Allarity Therapeutics, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Unaudited statements are in U.S. dollars, thousands, except per-share and share data. All share and per-share amounts reflect the company’s March and June 2023 reverse stock splits.
Business context
Allarity is a clinical-stage cancer drug developer using its DRP platform. Its lead candidates are stenoparib, dovitinib and IXEMPRA. Management identified stenoparib as its lead clinical asset, while continuing development of the other candidates. The filing reports no meaningful product revenue; the company remains dependent on financing and collaboration arrangements.
Financial performance and position
| Metric | Q2 2023 / June 30, 2023 | Comparable period / prior year-end |
|---|---|---|
| Revenue | No material product revenue reported | No clear revenue value provided in the presented statements |
| Operating expenses | $4.156 million | Q2 2022: $4.842 million |
| Research and development | $1.105 million | Q2 2022: $1.696 million |
| General and administrative | $3.051 million | Q2 2022: $3.146 million |
| Operating loss | $4.156 million | Q2 2022: $4.842 million |
| Net loss | $2.380 million; $9.786 million attributable to common stockholders after preferred-stock deemed dividends | Q2 2022: $5.103 million net loss; $6.480 million attributable to common stockholders |
| Six-month net loss | $5.732 million; $13.142 million attributable to common stockholders | 2022: $8.183 million net loss; $11.266 million attributable to common stockholders |
| Cash used in operating activities | Six months: $5.697 million | 2022 six months: $9.963 million |
| Cash | $0.420 million | December 31, 2022: $2.029 million |
| Total assets / liabilities | $13.426 million / $14.149 million | December 31, 2022: $14.544 million / $12.654 million |
| Working capital | Deficit of approximately $9 million | — |
| Accumulated deficit | $88.282 million | December 31, 2022: $82.550 million |
Profit margins are not meaningful given the lack of material product revenue and continuing operating losses. Six-month operating cash use improved year over year, but cash fell to $0.420 million. Current liabilities were $12.668 million. Debt included a $0.350 million secured 3i note and a $1.138 million non-current Novartis convertible promissory note and accrued interest; the 3i note was repaid after quarter-end.
Changes versus prior comparable periods
- Q2 operating expenses declined $0.686 million year over year, primarily reflecting lower R&D and G&A spending, including cost reductions in staffing and contractor costs.
- Six-month operating expenses declined $15.327 million, mainly because 2022 included a $14.007 million intangible-asset impairment charge. No impairment was recorded in the first half of 2023.
- Q2 net loss narrowed, partly because of a $1.941 million gain from fair-value changes in derivative and warrant liabilities. These valuation changes are non-cash and can be volatile.
- Six-month net loss improved versus 2022, which also included the impairment charge and different fair-value movements. The 2023 common-stockholder loss was increased by $7.410 million of preferred-stock deemed dividends.
- The company raised approximately $7.5 million gross in an April offering, repaid 3i debt and restructured preferred securities. It also effected reverse splits of 1-for-35 in March and 1-for-40 in June.
Liquidity, outlook and material risks
- Going concern: Management concluded substantial doubt exists about the company’s ability to continue as a going concern. June 30 cash was insufficient for its operating plan, and management stated it lacked funds for twelve months from the filing date. Plans include further equity or debt financing and collaboration funding, with no assurance of success or favorable terms.
- Subsequent financing: On July 10, 2023, the company completed an offering for approximately $11 million gross proceeds. Approximately $5.3 million was used to settle 3i obligations, leaving approximately $4.7 million net proceeds. The filing estimates these proceeds would fund operations for only about three months. Cash disclosures vary by date: approximately $1.6 million as of August 8 and approximately $1.2 million as of August 11.
- Development and license obligations: Allarity was in default under its Novartis license after missing a $1.5 million milestone due April 1, 2023. It reported payments of $0.1 million in April and $0.3 million on August 11, and was negotiating revised terms; Novartis had not enforced the default notice as of filing. Failure to resolve the matter could jeopardize dovitinib rights. Under its Eisai stenoparib agreement, an additional $0.850 million is due by March 1, 2024, and enrollment in a further trial is due by April 1, 2024; Eisai may terminate the agreement if the clinical condition is not met.
- Regulatory and listing matters: The SEC requested documents in an investigation focused on FDA-related dovitinib submissions and communications; the filing says this is a fact-finding inquiry and no violation has been concluded. Nasdaq confirmed listing compliance on July 14, 2023, with a one-year panel monitor. The company also disclosed prior listing deficiencies and a shareholder attorney’s challenge to preferred-stock voting matters.
- Controls: Management identified material weaknesses in internal control over financial reporting, including insufficient accounting resources, incomplete policies and procedures, inadequate controls over complex transactions, and lack of segregation of duties. Remediation is ongoing and may be constrained by the company’s financial condition.
- Other exposures: Warrants and preferred stock may result in substantial dilution. The company relies on a small number of third-party manufacturers, and clinical, regulatory, competitive and funding risks remain significant. Management expects expenses and operating losses to continue and potentially increase.
Key facts investors should verify
- Current cash, monthly cash burn, financing runway and the amount and timing of any additional capital needed.
- Progress in restructuring the Novartis payment default, remaining milestone obligations and status of the dovitinib license.
- Stenoparib trial enrollment and the Eisai payment and April 2024 clinical deadline.
- Fully diluted share count and potential dilution from outstanding preferred stock, pre-funded warrants and common warrants, including post-July repricings.
- Status and potential consequences of the SEC inquiry, Nasdaq panel monitoring, and remediation of reported control weaknesses.