

Commission File Number: 001-32295

 

FENNEC PHARMACEUTICALS INC.

 

(formerly ADHEREX TECHNOLOGIES INC.)

(Exact Name of Registrant as Specified in Its Charter)

 

British Columbia, Canada

(State or Other Jurisdiction of

Incorporation or Organization

 

20-0442384

(I.R.S. Employer

Identification No.)

   

PO Box 13628, 68 TW Alexander Drive

Research Triangle Park, North Carolina

(Address of Principal Executive Offices)

27709

(Zip Code)

 

Registrant's Telephone Number, Including Area Code: (919) 636-4530

 

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 x NO ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

Yes þ No¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer  ¨       Accelerated Filer ¨
Non-Accelerated Filer    ¨   (Do not check if smaller reporting company)   Smaller reporting company x

 

Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).YES ¨ NO x

 

As of August 11, 2015, there were 10,919,218 shares of Fennec Pharmaceuticals Inc. common stock outstanding.

 

 

 

 

TABLE OF CONTENTS

 

  Page
PART I: FINANCIAL INFORMATION  
Item 1.  Financial Statements 3
Unaudited Interim Condensed Consolidated Balance Sheets –June 30, 2015 and December 31, 2014 3
Unaudited Interim Condensed Consolidated Statements of Operations –For the Three and Six Months Ended June 30, 2015 and 2014 4
Unaudited Interim Condensed Consolidated Statements of Cash Flows –For the Three and Six Months Ended June 30, 2015 and 2014 5
Unaudited Interim Condensed Consolidated Statements of Stockholders' Equity (Deficiency) –For the Period Ended June 30, 2015 6
Notes to the Unaudited Interim Condensed Consolidated Financial Statements 7
Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations 15
Item 3.  Quantitative and Qualitative Disclosures about Market Risk 23
Item 4.  Controls and Procedures 23
PART II: OTHER INFORMATION 24
Item 1. Legal Proceedings 24
Item 1A.  Risk Factors 24
Item 2. Recent Sales of Unregistered Securities 26
Item 3. Default Upon Senior Securities 26
Item 4. Mine Safety Disclosure 26
Item 5. Other Information 26
Item 6.  Exhibits 27
Signatures 28

 

2

 

 

PART 1: FINANCIAL INFORMATION

Item 1. Financial Statements

 

Fennec Pharmaceuticals Inc.

Unaudited Interim Condensed Consolidated Balance Sheets

(U.S. Dollars and shares in thousands)

 

   June 30,   December 31, 
   2015   2014 
         
Assets          
           
Current assets:          
Cash and cash equivalents  $1,854   $2,307 
Prepaid expenses   14    48 
Other current assets   3    17 
Total assets  $1,871   $2,372 
           
Liabilities and Stockholders' Equity          
           
Current liabilities:          
Accounts payable  $401   $308 
Accrued liabilities   49    132 
Derivative instruments (Note 4)   309    1,319 
Total current liabilities   759    1,759 
           
Total liabilities   759    1,759 
           
Commitments and contingencies (Note 7)          
           
Stockholders' equity:          
Common stock, no par value; unlimited shares authorized; 10,919 shares issued and outstanding (2014-10,593)   69,132    68,656 
Additional paid-in capital   41,607    41,588 
Accumulated deficit   (110,870)   (110,874)
Accumulated other comprehensive income   1,243    1,243 
Total stockholders’ equity   1,112    613 
Total liabilities and stockholders’ equity  $1,871   $2,372 

 

(The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements)

 

3

 

 

Fennec Pharmaceuticals Inc.

Unaudited Interim Condensed Consolidated Statements of Operations

(U.S. Dollars and shares in thousands, except per share amounts)

 

   Three Months Ended   Six Months Ended 
   June 30,   June 30,   June 30,   June 30, 
   2015   2014   2015   2014 
                 
Revenue  $-   $-   $-   $- 
                     
Operating expenses:                    
Research and development   54    72    97    104 
General and administrative   495    858    904    1,363 
                     
Loss from operations   (549)   (930)   (1,001)   (1,467)
                     
Other (expense) income :                    
Unrealized (loss)/gain on derivatives (Note 4)   385    181    1,010    (2,474)
Other (loss)/gain   (10)   (4)   (7)   (4)
Interest income and other   1    3    2    1 
Total other (expense)/income, net   376    180    1,005    (2,477)
                     
Net (loss)/income and total comprehensive (loss)/income  $(173)  $(750)  $4   $(3,944)
                     
Basic net (loss)/income per common share  $(0.02)  $(0.08)  $0.00   $(0.40)
Diluted net (loss)/income per common share  $(0.02)  $(0.08)  $0.00   $(0.40)
Weighted-average number of common shares outstanding, basic   10,830    9,846    10,718    9,846 
Weighted-average number of common shares outstanding, diluted   10,830    9,846    12,953    9,846 

 

(The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.)

 

4

 

 

Fennec Pharmaceuticals Inc.

Unaudited Interim Condensed Consolidated Statements of Cash Flows

(U.S. Dollars and shares in thousands)

 

   Three Months Ended   Six Months Ended 
   June 30,   June 30,   June 30,   June 30, 
   2015   2014   2015   2014 
Cash flows (used in) provided by:                    
Operating activities:                    
Net (loss)/income  $(173)  $(750)  $4    (3,944)
Adjustments to reconcile net (loss)/income to net cash used in operating activities:                    
Unrealized (gain)/loss on derivative   (385)   (181)   (1,010)   2,474 
Stock-based compensation - consultants   -    -    -    129 
Stock-based compensation - employees   10    339    19    472 
Changes in operating assets and liabilities:                    
Prepaid assets   17    29    34    56 
Other current assets   (1)   (6)   14    (1)
Accounts payable   17    180    93    122 
Accrued liabilities   4    (21)   (83)   (96)
                     
Net cash used in operating activities   (511)   (410)   (929)   (788)
                     
Investing activities:                    
                     
Net cash used in investing activities   -    -    -    - 
                     
Financing activities:                    
Issuance of units, options and warrants exercised   449    87    476    140 
                     
Net cash provided by financing activities   449    87    476    140 
                     
Effect of exchange rate on cash and cash equivalents   -    -    -    - 
Decrease in cash and cash equivalents   (62)   (323)   (453)   (648)
Cash and cash equivalents - Beginning of period   1,916    1,338    2,307    1,663 
Cash and cash equivalents - End of period  $1,854   $1,015   $1,854   $1,015 

 

(The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.)

 

5

 

 

Fennec Pharmaceuticals Inc.

Unaudited Interim Condensed Consolidated Statements of Stockholders' Equity (Deficiency)

(U.S. dollars and shares in thousands)

 

                       Deficit     
           Non-redeemable       Accumulated   Accumulated   Total 
           Preferred Stock   Additional   Other   During   Stockholders' 
   Common Stock   of   Paid-in   Comprehensive   Development   Equity 
   Number (Note 4)   Amount   Subsidiary   Capital   Income   Stage   (Deficiency) 
                             
Balance at December 31, 2012   8,386   $65,952   $-   $38,391   $1,243   $(110,543)  $(4,957)
Stock options issued to consultants   -    -    -    25    -    -    25 
Stock options issued to employees   -    -    -    62    -    -    62 
Rights offering   1,333    838    -    732    -    -    1,570 
Net income   -    -    -    -    -    1,845    1,845 
Balance at December 31, 2013   9,719    66,790    -    39,210    1,243    (108,698)   (1,455)
Stock options issued to consultants   -    -    -    434    -    -    434 
Stock options issued to employees   -    -    -    627    -    -    627 
Exercise of stock options   127    140    -    -    -    -    140 
Exercise of warrants   15    21    -    -    -    -    21 
Exchange of warrants   -    -    -    840    -    -    840 
Rights offering   732    1,705    -    477    -    -    2,182 
Net loss   -    -    -    -    -    (2,176)   (2,176)
Balance at December 31, 2014   10,593    68,656    -    41,588    1,243    (110,874)   613 
Stock options issued to employees   -    -    -    9    -    -    9 
Exercise of stock options   27    27    -    -    -    -    27 
Net income   -    -    -    -    -    177    177 
Balance at March 31, 2015   10,620    68,683    -    41,597    1,243    (110,697)   826 
Stock options issued to employees   -    -    -    10    -    -    10 
Exercise of warrants   299    449    -    -    -    -    449 
Net loss   -    -    -    -    -    (173)   (173)
Balance at June 30, 2015   10,919    69,132    -    41,607    1,243    (110,870)   1,112 

 

(The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements)

 

6

 

 

Fennec Pharmaceuticals Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(U.S. dollars and shares in thousands, except per share information)

 

1.Nature of Business and Going Concern

 

Fennec Pharmaceuticals Inc. (“Fennec”) 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, collectively referred to herein as the “Company,” is a biopharmaceutical company with a portfolio of product candidates under development for use in the treatment of cancer. With the exception of Fennec Pharmaceuticals, Inc., all subsidiaries are inactive.

 

These unaudited interim condensed 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 six months ended June 30, 2015, the Company incurred a net loss from operations of $1,001 which excludes an unrealized non-cash gain of $1,010 on derivative liabilities. At June 30, 2015, it had an accumulated deficit of $110,870, and had experienced negative cash flows from operating activities in the amount of $929.

 

These circumstances raise substantial doubt as to the ability of the Company to meet its obligations as they come due and, accordingly, the use of accounting principles applicable to a going concern may not be appropriate. The Company will need to obtain additional funding in the future in order to finance the Company’s business strategy, operations and growth through the issuance of equity, debt or collaboration. If the Company fails to arrange for sufficient capital on a timely basis, the Company may be required to curtail its business activities until it can obtain adequate financing.

 

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 accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. GAAP and are the responsibility of the Company’s management. These unaudited interim condensed consolidated financial statements do not include all of the information and notes required by U.S. GAAP for complete financial statements. Accordingly, these unaudited interim condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes filed with the Securities and Exchange Commission (“SEC”) in the Company's Annual Report on Form 10-K for the year ended December 31, 2014. The Company's accounting policies are consistent with those presented in the audited consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2014. These unaudited interim condensed consolidated financial statements have been prepared in U.S. dollars.

 

On August 10, 2011, and again on May 28, 2014, the Board of Directors approved a 1-for-18 and a 1-for-3 reverse stock split, or “Share Consolidation”, respectively, which became effective on August 25, 2011 and September 3, 2014, respectively. The combined 1-for-54 reverse stock split affected all of the Company’s common shares, stock options and warrants outstanding at the effective date. Consequently, the Company has retroactively adjusted its financial statements for all periods presented to show the shares, stock options and warrants as if they had always been presented on this basis. The number of units and unit prices (including with respect to the units issued in our April 2010 Private Placement and the Rights Offering) have not been adjusted to reflect the Share Consolidation, and the number of warrants outstanding have not been adjusted to reflect the Share Consolidation (in accordance with the terms of the warrants, the number of shares of common stock issuable thereunder were adjusted as a result of the Share Consolidation but not the number of warrants outstanding).

 

Use of estimates

 

The preparation of financial statements in conformity with U.S. 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 condensed consolidated financial statements and the reported amounts of revenue and expense during the reporting period. Significant estimates include certain accruals, valuation of derivative warrant liability and the value of stock based compensation. Actual results could differ from those estimates.

 

7

 

 

Fennec Pharmaceuticals Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(U.S. dollars and shares in thousands, except per share information)

 

In the opinion of management, these unaudited interim condensed consolidated financial statements include all normal and recurring adjustments, considered necessary for the fair presentation of the Company’s financial position at June 30, 2015, and to state fairly the results for the periods presented. The most significant estimates included in these financial statements are the derivative instruments described in Note 3. There were significant changes in their valuation during the quarter ended, and for the six-month period ended June 30, 2015.

 

New Accounting Pronouncements Adopted

 

In May 2014, the FASB issued ASU 2014-9 “Revenue from Contracts with Customers (Topic 606).” This guidance requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In July 2015, the FASB voted to delay the effective date until annual reporting periods beginning after December 15, 2017 with early adoption as of reporting periods beginning after December 15, 2016 permitted. The Company will adopt this standard in fiscal year 2018. The Company has not yet determined the effect, if any, that the adoption of this standard will have on the Company’s financial position, cash flows, or results of operations.

 

In August 2014, the FASB issued ASU 2014-15 requiring an entity’s management to evaluate whether there are conditions or events, considered in aggregate, that raise substantial doubt about entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued when applicable). The amendments in this update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The Company has not yet determined the effect, if any, that the adoption of this standard will have on the Company’s financial statement disclosures.

 

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. At June 30, 2015, the Company had $1,854 in cash and money market accounts ($2,307 at December 31, 2014). At June 30, 2015, the Company held $71 in cash of which $69 (as translated to US dollars) was in Canadian dollars. Money market investments typically have minimal risks. The Company has not experienced any loss or write-down of its money market investments for the three and six-month periods ended June 30, 2015 and 2014 respectively. 

 

3.Earnings per Share

 

Earnings per common share is presented under two formats: basic earnings per common share and diluted earnings per common share. Basic earnings per common share is computed by dividing net income attributable to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share is computed by dividing net income by the weighted average number of common shares outstanding during the period, plus the potentially dilutive impact of common stock equivalents (i.e. 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):

 

   Three Months Ended June 30,   Six Months Ended June 30, 
   2015   2014   2015   2014 
Numerator:                    
Net (loss)/income  $(173)  $(750)  $4   $(3,944)
                     
Denominator:                    
Weighted-average common shares, basic   10,830    9,846    10,718    9,846 
                     
Dilutive effect of stock options   -    -    1,159    - 
Dilutive effect of warrants   -    -    1,076    - 
Incremental dilutive shares   -    -    2,235    - 
                     
Weighted-average common shares, dilutive   10,830    9,846    12,953    9,846 
                     
Net (loss)/income per share, basic and diluted  $(0.02)  $(0.08)  $0.00   $(0.40)

 

8

 

 

Fennec Pharmaceuticals Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(U.S. dollars and shares in thousands, except per share information)

 

During the three months ended June 30, 2015 and 2014, stock options to purchase 2.4 million and 6.7 million shares, respectively, were excluded from the diluted earnings per share calculation because they were anti-dilutive.

 

During the three months ended June 30, 2015 and 2014, warrants to purchase 2.6 million and 22 million shares, respectively, were excluded from the diluted earnings per share calculation because they were anti-dilutive.

 

During the six months ended June 30, 2015 and 2014, stock options to purchase 1.3 million and 6.4 million shares, respectively, were excluded from the diluted earnings per share calculation because they were anti-dilutive.

 

During the six months ended June 30, 2015 and 2014, warrants to purchase 2.5 million and 22 million shares, respectively, were excluded from the diluted earnings per share calculation because they were anti-dilutive.

 

4.Derivative Instruments

 

Effective January 1, 2009, the Company adopted ASC Topic 815-40, "Derivatives and Hedging" (ASC 815-40). One of the conclusions reached under ASC 815-40 was that an equity-linked financial instrument would not be considered indexed to the entity's own stock if the strike price is denominated in a currency other than the issuer's functional currency. The conclusion reached under ASC 815-40 clarified the accounting treatment for these and certain other financial instruments. ASC 815-40 specifies that a contract would not be treated as a derivative if it met the following conditions: (a) it is indexed to the Company's own stock; and (b) it is classified in stockholders' equity in the Company's statement of financial position. The Company's outstanding warrants denominated in Canadian dollars are not considered to be indexed to its own stock because the exercise price is denominated in Canadian dollars and the Company's functional currency is United States dollars. Therefore, these warrants have been treated as derivative financial instruments and recorded at their fair value as a liability. All other outstanding convertible instruments are considered to be indexed to the Company's stock, because their exercise price is denominated in the same currency as the Company's functional currency, and are included in stockholders' deficiency.

 

The Company's derivative instruments include warrants to purchase 821 common shares and options to purchase 44 common shares, the exercise prices for which are denominated in a currency other than the Company's functional currency, as follows:

 

·Warrants to purchase 821 common shares exercisable at CAD$4.32 per whole common share that expire on March 29, 2016;
·Contractor options to purchase 21 common shares exercisable at CAD$1.89 per whole common share that expire on November 19, 2017;
·Contractor options to purchase 21 common shares exercisable at CAD$1.62 per whole common share that expire on April 4, 2018; and
·Contractor options to purchase 2 common shares exercisable at CAD$2.43 per whole common share that expire on May 18, 2018.

 

These warrants and options have been recorded at their fair value as a liability at issuance and will continue to be re-measured at fair value as a liability at each subsequent balance sheet date. Any change in value between reporting periods will be recorded as unrealized gain/(loss). These warrants and options will continue to be reported as a liability until such time as they are exercised, forfeited or expire. The fair value of these warrants and options is estimated using the Black-Scholes option-pricing model.

 

The table below shows comparative data related to derivative fair value for the last five quarters.

 

   Fair Value at Various Balance Sheet Dates 
Derivative Instrument 

June 30,

2015

  

March 31,

2015

  

December 31,

2014

  

September 30,

2014

  

June 30,

2014

 
April 30, 2015 warrant*   -    10    411    1,587    2,726 
March 29, 2016 warrant   225    595    789    1,754    2,408 
Contractor options   84    89    119    158    202 
Total   309    694    1,319    3,499    5,336 

 

* On April 30, 2015, 1,307 warrants with an exercise price of CAD$4.32 expired unexercised.

9

 

 

 

Fennec Pharmaceuticals Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(U.S. dollars and shares in thousands, except per share information)

 

Comparative data related to gain/(loss) recorded on re-measurement of the derivative liability for the three and six-month periods ended June 30, 2015 and 2014 are summarized in the table below. There is no cash flow impact for these derivatives until the warrants and/or options are exercised. If these warrants or options are exercised, the Company will receive the proceeds from the exercise at the current exchange rate at the time of exercise.

 

   Three Months Ended June 30,   Six Months Ended June 30, 
Gain/(Loss) on Derivative Instruments  2015   2014   2015   2014 
Warrants expiring April 30, 2015   10    (2,687)   411    (4,100)
June 30, 2014 exchange valuation adjustment   -    3,389    -    3,389 
Warrants expiring March 29, 2016   370    (1,886)   565    (3,066)
June 30, 2014 exchange valuation adjustment   -    1,451    -    1,451 
Options to contractors   5    (86)   34    (148)
Gain/(loss) on Derivative Instruments   385    181    1,010    (2,474)

 

During the fiscal years ended December 31, 2011 and 2010, the Company issued 36 and 29 (respectively) options to contractors with a Canadian dollar denominated strike price. Consequently, the Company now has derivatives relating to these options since the strike price is denominated in a currency other than the US dollar functional currency of the Company. While there is an exception to this rule for employees in ASU 2010-13 "Compensation-Stock Compensation (Topic 718): Effect of denominating the exercise price of a share based payment award in the currency of the market in which the underlying equity security trades", no such exception exists for contractors. These options will be marked to market until the earlier of their expiry, exercise or forfeiture. 

 

The table below summarizes Canadian dollar denominated contractor option activity, since their issuance (in thousands):

 

   Canadian Denominated   Weighted Average 
Contractor Options in $CAD  Contractor Options   Exercise Price $CAD 
Outstanding at December 31, 2014   55   $1.84 
Exercised   (10)   2.04 
Forfeited   -    - 
Expired   -    - 
Outstanding at March 31, 2015   45   $1.79 
Exercised   -    - 
Forfeited   (1)   1.82 
Expired   -    - 
Outstanding at June 30, 2015   44   $1.79 

 

5.Stockholders' Equity

 

Authorized capital stock

 

The Company’s authorized capital stock consists of an unlimited number of shares of no par common stock.

 

Equity financings

 

On November 22, 2013, the Company completed the closing of non-brokered private placement of 1,333 units for gross proceeds of $1,600.  Each unit was issued at a price of $1.20 per unit and consisted of one common share of the Company and one common share purchase warrant. Each warrant entitles the holder thereof to acquire one common share at a price of $1.50 per share for a period of five years from the date of issuance.

 

On December 3, 2014, the Company completed the closing of a non-brokered private placement of 732 units for gross proceeds of $2,197. Each unit was issued at a price of $3.00 per unit and consisted of one common share of the Company and one half of a common share purchase warrant. Each whole warrant entitles the holder thereof to purchase one common share of the Company during the period ending on the day following the earlier of: (A) the day that is two years from the date of issue or (B) if at any time from the date of issue (i) the common shares trade on the Toronto Stock exchange (the “TSX”) at a price greater than CAD$5.00 per common share (subject to customary adjustments) for at least twenty-five (25) trading days within any thirty (30) trading day period (the “Triggering Event”) and (ii) the Company elects to deliver a notice to the holder within ten (10) trading days of the Triggering Event, the day that is 30 days after such notice, in either event at a price equal to $3.60 per whole common share.

 

10

 

 

Fennec Pharmaceuticals Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(U.S. dollars and shares in thousands, except per share information)

 

Warrants to Purchase Common Stock 

 

During the quarter ended June 30, 2015, the Company had 1,307 warrants expire on April 30, 2015. These warrants were originally issued April 30, 2010 and had a weighted average exercise price of CAD$4.32. The expiration of these Canadian denominated warrants represents a reduction in the amount of derivative securities which the Company presents at each balance sheet date.

 

The Company also had exercises of warrants which resulted in the issuance of 299 new common shares and net cash to the Company of $449. These exercised warrants were originally issued April 30, 2010.

 

At June 30, 2015, the Company had the following warrants outstanding to purchase common stock priced in Canadian dollars with a weighted average exercise price of CAD$4.32 and a weighted average remaining life of 0.75 years. The Company also had warrants outstanding to purchase common stock priced in U.S. dollars with a weighted average price of $1.93 and a weighted average remaining life of 2.88 years: 

 

Warrant  Common Shares Issuable Upon Exercise of   Exercise Price    
Description  Outstanding Warrants at June 30, 2015   $CAD/$USD   Expiration Date
Investor warrants(1)   821   $4.32 CAD   March 29, 2016
Investor warrants(2)   74   $1.50 USD   March 29, 2016
Investor warrants(3)   1,333   $1.50 USD   November 22, 2018
Investor warrants(4)   366   $3.60 USD   December 3, 2016
Total   2,594         

 

(1) On March 29, 2011, the Company announced that it had completed a non-brokered rights offering of 84,559 units, at a price of CAD$0.03 per unit for total net proceeds of CAD$2,547. Each unit consisted of one common share and one common share purchase warrant. As a result of the share consolidations, each fifty-four (54) warrants now entitle the holder thereof to purchase one common share of the Company at a purchase price of CAD$4.32 per whole share for a period of five years from the issue date.

 

(2) On June 30, 2014, the Company announced a tender offer to exchange all Canadian denominated warrants with an expiration date of March 29, 2016 for a new warrant. New warrants could be obtained by exchanging one hundred eighty (180) original warrants. New warrants would expire March 29, 2016 and have a strike price of $0.50. As a result of the September 3, 2014 share consolidation, three new warrants entitle the holder to purchase one common share at a price of $1.50.

 

(3) On November 22, 2013, the Company announced it had completed the closing of a non-brokered private placement of 4,000 units, at a price of $0.40 per unit for net gross proceeds of $1,600. Each unit consisted of one common share of the Company and one common share purchase warrant. Each warrant entitles the holder thereof to acquire one common share of the Company at a price of $0.50 per share for a period of five years from the date of issuance. As a result of the September 3, 2014 share consolidation, each three (3) warrants now entitle the holder thereof to purchase one common share of the Company at a purchase price of $1.50 per whole share for a period of five years from the issue date.

 

(4) On December 3, 2014, the Company completed the closing of a non-brokered private placement of 732 units for gross proceeds of $2,197. Each unit was issued at a price of $3.00 per unit and consisted of one common share of the Company and one half of a common share purchase warrant. Each whole warrant entitles the holder thereof to purchase one common share of the Company during the period ending on the day following the earlier of: (A) the day that is two years from the date of issue or (B) if at any time from the date of issue (i) the common shares trade on the TSX at a price greater than CAD$5.00 per common share (subject to customary adjustments) for at least twenty-five (25) trading days within any thirty (30) trading day period (the “Triggering Event”) and (ii) the Company elects to deliver a notice to the holder within ten (10) trading days of the Triggering Event, the day that is 30 days after such notice, in either event at a price equal to 3.60 per whole common share. Proceeds from this transaction were allocated between common shares and the warrants based on their relative fair value.

 

11

 

 

Fennec Pharmaceuticals Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(U.S. dollars and shares in thousands, except per share information)

 

Stock option plan

 

The Compensation Committee of the Board of Directors administers the Company’s stock option 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 shares of common stock issuable under the stock option plan from a fixed number of 6,666 to the number of shares that represent twenty five percent (25%) of the total number of all issued and outstanding shares of common stock from time to time. Based upon the current shares outstanding, a maximum of 2,730 options 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 seven years(1) from the date of grant.  The stock option plan, as amended, allows the issuance of Canadian and U.S. dollar grants. The table below outlines recognized contractor and employee expense for the three and six month periods ended June 30, 2015 and 2014.

 

   Three Months Ended June 30,   Six Months Ended June 30, 
Gain/(Loss) on Derivative Instruments  2015   2014   2015   2014 
Contractor options expense recognized   -    -    -    129 
Employee options expense recognized   10    339    19    472 
Total option expense recognized   10    339    19    601 

 

(1) December 31, 2014 Grant to a contractor was exercisable for a period of two years. Grant expense was calculated by same method as all other options with the exception of a two year, versus seven year expiration. The expected dividend rate used was 0%, risk-free rate of interest was 0.67% and the calculated 2 year volatility was 125%.

 

Stock option activity

 

The following is a summary of option activity for the six months ended June 30, 2015 for stock options denominated in Canadian dollars:

 

   Number of   Weighted-Average 
Canadian Denominated Options  Options (thousands)   Exercise Price $CAD 
Outstanding at December 31, 2014   1,338   $2.38 
Exercised   (10)   2.04 
Forfeited   -    - 
Expired   -    - 
Outstanding at March 31, 2015   1,328   $2.39 
Exercised   -    - 
Forfeited   (1)   1.82 
Expired   -    - 
Outstanding at June 30, 2015   1,327   $2.38 

 

Canadian dollar denominated options issued to contractors vest immediately and are treated as derivative liabilities. They are recorded at fair value estimated using the Black-Scholes model with the gain or loss reported as unrealized gain (loss).

 

Upon exercise, expiration or forfeiture of those options denominated in Canadian dollars and treated as derivative liabilities the Company re-measures the derivative liability prior to exercise, expiration or forfeiture and records a gain or loss accordingly. In the case a derivative option is exercised, upon the exercise date, the Company extinguishes the derivative liability, records the cash received and the shares issued into common stock and additional paid in capital accordingly. There were no exercises of Canadian dollar denominated options treated as derivative liabilities during the three month period ended June 30, 2015. For the six month period ended June 30, 2015, there were exercises of Canadian dollar denominated options treated as derivative liabilities. These exercises resulted in 10 shares being issued and cash received of $17.

 

12

 

 

Fennec Pharmaceuticals Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(U.S. dollars and shares in thousands, except per share information)

 

The following is a summary of option activity for the six months ended June 30, 2015 for stock options denominated in U.S. dollars (all exercisable and fully vested at grant date):

 

   Number of   Weighted-Average 
U.S. Dollar Denominated Options  Options (thousands)   Exercise Price $USD 
Outstanding at December 31, 2014   1,072   $1.77 
Granted   4    2.51 
Exercised   (17)   0.60 
Forfeited   -    - 
Expired   -    - 
Outstanding at March 31, 2015   1,059   $1.80 
Granted   4    2.30 
Exercised   -    - 
Forfeited   (2)   0.54 
Expired   (1)   15.66 
Outstanding at June 30, 2015   1,060   $1.78 

 

There were no exercises of U.S. dollar denominated options during the three month period ended June 30, 2015. For the six month period ended June 30, 2015, there were exercises of U.S. dollar denominated options. These exercises resulted in 17 shares being issued and cash received of $10.

 

Valuation assumptions

 

For the three-months ended March 31, 2015 and the six-months ended June 30, 2015, the value of options granted were estimated using the Black-Scholes option pricing model using the following assumptions: expected dividend 0%; risk-free interest rate of 1.90% and 2.00%, respectively; expected volatility of 127% and 139%, respectively; and a 7 year expected life. The expected volatility was determined using historical volatility of our stock based on the contractual life of the award.

 

6.Fair Value Measurements

 

The Company has adopted the 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.

 

Assets/Liabilities Measured at Fair Value on a Recurring Basis

 

   Fair Value Measurement at June 30, 2015     
  

Quoted Price in

Active Markets

  

Significant

Other

   Significant     
  

for Identical

Instruments

  

Observable

Inputs

  

Unobservable

Inputs

     
   Level 1   Level 2   Level 3   Total 
Assets                    
Cash and cash equivalents  $71(1)  $1,783   $-   $1,854 
Liabilities                    
Derivative liabilities   -    309    -    309 

 

13

 

 

Fennec Pharmaceuticals Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(U.S. dollars and shares in thousands, except per share information)

 

The Company's financial instruments include cash equivalents and derivatives. Only cash and cash equivalents and derivatives are carried at their fair value. The derivative liabilities include warrants denominated in a currency other than the Company’s functional currency and options issued to contractors in a currency other than the functional currency of the Company.

 

(1)Company held $71 in cash of which $69 (as translated to US dollars) was in Canadian funds.

 

7.Commitments and contingencies

 

Oregon Health & Science University Agreement

 

On May 18, 2015, Fennec negotiated an amendment ("Amendment 1") to the exclusive license agreement with Oregon Health & Science University ("OHSU"). Amendment 1 expands the exclusive license agreement signed with OHSU on February 20, 2013 ("OHSU Agreement") to include the use of N-acetylcysteine as a standalone therapy and/or in combination with Sodium Thiosulfate ("STS") for the prevention of ototoxicity induced by chemotherapeutic agents to treat cancers. Further, Amendment 1 adjusts select milestone payments entered in the OHSU Agreement including but not limited to the royalty rate on net sales for 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 Amendment 1 under the OHSU Agreement expires on the date of the last to expire claim(s) covered in the patents licensed to Fennec 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. STS is currently protected by methods of use patents that the Company exclusively licensed from OHSU that expire in Europe in 2021 and are currently pending in the United States. The New 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 New OHSU Agreement at any time upon 60 days prior written notice and payment of all fees due to OHSU under the New OHSU Agreement.

 

Executive Severance

 

In the event of his termination with us other than for cause, the Company will pay CEO, Rostislav Raykov, a one-time severance compensation payment equal to 12 months of salary (currently $180).

 

Leases

 

The Company has an operating lease for approximately 350 square feet in Research Triangle Park, North Carolina. This operating lease is terminable with 30 days’ notice and has no penalties or contingent payments due. The Company had office rent expense of $3 during the quarter ended June 30, 2015.

 

14

 

 

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

CAUTIONARY STATEMENT

 

The discussion below contains forward-looking statements regarding our financial condition and our results of operations that are based upon our annual consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles within the United States, or U.S. GAAP, and applicable U.S. Securities and Exchange Commission, or SEC, regulations for financial information. The preparation of these financial statements requires our management to make estimates and judgments that affect the reported amounts of assets, liabilities, income and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing basis. Our estimates are based on historical experience and on various other assumptions that we believe to be reasonable.

 

Overview

 

Exchange Listing

 

In December 2008 we received notice from the American Stock Exchange that we were not in compliance with Section 1003(a)(ii) of its Company Guide, because our stockholders’ equity was below $6 million and we incurred losses from continued operation and net losses in the five most recent fiscal years. On January 29, 2009, we voluntarily filed to delist our common stock from the American Stock Exchange and effective January 29, 2009 our common stock was no longer traded on the American Stock Exchange. As a result, any trading of our common stock in the U.S. must now be conducted in the over-the-counter markets. Our common stock continues to trade on the Toronto Stock Exchange (“TSX”). The TSX also has continuing listing standards, including minimum market capitalization and other requirements, that we might not meet in the future, particularly if the price of our common stock does not increase or we are unable to raise capital to continue our operations. On September 18, 2012, the TSX issued an official delisting review of our common stock. On January 7, 2013, the TSX announced that it had completed its review of the common shares of the Company and had determined that the Company meets TSX's continuing listing requirements.

 

Lead Product Candidates

 

The following are our lead product candidates, both of which are in the clinical stage of development:

 

Sodium Thiosulfate (STS) – a water soluble thiol compound that acts as a chemical reducing agent, recently completed patient enrollment of two Phase III clinical trials for the prevention of cisplatin induced hearing loss, or ototoxicity in children.

 

Eniluracil (EU) - an oral irreversible dihydropyrimidine dehydrogenase (DPD) inhibitor, the enzyme responsible for rapidly breaking down 5-FU, completed a Phase II clinical trial in metastatic breast cancer.

 

Sodium Thiosulfate (STS)

 

We have licensed from Oregon Health & Science University (“OHSU”) intellectual property rights for the use of STS as a chemoprotectant, and are developing STS as a protectant against the hearing loss often caused by platinum-based anti-cancer agents in children. Preclinical and clinical studies conducted by OHSU and others have indicated that STS can effectively reduce the incidence of hearing loss caused by platinum-based anti-cancer agents. We have received Orphan Drug Designation in the United States for the use of STS in the prevention of platinum-induced ototoxicity in pediatric patients.

 

Hearing loss among children receiving platinum-based chemotherapy is frequent, permanent and often severely disabling. The incidence of hearing loss in these children 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. In addition, adults undergoing chemotherapy for several common malignancies, including ovarian cancer, testicular cancer, and particularly head and neck cancer and brain cancer, often receive intensive platinum-based therapy and may experience severe, irreversible hearing loss, particularly in the high frequencies.

 

Investigators at OHSU have conducted Phase I and Phase II studies which have shown STS reduces the hearing loss associated with platinum-based chemotherapy. In one study at OHSU, the need for hearing aids to correct high frequency hearing loss was reduced from about 50% to less than 5%.

 

15

 

 

International Childhood Liver Tumour Strategy Group, (SIOPEL)

 

In October 2007, we announced that our collaborative partner, the International Childhood Liver Tumour Strategy Group, known as SIOPEL, a multi-disciplinary group of specialists under the umbrella of the International Society of Pediatric Oncology, had launched a randomized Phase III clinical trial ("SIOPEL 6") to investigate whether STS reduces hearing loss in standard risk hepatoblastoma (liver) cancer patients receiving cisplatin as a monotherapy. The study was initiated in October 2007 initially in the United Kingdom and through the end of 2014, 45 sites from 12 countries enrolled 109 evaluable patients. Under the terms of our agreement, SIOPEL will conduct and fund all clinical activities and we will provide drug, drug distribution and pharmacovigilance, or safety monitoring, for the study. Interim efficacy results on response to chemotherapy are evaluated after every 20 patients and reviewed by the Independent Data Monitoring Committee (IDMC). The IDMC was established to assess any potential concern of an adverse effect of STS on the efficacy of the cisplatin chemotherapy and to review safety according to protocol pre-specified patient numbers. In February 2015, the IDMC recommended the continuation of SIOPEL 6 after conducting their final safety review on 100 patients. Previously, the IDMC reached a similar conclusion after reviewing the safety of 20, 40, 60 and 80 patients and their current recommendation on 100 patients to continue the clinical trial represents the last and final safety review. Patient recruitment has now been completed and the efficacy outcome based on audiometric results will be evaluated on an ongoing basis as each child reaches the age of 3.5 years.

 

The primary objectives of SIOPEL 6 are:

·To assess the efficacy of STS to reduce the hearing impairment caused by cisplatin

 

·To carefully monitor any potential impact of STS on response to cisplatin and survival

 

SIOPEL 6 - Preliminary Results - ASCO 2015

 

Newly diagnosed patients with standard risk hepatoblastoma were treated with weekly cycles of Cisplatin every two weeks, including 4 chemotherapy courses before primary tumor resection and 2 courses after surgery. Patients were randomized to Cisplatin alone or Cisplatin and STS. Cisplatin of 80 mg/m2 was administered i.v. over 6 hours. STS was administered i.v. exactly 6 hours after stop of Cisplatin over 15 minutes at 20 g/m2. Tumor response was assessed after 2 and 4 cycles pre-operative with serum AFP and liver imaging. In case of progression after 2 cycles, STS was stopped and doxorubicin 60 mg/m2 continuous infusion over 48 hours added. The primary endpoint is centrally reviewed absolute hearing threshold, at the age of ≥ 3.5 years, by pure tone audiometry. The trial has 80% power to detect a reduction in hearing loss defined as Brock grade ≥ 1 from 60% of patients with Cisplatin to 35% with Cisplatin plus STS.

 

The efficacy results indicate that it is safe to treat standard risk hepatoblastoma with six cycles of Cisplatin monotherapy with the addition of the chemoprotectant STS. Efficacy results at the end treatment for the 109 evaluable patients (52 Cisplatin, 57 Cisplatin plus STS) were complete response/partial response/progressive disease for Cisplatin: 85%/6%/4% and for Cisplatin plus STS: 91%/7%/0%.

 

Status at end of treatment (6 cycles):

  Cisplatin    Cisplatin + STS 
Efficacy  (n = 52)   (n = 57) 
Complete response   44 (84.6)%   52 (91.2)%
Stable disease   3 (5.8)%   4 (7.0)%
Progressive disease   2 (3.9)%   0 (0.0)%
Died   1 (1.9)%   0 (0.0)%
Not available   2 (3.9)%   1 (1.8)%

 

16

 

 

Further, the results presented showed that treatment was well tolerated and acute toxicity similar between arms. The table below presents the toxicities of the two arms:

 

       Cisplatin   Cisplatin + STS 
Grade 3 and 4 Acute Toxicities  Grade   (n = 52)   (n = 57) 
Allergy   3    1 (1.9)%   0 (0.0)%
Febrile neutropenia   3    4 (7.7)%   5 (8.8)%
Infection   3    5 (5.9)%   6 (10.5)%
Hypomagnesemia   3    1 (1.9)%   1 (1.8)%
Hypermatremia   3    0 (0.0)%   1 (1.8)%
Vomiting   3    1 (1.9)%   3 (5.3)%
Nausea   3    3 (5.8)%   2 (3.5)%
Left ventricular systolic disfunct.   3, 4    0 (0.0)%   0 (0.0)%
Other toxicities   3    14 (26.9)%   20 (35.1)%
Other toxicities   4    3 (5.8)%   5 (8.8)%

 

Other G 3/4 toxicities encompass: hematological, liver and other biochemistry parameters.

 

The Clinical Oncology Group (COG ACCL0431)

 

In March 2008, we announced the activation of a Phase III trial with STS to prevent hearing loss in children receiving cisplatin-based chemotherapy in collaboration with the Children’s Oncology Group (“COG ACCL0431”). The goal of this Phase III study is to evaluate in a multi-centered, randomized trial whether STS is an effective and safe means of preventing hearing loss in children receiving cisplatin-based chemotherapy for newly diagnosed germ cell, liver (hepatoblastoma), brain (medulloblastoma), nerve tissue (neuroblastoma) or bone (osteosarcoma) cancers. Eligible children, one to eighteen years of age, who are to receive cisplatin according to their disease-specific regimen and, upon enrollment in this study, were randomized to receive STS or not. Efficacy of STS will be determined through comparison of hearing sensitivity at follow-up relative to baseline measurements using standard audiometric techniques. The Children’s Oncology Group is responsible for funding the clinical activities for the study and we are responsible for providing the drug, drug distribution and pharmacovigilance, or safety monitoring, for the study. The trial completed enrollment of 131 pediatric patients in the first quarter of 2012.

 

COG ACCL0431 - Preliminary Results- ASCO 2014

 

COG Study ACCL0431, “A Randomized Phase III Study of Sodium Thiosulfate for the Prevention of Cisplatin-Induced Ototoxicity in Children,” finished enrollment of 131 of which 126 were eligible patients in Q1 2012. The patients had been previously diagnosed with childhood cancers.

 

The primary endpoint was to evaluate the efficacy of STS for prevention of hearing loss in children receiving cisplatin chemotherapy (hypothesis: 50% relative reduction in hearing loss)

 

Secondary endpoints included:

 

·Compare change in mean hearing thresholds
·Compare incidence of other Grade 3/4 toxicities (renal and hematological)
·Monitor Event Free Survival (EFS) and Overall Survival (OS) in two groups

 

126 eligible subjects were enrolled with germ cell tumor (32), osteosarcoma (30), neuroblastoma (26), medulloblastoma (26), hepatoblastoma (7) or other (5).  Of these 104 subjects (64 male and 29 <5 years old) were evaluable for the primary endpoint.

 

Subjects were randomized either to no treatment (control) or treatment with STS 16 grams/m2 IV over 15 minutes 6 hours after each cisplatin dose. Hearing was measured using standard audiometry for age and data were reviewed centrally using American Speech-Language-Hearing Association criteria.

 

The proportion of subjects with hearing loss assessed at 4 weeks post the final cisplatin dose (primary endpoint) and EFS/OS (log-rank test, 2-year cumulative estimates and Cox proportional hazards model) were compared between the two groups.

 

·The proportion of hearing loss for STS vs. Control was 28.6% (14/49) vs. 56.4% (31/55), respectively (p=0.004).
·Including all 126 subjects at median post-enrollment follow-up of 2.9 years for censored patients, EFS for STS vs. Control was 61.2% vs. 69.9% (p=0.31); OS was 77.0% vs. 88.9% (p=0.029).

 

17

 


A subset analysis by extent of disease determined post hoc was performed:

 

·For subjects with localized disease, EFS for STS (N=40) vs. Control (N=38) was 72.5% vs. 68.3% (p=0.94); HR (hazard ratio) 1.03 (p=0.94); OS was 89.0% vs. 89.5% (p=0.48); HR 1.58 (p=0.48).
·For those with disseminated (metastatic) disease, EFS for STS (N=21) vs. Control (N=26) was 41.6% vs. 72.5% (p=0.085); HR 2.13 (p=0.092); OS was 55.9% vs. 88.1% (p=0.011); HR 3.97 (p=0.019).

 

COG ACCL0431 - PRELIMINARY CONCLUSIONS

 

·STS protects against cisplatin-induced hearing loss in children, especially for those < 5 years old.
·In this study, use of STS did not result in lower EFS/OS in patients with localized disease. However, the lower survival among those with disseminated disease raises the concern of a tumor protective effect when STS is administered on this dose and schedule.

 

Eniluracil

 

Eniluracil was previously under development by GSK. GSK advanced Eniluracil into a comprehensive Phase III clinical development program that did not produce positive results and GSK terminated further development. We developed a hypothesis as to why the GSK Phase III trials were not successful and licensed the compound from GSK in July 2005. We believe that Eniluracil might enhance and expand the therapeutic spectrum of activity of 5-FU, reduce the occurrence of a disabling side effect known as hand foot syndrome and allow 5-FU to be given orally. Fennec completed the enrollment of a Phase II trial comparing Eniluracil/5-FU/leucovorin vs. capecitabine in metastatic breast cancer patients at the end of 2012 after having enrolled 153 patients. After the completion of enrollment and with preliminary results of the trial, Fennec had an End-of-Phase II meeting with the FDA on May 22, 2013 to discuss the potential further development of Eniluracil. During the meeting, Fennec reviewed the opportunity that Eniluracil offers to Metastatic Breast Cancer (MBC) patients who had rapid disease progression on capecitabine.  Fennec proposed a small pivotal single arm clinical study addressing the special ability of Eniluracil/5-FU/leucovorin to meet the medical needs of these patients. However, the FDA strongly recommended that Fennec consider other larger clinical trial design alternatives for the future development of Eniluracil in MBC. We believe that it would be in the best interests of our shareholders and the cancer community to focus on seeking a partnership for Eniluracil, which may include the Company evaluating viable indications for Eniluracil other than MBC.  Data from the Phase 2 trial was published in the February 2014 issue of the scientific journal “Clinical Breast Cancer” (Vol. 14, Issue 1, Rivera et al.)

 

Capital Funding

 

We have not received and do not expect to have significant revenues from our product candidates until we are either able to sell our product candidates after obtaining applicable regulatory approvals or we establish collaborations that provide us with up-front payments, licensing fees, milestone payments, royalties or other revenue.

 

We generated net income of approximately $4 for the six-months ended June 30, 2015 and generated a net loss of $3.9 million for the six-months ended June 30, 2014 (as a result of a non-cash gain on derivatives of $1.0 million and $2.5 million non-cash loss on derivatives for the six-months ending June 30, 2015 and 2014, respectively). As of June 30, 2015, our accumulated deficit was approximately $110.9 million.

 

As a result of our limited financial resources we have postponed or terminated many of our previously planned or ongoing clinical development programs, including our Eniluracil program. We continue to pursue various strategic alternatives, including collaborations with other pharmaceutical and biotechnology companies. As a result, there is uncertainty of our ability to continue as a going concern. Our projections of our capital requirements are subject to substantial uncertainty. More capital than we anticipated may be required thereafter. To finance our continuing operations we will need to raise substantial additional funds through either the sale of additional equity, the issuance of debt, the establishment of collaborations that provide us with funding, the out-license or sale of certain aspects of our intellectual property portfolio or from other sources. Given current economic conditions, we might not be able to raise the necessary capital or such funding may not be available on financially acceptable terms if at all. If we cannot obtain adequate funding in the future, we might be required to further delay, scale back or eliminate certain research and development studies, consider business combinations or even shut down some, or all, of our operations.

 

Our operating expenses will depend on many factors, including the progress of our drug development efforts and the implementation of further cost reduction measures. Our research and development expenses, which include expenses associated with our clinical trials, drug manufacturing to support clinical programs, salaries for research and development personnel, stock-based compensation, consulting fees, sponsored research costs, toxicology studies, license fees, milestone payments, and other fees and costs related to the development of product candidates, 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 of our drug development programs.

 

18

 

 

On December 3, 2014, we completed a $2.2 million equity financing for general working capital. Further development of STS or Eniluracil will require additional capital.

 

Results of Operations

 

Three months ended June 30, 2015 versus three months ended June 30, 2014:

 

   Three Months       Three Months         
   Ended       Ended         
In thousands of U.S. Dollars  June 30, 2015   %   June 30, 2014   %   Change 
                     
Revenue  $-        $-        $- 
Operating expenses:                         
Research and development   54    10%   72    8%   (18)
General and administration   495    90%   858    92%   (363)
Total operating expenses   549    100%   930    100%   (381)
                          
Loss from operations   (549)        (930)        381 
                          
Unrealized gain on derivatives   385         181         204 
Interest income and other, net   (9)        (1)        (8)
Net (loss)/income and total comprehensive (loss)/income  $(173)       $(750)       $577 

 

There was a reduction in research and development expenses for the three months ended June 30, 2015 as compared to the same period in 2014 due to work related to STS Phase III trials and data analysis. Research and development costs are impacted by the clinical support costs associated with the amount of patients enrolled and participating in the trial during the financial period.

 

General and administrative expenses were down sharply for the three month period ended June 30, 2015 as compared to the same period in 2014. There was a large reduction in equity based compensation. This decrease was offset by increased professional consulting fees and travel associated with business development, investor relations and European regulatory consulting. These increases are associated with the strategic initiatives for the development and marketing of STS.

 

The Company recorded an unrealized gain on derivatives of $385 in the three months ended June 30, 2015 compared to an unrealized gain of $181 in the three months ended June 30, 2014. These derivatives have been recorded at their fair value as a liability at issuance and will continue to be re-measured at fair value as a liability at each subsequent balance sheet date. Any change in value between reporting periods will be recorded as an unrealized gain/(loss). These warrants will continue to be reported as a liability until such time as they are exercised or expire. The fair value of these warrants is estimated using the Black-Scholes option-pricing model.

 

19

 

 

Our results of operations for the six-months ended June 30, 2015 versus six-months ended June 30, 2014 were as follows:

 

   Six-Months       Six-Months         
   Ended       Ended         
In thousands of U.S. Dollars  June 30, 2015   %   June 30, 2014   %   Change 
                     
Revenue  $-        $-        $- 
Operating expenses:                         
Research and development   97    10%   104    7%   (7)
General and administration   904    90%   1,363    93%   (459)
Total operating expenses   1,001    100%   1,467    100%   (466)
                          
Loss from operations   (1,001)        (1,467)        466 
                          
Unrealized gain/(loss) on derivatives   1,010         (2,474)        3,484 
Interest income and other, net   (5)        (3)        (2)
Net income/(loss) and total comprehensive income/(loss)  $4        $(3,944)       $3,948 

 

Total operating expenses were $1,001 for the six-months ended June 30, 2015 and approximately $1,467 for the six-months ended June 30, 2014. Research and development expenses were comparable for the same period as the Company’s focus was solely STS. There was a significant decrease in general and administrative expense due to a reduction in non-cash expenses associated with the issuance of stock options in 2014.

 

Quarterly Information

 

The following table presents selected condensed financial data for each of the last eight quarters through June 30, 2015, as prepared under U.S. GAAP (U.S. dollars in thousands, except per share information):

 

       Basic & Diluted 
   Net (Loss)/Income   Net (Loss)/Income 
Period  For the Period   Per Common Share 
September 30, 2013  $(1,766)  $(0.21)/(0.21)
December 31, 2013  $1,112   $0.12/0.11
March 31, 2014  $(3,194)  $(0.33)/(0.33)
June 30, 2014  $(750)  $(0.08)/(0.08)
September 30, 2014  $380   $0.03/0.03
December 31, 2014  $1,388   $0.14/0.12
March 31, 2015  $177   $0.02/0.01
June 30, 2015  $(173)  $(0.02)/(0.02)

 

Liquidity and Capital Resources

 

Dollars in thousands        
Selected Assets and Liability Data:  June 30, 2015   December 31, 2014 
Cash and cash equivalents  $1,854   $2,307 
Other current assets   17    65 
Current liabilities excluding derivative liabilities   450    440 
Derivative liabilities   309    1,319 
Working capital(1)   1,421    1,932 
           
Selected equity:          
Common stock   69,132    68,656 
Accumulated deficit   (110,870)   (110,874)
Stockholders’ equity  $1,112   $613 
(1) [Current assets – current liabilities excluding derivative liability]          

 

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Cash and cash equivalents were $1,854 at June 30, 2015 and $2,307 at December 31, 2014. The decrease in cash and cash equivalents between June 30, 2015 and December 31, 2014 is due to clinical trial expenses related to our Phase III study of STS and our general and administrative expenses offset by the exercise of warrants during the quarter. The Company received approximately $0.45 million in cash from the exercise of warrants to purchase an aggregate of approximately of 299 of our common shares. These warrants had an original issue date of April 30, 2010.

 

Dollar and shares in thousands  Three Months Ended June 30,   Six Months Ended June 30, 
Selected cash flow data:  2015   2014   2015   2014 
Net cash used in operating activities   (511)   (410)   (929)   (788)
Net cash provided by investing activities   -    -    -    - 
Net cash provided by financing activities   449    87    476    140 
Decrease in cash and cash equivalents   (62)   (323)   (453)   (648)
Number of common shares outstanding    10,919    9,846    10,919    9,846 

 

Net cash used in operating activities for the three months ended June 30, 2015 was $511, as compared to $410 during the same period in 2014. This increase is due to increased cash outlays incurred from ongoing STS Phase III trials, STS product development and general and administrative costs associated with the Company’s strategic initiatives designed to further develop new markets and partnering opportunities. Net cash provided by financing activities for the three months ended June 30, 2015 was $449 compared to $87 for the three months ended June 30, 2014. The $449 of net financing cash represented the aggregate exercise price paid in connection with 293 and 6 warrants being exercised to purchase common shares on both April 29 and 28, 2015, respectively. Total decrease in cash and cash equivalents was $62 for the three months ended June 30, 2015 which is a decrease of $261 over the same period in 2014.

 

Net cash used in operating activities for the six-months ended June 30, 2015 was $929, as compared to $788 during the same period in 2014. This increase is due to increased cash outlays incurred from ongoing STS Phase III trials, STS product development and general and administrative costs associated with the Company’s strategic initiatives designed to further develop new markets and partnering opportunities. Net cash provided by financing activities for the six-months ended June 30, 2015 was $476 compared to $140 for the six-months ended June 30, 2014. The $476 of net financing cash represented the aggregate exercise price paid in connection with various warrants and options being exercised to purchase common shares during the period. Total decrease in cash and cash equivalents was $453 for the six-months ended June 30, 2015 which is a decrease of $195 over the same period in 2014.

 

On September 5, 2013, we announced that we intended to primarily focus our remaining financial resources on the development of STS.  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 $1.9 million as of June 30, 2015.

 

Outstanding Share Information

 

The outstanding share data for our company as of June 30, 2015 (in thousands):

 

  

June 30, 2015

 
Common shares   10,919 
Warrants   2,594 
Stock options   2,387 
Total   15,900 

 

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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 June 30, 2015, we had approximately $1.9 million in cash accounts. We have not experienced any loss or write down of our money market investments for the three months ended June 30, 2015 and 2014, respectively.

 

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. As our main purpose is research and development, we have chosen to avoid investments of a trading or speculative nature.

 

Off-Balance Sheet Arrangements

 

Since our inception, we have not had any material off-balance sheet arrangements. In addition, we do not engage in trading activities involving non-exchange traded contracts. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such activities.

 

Research and Development

 

Our research and development efforts have been focused on the development of Eniluracil and STS.

 

We have established relationships with contract research organizations, universities and other institutions, which we utilize to perform many of the day-to-day activities associated with our drug development.  Where possible, we have sought to include leading scientific investigators and advisors to enhance our internal capabilities.  Research and development issues are reviewed internally by our executive management and supporting scientific staff.

 

Research and development expenses for the three months ended June 30, 2015 and 2014 were $54 and $72 respectively and for the six-months then ended, $97 and $104, respectively. Expenses on research and development fluctuate with relation to trial activity.

 

Our product candidates are in various stages of development and still require significant, time-consuming and costly research and development, testing and regulatory clearances.  In developing our product candidates, 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 any or all of these products will be ineffective or toxic, or will otherwise fail to receive the necessary regulatory clearances. There is a risk that our product candidates 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 candidates or that others will market a superior or equivalent product.  As a result of these factors, we are unable to accurately estimate the nature, timing and future costs necessary to complete the development of these product candidates. In addition, we are unable to reasonably estimate the period when material net cash inflows could commence from the sale, licensing or commercialization of such product candidates, if ever.

 

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.

 

Our accounting policies are consistent with those presented in our annual consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2014.

 

22

 

 

Item 3. 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 June 30, 2015, we had $1,783 in money market investments as compared to $976 at June 30, 2014; these investments typically have minimal risk. The financial markets had been volatile resulting in concerns regarding the recoverability of money market investments, but those conditions have stabilized. We have not experienced any loss or write down of our money market investments for the periods ended June 30, 2015 and 2014.

 

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 the main purpose of the Company 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 have business activities in Canada. To date, we have not employed the use of derivative instruments; however, we do hold Canadian dollars which we use to pay vendors in Canada and other corporate obligations. At June 30, 2015 the company held approximately seventy-one thousand Canadian dollars (Sixty-nine as translated to U.S. dollars).

 

Item 4. Controls and Procedures

 

(a)Evaluation of Disclosure Controls and Procedures.

 

In connection with the preparation of this report, an evaluation was carried out by the Company’s management, with the participation of the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”)) as of June 30, 2015. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Based on that evaluation, the Company’s management concluded, as of the end of the period covered by this report, that the Company’s disclosure controls and procedures were not effective as a result of having identified two material weaknesses in our internal control over financial reporting, as described in further detail below.

 

Our management has identified a control deficiency because we lack sufficient staff to segregate accounting duties. We believe the control deficiency results primarily because we have one full time individual performing all accounting and financial reporting duties. As a result, we do not maintain adequate segregation of duties within our critical financial reporting applications, the related modules and financial reporting processes. This control deficiency could result in a misstatement of balance sheet and income statement accounts in our interim or annual consolidated financial statements that would not be detected. Accordingly, management has determined that this control deficiency constitutes a material weakness.

 

Our management has also identified another control deficiency that it believes constitutes a material weakness in our control over financial reporting. We did not maintain sufficient personnel with an appropriate level of technical accounting knowledge, experience, and training in the application of U.S. GAAP commensurate with our complexity and our financial accounting and reporting requirements. This control deficiency could result in a misstatement of the financial statements including disclosure that would not be prevented or detected on a timely basis. While we strive to ensure we have appropriate accounting personnel as well as an appropriate segregation of duties as much as practicable, we currently have insufficient financial resources to justify additional staff. The Company continues to seek solutions to improve internal control over financial reporting.

  

23

 

    

To finance our continuing operations, we will need to raise additional funds beyond those from our most recent private placement in December 2014 and, as disclosed elsewhere in this report, there remains substantial doubt of our ability to continue as a going concern and the failure to obtain such funds might require us to further delay, scale back or eliminate certain research and development studies, consider business combinations, or even shut down some, or all, of our operations. If we are able to secure such additional financing, we anticipate hiring additional personnel with appropriate technical accounting knowledge, experience, and training in the application of U.S. GAAP to supplement our current accounting staff.

 

(b)Changes in Internal Control over Financial Reporting

 

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with the evaluation of our internal control over financial reporting that occurred during the fiscal quarter ended June 30, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

PART II: OTHER INFORMATION

 

Item 1. Legal Proceedings

 

None.

 

Item 1A. Risk Factors.

 

Additional Risks Related to our Business

 

We do not presently have the financial or human resources to complete additional Phase III trials for our lead product candidates.

 

We do not presently have the financial or human resources internally to complete further Phase III trials for any of our lead product candidates.  We may not be able to independently develop or conduct such trials ourselves.

 

We may experience significant delays in developing our lead product candidates

 

We are currently developing STS in Phase III trials in collaboration with the International Childhood Liver Tumour Strategy Group, known as SIOPEL and the Children's Oncology Group.  Such collaborators might not commit sufficient resources to the development of STS, which may lead to significant delays.  We have already experienced significant delays in the activation of the Children's Oncology Group trial and subsequent accrual of patients into the Children's Oncology Group and SIOPEL clinical trials.   We have also experienced delays in obtaining clinical trial data.

 

We may not be able to license our lead product candidates

 

We continue to seek a licensing or funding partner for the further development of one or all of our product candidates.  If a partner for one or all of these technologies is not found, we may not be able to further advance these products.  If a partner is found, the financial terms that they propose may not be acceptable to us.

 

There is no assurance that we will successfully develop a commercially viable product.

 

Since our formation in September 1996, we have engaged in research and development programs. We have generated no revenue from product sales, do not have any products currently available for sale, and none are expected to be commercially available for sale until we have completed additional clinical trials, if at all. There can be no assurance that the research we fund and manage will lead to commercially viable products. We have completed a Phase II study for Eniluracil and completed enrollment of two Phase III studies for STS. Our products must still undergo substantial additional regulatory review prior to commercialization.

 

24

 

 

We anticipate the need for additional capital in the future and if we cannot raise additional capital, we will not be able to fulfill our business plan.

 

We need to obtain additional funding in the future in order to finance our business strategy, operations and growth. 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 stock 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.

 

We may be unable to effectively deploy the proceeds from our recent financings for the development of STS.

 

In November 2013, and in December 2014, we announced the closing of a private placements for proceeds of $1.6 million and $2.2 million, respectively. Any inability on our part to manage effectively the deployment of this capital could limit our ability to successfully develop STS.

 

Additional Risks Related to our Common Stock

 

We may be unable to maintain the listing of our common stock on the TSX and that would make it more difficult for stockholders to dispose of their common stock.

 

Our common stock is currently listed on the TSX. The TSX has rules for continued listing, including minimum market capitalization and other requirements, that we might not meet in the future, particularly if the price of our common stock does not increase or we are unable to raise additional capital to continue operations. On September 8, 2012, the Toronto Stock Exchange issued an official delisting review of our common stock. The remedial delisting review was initiated because the value of the shares of our common stock that are held by “public shareholders” had been below the CAD$2.0 million threshold required under the TSX continuing listing standards for a period of 30 consecutive trading days. On January 7, 2013, the Toronto Stock Exchange completed its review of the Company and determined that the Company met TSX's continued listing requirements.

 

Delisting from the TSX would make it more difficult for shareholders to dispose of their common stock and more difficult to obtain accurate quotations on our common stock. This could have an adverse effect on the price of our common stock. There can be no assurances that a market maker will make a market in our common stock on the OTCQB 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 stock, our common stock is 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 fact that our securities are not traded on a national securities exchange.

 

Our common stock is deemed to be a “penny stock,” which may make it more difficult for investors to sell their shares due to suitability requirements.

 

Our common stock is subject to Rule 15g-1 through 15g-9 under the Securities Exchange Act of 1934 as amended (the “Exchange Act”), which imposes certain sales practice requirements on broker-dealers who sell our common stock to persons other than established customers and “accredited investors” who are generally individuals with a net worth in excess of $1,000,000 (excluding their principal residence) or an annual income exceeding $200,000, or $300,000 together with their spouses. For transactions covered by this rule, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to the sale. This rule adversely affects the ability of broker-dealers to sell our common stock and the ability of our shareholders to sell their shares of common stock.

 

25

 

 

Additionally, our common stock is subject to additional SEC regulations for “penny stock.” Penny stock includes any equity security that is not listed on a national securities exchange and has a market price of less than $5.00 per share, subject to certain exceptions. The regulations require that prior to any non-exempt buy/sell transaction in a penny stock, a disclosure schedule set forth by the SEC relating to the penny stock market must be delivered to the purchaser of such penny stock. This disclosure must include the amount of commissions payable to both the broker-dealer and the registered representative and current price quotations for the common stock. The regulations also require that monthly statements be sent to holders of penny stock that disclose recent price information for the penny stock and information of the limited market for penny stocks. These requirements adversely affect the market liquidity of our common stock.

 

Item 2. Recent Sales of Unregistered Securities.

 

The following table details grants of stock options to various contractors, officers and directors of the Company:

 

Date of Option Grant  Number of Options Granted   Strike Price $USD 
January 24, 2014   176,287   $1.59 
April 25, 2014   275,324(1)  $2.31 
May 15, 2014   2,778   $3.60 
August 2, 2014   48,454   $2.79 
November 7, 2014   3,920   $2.55 
December 31, 2014   147,500   $2.69 
March 16, 2015   3,984   $2.51 
May 11, 2015   4,346   $2.30 

 

The options were issued in a private placement exempt under Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"). The options were issued in USD denominated grants and are each exercisable for a period of 7 years from the grant date.

 

On April 25, 2014 Fennec granted 133,333 options each to Dr. Khalid Islam and Adrian Haigh. Such options shall vest: (i) as to 66,666 Common Shares, on the date of grant; and (ii) as to 66,667 Common Shares, upon and subject to orphan drug approval of STS in the EU, provided that they then remain on the Board of Directors of the Company at the time of such approval and that they have played a vital or precipitating part in obtaining such EU orphan drug designation, as reasonably determined by non-interested Board members. If the vesting conditions referred to in (ii) above have not occurred by May 31, 2016, the option to acquire the 66,667 Common Shares referred to in (ii) above shall be terminated and of no further force or effect.

 

On November 7, 2014 the Board of Directors amended the two of the vesting conditions. The Board determined that it would be appropriate and desirable to amend the conditions such that (i) it could be fully satisfied by the Company obtaining, in lieu of orphan drug designation, PUMA in Europe for STS; and (ii) the deadline for satisfaction of the vesting condition extended to December 31, 2017.

 

The Company has not recognized any expense associated with these options. On the date vesting conditions are met, the Company will recognize all of the expense associated with these options.

 

There were no exercises of options in the quarter ended June 30, 2015. For the six-months ended June 30, 2015, exercises of options resulted in the issuance of approximately 27,000 new common shares and resulted in gross proceeds to the Company of approximately $27,000.

 

During the quarter ended June 30, 2015, approximately 299,000 new common shares were issued as a result of the exercise of warrants. These exercises resulted in gross proceeds of approximately $449,000. There were no warrant exercises in the preceding quarter ended March 31, 2015.

 

Item 3. Default Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosure

 

None. Not applicable.

 

Item 5. Other Information

 

None.

 

26

 

 

Item 6. Exhibits

 

Exhibit

No.

  Description
     
31.1   Certification of Chief Executive Officer of the Company in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
     
31.2   Certification of Chief Financial Officer of the Company in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
     
32.1   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).
     
99.1   Press Release for Quarter Ended June 30, 2015 (filed herewith).
     
101.1   Interactive Data File

 

27

 

 

SIGNATURES

 

Pursuant to requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

    Fennec Pharmaceuticals Inc.
     
Date: August 11, 2015   By:  

/s/ Rostislav Raykov

        Rostislav Raykov
        Chief Executive Officer
        (principal executive officer)
     

Date: August 11, 2015

 

  By:  

/s/ Krysia Lynes

        Krysia Lynes
        Chief Financial Officer
        (principal financial and chief accounting officer)

 

28