Business context and reporting period
This is DelMar Pharmaceuticals, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2013—not a filing under the company name in the request metadata, Tuhura Biosciences, Inc. DelMar was a development-stage oncology company focused on VAL-083, including a Phase I/II trial for recurrent glioblastoma. On January 25, 2013, DelMar completed a reverse acquisition that made DelMar (BC) the accounting acquirer. Comparative results are therefore not fully comparable with the prior-year quarter.
Key financial metrics
| Metric | Quarter ended March 31, 2013 | Comparable / balance date |
|---|---|---|
| Revenue | No product revenue reported | No significant near-term revenue expected, per management |
| Research and development expense | $631,947 | $254,374 in Q1 2012 |
| General and administrative expense | $920,377 | $167,791 in Q1 2012 |
| Net loss | $7,405,319; $0.30 per share | $411,535; $0.03 per share in Q1 2012 |
| Operating cash used | $2,124,467 | $147,244 in Q1 2012 |
| Cash and cash equivalents | $7,532,835 | $17,782 at December 31, 2012 |
| Working capital | $6,818,307 | Deficit of $942,562 at December 31, 2012 |
| Total assets | $7,693,259 | $182,830 at December 31, 2012 |
| Current liabilities | $874,952 | $1,125,392 at December 31, 2012 |
| Valent loan | $266,307, presented as non-current | Unsecured, payable on demand, interest at 3% |
| Derivative liability | $8,387,626 | $121,000 at December 31, 2012 |
Gross margin is not applicable because the company reported no product revenue. Stockholders’ deficiency was $2,019,125 at quarter-end. The filing reports no off-balance-sheet arrangements.
Material changes versus the prior comparable period
- R&D expense rose 148%, principally with continued clinical-trial work and increased nonclinical research, personnel, intellectual-property and travel costs.
- G&A expense rose 449%; management attributed much of the increase to reverse-acquisition professional fees and the costs of operating as a public company.
- Net loss and operating cash use increased substantially. The reported loss included large warrant-related and transaction costs, so it was not equivalent to cash burn.
- The company raised $10.5 million gross in a private unit offering, reporting approximately $8.575 million net proceeds after offering costs. The cash-flow statement reports $9.640 million of net unit proceeds because it presents certain costs differently.
- Cash and working capital improved sharply following the offering. Common shares outstanding were 30,635,009 at March 31, including 8,729,583 exchangeable shares on an as-exchanged basis.
Outlook, risks and unusual items
- Management estimated that available funding would support operations for at least 24 months, based on current estimates. It also warned that cost overruns, delays or other unforeseen events could require additional financing; funding availability and terms are uncertain, and programs could be reduced, delayed or eliminated.
- VAL-083 was in a Phase I/II dose-escalation trial. Management cited positive interim findings announced in April 2013, but the filing provides no definitive efficacy outcome or revenue forecast. The company also described exclusive commercial rights in China and a collaboration with Guangxi Wuzhou; no payments had been made under that agreement to date.
- The $8.388 million derivative liability is valued using Level 3, unobservable inputs. The quarter’s loss includes $2.544 million described in the financial statements as a change in fair value and $2.713 million of derivative issue costs. There is an internal presentation inconsistency: the MD&A calls the $2.544 million change a gain, while the statement of loss presents it among other loss items. Verify the accounting and its effect on reported loss.
- The unit offering included 13,125,002 shares and five-year warrants at $0.80; the placement agent received warrants for 5,250,000 shares at the same exercise price. Warrants and options create potential dilution. The filing also records 1,150,000 shares issued to Valent in exchange for a reduction in future royalties, with a $598,000 expense.
- The company changed its functional currency from Canadian dollars to U.S. dollars effective January 1, 2013. Management reported disclosure controls as effective and no material change in internal control during the quarter. No legal proceedings were reported.
Important facts for investors to verify
- Confirm the registrant identity: the supplied filing is for DelMar Pharmaceuticals, Inc., not Tuhura Biosciences, Inc.
- Reconcile the fair-value change described as a gain in MD&A with its presentation in the statement of loss, and assess the assumptions underlying the Level 3 warrant valuation.
- Reconcile offering proceeds and costs across the cash-flow statement, equity disclosures and derivative issue-cost expense.
- Verify the share count and fully diluted capitalization, including exchangeable shares, investor and placement-agent warrants, other warrants and options. The filing separately reports 22,420,426 common shares outstanding as of May 15, 2013.
- Assess whether the estimated 24-month runway remains adequate under clinical-trial, regulatory, manufacturing and financing scenarios; the company had no product revenue and acknowledged possible need for additional capital.