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Fennec Pharmaceuticals Shares Plunge Over 40% – Can It Beat The FDA?

Tim Worstall
Tim Worstall trader
Updated 29 Nov 2021

Fennec Pharmaceuticals (NASDAQ: FENC) is down more than 40% premarket as it announces a little glitch with the Food and Drug Administration. Their new drug, “Pedmark” appears to have, according to the FDA, some problems as “deficiencies have been identified”. This is one of those things which will make a stock price swoon.

The drug itself is a formulation of sodium thiosulfate, used against ototoxicity in the treatment of certain child and youth cancers. The advantage of this as a market is that while the market is rather small – there aren’t all that many cases of child and youth cancer in any one year – the prices that can be charged are high. One estimate for the rich world of Europe and the USD is some 10,000 cases a year which might benefit from this sort of treatment. Gross margins over manufacturing costs are extremely high that is. The problem is the costs and effort required to gain authorisation from the FDA. Get onto the market with the appropriate permission from the FDA and the business is a good ‘un. 

This means that getting rejected – which is what this really is, even if it’s not a full rejection but a setback – is a significant barrier to the business plan.

The question becomes though, well, what happens next? A new treatment to prevent the deafness which is a side effect of platinum-based cancer treatments (that ototoxicity) seems like a good idea. But being able to profit from selling one does require that one has the licence to sell it.

At which point we’ve got to take a view in order to take a position. The FDA has a system whereby the company can challenge this finding. Or vary formulation to address the deficiencies, if that is required. The actual problem here isn’t in fact in the drug itself – it being that unique formulation of an extant treatment. The FDA is claiming deficiencies in the manufacturing plant and or process. This is something that can be fixed of course. 

It’s not the drug itself, which is a serious blow to a producer. It’s the intricacies of production, something that can be dealt with by addressing the specific worries about that manufacturing process.

At which point, a trader needs to take a view. Will the company be able to do this in a timely manner? The FDA review the reviewed process in again a timely manner? Will this 40% fall be reversed once that happens? If the company was worth that much when it looked like the licence might – note, might – be granted then won’t it be worth more when it is? Assuming that the manufacturing process is fixed to the FDA’s taste?

It’s also possible to take the contrary view and think that the price hasn’t fallen enough yet. Possibly this news spreading to all the market will take it lower? At some point, that falling price will meet the value of the uncertainty about this FDA process and it will turn. The game is working out when that is.

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Tim Worstall
Tim Worstall is a freelance writer specialising in economics and the financial markets.