Business context and reporting period
Allarity Therapeutics, Inc. is a clinical-stage oncology company developing targeted cancer treatments using its Drug Response Predictor platform. Lead candidates include dovitinib, stenoparib and IXEMPRA. This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2023. Unless otherwise stated, amounts below are in U.S. dollars in thousands.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | No product revenue reported; the filing describes revenue as very limited. | |||
| Research and development expense | 1,948 | 3,004 | 4,480 | 5,989 |
| General and administrative expense | 2,478 | 1,558 | 7,770 | 7,717 |
| Total operating expenses | 4,426 | 4,562 | 12,250 | 27,713 |
| Net loss | (4,447) | (5,037) | (10,179) | (13,220) |
| Net loss attributable to common stockholders | (5,552) | (6,683) | (18,694) | (17,949) |
| Net loss per common share | (2.24) | (934.29) | (19.38) | (2,733.21) |
Margins are not meaningful because the company reported no product revenue. Per-share comparisons reflect the reverse stock splits and are also affected by preferred-stock deemed dividends.
- Cash was $1,399 at September 30, 2023, versus $2,029 at December 31, 2022. Total current assets were $4,387 and current liabilities $15,744, for a working-capital deficit of approximately $11,357. Stockholders’ deficit was $3,379.
- Operating cash use was $11,073 for the first nine months, compared with $14,371 in 2022. Financing provided $10,473; cash declined by $630 after foreign-exchange effects.
- At September 30, current liabilities included $6,347 accounts payable, $1,485 accrued liabilities, and $7,884 in warrant and derivative-warrant liabilities. A Novartis convertible promissory note had a net carrying value of $1,167. The 3i secured debt shown at year-end 2022 was repaid during 2023.
- Intangible assets, principally in-process R&D for stenoparib, were $9,459. No further impairment was recorded in 2023; a $14,007 impairment was recorded in the first nine months of 2022.
Material changes versus the prior comparable period
- Nine-month net loss narrowed by $3,041, primarily reflecting the absence of the 2022 $14,007 impairment charge, partly offset by lower 2022 gains from warrant-liability remeasurement and IP-sale income.
- R&D expense declined $1,509 year over year, mainly due to lower milestone, staffing and contractor costs; manufacturing and supply expense increased $1,484.
- Q3 G&A increased $920, with management citing higher finance, legal and insurance expenses. Nine-month G&A was broadly flat.
- Q3 results included a $4,189 charge for the fair value of new September warrants and a $591 warrant-modification charge, partly offset by a $4,937 gain from remeasurement of derivative and warrant liabilities. These valuation changes are non-cash and market-sensitive.
- The company raised capital through April and July offerings and September warrant exercises, but financing proceeds were substantially offset by debt and preferred-stock repayments and redemptions. The July offering generated approximately $11 million gross proceeds.
Outlook, risks and unusual items
- Going concern: Management concluded that substantial doubt exists about the company’s ability to continue as a going concern. Cash at September 30 was insufficient for the operating plan, and the filing says cash as of November 14 would fund operations for approximately two months. Management plans to seek equity, debt, partnership or other financing; success and terms are uncertain.
- Licenses: The company remained in default under its Novartis dovitinib license after missing a $1,500 milestone payment due April 1, 2023. It paid $100 in April and $300 in August, and reported $3,600 outstanding under the milestone arrangement at September 30. Loss of the license could impair dovitinib development. The filing also identifies an $850 Eisai payment due by March 1, 2024, and an April 1, 2024 deadline for stenoparib trial enrollment; Eisai may terminate the license if the specified development condition is not met.
- Nasdaq: After earlier regaining compliance, the company received an October 27, 2023 notice concerning a bid price below $1 for 30 consecutive business days. It appealed and was assigned a February 1, 2024 hearing. Delisting or continued noncompliance could hinder financing and trading.
- Dilution and securities: Preferred stock and warrants carry low exercise or conversion prices and adjustment provisions. The filing warns that exercises, conversions and future financing could materially dilute existing shareholders. The company also reported a stockholders’ deficit, relevant to Nasdaq’s equity requirement.
- Regulatory inquiry: The SEC requested documents in an investigation concerning FDA-related submissions, communications and meetings regarding dovitinib; Nasdaq also requested related information. The filing states the inquiry is fact-finding and that its outcome is unknown.
- Management said previously identified material weaknesses in internal controls had been remediated and concluded disclosure controls were effective as of September 30, 2023.
Important facts for investors to verify
- Current cash, subsequent financing and the resulting operating runway; the filing’s reported cash and liquidity figures are in thousands, notwithstanding an inconsistent MD&A reference to “$1,399 million.”
- Status and terms of negotiations with Novartis, including the unpaid milestone balance and continued rights to dovitinib.
- Ability to meet Eisai’s payment and clinical-enrollment deadlines for stenoparib.
- Nasdaq appeal outcome, ongoing equity and bid-price compliance, and potential effects on access to capital.
- Fully diluted share count, warrant and preferred-stock adjustment terms, and potential dilution from securities exercisable near $1 per share.
- Developments in the SEC inquiry and any related costs, findings or actions.