Allarity Therapeutics, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Unless noted otherwise, financial amounts are in U.S. dollars; statement amounts are in thousands. Allarity is a clinical-stage oncology company developing targeted cancer therapies using its DRP companion-diagnostic platform. Its lead candidates include dovitinib, stenoparib and IXEMPRA. It reported no meaningful product revenue and has historically generated very limited revenue.
Key financial results and liquidity
| Metric | Q1 2022 | Q1 2021 / comparator |
|---|---|---|
| Revenue | No meaningful revenue reported | No meaningful revenue reported |
| Research and development expense | $1.289 million | $1.251 million |
| General and administrative expense | $3.013 million | $1.211 million |
| Intangible-asset impairment | $14.007 million | None |
| Operating loss | $18.309 million | $2.462 million |
| Net loss | $3.080 million | $3.085 million |
| Net loss attributable to common stockholders | $4.652 million | $3.085 million |
| Basic and diluted loss per share | $0.56 | $0.68 |
| Cash used in operating activities | $5.755 million | $2.567 million |
Operating margins are not meaningful because the filing reports no meaningful revenue. The net loss was nearly unchanged year over year despite the higher operating loss, principally because of a $12.566 million favorable, noncash fair-value change in derivative and warrant liabilities and a $1.780 million gain on sale of intellectual property. The $1.572 million deemed dividend on preferred stock increased the loss attributable to common stockholders.
Cash was $14.544 million at March 31, 2022, down from $19.555 million at December 31, 2021. Investing activities provided $0.809 million, primarily from IP-sale proceeds; financing activities provided no cash. Current assets were $17.211 million and current liabilities $12.711 million. Total liabilities were $14.416 million. The company reported a $1.005 million carrying value for its noncurrent convertible promissory note and $5.436 million in current derivative and warrant liabilities. The Series A preferred stock is presented as mezzanine equity, not as a liability.
Material changes and notable events
- Dovitinib: The FDA issued a Refusal to File for the company’s new drug application on February 15, 2022. Together with the depressed share price, this prompted a discounted-cash-flow impairment assessment and a $14.007 million charge. The filing reduced the reported carrying value of dovitinib IPR&D to zero; stenoparib IPR&D was $13.694 million at quarter-end.
- Expenses and cash use: G&A increased $1.802 million, primarily from professional fees, staffing, insurance and public-company costs. Cash used in operations increased $3.188 million year over year. Management attributed the increase to changes in operating assets and liabilities and noncash items.
- IP arrangements: Allarity licensed dovitinib and stenoparib pediatric-cancer rights to Oncoheroes, which assumed responsibility for pediatric clinical development. Allarity received $350,000 in upfront fees and may receive regulatory milestones and tiered royalties. An amended license arrangement also resulted in a $971,000 gain on IP sale; a related $338,000 balance was paid April 1.
- Preferred financing and dilution: During the quarter, 1,973 Series A preferred shares converted into 746,276 common shares. The filing records an 8% deemed dividend of $1.572 million. The preferred stock and associated warrants have conversion, anti-dilution, redemption and other provisions that may affect future dilution and cash obligations.
Outlook, risks and contingencies
Going concern: Management concluded that cash available as of the financial-statement issuance period was insufficient to fund the operating plan and planned capital expenditures for the following 12 months. The filing states that substantial doubt exists about the company’s ability to continue as a going concern. Management planned to seek additional public or private equity, debt, collaborations or other funding, but gave no assurance that financing would be available on acceptable terms. No specific financial guidance was provided.
Preferred-stock triggering event after quarter-end: A triggering event under the Series A terms occurred on April 29, 2022. Potential consequences included an 18% annual dividend, redemption rights at a minimum of 125% of stated value and registration-delay payments. Under a May 2022 forbearance agreement, 3i agreed temporarily to forbear certain remedies, subject to conditions; the company paid $538,823 upon execution and owed registration-delay payments. The filing also reports a later conversion and additional floor-price liability and payment. Investors should review the terms and subsequent filings for current status and amounts.
Other risks: Drug development, clinical and regulatory outcomes, access to capital, dependence on third-party manufacturers and collaborators, and the possibility of future revenue delays are material uncertainties. Management said COVID-19 had caused clinical-program delays and that the Russia-Ukraine war could raise Danish laboratory-material costs, though its impact was not quantifiable. No material pending litigation was reported.
Controls: Management concluded disclosure controls and procedures were ineffective as of March 31, 2022. The company disclosed material weaknesses involving accounting resources, U.S. GAAP policies and procedures, complex transactions and segregation of duties, and referenced prior financial-statement restatements. Remediation efforts were underway, but completion and effectiveness had not been established.
Important facts for investors to verify
- Current cash runway, financing needs and progress toward obtaining funding, given the going-concern warning.
- The status and regulatory path for dovitinib following the FDA Refusal to File, and the development plans and funding responsibility for stenoparib and IXEMPRA.
- Current obligations and remedies under the 3i preferred-stock, warrant, registration-rights and forbearance agreements, including any accrued charges, conversions or redemption exposure.
- Potential dilution from preferred-stock conversions, warrants, options and anti-dilution provisions; common shares outstanding were 9,283,295 as of May 27, 2022.
- Whether internal-control weaknesses have been remediated and whether subsequent filings report further accounting corrections or changes.