Allarity Therapeutics, Inc 10-Q for FY2024 Q2
Allarity Therapeutics, Inc. (ALLR)
About this 10-Q
Allarity Therapeutics, Inc filed this 10-Q on August 5, 2024, covering the quarter ended June 30, 2024 (FY2024 Q2).
Headline figures
Quarter ended June 30, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net loss
- $1.63M
- compared with a net loss of $2.38M a year earlier
- Diluted EPS
- -$0.11
- compared with -$525.53 a year earlier
UNITED
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended
or
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As
of August 5, 2024, there were
Table of Contents
i
Unless the context indicates otherwise, references in this Quarterly Report on Form 10-Q (the “Quarterly Report”) to the “Company,” “Allarity,” “we,” “us,” “our” and similar terms refer to Allarity Therapeutics, Inc., Allarity Therapeutics A/S (as predecessor) and its respective consolidated subsidiaries. On April 9, 2024, we effected a 1-for-20 reverse stock split of the shares of our Common Stock (the “Reverse Stock Split”). All historical share and per share amounts reflected throughout this Quarterly Report have been adjusted to reflect the Reverse Stock Split.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report contains statements we believe are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Those forward-looking statements are intended to enjoy the protection of the safe harbor for forward-looking statements provided by that act as well as protections afforded by other federal securities laws. Generally, words such as “achieve,” “aim,” “ambitions,” “anticipate,” “believe,” “committed,” “continue,” “could,” “designed,” “estimate,” “expect,” “forecast,” “future,” “goals,” “grow,” “guidance,” “intend,” “likely,” “may,” “milestone,” “objective,” “on track,” “opportunity,” “outlook,” “pending,” “plan,” “position,” “possible,” “potential,” “predict,” “progress,” “roadmap,” “seek,” “should,” “strive,” “targets,” “to be,” “upcoming,” “will,” “would,” and variations of such words and similar expressions identify forward-looking statements, which are not historical in nature. Forward-looking statements may appear throughout this Quarterly Report and other documents we file with the Securities and Exchange Commission (the “SEC”). Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those anticipated by these forward-looking statements. These risks and uncertainties include, but are not limited to, the factors described in the section captioned “Risk Factors” in our Annual Report on Form 10-K, as amended (the “Form 10-K”), initially filed with the SEC on March 8, 2024.
We urge investors to consider all of the risks, uncertainties, and other factors disclosed in these filings carefully in evaluating the forward-looking statements contained in this Quarterly Report. We cannot assure you that the results or developments anticipated by us and reflected or implied by any forward-looking statement contained in this Quarterly Report will be realized or, even if substantially realized, that those results or developments will result in the forecasted or expected consequences for us or affect us, our operations or financial performance as we forecasted or expected. As a result of the matters discussed above and other matters, including changes in facts, assumptions not being realized, or other factors, the actual results relating to the subject matter of any forward-looking statement in this Quarterly Report may differ materially from the anticipated results expressed or implied in that forward-looking statement. The forward-looking statements included in this Quarterly Report are made only as of the date of this Quarterly Report, and we undertake no obligation to update any such statements to reflect subsequent events or circumstances.
ii
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
ALLARITY THERAPEUTICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands, except for share and per share data)
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Other current assets | ||||||||
| Prepaid expenses | ||||||||
| Tax credit receivable | ||||||||
| Total current assets | ||||||||
| Non-current assets: | ||||||||
| Property, plant and equipment, net | ||||||||
| Intangible assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Warrant derivative liability | ||||||||
| Income taxes payable | ||||||||
| Convertible promissory notes and accrued interest, net of debt discount | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities: | ||||||||
| Deferred tax | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 15) | ||||||||
| Stockholders’ (deficit) equity | ||||||||
| Series A Preferred stock $ | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity (deficit) | ( | ) | ||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
1
ALLARITY THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
(U.S. dollars in thousands, except for share and per share data)
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | $ | $ | $ | $ | ||||||||||||
| General and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expenses) | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Foreign exchange (losses) gains | ( | ) | ( | ) | ( | ) | ||||||||||
| Change in fair value of derivative and warrant liabilities | ||||||||||||||||
| Net other income | ||||||||||||||||
| Net loss before tax benefit | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax benefit | ||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Deemed dividend on Series A Convertible Preferred Stock | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain on extinguishment of Series A Convertible Preferred Stock | ||||||||||||||||
| Deemed dividend of | ( | ) | ( | ) | ||||||||||||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| Other comprehensive loss, net of tax: | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Change in cumulative translation adjustment | ( | ) | ( | ) | ( | ) | ||||||||||
| Total comprehensive loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
See accompanying notes to condensed consolidated financial statements.
2
ALLARITY THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE STOCKHOLDERS’ EQUITY (DEFICIT)
For the three and six months ended June 30, 2024 and 2023
(Unaudited)
(U.S. dollars in thousands, except for share data)
| Series A Preferred Stock | Series B Preferred Stock | Series C Convertible Preferred Stock | Series A Preferred Stock | Common Stock | Additional Paid in | Accumulated Other Comprehensive | Accumulated | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||||||||
| Number | Value | Number | Value | Number | Value | Number | Value | Number | Value | Capital | Loss | Deficit | (Deficit) | |||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of Series C Convertible Preferred Stock, net | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deemed dividend of | — | — | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||
| Round up of common shares issued as a result of | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of Preferred Stock into common stock, net | ( | ) | ( | ) | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Redemption of Series B Preferred Stock | ( | ) | ( | ) | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock based compensation (recoveries) | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Currency translation adjustment | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Loss for the period | — | — | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2023 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||||||||||
3
| Series A Preferred Stock | Series C Convertible Preferred Stock | Series A Preferred Stock | Common Stock | Additional Paid in | Accumulated Other Comprehensive | Accumulated | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||
| Number | Value | Number | Value | Number | Value | Number | Value | Capital | Loss | Deficit | (Deficit) | |||||||||||||||||||||||||||||||||||||
| Issuance of common stock, net, April 2023 Financing | ||||||||||||||||||||||||||||||||||||||||||||||||
| Round up of common shares issued as a result of | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Fair value of April Warrants allocated to liabilities, net of financing costs | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Conversion of Series A Preferred Stock into common stock | ( | ) | ( | ) | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Deemed dividends on Series C Preferred Stock | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Elimination of Series A redemption rights | ( | ) | ( | ) | — | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Issuance of Series A Preferred Stock as repayment of debt | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Redemption of Series A Preferred Stock for cancellation of debt | — | — | ( | ) | ( | ) | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Exchange of Series C Preferred stock for Series A Preferred stock | — | ( | ) | ( | ) | — | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Stock based compensation | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Currency translation adjustment | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Loss for the period | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2023 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
4
| Series A Convertible Preferred Stock | Common Stock | Additional Paid in | Accumulated Other Comprehensive | Accumulated | Total Stockholders’ Equity | |||||||||||||||||||||||||||
| Number | Value, net | Number | Value | Capital | Loss | Deficit | (Deficit) | |||||||||||||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
| Conversion of preferred stock into common stock, net | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Extinguishment of preferred stock | — | ( | ) | |||||||||||||||||||||||||||||
| Deemed dividend on preferred stock | — | ( | ) | |||||||||||||||||||||||||||||
| Shares issued for compensation | — | |||||||||||||||||||||||||||||||
| Sale of common shares, net | — | |||||||||||||||||||||||||||||||
| Stock based compensation (recoveries) | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Currency translation adjustment | — | — | ||||||||||||||||||||||||||||||
| Loss for the period | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance, March 31, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
| Conversion of preferred stock into common stock, net | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Extinguishment of preferred stock | — | ( | ) | — | ||||||||||||||||||||||||||||
| Deemed dividend on preferred stock | — | — | ( | ) | ||||||||||||||||||||||||||||
| Cashless exercise of 3i Exchange Warrants | — | |||||||||||||||||||||||||||||||
| Sale of common shares, net | — | |||||||||||||||||||||||||||||||
| Stock based compensation (recoveries) | — | — | ||||||||||||||||||||||||||||||
| Currency translation adjustment | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||
| Loss for the period | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance, June 30, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
5
ALLARITY THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(U.S. dollars in thousands)
| Six months ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss for the period | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Stock-based compensation (recoveries) | ( | ) | ||||||
| Unrealized foreign exchange (gains) losses | ( | ) | ||||||
| Non-cash financing cost | ||||||||
| Non-cash interest | ||||||||
| Change in fair value of warrant and derivative liabilities | ( | ) | ( | ) | ||||
| Deferred income taxes | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Other current assets | ( | ) | ||||||
| Tax credit receivable | ( | ) | ( | ) | ||||
| Prepaid expenses | ||||||||
| Accounts payable | ( | ) | ||||||
| Accrued liabilities | ||||||||
| Income taxes payable | ( | ) | ( | ) | ||||
| Operating lease liability | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from ATM sales of common stock, net of issuance costs | ||||||||
| Net proceeds from sale of common stock and pre-funded warrant issuance | ||||||||
| Proceeds from Series C Convertible Preferred Stock issuance, net of costs | ||||||||
| Redemption of Series B Preferred Stock | ( | ) | ||||||
| Proceeds from 3i promissory notes | ||||||||
| Repayment of 3i debt and promissory notes | ( | ) | ( | ) | ||||
| Redemption of Series A Preferred Stock | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Net increase (decrease) in cash | ( | ) | ||||||
| Effect of exchange rate changes on cash | ||||||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| Supplemental information | ||||||||
| Cash paid for income taxes | ||||||||
| Cash paid for interest | ||||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Conversion of Series A Redeemable Preferred Stock | ||||||||
| Deemed dividend on Series A Preferred Stock | ( | ) | ( | ) | ||||
| Gain on extinguishment of Series A Preferred Stock | ||||||||
| Stock issued in conjunction with consulting agreement | ||||||||
| Issuance of | ||||||||
| Issuance of | ||||||||
| Issuance of Series A Preferred Stock to extinguish $ | ||||||||
| Deemed dividend on elimination of Series A redemption rights | ( | ) | ||||||
| Deemed dividend on exchange of Series C Preferred Stock for Series A Preferred Stock | ( | ) | ||||||
| Deemed dividend on Series C Convertible Preferred Stock, and accretion of Series C Preferred Stock to redemption value | ( | ) | ||||||
See accompanying notes to condensed consolidated financial statements.
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended June 30, 2024 and June 30, 2023
(UNAUDITED)
(U.S. dollars in thousands, except for share and per share data and where otherwise noted)
1. Organization, Principal Activities and Basis of Presentation
Allarity Therapeutics, Inc. and Subsidiaries (the “Company”) is a clinical stage pharmaceutical company that develops drugs for the personalized treatment of cancer using drug specific companion diagnostics generated by its proprietary drug response predictor technology, DRP®. Additionally, the Company, through its Danish subsidiary, Allarity Denmark (previously Oncology Venture ApS), specializes in the research and development of anti-cancer drugs.
The Company’s principal operations are located at Venlighedsvej 1, 2970 Horsholm, Denmark. The Company’s business address in the Unites States is located at 24 School Street, 2nd Floor, Boston, MA 02108.
(a) Reverse Stock Split
On
April 9, 2024,
(b) Liquidity
The accompanying unaudited condensed interim consolidated financial statements (the “Financial Statements”) have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business.
Pursuant to the requirements of Accounting Standard Codification (ASC) 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the accompanying unaudited interim condensed consolidated financial statements were issued.
As a biopharmaceutical organization, the Company has devoted substantially all of its resources since inception to research and development activities for its Drug Response Predictor “DRP” in conjunction with product candidates, business planning, raising capital, establishing its intellectual property portfolio, acquiring or discovering product candidates, and providing general and administrative support for these operations. As a result, the Company has incurred significant operating losses and negative cash flows from operations since its inception and anticipates such losses and negative cash flows will continue for the foreseeable future.
Since inception the Company has
funded its operations primarily from sales of its stock. The Company has incurred significant losses and has an accumulated deficit of
$
7
While the Company believes its capital resources are sufficient to fund the Company’s on-going operations for the next 12 months from the issuance date of these unaudited condensed consolidated financial statements, the Company’s liquidity could be materially affected over this period by: (1) its ability to raise additional capital through equity offerings, debt financings, or other non-dilutive third-party funding; (2) costs associated with new or existing strategic alliances, or licensing and collaboration arrangements; (3) negative regulatory events or unanticipated costs related to the DRP; (4) any other unanticipated material negative events or costs. One or more of these events or costs could materially affect the Company’s liquidity. If the Company is unable to meet its obligations when they become due, the Company may have to delay expenditures, reduce the scope of its research and development programs, or make significant changes to its operating plan. The accompanying unaudited interim condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
(c) Basis of Presentation
The unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) as established by the Financial Accounting Standards Board (the “FASB”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (the “SEC”).
The unaudited interim condensed consolidated financial statements contain all normal and recurring adjustments necessary to state fairly the consolidated balance sheet, results of operations and comprehensive loss, statements of changes in redeemable convertible preferred stock and stockholders’ equity (deficit), and cash flows of the Company for the interim periods presented. Except as otherwise disclosed, all such adjustments consist only of those of a normal recurring nature. Operating results for the three and six months ended June 30, 2024, are not necessarily indicative of the results that may be expected for the current fiscal year ending December 31, 2024. The financial data presented herein do not include all disclosures required by U.S. GAAP and should be read in conjunction with the audited consolidated financial statements and accompanying notes as of and for the fiscal years ended December 31, 2023 and 2022, thereto included in the Company’s Annual Report on Form 10-K, as amended (the “Form 10-K”) initially filed with the SEC on March 8, 2024.
The preparation of unaudited interim condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and disclosure of contingent assets and liabilities at the date of the unaudited interim condensed consolidated financial statements and the reported amounts of revenue and expenses during the reported period. Actual results could differ from these estimates and assumptions.
(d) Risks and Uncertainties
The Company is subject to risks common to companies in the biotechnology industry, including but not limited to, risks of failure of preclinical studies and clinical trials, the need to obtain marketing approval for any drug product candidate that it may identify and develop, the need to successfully commercialize and gain market acceptance of its product candidates, dependence on key personnel and collaboration partners, protection of proprietary technology, compliance with government regulations, development by competitors of technological innovations, and the ability to secure additional capital to fund operations. Product candidates currently under development will require significant additional research and development efforts, including preclinical and clinical testing and regulatory approval prior to commercialization. Even if the Company’s research and development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.
8
2. Summary of Significant Accounting Policies
There have been no new or material changes to the significant accounting policies discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, that are of significance, or potential significance, to the Company.
(a) Organization and Principles of Consolidation
| Name | Country of Incorporation | |
| Allarity Acquisition Subsidiary Inc. | ||
| Allarity Therapeutics Europe ApS (formerly Oncology Venture Product Development ApS)* | ||
| Allarity Therapeutics Denmark ApS (formerly OV-SPV2 ApS)* | ||
| MPI Inc.*(1) |
| * | |
| (1) |
All intercompany transactions and balances, including unrealized profits from intercompany sales, have been eliminated upon consolidation.
(b) Foreign currency and currency translation
The functional currency is the currency of the primary economic environment in which an entity’s operations are conducted. The Company and its subsidiaries operate mainly in Denmark and the United States. The functional currencies of the Company’s subsidiaries are their local currency.
The Company’s reporting currency is the U.S. dollar. The Company translates the assets and liabilities of its Denmark subsidiaries into the U.S. dollar at the exchange rate in effect on the balance sheet date. Revenues and expenses are translated at the average exchange rate in effect during each monthly period. Unrealized translation gains and losses are recorded as a cumulative translation adjustment, which is included in the condensed consolidated statements of changes in stockholders’ equity (deficit) as a component of accumulated other comprehensive loss.
Monetary assets and liabilities denominated in currencies other than the functional currency are remeasured into the functional currency at rates of exchange prevailing at the balance sheet dates. Non-monetary assets and liabilities denominated in foreign currencies are re-measured into the functional currency at the exchange rates prevailing at the date of the transaction. Exchange gains or losses arising from foreign currency transactions are included in the determination of net loss for the respective periods. Adjustments that arise from exchange rate translations are included in other comprehensive loss in the condensed consolidated statements of operations and comprehensive loss as incurred.
Adjustments
that arise from exchange rate translations are included in other comprehensive loss in the consolidated statements of operations and
comprehensive loss as incurred. During the three months ended June 30, 2024 and 2023, the Company recorded accumulated foreign currency
translation losses of ($
9
(c) Concentrations of credit risk and of significant suppliers
Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains its cash and cash equivalents in financial institutions in amounts that could exceed government-insured limits. The Company does not believe it is subject to additional credit risks beyond those normally associated with commercial banking relationships. The Company has not experienced losses on its cash and cash equivalents accounts and management believes, based upon the quality of the financial institutions, that the credit risk regarding these deposits is not significant. The Company is dependent on third-party manufacturers to supply products for research and development activities in its programs. In particular, the Company relies and expects to continue to rely on a small number of manufacturers to supply its requirements for supplies and raw materials related to these programs. These programs could be adversely affected by a significant interruption in these manufacturing services or the availability of raw materials.
(d) Cash and cash equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The Company maintains deposits primarily in financial institutions, which may at times exceed amounts covered by insurance provided by the U.S. Federal Deposit Insurance Corporation (“FDIC”). The Company has not experienced any losses related to amounts in excess of FDIC limits.
(e) Accumulated other comprehensive loss
Accumulated other comprehensive loss includes net loss as well as other changes in stockholders’ equity (deficit) that result from transactions and economic events other than those with shareholders. The Company records unrealized gains and losses related to foreign currency translation and instrument specific credit risk as components of other accumulated comprehensive loss in the condensed consolidated statements of operations and comprehensive loss. During the three and six months ended June 30, 2024, and 2023, the Company’s other comprehensive gain was comprised of currency translation adjustments.
(g) Reclassification
During
the six months ended June 30, 2023, we have reclassified financing costs of $
(h) Recently Issued Accounting Pronouncements
Changes to U.S. GAAP are established by the FASB in the form of accounting standards updates (“ASUs”) to the FASB’s Accounting Standards Codification. The Company considers the applicability and impact of all ASUs. All ASUs issued through the date of the Financial Statements were assessed and determined not to be applicable or are expected to have minimal impact on the Company’s condensed consolidated financial position and results of operations.
3. Intangible assets
During the six months ended June 30, 2024, because no impairment indicators were identified no impairment analysis was performed at June 30, 2024.
The
Company’s IPR&D assets have been classified as indefinite-lived intangible assets. The Company’s individual material
development project in progress, Stenoparib, is recorded at $
10
4. Accrued liabilities
| June 30, 2024 | December 31, 2023 | |||||||
| Development cost liability | $ | $ | ||||||
| Accrued interest on milestone liabilities | ||||||||
| Accrued audit and legal | ||||||||
| Payroll accruals | ||||||||
| Accrued consulting fees | ||||||||
| Other | ||||||||
| $ | $ | |||||||
5. Convertible promissory note due to Novartis
On
January 26, 2024, we received a termination notice from Novartis Pharma AG, a company organized under the laws of Switzerland (“Novartis”)
due to a material breach of that certain license agreement dated April 6, 2018, as amended to date (the “License Agreement”).
Accordingly, under the terms of the License Agreement, the Company ceased all development and commercialization activities with respect
to all licensed products, all rights and licenses granted by Novartis to the Company reverted to Novartis; and all liabilities due to
Novartis became immediately due and payable inclusive of interest which is continuing to accrue at
6. Convertible senior promissory notes due to 3i, LP (3i”)
| (a) | 3i Convertible Senior Promissory Notes (2024) (collectively the “2024 Notes”) |
During the three months ended March 31, 2024, the Company entered into a Securities Purchase Agreement (the “SPA”), as amended, with 3i, pursuant to which three senior convertible promissory notes were issued as follows:
| i. | On January 18, 2024, in an aggregate principal amount of $ |
| ii. | On February 13, 2024, in an aggregate principal amount of $ |
| iii. | On March 14, 2024, in an aggregate principal amount of $ |
The Company agreed to use the net proceeds from the sale of the 2024 Notes, among other things, for accounts payable and for working capital purposes. Unless the transaction documents state otherwise, the Company may not prepay any portion of the principal amount of the 2024 Notes without 3i’s prior written consent.
11
The
Company agreed to pay interest to 3i on the aggregate unconverted and then outstanding principal amount of the 2024 Notes at the rate
of
Redemption
Subject
to the provisions of the 2024 Notes, if, at any time while the 2024 Notes are outstanding, the Company engages in one or more subsequent
financings, 3i may require us to first use up to
The 2024 Notes and accrued interest were redeemed in full and cancelled on May 6, 2024.
| (b) | 3i Convertible Secured Promissory Notes (2023) |
On
November 22, 2022, the Company entered into a Secured Note Purchase Agreement (“Purchase Agreement”) with 3i, whereby the
Company authorized the sale and issuance of three Secured Promissory Notes (each a “Note” and collectively, the “Notes”).
Effective November 28, 2022, the Company issued: (1) a Note in the principal amount of $
Each
Note matured on
The 3i Convertible Secured Promissory Notes were paid in full and cancelled on April 21, 2023.
12
7. Preferred Stock
| A. | Series A Convertible Preferred Stock and Common Stock Purchase Warrants |
(a) Amendments to Series A Convertible Preferred Stock
| i. | Determination of Conversion Price Adjustments for Series A Preferred Stock |
On December 9, 2022, the Company and 3i entered into a letter agreement (the “2022 Letter Agreement”) which provided that pursuant to Section 8(g) of the Company’s Certificate of Designations for the Series A Preferred Stock (the “COD”), the Company and 3i agreed that the Conversion Price (as defined in the COD) was modified to mean the lower of: (i) the Closing Sale Price (as defined in the COD) on the trading date immediately preceding the Conversion Date (as defined in the COD) and (ii) the average Closing Sale Price (as defined in the COD) of the common stock for the five trading days immediately preceding the Conversion Date (as defined in the COD), for the Trading Days (as defined in the COD) through and inclusive of January 19, 2023. Any conversion which occurs shall be voluntary at the election of 3i, which shall evidence its election as to the Series A Preferred Stock being converted in writing on a conversion notice setting forth the then Minimum Price (as defined in the COD). Management determined that the adjustment made to the Conversion Price is not a modification of the COD which allows for adjustments to the Conversion Price (as defined in the COD) at any time by the Company and the other terms of the COD remained unchanged.
On January 23, 2023, the Company and 3i amended the 2022 Letter Agreement, to provide that the modification of the term Series A Preferred Stock Conversion Price (the “Series A Preferred Stock Conversion Price”) to mean the lower of: (i) the Closing Sale Price (as defined in the COD) on the trading date immediately preceding the Conversion Date (as defined in the COD and (ii) the average Closing Sale Price (as defined in the COD) of the Company’s shares of Common Stock for the five trading days immediately preceding the Conversion Date (as defined in the COD), for the Trading Days (as defined in the COD) will be in effect until terminated by the Company and 3i.
| ii. | Modification to Conversion Price of Series A Preferred Stock and 3i Exchange Warrants |
On
January 14, 2024, pursuant to the terms of the First Note, the Company modified the conversion price of the 3i Exchange Warrants from
$
On
February 13, 2024, pursuant to the terms of the Second Note, the Company modified the conversion price of the 3i Exchange Warrants from
$
13
On
March 14, 2024, pursuant to the terms of the Third Note, the Company modified the conversion price of the 3i Exchange Warrants from $
During
the period April 1, 2024, through May 2, 2024, the Company amended the conversion prices of the Series A Convertible Preferred Stock,
the Exchange Warrants and the 2024 Notes to equal the current last sale price of its shares of Common Stock of $
(b) Accounting
| i. | Series A Preferred Stock |
As
a result of fair value adjustments during the six-month period ended June 30, 2024, the Company recognized a deemed dividend of $
| January 14 – March 14, 2024 | April 5 – May 2, 2024 | |||
| Initial exercise price | $ | $ | ||
| Stock price on valuation date | $ | $ | ||
| Risk-free rate | ||||
| Term (in years) | ||||
| Rounded annual volatility |
| iii. | 3i Exchange Warrants |
The 3i Exchange Warrants were identified as a freestanding financial instrument and meet the criteria for derivative liability classification, initially measured at fair value. Subsequent changes in fair value are recognized through earnings for as long as the contracts continue to be classified as a liability. The measurement of fair value is determined utilizing an appropriate valuation model considering all relevant assumptions current at the date of issuance and at each reporting period (i.e., share price, exercise price, term, volatility, risk-free rate and expected dividend rate).
(c) Series A Preferred Stock and 3i Exchange Warrant Conversions
| i. | Six month period ended June 30, 2024 |
During the six-month period ended June 30, 2024:
| (a) | 3i
exercised its option to convert |
| (b) | 3i exercised its option to convert |
14
| i. | Six month period ended June 30, 2023 |
During
the six-month period ended June 30, 2023, 3i exercised its option to convert
| Consolidated Balance Sheets | Consolidated Statement of Operations & Comprehensive Loss | |||||||||||||||||||
| Warrant
Derivative liability | Series
A Preferred Stock | Common Stock | Additional
paid-in capital | Fair
value adjustment to derivative and warrant liabilities | ||||||||||||||||
| Balances, December 31, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| Conversion of | ( | ) | ||||||||||||||||||
| Extinguishment of Series A Preferred Stock | ( | ) | ||||||||||||||||||
| Deemed dividend on January 14, 2024, modification | ( | ) | ||||||||||||||||||
| Fair value adjustment | ( | ) | ||||||||||||||||||
| Balances, March 31, 2024 | ( | ) | ||||||||||||||||||
| Conversion of | ( | ) | ||||||||||||||||||
| Extinguishment of Series A Preferred Stock | ( | ) | ||||||||||||||||||
| Deemed dividend on modification of Series A Preferred Stock | ( | ) | ||||||||||||||||||
| Cashless exercise of 3i Exchange Warrants | ( | ) | ||||||||||||||||||
| Fair value adjustment | ( | ) | ||||||||||||||||||
| Balances, June 30, 2024 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| Consolidated Balance Sheets | Consolidated Statement of Operations & Comprehensive Loss | |||||||||||||||||||
| Warrant
liability | Series
A Convertible Preferred Stock – Mezzanine Equity | Series A Preferred Stock | Additional
paid-in capital | Fair
value adjustment to derivative and warrant liabilities | ||||||||||||||||
| Balances, December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| Conversion of | ( | ) | ||||||||||||||||||
| Fair value adjustment | ( | ) | ||||||||||||||||||
| Balances, March 31, 2023 | ( | ) | ||||||||||||||||||
| Conversion of | ( | ) | ( | ) | ||||||||||||||||
| Elimination of redemption rights on Series A Preferred stock; deemed dividend of $ | ( | ) | ( | ) | ||||||||||||||||
| Redemption of | ( | ) | ||||||||||||||||||
| Issuance of | ||||||||||||||||||||
| Exchange of | ( | ) | ||||||||||||||||||
| Fair value adjustment | ( | ) | ||||||||||||||||||
| Balances, June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||
15
| B. | Series C Convertible Preferred Stock |
On
February 28, 2023, the Company entered into a Securities Purchase Agreement (the “2023 SPA”) with 3i for the purchase and
sale of
The
Company evaluated the terms of the Series C Preferred Stock as required pursuant to ASC 570, 480, 815 and ASU 2020-06, and concluded
the Series C Preferred Stock will be recorded at fair value of $
| June 30, 2023 | ||||
| Series C Preferred Stock, cash received | $ | |||
| Less debt discount, opening | ( | ) | ||
| Plus, | ||||
| Exchange of Series C Preferred stock for Series A Preferred stock | ( | ) | ||
| Series C Preferred Stock – net, ending balance | $ | |||
8. Derivative Liabilities
| (a) | Continuity of Common Share Purchase Warrant and 3i Warrant Derivative Liabilities |
| Common Share Purchase Warrants | 3i Exchange Warrants | |||||||
| Balance as of January 1, 2023 | $ | $ | ||||||
| Issuance date fair value of April, July & September 2023 Common share purchase warrants | ||||||||
| Modifications to fair value upon exercise | ||||||||
| Change in fair value adjustment of derivative and warrant liabilities | ( | ) | ||||||
| Amount transferred to Equity | ( | ) | ( | ) | ||||
| Balance as of December 31, 2023 | $ | $ | ||||||
| Fair value per Common warrant / 3i Warrant / issuable at December 31, 2023 | $ | $ | ||||||
16
| Common Share Purchase Warrants | 3i Exchange Warrants | |||||||
| Balance as of January 1, 2024 | $ | $ | ||||||
| Change in fair value adjustment of derivative and warrant liabilities | ( | ) | ( | ) | ||||
| Cashless conversion of 3i Exchange Warrants | ( | ) | ||||||
| Balance as of June 30, 2024 | $ | $ | ||||||
| Fair value per Common warrant issuable at June 30, 2024 | $ | $ | ||||||
| (b) | Common Share Purchase Warrants – Valuation Inputs |
| April 2023 Warrants | July 2023 Warrants | September 2023 Inducement Warrants | ||||||||||
| Initial exercise price | $ | $ | $ | |||||||||
| Stock price on valuation date | $ | |||||||||||
| Risk-free rate | % | % | % | |||||||||
| Term (in years) | ||||||||||||
| Rounded annual volatility | % | % | % | |||||||||
| (c) | 3i Exchange Warrants – Valuation Inputs |
| June 30, 2023 | ||||
| Initial exercise price | $ | |||
| Stock price on valuation date | $ | |||
| Risk-free rate | % | |||
| Expected life of the Warrant to convert (years) | ||||
| Rounded annual volatility | % | |||
| Timing of liquidity event | ||||
| Expected probability of event | % | |||
17
9. Stockholders’ Equity
(a) Amendment to Certificate of Incorporation – Reverse Share Split
On
April 4, 2024,
(b) Share issuances
| i. | Three month period ended June 30, 2024 |
During the three month period ended June 30, 2024:
| (a) | On March 19, 2024, the Company entered into an open market sale agreement (as amended, the “ATM Agreement”) with Ascendiant Capital (“Ascendiant”) pursuant to which, the Company may sell from time to time, through Ascendiant, shares of its common stock for an aggregate sales price of up to $ |
| (b) | 3i exercised its option to convert |
| (c) | 3i converted |
| ii. | Three month period ended June 30, 2023 |
During the three months ended June 30, 2023, the Company issued:
(a)
(b)
18
| iii. | Six month period ended June 30, 2024 |
During the six months ended June 30, 2024:
| (a) | 3i exercised its option to convert |
| (b) | The Company issued |
| (c) | the Company issued and sold |
| iv. | Six month period ended June 30, 2023 |
During the six months ended June 30, 2023, the Company issued
10. Stock-based payment plan and stock-based payments
Amended and Restated 2021 Equity Incentive Plan (the “Plan”)
During the six months ended June 30, 2024, pursuant to approval by the Company’s Board of Directors, the Company has amended and restated the Plan as follows:
| i. | Number of shares available: increased the number of shares reserved and available for grant and issuance pursuant to the Plan to |
| ii. | Automatic Share Reserve Increase: The number of Shares available for grant and issuance under the Plan will be increased on January 1st of each of 2022 through 2031, by the lesser of (a) |
19
Stock-based payments
During
the three months ended June 30, 2024, total stock-based payment expenses recorded in the condensed consolidated statement of operations
and comprehensive loss were $
During
the six months ended June 30, 2024, total stock-based (recoveries) recognized in the condensed consolidated statement of operations and
comprehensive loss were ($
Total
compensation cost for non-vested warrants as at June 30, 2024, is $
| Options Outstanding | ||||||||||||
| Number of Shares | Weighted Average Exercise Price Share | Weighted Average Life (in years) | ||||||||||
| Outstanding December 31, 2023 | $ | |||||||||||
| Cancelled or expired | ( | ) | — | |||||||||
| Outstanding as of June 30, 2024 | $ | |||||||||||
| Options exercisable at June 30, 2024 | $ | |||||||||||
11. License and Development Agreements
| (a) | License Agreement with Novartis for Dovitinib |
On
January 26, 2024, the Company received a termination notice from Novartis due to a material breach of the License Agreement. Accordingly,
under the terms of the License Agreement, the Company ceased all development and commercialization activities with respect to all licensed
products, all rights and licenses granted by Novartis to the Company reverted to Novartis; and all liabilities due to Novartis became
immediately due and payable inclusive of interest which is continuing to accrue at
20
| (b) | License Agreement with Eisai Inc. for Stenoparib |
The Company holds the exclusive worldwide rights to all preventative, therapeutic and/or diagnostic uses related to cancer in humans and by amendment to the agreement on December 11, 2020, viral infections in humans (including, but not limited to, coronaviruses) for Stenoparib from Eisai, Inc. (“Eisai”) pursuant to a license agreement (the “Eisai License Agreement”). Pursuant to the Eisai License Agreement, the Company is solely responsible for the development of Stenoparib during the term of the Eisai License Agreement. Eisai License Agreement also provides for a joint development committee consisting of six members, three appointed by us and three appointed by Eisai. One of the Company’s members of the joint development committee is designated chair of the committee and has the power to break any deadlock in decisions by the committee that must be made by a majority vote with each representative having one vote. The purpose of the committee is to implement and oversee development activities for Stenoparib pursuant to the clinical development plan, serving as a forum for exchanging data, information and development strategy.
Effective July 12, 2022, the Company’s July 6, 2017 Exclusive License Agreement with Eisai Inc. (the “Third Amendment”), the terms of the original exclusive license were further amended in order to (1) further postpone the due date of the extension payment and extend the deadline for the Company’s successful completion of its first Phase 1b or Phase 2 clinical trial for Stenoparib beyond December 31, 2022; and (2) amend terms related to Eisai’s right of termination of development.
On
May 26, 2023, the Company and Eisai entered into a fourth amendment to the Exclusive License Agreement with an effective date of May
16, 2023, to postpone the extension payment, restructure the payment schedule and extend the deadline to complete enrollment in a further
Phase 1b or Phase 2 Clinical Trial for the Stenoparib. The Company agreed to pay Eisai in periodic payments as follows: (i) $
On
February 26, 2024, in exchange for an additional $
Development Milestone Payments
The
Company has agreed to make milestone payments to Eisai in connection with the development of Stenoparib by the Company or its affiliates,
or by a third-party program acquirer that assumes control of the Stenoparib development program from the Company corresponding to: (i) successful
completion of a Phase 2 clinical trial; (ii) upon dosing of the first patient in the first Phase 3 clinical trial; (iii) upon
submission of the first NDA with the FDA; (iv) submission of an MAA to the EMA; (v) submission of an NDA to the MHLW in Japan;
(vi) upon receipt of authorization by the FDA to market and sell a licensed product; (vii) upon receipt of approval of an MAA
by the EMA for a licensed product; and (viii) upon receipt of approval by the MHLW in Japan for a licensed product. If all milestones
have been achieved, the Company may be obligated to pay Eisai up to a maximum of $
Royalty Payments
In
addition to the milestone payments described above, the Company has agreed to pay Eisai royalties based on annual incremental sales of
product derived from Stenoparib in an amount between
The Company is obligated to pay royalties under the agreement on a country-by-country and product-by-product basis for a period that commences with the first commercial sale of a product until the later of (i) the expiration of the last to expire valid claim of any licensed patent covering such licensed product in such country; or, (ii) the expiration of regulatory-based exclusivity for such licensed product in such country or (iii) the 15 year anniversary of the date of first commercial sale of such licensed product in such country. However, the agreement may be terminated sooner without cause by the Company upon 120 days prior written notice, or upon written notice of a material breach of the agreement by Eisai that is not cured within 90 days (30 days for a payment default).
Eisai also has the right to terminate the agreement upon written notice of a material breach of the agreement by the Company that is not cured within 90 days (30 days for a payment default) or if the Company files for bankruptcy. As of the date of this filing, the Company is currently renegotiating the terms of its Exclusive License with Eisai.
21
Option to Reacquire Rights to Stenoparib
For the period commencing with enrollment of the first five patients in a Phase 2 clinical trial pursuant to the clinical development plan and ending 90 days following successful completion of such Phase 2 clinical trial, Eisai has the option to reacquire our licensed rights to develop Stenoparib for a purchase price equal to the fair market value of our rights, giving effect to the stage of development of Stenoparib that we have completed under the agreement. The Company commenced a Phase 2 clinical trial April 15, 2019, and as of the date of the Financial Statements, Eisai has not indicated an intention to exercise its repurchase option.
12. Related party
During
the six month periods June 30, 2024 and 2023, a director of the Company was paid $
13. Loss per share of common stock
Basic
loss per share is derived by dividing net loss applicable to common stockholders by the weighted average number of shares of common stock
outstanding during each period. Diluted loss per share includes the effect, if any, of the potential exercise or conversion of securities,
such as warrants and stock options, which would result in the issuance of incremental shares of common stock unless such effect is anti-dilutive.
In calculating the basic and diluted net loss per share applicable to common stockholders, the weighted average number of shares remained
the same for both calculations because when a net loss exists, dilutive shares are not included in the calculation.
| Three- and six-months ended | ||||||||
| June 30, | June 30, | |||||||
| 2024 | 2023 | |||||||
| Warrants and stock options | ||||||||
| Series A Convertible Preferred stock | ||||||||
14. Financial Instruments
| Fair Value Measurements as of June 30, 2024, Using: | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Liabilities: | ||||||||||||||||
| Warrant liability | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||
| $ | $ | $ | ( | ) | $ | ( | ) | |||||||||
| Fair Value Measurements as of December 31, 2023, Using: | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Liabilities: | ||||||||||||||||
| Warrant liability | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||
| Derivative warrant liability | ( | ) | ( | ) | ||||||||||||
| $ | $ | $ | ( | ) | $ | ( | ) | |||||||||
22
Methods used to estimate the fair values of our financial instruments, not disclosed elsewhere in the Financial Statements, are as follows:
When available, the Company’s marketable securities are valued using quoted prices for identical instruments in active markets. If the Company is unable to value its marketable securities using quoted prices for identical instruments in active markets, the Company values its investments using broker reports that utilize quoted market prices for comparable instruments. The Company has no financial assets or liabilities measured using Level 2 inputs. Financial assets and liabilities are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies, or similar techniques, and at least one significant model assumption or input is unobservable.
The Company recognizes its derivative liabilities as Level 3 and values its derivatives using the methods described in Note 8. While the Company believes that its valuation methods are appropriate and consistent with other market participants, it recognizes that the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. The primary assumptions that would significantly affect the fair values using terms in the notes that are subject to volatility and market price of the underlying shares of Common Stock.
The Company reviews the fair value hierarchy classification on a quarterly basis. Changes in the ability to observe valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy. The Company’s policy is to recognize transfers into and out of levels within the fair value hierarchy at the date the actual event or change in circumstances that caused the transfer occurs. When a determination is made to classify an asset or liability within Level 3, the determination is based upon the significance of the unobservable inputs to the overall fair value measurement. There were no transfers between Level 1 or Level 2 during the six-month periods ended June 30, 2024 and 2023.
15. Commitments and Contingencies
| (a) | SEC Investigation |
On July 19, 2024, the Company received a “Wells Notice” from the Staff of the SEC relating to the Company’s previously disclosed SEC investigation. The Wells Notice relates to the Company’s disclosures regarding meetings with the United States Food and Drug Administration (the “FDA”) regarding the Company’s NDA for Dovitinib or Dovitinib-DRP, which was submitted to the FDA in 2021. The Company understands that all conduct relating to the SEC Wells Notice occurred during or prior to fiscal year 2022. The Company also understands that three of its former officers received Wells Notices from the SEC relating to the same conduct. A Wells Notice is neither a formal charge of wrongdoing nor a final determination that the recipient has violated any law. The Wells Notice informed the Company that the SEC Staff has made a preliminary determination to recommend that the SEC file an enforcement action against the Company that would allege certain violations of the federal securities laws. The Company is continuing to cooperate with the SEC and maintains that its actions were appropriate, and intends to pursue the Wells Notice process, including submitting a formal response to the SEC.
| (b) | Nasdaq Delisting Notifications |
On
June 18, 2024, the Company received a letter from the Nasdaq Listing Qualifications Staff (the “Staff”) of Nasdaq indicating
that the Company has not complied with the Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Rule”) which is the requirement
that for 30 consecutive business days the bid price for the Company’s common stock close above the $
16. Subsequent Events
For the Financial Statements, and for the six months then ended, the Company evaluated subsequent events through the date on which the Financial Statements were issued. All subsequent events not disclosed elsewhere in this Quarterly Report are disclosed below.
(a) ATM Offering – Sales
During
the period July 1, 2024 through August 5, 2024, the Company has sold
23
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
You should read the following discussion and analysis of our financial condition and results of operations together with “Cautionary Note Regarding Forward-Looking Statements” and our condensed consolidated financial statements and related notes included under Item 1 of this Quarterly Report as well as our most recent Annual Report on Form 10-K for the year ended December 31, 2023, as amended, including Part 1, Item 1A “Risk Factors.”
Overview
We are a biopharmaceutical company focused on discovering and developing highly targeted anti-cancer drug candidates. Through the use of its Drug Response Predictor (DRP®) platform, we identify the value in drug assets that have otherwise been discontinued by identifying patient populations where these drugs are active. Our lead drug candidate is: the poly-ADP-ribose polymerase (PARP) inhibitor stenoparib, or Stenoparib.
Recent Developments
Nasdaq Delisting Notifications
On June 18, 2024, the Company received a letter from the Nasdaq Listing Qualifications Staff (the “Staff”) of Nasdaq indicating that the Company has not complied with the Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Rule”) which is the requirement that for 30 consecutive business days the bid price for the Company’s common stock close above the $1 per share minimum bid price requirement for continued inclusion on the Nasdaq Capital Market. On June 27, 2024, the Company was granted a hearing before a Nasdaq Hearings Panel. On July 30, 2024, the Company was attended a hearing before a Nasdaq Hearings Panel and presented its plan for regaining compliance with the Bid Price Rule. Nasdaq has advised the Company to expect to receive a ruling within two weeks of July 30, 2024.
Special Meeting of Stockholders; Share Consolidation
We effected a 1-for-20 share consolidation of our Common Stock on April 9, 2024 (“Share Consolidation”). No fractional shares were issued in connection with the Share Consolidation. If, as a result of the Share Consolidation, a stockholder would otherwise have been entitled to a fractional share, each fractional share was rounded up to the next whole number. The Share Consolidation resulted in a reduction of our outstanding shares of Common Stock on June 30, 2024 from 6,854,604 to 342,774. The par value of our authorized stock remained unchanged at $0.0001.
SEC Investigation
On July 19, 2024, the Company received a “Wells Notice” from the Staff of the SEC relating to the Company’s previously disclosed SEC investigation. The Wells Notice relates to the Company’s disclosures regarding meetings with the United States Food and Drug Administration (the “FDA”) regarding the Company’s NDA for Dovitinib or Dovitinib-DRP, which was submitted to the FDA in 2021. The Company understands that all conduct relating to the SEC Wells Notice occurred during or prior to fiscal year 2022. The Company also understands that three of its former officers received Wells Notices from the SEC relating to the same conduct. A Wells Notice is neither a formal charge of wrongdoing nor a final determination that the recipient has violated any law. The Wells Notice informed the Company that the SEC Staff has made a preliminary determination to recommend that the SEC file an enforcement action against the Company that would allege certain violations of the federal securities laws. The Company is continuing to cooperate with the SEC and maintains that its actions were appropriate, and intends to pursue the Wells Notice process, including submitting a formal response to the SEC.
24
Risks and Uncertainties
The Company is subject to risks common to companies in the biotechnology industry, including but not limited to, risks of failure of preclinical studies and clinical trials, the need to obtain marketing approval for any drug product candidate that it may identify and develop, the need to successfully commercialize and gain market acceptance of its product candidates, dependence on key personnel and collaboration partners, protection of proprietary technology, compliance with government regulations, development by competitors of technological innovations, and the ability to secure additional capital to fund operations. Product candidates currently under development will require significant additional research and development efforts, including preclinical and clinical testing and regulatory approval prior to commercialization. Even if the Company’s research and development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.
Financial Operations Overview
Since our inception in September of 2004, we have focused substantially all our resources on conducting research and development activities, including drug discovery and preclinical studies, establishing, and maintaining our intellectual property portfolio, the manufacturing of clinical and research material, hiring personnel, raising capital and providing general and administrative support for these operations. In recent years, we have recorded very limited revenue from collaboration activities, or any other sources. We have funded our operations to date primarily from convertible notes and the issuance and sale of our ordinary shares.
We have incurred net losses in each year since inception. Our net losses were $5.0 million and $5.7 million for the six months ended June 30, 2024 and 2023, respectively. As of June 30, 2024, we had an accumulated deficit of $99.9 million and cash and cash equivalents of $19.2 million. Substantially all our net losses have resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations. We expect to continue to incur significant expenses and increasing operating losses over at least the next several years. We expect our expenses will increase substantially in connection with our ongoing activities, as we:
| ● | advance drug candidates through clinical trials; | |
| ● | pursue regulatory approval of drug candidates; |
| ● | operate as a public company; | |
| ● | continue our preclinical programs and clinical development efforts; | |
| ● | continue research activities for the discovery of new drug candidates; and | |
| ● | manufacture supplies for our preclinical studies and clinical trials. |
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Components of Operating Expenses
Research and Development Expenses
Research and development expenses include:
| ● | expenses incurred under agreements with third-party contract organizations, and consultants; | |
| ● | costs related to production of drug substance, including fees paid to contract manufacturers; | |
| ● | laboratory and vendor expenses related to the execution of preclinical trials; and | |
| ● | employee-related expenses, which include salaries, benefits, and stock-based compensation. |
We expense all research and development costs in the periods in which they are incurred. Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks and estimates of services performed using information and data provided to us by our vendors and third-party service providers. Non-refundable advance payments for goods or services to be received in future periods for use in research and development activities are deferred and accounted for as prepaid expenses. The prepayments are then expensed as the related goods are delivered and as services are performed. To date, most of these expenses have been incurred to advance our lead drug candidate Stenoparib.
We expect our research and development expenses on Stenoparib to increase substantially for the foreseeable future as we continue to invest to accelerate Stenoparib in clinical trials designed to attain regulatory approval. Costs related to dovitinib and IXEMPRA will decrease precipitously as these have been deprioritized/ terminated. We expect additional costs in research and development activities as we continue to conduct clinical trials. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and the successful development of our drug candidates is highly uncertain. As a result, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our drug candidates.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel-related costs, facilities costs, depreciation and amortization expenses and professional services expenses, including legal, human resources, audit, and accounting services. Personnel-related costs consist of salaries, benefits, and stock-based compensation. Facilities costs consist of rent and maintenance of facilities. We expect our general and administrative expenses to increase for the foreseeable future due to anticipated increases in headcount to advance our drug candidates and as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the SEC, Nasdaq, additional insurance expenses, investor relations activities and other administrative and professional services.
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Results of Operations for the Three and Six Months Ended June 30, 2024 and 2023 (unaudited) (in thousands, except where otherwise noted)
The following table summarizes our results of operations for the three and six months ended June 30, 2024 and 2023:
| For the three months ended June 30, | Increase/ | For the six months ended June 30, | Increase/ | |||||||||||||||||||||
| 2024 | 2023 | (Decrease) | 2024 | 2023 | (Decrease) | |||||||||||||||||||
| (In thousands) | (In thousands) | |||||||||||||||||||||||
| Operating costs and expenses: | ||||||||||||||||||||||||
| Research and development | $ | 1,058 | $ | 1,105 | $ | (47 | ) | $ | 3,228 | $ | 2,532 | $ | 696 | |||||||||||
| General and administrative | 2,313 | 3,051 | (738 | ) | 4,383 | 5,292 | (909 | ) | ||||||||||||||||
| Total operating costs and expenses | 3,371 | 4,156 | (785 | ) | 7,611 | 7,824 | (213 | ) | ||||||||||||||||
| Loss from operations: | (3,371 | ) | (4,156 | ) | 785 | (7,611 | ) | (7,824 | ) | 213 | ||||||||||||||
| Other income | 1,742 | 1,776 | (34 | ) | 2,135 | 2,092 | 43 | |||||||||||||||||
| Net loss | $ | (1,629 | ) | $ | (2,380 | ) | $ | 751 | $ | (5,476 | ) | $ | (5,732 | ) | $ | 256 | ||||||||
Research and Development Expenses
For the three months ended June 30, 2024, compared to June 30, 2023
The decrease of $47 in research and development expenses was primarily because research study costs increased by $204, and patents costs increased by $27; offset by increased tax credits of $5 and decreases in all other expenses as follows: contractors and consultants by $88, manufacturing and supplies by $82, staffing by $50, amortization by $8, and other expenses by $5. Staffing and contractor costs have decreased because of cost-cutting measures.
For the six months ended June 30, 2024, compared to June 30, 2023
The increase of $696 in research and development expenses was primarily because of increased manufacturing and supplies expenses of $442, research study costs of $317, milestone payments of $100, and patent costs of $37; offset by increased tax credits of $51 and decreases in all other expenses as follows: contractors by $37, staffing by $93, amortization by $16 and other by $3. Manufacturing and supplies expenses have increased because of increased drug manufacturing costs. Staffing and contractor costs have decreased because of cost-cutting measures.
General and Administrative Expenses
For the three months ended June 30, 2024, compared to June 30, 2023
General and administrative expenses decreased by $738 for the three months ended June 30, 2024, compared to June 30, 2023. The decrease was primarily due to increased audit and legal expenses of $327 and other expenses of $33; offset by decreases in financial consulting costs of $356, finance costs of $374, insurance of $188, staffing costs of $140, communication expenses of $40.
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For the six months ended June 30, 2024, compared to June 30, 2023
General and administrative expenses decreased by $909 for the six months ended June 30, 2024, compared to June 30, 2023. The decrease was primarily due to decreases of $495 in insurance expenses, $380 in finance expenses, $395 in financial consultant expenses, $67 in communication expenses, $24 in staffing expenses, and $16 in other administrative expenses; offset by an increase of $273 in audit and legal expenses, $201 in tax expense and $14 in premises expenses. Staffing costs have decreased because of cost-cutting measures, and stock-based compensation costs have decreased because of stock option forfeitures of recently resigned employees.
Other Income (Expenses), Net
For the three months ended June 30, 2024, compared to June 30, 2023
Other income (expense) of $1,742 recognized in the three months ended June 30, 2024, consisted primarily of a $2,243 fair value adjustment to derivative liabilities and interest income of $53, offset by interest expenses of ($426), and foreign exchange losses of ($128).
Other income (expense) of $1,776 recognized in the three months ended June 30, 2023, consisted primarily of a $1,941 fair value adjustment to derivative liabilities and interest income of $3, offset by interest expenses of ($142), and foreign exchange losses of ($26).
For the six months ended June 30, 2024, and June 30, 2023
Other income (expense) of $2,135 recognized in the six months ended June 30, 2024, consisted primarily of a $2,662 fair value adjustment to derivative and warrant liabilities, foreign exchange losses of ($52), and interest income of $53, offset by interest expense of ($528).
Other income (expense) of $2,092 recognized in the six months ended June 30, 2023, consisted primarily of a $2,250 fair value adjustment to derivative and warrant liabilities, foreign exchange gains of $69, and interest income of $7, offset by interest expense of ($234).
Liquidity, Capital Resources and Plan of Operations
Since our inception through June 30, 2024, our operations have been financed primarily by the sale of convertible promissory notes and the sale and issuance of our securities. As of June 30, 2024, we had $19.2 million in cash and cash equivalents, and an accumulated deficit of $99.9 million.
Our primary use of cash is to fund operating expenses, which consist of research and development as well as regulatory expenses related to our lead drug candidate and clinical programs for Stenoparib, and to a lesser extent, general and administrative expenses. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses.
On March 21, 2024, the Company commenced an at the market offering of shares of our Common Stock and as of June 30, 2024, had sold 31,891,433 shares of our Common Stock for net proceeds of $27,689. Subsequent to June 30, 2024, an additional 7,340,312 shares of our common stock were sold at the market for net proceeds of $1,404. In light of the Company’s cash position as of the date of this Quarterly Report, the Company has sufficient funds for its current operations and planned capital expenditures. As discussed above the Company intends to seek capital through sale of its securities or other sources. There are no assurances, however, that the Company will be successful in raising additional working capital, or if it is able to raise additional working capital, it may be unable to do so on commercially favorable terms. The Company’s failure to raise capital or enter into other such arrangements if and when needed would have a negative impact on its business, results of operations and financial condition and its ability to develop its product candidates.
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Management’s plans to mitigate the conditions or events that raise substantial doubt include additional funding through public equity, private equity, debt financing, collaboration partnerships, or other sources. We currently plan on completing an additional public offering in the near future, however there are no assurances that the Company will be successful in raising additional working capital, or if it is able to raise additional working capital, it may be unable to do so on commercially favorable terms. The Company’s failure to raise capital or enter into other such arrangements when needed would have a negative impact on its business, results of operations and financial condition and its ability to continue its plan of operations.
We expect to incur substantial expenses in the foreseeable future for the development and potential commercialization of our drug candidates and ongoing internal research and development programs. At this time, we cannot reasonably estimate the nature, timing, or aggregate amount of costs for our development, potential commercialization, and internal research and development programs. However, to complete our current and future preclinical studies and clinical trials, and to complete the process of obtaining regulatory approval for our drug candidates, as well as to build the sales, marketing, and distribution infrastructure that we believe will be necessary to commercialize our drug candidates, if approved, we may require substantial additional funding in the future.
Contractual Obligations and Commitments
We enter into agreements in the normal course of business with vendors for preclinical studies, clinical trials, and other service providers for operating purposes. We have not included these payments in a table of contractual obligations since these contracts are generally cancellable at any time by us following a certain period after notice and therefore, we believe that our non-cancellable obligations under these agreements are not material.
Cash Flows
The following table summarizes our cash flows for the periods indicated:
| For the Six Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| (In thousands) | ||||||||
| Net cash flows used in operating activities | $ | (8,703 | ) | $ | (5,697 | ) | ||
| Net cash flows provided by financing activities | 27,689 | 4,023 | ||||||
| Effect of foreign exchange rates on cash | 81 | 65 | ||||||
| Net (decrease) increase in cash | $ | 19,067 | $ | (1,609 | ) | |||
Operating Activities
For the six months ended June 30, 2024, net cash used in operating activities was approximately $8.7 million compared to approximately $5.7 million for the six months ended June 30, 2023. The $3.0 million increase in net cash used in operating activities was primarily the result of higher non-cash operating expenses of $890 thousand and a decrease in cash provided by non-cash operating assets of $2.8 million, offset by a decreased loss of $660 thousand.
Financing Activities
For the six months ended June 30, 2024, net cash provided by financing activities was approximately $27.7 million compared to approximately $4.0 million provided in the six months ended June 30, 2023.
The increase in net cash provided by investing activities was primarily due to the receipt of $27,689 in net proceeds from the issuance of common stock.
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Operating Capital and Capital Expenditure Requirements
We believe that our existing cash and cash equivalents will be sufficient to fund our anticipated expenditures and commitments for the next twelve months. Our estimate as to how long we expect our cash to be able to continue to fund our operations is based on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. Further, changing circumstances, some of which may be beyond our control, could cause us to consume capital significantly faster than we currently anticipate, and we may need to seek additional funds sooner than planned.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements.
Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of financial condition and results of operations is based upon our unaudited condensed interim consolidated financial statements for the three and six months ended June 30, 2024 and 2023, and our audited consolidated financial statements for the years ended December 31, 2023 and 2022, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses. On an on-going basis, we evaluate our critical accounting policies and estimates. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions.
Our significant accounting policies are described in the notes to our consolidated financial statements for the year ended December 31, 2023 included in the Form 10-K, and there have been no significant changes to our significant accounting policies during the six months ended June 30, 2024. These unaudited condensed interim consolidated financial statements should be read in conjunction with the Company’s audited financial statements and accompanying notes.
Recently Issued Accounting Pronouncements
See the sections titled “Recently adopted accounting pronouncements” in Note 2(cc) and “Recently issued accounting pronouncements not yet adopted” in Note 2(x) to the Company’s consolidated financial statements for the year ended December 31, 2023 and 2022, appearing in the Form 10-K; and in Note 2(g) to the Company’s unaudited condensed interim consolidated financial statements for the three and six months ended June 30, 2024 and 2023.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management and consultants, including our Chief Executive Officer and our Chief Financial Officer, we have conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as of June 30, 2024, as such term is defined in Rules 13a-15I and 15d-15(e) of the Exchange Act. Based upon the foregoing, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2024.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time in the future, we may become involved in litigation or other legal proceedings that arise in the ordinary course of business. Except as disclosed below, we are not currently party to any legal proceedings, and we are not aware of any pending or threatened litigation against us that we believe could have a material adverse effect on our business, operating results or financial condition. In the event we are subject to a legal proceeding, it could have a material adverse impact on us because of litigation costs and diversion of management resources.
SEC Investigation
On July 19, 2024, the Company received a “Wells Notice” from the Staff of the SEC relating to the Company’s previously disclosed SEC investigation. The Wells Notice relates to the Company’s disclosures regarding meetings with the United States Food and Drug Administration (the “FDA”) regarding the Company’s NDA for Dovitinib or Dovitinib-DRP, which was submitted to the FDA in 2021. The Company understands that all conduct relating to the SEC Wells Notice occurred during or prior to fiscal year 2022. The Company also understands that three of its former officers received Wells Notices from the SEC relating to the same conduct. A Wells Notice is neither a formal charge of wrongdoing nor a final determination that the recipient has violated any law. The Wells Notice informed the Company that the SEC Staff has made a preliminary determination to recommend that the SEC file an enforcement action against the Company that would allege certain violations of the federal securities laws. The Company is continuing to cooperate with the SEC and maintains that its actions were appropriate, and intends to pursue the Wells Notice process, including submitting a formal response to the SEC.
Item 1A. Risk Factors.
There are no material changes to the “Risk Factors” set forth in the Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On March 19, 2024, we entered into an At-The-Market Issuance Sales Agreement, as may be amended from time to time (the “Sales Agreement”) with Ascendiant Capital Markets, LLC (“Ascendiant”) under which we may, from time to time, issue and sell shares of our Common Stock having aggregate sales proceeds of up to $30 million, in a series of one or more “at-the-market” equity offerings (the “ATM Program”). Ascendiant is not required to sell any specific share amounts but acts as our sales agent, using commercially reasonable efforts consistent with its normal trading and sales practices. We agreed to pay Ascendiant a commission equal to 3.0% of the aggregate gross proceeds we receive from each sale of shares of our Common Stock. Pursuant to the Sales Agreement, any shares will be sold pursuant to our shelf registration statement on Form S-3 (File No. 333-275282) filed with the SEC on November 2, 2023, including the base prospectus contained therein, as declared effective by the SEC on November 29, 2023. Shares of our Common Stock will be sold at prevailing market prices at the time of the sale, and as a result, prices may vary.
During the period April 1, 2024, through August 5, 2024, the Company has sold 7,340,312 shares of its Common Stock for net proceeds of $1,404.
Item 3. Defaults Upon Senior Securities.
For a discussion of the “Convertible Promissory Note Due to Novartis” refer to Note 5 to the Condensed Consolidated Financial Statements (Unaudited) in Part I, Item 1 of this Quarterly Report.
Item 4. Mine Safety Disclosures.
Not applicable.
Item
5.
Our 2024 annual meeting of stockholders will be delayed by more than 30 days from February 3, the anniversary date of the 2023 annual meeting of stockholders. On July 25, 2024, our board of directors, acting in accordance with the authority granted to our board of directors pursuant to the applicable provisions of our bylaws, elected to postpone the 2024 annual meeting of stockholders to a date to be determined by our board of directors in accordance with the applicable provisions of our bylaws. Our board of directors has not yet determined the date of the postponed 2024 annual meeting of stockholders. We will provide all required information about the postponed 2024 annual meeting of stockholders when it becomes available.
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Item 6. Exhibits.
See the Exhibit Index to this Quarterly Report immediately below and before the signature page hereto, which Exhibit Index is incorporated by reference as if fully set forth herein.
| + | Certain of the exhibits and schedules to this Exhibit have been omitted in accordance with Regulation S-K Item 601. The Registrant agrees to furnish a copy of all omitted exhibits and schedules to the SEC upon its request. |
| † | Indicates management contract or compensatory plan or arrangement. |
| * | Furnished herewith. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| ALLARITY THERAPEUTICS, INC., | ||
| Date: August 5, 2024 | By: | /s/ Thomas H. Jensen |
| Thomas H. Jensen | ||
| Chief Executive
Officer (Principal Executive Officer) | ||
| Date: August 5, 2024 | By: | /s/ Joan Y. Brown |
| Joan Y. Brown | ||
| Chief
Financial Officer (Principal Financial and Accounting Officer) | ||
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