$1.11
$4.57
bear $1.11
base $2.35
bull $4.57
margin of safety $1.40
market price* $9.98
Fennec sells one product, PEDMARK (sodium thiosulfate), the only FDA-approved treatment to reduce hearing loss caused by cisplatin chemotherapy in children with localized solid tumors. It was approved in September 2022 and is sold in the United States to hospitals through specialty distributors; Europe, Australia and New Zealand are licensed to Norgine. Everything here rests on that one drug. What the numbers show. Net product sales were $44.6M in 2025 versus $29.6M in 2024 (+50%), and $33.0M in the first half of 2026 versus $18.4M a year earlier (+79%), with quarterly sales of $13.8M (Q4 2025), $15.1M (Q1 2026) and $17.9M (Q2 2026). The company reported net income of $2.2M for the first half of 2026 and operating cash flow of $2.4M, after losing money in 2025 (net loss $9.7M). Our owner-earnings measure (operating cash flow, less working-capital swings, less stock compensation) was about -$0.59 per share in 2023, +$0.18 in 2024 and -$0.16 in 2025. The 2024 figure excludes a one-time $24.8M upfront payment from Norgine that was booked as deferred revenue; the 2025 figure was depressed by a $12.4M build in receivables, a $2.0M loss on retiring debt and $4.2M of cash interest. Customers pay slowly: receivables were $23.2M current plus $2.8M long-term at the end of 2025 against $44.6M of annual sales. The stored history therefore describes a launch, not the business as it now stands, and we do not use its median as the earnings level. Earnings level used. Sales have risen for three straight quarters and the second quarter of 2026 produced $2.0M of net income on $17.9M of sales, with roughly two-thirds of the extra sales from Q1 to Q2 reaching profit because the sales force and overhead are largely fixed. We take the first-half 2026 pace of about $66M of sales and a Q2 profit pace, and set owner earnings at about $10M a year (about $0.27 per share), before and after any interest because the company reported no borrowings at the end of 2025 after repaying its term loan in November 2025. Year one of the base case therefore assumes owner earnings far above 2025's negative figure. The dated reasons: the 2025 result was depressed by items that have ended (the $4.2M of cash interest, the $2.0M debt-retirement loss, the receivables build) and sales have since stepped up in Q4 2025, Q1 2026 and Q2 2026. About $3M a year of this comes from non-cash charges such as credit-loss allowances, which we add back. Protection. In March 2026 Fennec settled its patent suit with Cipla, the only generic filer disclosed in the annual report; Cipla agreed not to launch a generic until September 1, 2033, or earlier under certain circumstances. Orphan-drug exclusivity runs to September 20, 2029, and the listed patents expire in 2038 and 2039. This gives about seven years of protection that is already in hand. Base case: about $10M a year of owner earnings (sales held near $70M, costs flat) for the seven years to September 2033, then generic competition cuts sales by half and then most of the rest, leaving about $4M and $2M in the next two years and nothing after, since nothing named supports earnings beyond. No further growth is credited: the sales gains since launch come from a new drug being adopted, which we do not treat as repeatable. Norgine milestones (up to about $230M) and royalties are excluded because none has been received. Business worth about $59.5M, plus roughly $26M of cash beyond what operations need (cash was $41.2M at June 30, 2026), no borrowings: about $85.8M, or $2.35 per share on about 36.4M diluted shares. Bear case: sales settle near $58M, management trims costs, and owner earnings are about $5M a year until generics arrive in September 2029 (the settlement allows earlier entry in some circumstances, and orphan exclusivity ends that month); sales then fall by about 60% and costs cannot be cut enough to keep the product profitable, so earnings end. Reimbursement or pricing pressure on a single product sold through distributors, with three customers each about 10% of sales, is the named risk. Business worth about $14M, no borrowings, plus the $26M of surplus cash: about $40M, or $1.11 per share. Bull case: the adoption seen in 2025 and 2026 continues for two more years at a slowing pace, lifting owner earnings to about $17M and $22M and then about $25M a year to September 2033 (after allowing for taxes once accumulated losses of $229M on the books are used), with $12M and $6M in the two years after generics. Business worth about $140M plus $26M of surplus cash: about $167M, or $4.57 per share. What could prove this wrong: a single product with no pipeline named in the filings; earlier generic entry; lower-than-assumed margins, because the fixed/variable cost split and non-cash add-back are our estimates from half-year results; and large receivables that may take longer to collect. Anything that has not been disclosed, such as the exact quarterly cash taxes, could not be reconciled from the filings. Margin-of-safety price. We are reasonably, not highly, sure of the $10M earnings level: it rests on three quarters of rising sales and one quarter with real profit. The worst plausible outcome is a pricing or reimbursement shock, or an earlier generic, on a one-product company; the lack of debt and $41M of cash mean the business survives that, but the earnings could shrink toward zero within three years. If we are wrong about the cost base or about sales holding, the shares are worth about what the surplus cash plus a few years of reduced earnings are worth, roughly the bear figure. The price assumes a seven-year holding period, the time to the 2033 generic date, and the company pays no dividend that we have verified, so the return comes from earnings that build cash. At the margin-of-safety price of $1.40, about $0.72 is covered by surplus cash and about $0.68 is attributed to a business earning about $0.27 per share a year in the base case for seven years; at that price the base case implies a 20% annual return remains achievable even if sales slip somewhat.