Allarity Therapeutics, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. All share and per-share amounts reflect the March 24, 2023, 1-for-35 reverse stock split. Financial amounts below are U.S. dollars in thousands, except per-share data.
Business context
Allarity is a clinical-stage oncology company developing targeted cancer drugs using its Drug Response Predictor (DRP) technology. Lead candidates include dovitinib, stenoparib and IXEMPRA. The company reported no revenue in the presented statements and has incurred recurring losses.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 / prior date |
|---|---|---|
| Revenue | No revenue reported | No revenue reported |
| Research and development expense | $1,427 | $1,289 |
| General and administrative expense | $2,232 | $3,013 |
| Intangible asset impairment | — | $14,007 |
| Total operating expenses / operating loss | $3,659 | $18,309 |
| Net loss | $3,352 | $3,080 |
| Net loss attributable to common stockholders | $3,356 | $4,652 |
| Basic and diluted loss per share | $4.43 | $19.64 |
| Operating cash used | $3,201 | $5,755 |
- Cash was $295 at March 31, down from $2,029 at December 31, 2022. Total assets were $12,702; total liabilities were $13,041; redeemable preferred stock was $2,763; and stockholders’ deficit was $3,102.
- Working capital deficit was $8,620. Current liabilities totaled $11,588, including accounts payable of $6,449 and accrued liabilities of $2,351.
- Debt included $2,687 of current 3i secured convertible notes and $1,110 of non-current Novartis-related convertible promissory note and accrued interest. The 3i notes were paid in full after quarter-end.
- Cash flows included $1,158 of financing proceeds, principally the Series C preferred issuance. The cash flow statement reports a $2,043 decrease before $309 of favorable exchange-rate effects; cash declined by $1,734 after those effects.
- Margins are not meaningful because the company reported no revenue. No positive profit or operating cash generation was reported.
Changes versus the prior comparable period
- Operating expenses fell by $14,650, primarily because Q1 2022 included a $14,007 intangible-asset impairment. Excluding that impairment, operating expenses increased by $643.
- R&D expense rose $138, reflecting higher research-study and manufacturing costs, partly offset by lower staffing, contractor and stock-based compensation costs. G&A fell $781, mainly due to lower stock-based compensation and staffing expenses.
- Net loss increased from $3,080 to $3,352. Q1 2022 included $14,002 of net other income, largely non-cash fair-value gains on derivative and warrant liabilities, an IP-sale gain, and a tax benefit; Q1 2023 net other income was $307.
- Operating cash use improved by $2,554 year over year. Management attributed the decrease mainly to cash-flow changes in operating assets and liabilities.
Outlook, risks and unusual items
- Going concern: Management concluded substantial doubt exists about the company’s ability to continue as a going concern. Cash at March 31 was insufficient for its operating plan, and management stated available funds would not cover at least 12 months from the filing date. The April financing was expected to fund only approximately three months of operations.
- Subsequent financing and debt actions: An April 21 public offering generated approximately $7.5 million gross and $1.9 million net proceeds, after offering costs and payments to 3i. The company used $3,348 to repay 3i debt and $1,652 to redeem Series A preferred shares. All pre-funded warrants from the offering had been exercised by the filing date. The filing reports $759 cash as of May 11.
- Further capital needed: Management intends to seek additional equity, debt, collaboration or other funding, but gave no assurance it can obtain funding on acceptable terms. Future financing may materially dilute existing shareholders.
- Licensing contingencies: A $1,500 Novartis milestone payment was due April 1 and unpaid when Novartis issued a breach notice on April 4. The filing says $100 had been paid toward it by late April/early May; failure to cure could jeopardize dovitinib rights. A separate $900 Eisai extension payment also remained unpaid, with discussions underway to extend payment terms.
- Regulatory and listing matters: The SEC requested documents in a fact-finding investigation concerning FDA submissions and communications about dovitinib; the company said the request does not mean the SEC found a violation. Nasdaq had determined the company failed to meet an equity-compliance extension; the company appealed and had a hearing scheduled for May 18, 2023. The filing also describes minimum bid-price, public-float and board/audit committee compliance issues.
- Control weakness: Management identified material weaknesses in internal control over financial reporting, including insufficient accounting resources, incomplete accounting procedures and inadequate segregation of duties. Remediation was in progress and not yet complete.
- Capital structure: The 1-for-35 reverse split and increased authorized common shares preceded substantial preferred-stock conversions and warrant transactions. The amended Series A terms established a $0.75 conversion price and eliminated specified redemption rights and dividends, subject to exceptions.
- No quantitative earnings or revenue guidance was provided. Management expects significant ongoing R&D and operating expenses and states that development timelines, costs and future revenue remain uncertain.
Most important facts for investors to verify
- Current cash, actual monthly cash burn and the timing and terms of any additional financing; reconcile the $1.9 million net offering proceeds, $2,810 pro forma cash and $759 cash reported as of May 11.
- Status of the Novartis breach and remaining milestone balance, and whether the overdue Eisai payment was resolved or the license terms extended.
- Outcome of the Nasdaq appeal and the company’s listing status, including compliance with equity, bid-price, public-float and governance requirements.
- Status and scope of the SEC inquiry and any related costs, findings or further actions.
- Fully diluted share count and potential dilution from Series A preferred stock, the 3i exchange warrant, offering warrants and other convertible securities.
- Progress on internal-control remediation and the company’s ability to fund clinical development and maintain its licenses.