Allarity Therapeutics, Inc. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual report, not a quarterly filing. The company is a clinical-stage oncology drug developer using its Drug Response Predictor (DRP) companion-diagnostic platform. It reported no product revenue and had no approved drug candidates or companion diagnostics.
Financial results and liquidity
| Metric | 2022 | 2021 |
|---|---|---|
| Revenue | No revenue reported | No revenue reported |
| Research and development expense | $6.930 million | $14.196 million |
| Impairment of intangible assets | $17.571 million | None |
| General and administrative expense | $9.962 million | $12.360 million |
| Operating loss | $34.463 million | $26.556 million |
| Net loss | $16.058 million | $26.648 million |
| Net loss attributable to common stockholders | $21.051 million | $26.648 million |
| Cash used in operating activities | $16.817 million | $14.886 million |
| Cash at year-end | $2.029 million | $19.555 million |
The company’s 2022 operating loss included a $17.571 million intangible-asset impairment, including a $14.007 million charge in the first quarter and a further $3.564 million in the fourth quarter. Net loss was reduced by $17.125 million of noncash gains from changes in the fair value of derivative and warrant liabilities. The filing does not provide a meaningful gross margin measure; the company had no product revenue.
At December 31, 2022, total assets were $14.544 million, total liabilities $12.654 million, and current liabilities $11.222 million versus current assets of $4.968 million. Accumulated deficit was $82.550 million. Management said year-end cash was insufficient to fund the operating plan and capital needs for the next 12 months, and estimated cash at filing was sufficient for approximately three months. The auditor highlighted substantial doubt about the company’s ability to continue as a going concern.
Year-end convertible debt included $2.644 million of current secured notes owed to 3i, including $1.667 million issued to settle accrued conversion-floor amounts and $1.0 million in cash proceeds. The notes bear 5% interest, mature January 1, 2024, are secured by company assets, and may convert at the lowest price in a future equity financing. A separate Novartis promissory note and accrued interest totaled $1.083 million, net of discount.
Material changes and business developments
- R&D expense declined $7.266 million year over year, principally because 2021 included a $5.0 million Novartis milestone related to the dovitinib NDA and higher NDA-preparation costs. G&A expense fell $2.398 million, mainly from lower staffing and listing costs, partly offset by higher insurance and professional fees.
- The FDA issued refusal-to-file letters in February 2022 for the dovitinib NDA and companion-diagnostic PMA. The company said the FDA objected to relying on a prior Phase 3 trial designed to test superiority to support a non-inferiority claim. Following FDA discussions, management anticipated a prospective Phase 3 trial and additional dose-optimization studies would be required for dovitinib monotherapy in third-line metastatic renal cell carcinoma. The company said it would not prioritize that monotherapy path and instead evaluate combination trials.
- Priority programs were stenoparib in ovarian cancer, IXEMPRA in metastatic breast cancer, and dovitinib in potential combination studies. Enrollment in the stenoparib and IXEMPRA Phase 2 trials had been delayed by COVID-19-related site and staffing issues.
- The company transferred exclusive LiPlaCis development rights to Chosa in March 2022 and out-licensed its related DRP diagnostic. Irofulven had previously been sold and licensed to Lantern Pharma; Allarity reported no longer devoting development resources to it.
Outlook, risks and unusual items
- Outlook: Subject to financing, management planned to pursue a stenoparib-plus-dovitinib Phase 1b/2 trial for later-line metastatic ovarian cancer and/or other solid tumors. It anticipated stenoparib Phase 2 data and IXEMPRA interim data in the second half of 2023. These are forward-looking expectations, not assured outcomes.
- Funding and going concern: Continued operations depend on raising additional capital, partnering, or other financing. Failure to obtain funding could force delays, reductions, or termination of development and operations. The company’s February 2023 Series C preferred-stock offering was for $1.2 million, but the filing describes the amount as a subscription receivable.
- Share authorization and dilution: All 30 million authorized common shares were issued by the filing date, limiting the company’s ability to issue shares for conversions, warrants, equity financing, and compensation. Stockholders rejected share-increase and reverse-split proposals at the February 2023 annual meeting; a further vote was scheduled for March 20, 2023. Subsequent to year-end, 3i converted Series A preferred stock into 14.1 million common shares, with no proceeds to the company. Series C preferred stock carries 620 votes per share on the specified share-increase and reverse-split proposals.
- Debt and preferred-stock terms: Secured 3i notes have a claim on company assets and potential conversion or redemption features. The Series A preferred-stock arrangements include conversion-price adjustments, potential redemption obligations, and registration-delay payments. The company reported $800,000 of Series A-related penalties in 2022 and a $3.421 million floor-price obligation associated with conversions.
- Regulatory and clinical risks: Drug and companion-diagnostic approval is uncertain; retrospective DRP analyses may not satisfy regulators’ evidentiary requirements. Clinical enrollment, safety, efficacy, manufacturing, licensing obligations, and third-party reliance may delay or prevent development.
- Other matters: The SEC requested documents in January 2023 concerning dovitinib FDA submissions and communications; the company said the inquiry was fact-finding and that its outcome was unknown. Nasdaq compliance risks included stockholders’ equity, bid-price, public-float, and governance requirements. Disclosure controls and internal control over financial reporting were reported ineffective due to material weaknesses in accounting resources, procedures, transaction accounting, and segregation of duties.
Key facts investors should verify
- Current cash, near-term cash runway, actual receipt and use of Series C proceeds, and availability and terms of additional financing.
- Outstanding Series A and Series C preferred shares, 3i conversions, potential share issuance, dilution, and the outcome of the authorized-share and reverse-split proposals.
- Current status and terms of the secured 3i notes, Novartis obligations, and any preferred-stock redemption, floor-price, or registration-payment liabilities.
- FDA feedback and the funded development plan for dovitinib; clinical enrollment, timing, and results for stenoparib and IXEMPRA.
- Progress on remediating internal-control weaknesses, timely SEC reporting, Nasdaq listing compliance, and the status and costs of the SEC inquiry.