Propanc Biopharma, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended June 30, 2021; comparison is fiscal year ended June 30, 2020. Although the request metadata refers to 2020 Q4, this filing is an annual report for fiscal 2021. Financial amounts are in U.S. dollars unless stated otherwise.
Business context and development
Propanc is a pre-revenue biopharmaceutical company developing PRP, an intravenous formulation of pancreatic proenzymes, as a potential treatment to prevent recurrence and metastasis of solid tumors. Its initial clinical focus is expected to be advanced pancreatic and ovarian cancers. PRP remained in preclinical development at June 30, 2021. The company also conducts POP1 research with the Universities of Jaén and Granada to develop recombinant proenzymes as a potential backup candidate.
Financial performance and position
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $1,812,143 | $3,494,260 |
| Operating loss | $1,812,143 | $3,494,260 |
| Interest expense | $449,457 | $1,748,381 |
| Net loss | $2,025,947 | $4,740,723 |
| Net cash used in operating activities | $1,145,264 | $1,849,589 |
| Net cash provided by financing activities | $1,058,044 | $1,890,240 |
Margins are not meaningful because the company generated no revenue. At June 30, 2021, cash was $2,255, total assets were $13,101, current liabilities were $3,080,674, and working capital deficit was $3,074,078. Convertible notes, net of discounts and premiums, were $624,583; embedded conversion option liabilities were $54,220. Stockholders’ deficit was $3,067,573 and accumulated deficit was $58,199,466.
Changes versus the prior year
- Net loss declined by about 57%, mainly reflecting lower administration expense and interest expense. Administration expense fell to $1,553,075 from $3,281,464; research and development expense rose to $230,956 from $179,987.
- Operating cash use decreased by about $704,000, but financing cash inflows also declined. FY2021 financing included $776,044 from warrant exercises and $325,000 from convertible notes, offset by $43,000 in note repayments.
- Convertible debt, net, declined from $1,557,734 to $624,583, while accounts payable and accrued expenses increased. The company issued 8,786,113 shares for conversions of debt, interest and fees during FY2021.
- A 1-for-1,000 reverse stock split took effect November 17, 2020; share and per-share data in the filing are retrospectively adjusted.
Outlook, risks and unusual items
- Management planned to submit a clinical trial application for PRP in 2022 and, subject to financing and approvals, begin a Phase Ib study in advanced solid-tumor patients in the second half of 2022. Estimated study costs were approximately $6.5 million. Management estimated three to four years to reach a Phase IIa proof-of-concept milestone, subject to approvals, research results and licensing activity.
- The auditor’s report presents the financial statements fairly but highlights substantial doubt about the company’s ability to continue as a going concern. The company reported inadequate cash for obligations over the next 12 months, past-due convertible debt, and dependence on additional financing. No assurance is given that financing will be available on acceptable terms.
- Convertible financing includes variable-price conversion terms and may cause substantial dilution. At June 30, 2021, 197,308,116 common shares were reserved for lender requirements. Subsequent to year-end, the company reported additional note conversions, warrant exercises and share issuances; it also exchanged executive compensation and accrued director/employee amounts for shares.
- Management reported ineffective disclosure controls and material weaknesses in financial reporting controls, including inadequate segregation of duties, lack of written control procedures, no audit committee, and insufficient U.S. GAAP expertise. Remediation plans depend partly on obtaining funding.
- PRP received FDA orphan drug designation for pancreatic cancer; an ovarian-cancer designation request was denied. The filing describes promising preclinical results and an earlier study of a rectal proenzyme formulation in 46 patients, but these do not establish clinical efficacy or safety for the planned intravenous PRP product.
- Other matters include a $391,749 deemed dividend from warrant provisions, a $49,319 net gain on debt settlements, and a $30,000 IRS penalty plus accrued interest for late historical Form 5471 filings; the company said it was negotiating a payment plan and was current on subsequent filings. COVID-19’s future effects were described as uncertain.
Important facts for investors to verify
- Current cash, near-term obligations, lender maturity extensions and the availability, terms and dilutive impact of future financing.
- Whether the clinical-trial application, regulatory approvals, manufacturing preparation and Phase Ib start can meet management’s stated timelines and funding requirements.
- Whether independent clinical evidence supports PRP’s safety and efficacy; distinguish the historical suppository study from the planned intravenous product and trial.
- The scale of potential dilution from convertible notes, warrant terms, share reservations and post-year-end share issuances.
- Progress in remediating internal-control weaknesses and resolving the IRS penalty matter.