Fennec Pharmaceuticals: Market Fatigue Due To A Lack Of Catalysts Has Created A Mispricing - Behind The Idea

Summary

• The stock hit $14.00/share in April 2018 on a combination of a private placement of common shares, great trial data, and the garnering of several special designations.
• Since then, market fatigue due to a lack of catalysts and a delay in the completion of the NDA submission due to a manufacturing issue have sent the stock lower.
• Patients have been waiting for decades for an approved treatment to prevent chemotherapy-induced hearing loss.
• Along with strong efficacy data from two Phase 3 trials, no evidence of “tumor protection” was seen in patients with localized cancer.
• The liquidity position is adequate to fund the PEDMARK launch, and with the approval decision coming up soon, we think FENC is a Strong Buy.

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Seeking Alpha: Can you briefly summarize your bullish thesis for readers who may not have seen it yet?

Elle Investments: For several decades, platinum-based chemotherapy drugs have been successfully used to fight cancer. Unfortunately, one of the devastating side effects for many patients, particularly children, is hearing loss. Post-chemotherapy, the only option is a cochlear implant, which has mixed results in terms of restoring hearing. The preferred solution is a treatment that prevents hearing loss from occurring, but as of now there are no approved therapies.

At the beginning of 2017, FENC traded at about $2.00/share. Over the next 16 months, it rose seven-fold, hitting $14.00/share in April 2018. This increase was due to a combination of good news, which included a $7.6M private placement of common shares, being up-listed to the Nasdaq, good Phase 3 results for lead candidate PEDMARK (which showed a 40-50% reduction in the risk of hearing loss), and obtaining some special designations from the FDA.

Since then, the stock gradually deflated, which we attribute to market fatigue after the meteoric rise, and also no material catalysts on the horizon. The stock dipped under $4.00/share in May 2019 due to an announced delay in the PEDMARK NDA submission caused by manufacturing issues, but this news was really only responsible for the tail end of the decline. The majority of it was, again, due to no material catalysts on the horizon to prop up the price. (Just as an aside, we are always perplexed by the overly-negative market reactions to manufacturing-related issues for pharmaceuticals. While they technically are new uncertainties, they are much more welcome

Analyst’s Disclosure:I am/we are long FENC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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