Allarity Therapeutics, Inc. quarterly report, Q3 FY2021

Business context and reporting period

Allarity Therapeutics, Inc. filed this Form 10-Q for the quarter ended September 30, 2021. The company was a business-combination-related shell; the financial statements and business information presented are those of its Danish parent, Allarity Therapeutics A/S, and do not reflect completion of the proposed reorganization.

Allarity A/S develops targeted cancer drug candidates using its DRP companion-diagnostic platform. Its lead candidates include stenoparib, dovitinib and IXEMPRA. The share exchange with Allarity Therapeutics, Inc. was approved November 22, 2021 but had not closed as of the filing; closing was then expected around December 20, 2021.

Financial results and liquidity

Amounts below are in U.S. dollars in thousands, except per-share data. The company reported no revenue for the periods shown.

Q3 net income was driven chiefly by a $4,517 noncash gain from fair-value changes in derivative liabilities; it did not indicate profitable operations. Nine-month basic and diluted loss per share was $0.02, versus $0.03 in 2020.

At September 30, cash and cash equivalents were $5,584, current assets $7,635, current liabilities $3,838, total assets $36,987 and total liabilities $4,219. Accumulated deficit was $43,418. Convertible debt was fully converted during the first half of 2021; the balance sheet reported no line-of-credit or convertible-debt balance at quarter-end. Noncurrent derivative liabilities were $218, and lease liabilities totaled $133.

Nine-month financing activities provided $15,381, mainly from share issuance proceeds of $14,874 and convertible-loan proceeds of $1,200, partly offset by issuance costs and repayment of bank debt. Cash increased by $5,640 over the period to $5,584.

Material changes versus prior comparable periods

• Nine-month R&D expense rose $2,096 (about 65%) and G&A rose $2,895 (about 89%) year over year. Management attributed higher R&D spending to resumed clinical activity after pandemic-related slowdowns and increased manufacturing and contractor spending in preparation for a dovitinib NDA filing. Higher professional fees and staffing, including costs associated with the planned U.S. listing, drove much of the G&A increase.
• Nine-month operating cash use more than doubled from $4,812 to $9,741, while financing cash provided rose from $3,333 to $15,381.
• The company raised $14,874 from share issuance in the first nine months and issued substantial additional shares and warrants. Common shares outstanding at September 30 were 403,791,200, compared with 212,601,044 at year-end 2020.
• Q3 2021 results included a $1,000 upfront payment for the Irofulven asset sale and a large noncash derivative fair-value gain; the prior-year quarter had neither the sale proceeds nor a comparable derivative gain.

Outlook, risks and unusual items

• Going concern: Management concluded substantial doubt existed about the company’s ability to continue as a going concern. At November 23, cash deposits were reported at $3.5 million and estimated to fund approximately four months of operations. The filing stated available cash was insufficient for the current operating plan and planned capital expenditures for at least 12 months.
• Potential financing: A proposed $20 million PIPE investment with 3i was contingent on closing the share exchange and Nasdaq listing approval. The filing said the investment could not yet be considered probable. Its convertible preferred stock and warrants include price-adjustment provisions and a potential share-paid special dividend, creating dilution and accounting considerations.
• Irofulven sale: Lantern Pharma received global rights in exchange for a $1,000 upfront payment; Allarity may receive up to $16 million in milestones and tiered royalties, contingent on future development, regulatory and sales outcomes.
• Development and regulatory risks: Drug candidates require substantial further research, clinical testing and regulatory approval; commercial revenue timing and development costs were uncertain. COVID-19 had caused some clinical delays, although management reported restrictions had eased and Danish employees had returned to work.
• Contractual and program exposure: A $1,123 development-cost liability related to Smerud was payable if it could not identify investors to fund development by December 31, 2021. Eisai could terminate the stenoparib agreement if a Phase 2 trial was not completed before December 31, 2022, unless Allarity paid an extension fee.
• Controls: Management found disclosure controls ineffective because of three material weaknesses: limited accounting resources, insufficient comprehensive U.S. GAAP policies and reporting procedures, and inadequate segregation of duties. Remediation was underway, but completion and effectiveness were not assured.

Key facts for investors to verify

1. Whether and when the share exchange and Nasdaq listing closed, and the final transaction share count and terms.
2. Whether the $20 million PIPE investment funded, including the conversion, warrant, price-adjustment and potential dividend terms.
3. Updated cash, cash runway and financing needs relative to the filing’s four-month estimate and going-concern conclusion.
4. Clinical and regulatory progress for dovitinib, stenoparib and IXEMPRA, including the stated dovitinib NDA preparation and stenoparib Phase 2 deadline.
5. Whether Smerud funding was secured and whether any contingent development-cost liability became payable.
6. Progress remediating the disclosed material weaknesses and any subsequent financial-reporting corrections.