Allarity Therapeutics, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Financial statements are unaudited and reported in U.S. dollars in thousands, except per-share and share data. Allarity is a clinical-stage cancer drug developer using its DRP companion-diagnostic platform. Its lead candidates include dovitinib, stenoparib and IXEMPRA. The company reported no product revenue.
Key financial results and position
- Q3 operating expenses: $4.562 million, up from $3.974 million. R&D was $3.004 million, up from $1.355 million; general and administrative expense was $1.558 million, down from $2.619 million.
- Q3 net loss: $5.037 million, versus $1.351 million. Net loss attributable to common stockholders was $6.683 million, including $1.646 million of cash obligations related to converted Series A preferred stock. Basic and diluted loss per share was $0.68.
- Nine-month net loss: $13.220 million, versus $9.831 million. Net loss attributable to common stockholders was $17.949 million, including a $1.572 million deemed preferred-stock dividend and $3.157 million of cash obligations on converted preferred shares. Loss per share was $1.98.
- Cash flow: Operating activities used $14.371 million in the first nine months, compared with $10.567 million in 2021. Investing activities provided $0.809 million; financing activities used $2.311 million. Cash declined from $19.555 million at year-end 2021 to $3.946 million at September 30, 2022.
- Liquidity: Current assets were $6.061 million and current liabilities $12.955 million, a working-capital deficit of approximately $6.894 million. Total assets were $18.134 million; total liabilities were $14.631 million. Accumulated deficit was $79.712 million and stockholders’ equity $1.447 million.
- Debt and related obligations: The Novartis convertible promissory note and accrued interest, net, totaled $1.057 million. Accounts payable were $4.707 million; accrued liabilities were $4.079 million, including a $1.646 million 3i floor-price liability. Series A preferred stock was reported separately as redeemable convertible preferred stock, at $2.056 million.
- Margins: Not meaningful because the filing reports no product revenue.
Material changes versus prior periods
- Q3 R&D expense rose $1.649 million year over year, mainly due to $1.400 million in milestone payments and higher staffing costs. Nine-month R&D rose $1.315 million.
- Nine-month operating expenses included a $14.007 million impairment charge, recognized in Q1, following the FDA’s refusal to file the dovitinib NDA and the company’s depressed share price. No additional impairment was recorded in Q2 or Q3. Stenoparib-related intangible assets were $12.027 million at September 30.
- Other income for the nine months included a $13.442 million favorable change in fair value of derivative and warrant liabilities and $1.780 million of IP-sale income. These were offset in part by foreign-exchange losses, the $0.800 million Series A registration-delay payment and other expenses. The fair-value gain is not operating revenue and is subject to valuation assumptions.
- Common shares outstanding increased from 8.096 million at December 31, 2021 to 10.260 million at September 30, 2022, primarily through preferred-stock conversions. The company had 15,226 Series A preferred shares outstanding at quarter-end.
Outlook, risks and notable items
- Going concern: Management concluded that cash was insufficient to fund the operating plan and planned capital expenditures for at least 12 months from issuance of the statements; substantial doubt exists about the company’s ability to continue as a going concern. Management was pursuing equity, debt, collaboration or other financing, including discussions with the Series A holder about a potential bridge loan. No financing was assured. The filing says failure to raise funds could threaten continued operations and could lead to bankruptcy proceedings.
- Pipeline and regulatory outlook: After FDA refusal-to-file letters in February 2022 for both the dovitinib NDA and its companion-diagnostic PMA, the company expected prospective Phase 3 and additional dose-optimization work would be required for dovitinib monotherapy in third-line metastatic renal cell cancer. It shifted strategy toward combination therapies. In a November 7 update included in the filing, it said the planned stenoparib-plus-dovitinib Phase 1b/2 ovarian-cancer trial was delayed until additional capital was raised. Interim readouts for ongoing stenoparib and IXEMPRA Phase 2 studies were then anticipated in Q2 2023, subject to funding.
- Contractual commitments: A September 2022 Novartis amendment restructured and increased a milestone payment by $0.5 million; the filing states potential payments could total up to $26.5 million if all milestones are achieved. Under the Eisai amendment, $0.9 million was accrued and due by April 1, 2023; Eisai may terminate the agreement if specified trial milestones are not met by April 1, 2024.
- Preferred-stock and warrant exposure: The 3i Series A terms include conversion-price adjustments, cash redemption rights and potential penalties. The company recorded $4.728 million in aggregate floor-price adjustments for conversions during the nine months, of which $1.511 million had been paid and $1.646 million was accrued for Q3. It also paid $0.800 million in registration-delay payments. The preferred shares and warrants may create further cash obligations and dilution.
- Controls and other risks: Management said disclosure controls were not effective as of September 30, 2022, citing material weaknesses in financial-reporting controls and prior financial-statement restatements. Remediation efforts were ongoing. Clinical, regulatory, financing, supplier, foreign-exchange, COVID-19 and geopolitical risks remain; the company said the Russia-Ukraine war had not yet affected results but could raise Danish laboratory-material costs.
Most important facts for investors to verify
- Whether financing was secured after the filing date, and the resulting cash runway, dilution and any collateral or repayment terms.
- The status and cash timing of Series A floor-price, redemption, registration-delay and other potential 3i obligations.
- Whether Novartis and Eisai milestones and payment schedules remain achievable and funded, including the potential $26.5 million Novartis milestone exposure.
- Updated FDA requirements, trial timelines and funding-dependent readouts for the company’s drug candidates and companion diagnostics.
- Progress in remediating the material weaknesses and whether disclosure controls and financial reporting have become effective.
- Reconcile the MD&A’s statement that nine-month net losses were $9.0 million and $9.8 million with the financial statements’ reported net losses of $13.220 million and $9.831 million, respectively; the filing text does not explain this apparent inconsistency.