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Research: Healthcare
Allarity’s Q121 earnings report highlighted the progress the company has made in 2021 so far towards the potential commercialization of its three priority products. In March, the company reinitiated clinical testing of Ixempra in Europe for the treatment of breast cancer, and in April it submitted a PMA for approval of the dovitinib DRP. To finance these efforts, it has announced a rights offering of c SEK100m and a $20m upcoming investment from 3i Fund, as well as the intent to re-list on Nasdaq sometime in the near future.
Written by
Allarity Therapeutics |
Coming to Nasdaq |
Earnings update |
Pharma & biotech |
8 June 2021 |
Share price performance
Business description
Next events
Analyst
Allarity Therapeutics is a research client of Edison Investment Research Limited |
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Allarity’s Q121 earnings report highlighted the progress the company has made in 2021 so far towards the potential commercialization of its three priority products. In March, the company reinitiated clinical testing of Ixempra in Europe for the treatment of breast cancer, and in April it submitted a PMA for approval of the dovitinib DRP. To finance these efforts, it has announced a rights offering of c SEK100m and a $20m upcoming investment from 3i Fund, as well as the intent to re-list on Nasdaq sometime in the near future.
Year end |
Revenue (DKKm) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/19 |
0.8 |
(174.9) |
(2.08) |
0.0 |
N/A |
N/A |
12/20 |
0.0 |
(59.1) |
(0.29) |
0.0 |
N/A |
N/A |
12/21e |
0.0 |
(75.0) |
(0.29) |
0.0 |
N/A |
N/A |
12/22e |
0.0 |
(248.2) |
(0.92) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Waiting on FDA response to PMA
One of the biggest near-term goals of Allarity, and one the biggest determining factors for the company’s success, is the upcoming submission of an NDA for approval of dovitinib planned for 2021. As part of this process, the company has submitted a PMA for the drug response predictor (DRP) companion diagnostic associated with dovitinib, which it hopes to have feedback on from the FDA before moving forward with the NDA submission. We expect feedback from the FDA on the PMA by the end of 2021.
USA here we come
In May 2021, Allarity announced that it had entered into a $20m securities purchase agreement with 3i Fund (New York, NY) to facilitate the re-listing of the company to Nasdaq. In the process, assets and operations will also be transferred to a US parent company. The $20m investment will be issued as convertible preferred stock in the amount of 20% ownership of the company following the transition, and 3i will receive warrants to purchase $20m in common stock at the same conversion price.
Valuation: SEK1,033m or SEK4.27
We have increased our valuation to SEK1,033m or SEK4.27 per basic share, from SEK1,007m or SEK4.21. This does not include the two financing agreements (the rights offering and the 3i deal) because they are in various stages of completion. If we include these in our valuation, we arrive at SEK1,299m or SEK2.88 per basic share (SEK2.29 diluted). If we include both of these financings, we expect the company to need around DKK577m to reach profitability (vs DKK850m previously, which did not factor in these financings).
Big upcoming readout is the PMA
By the end of Q121, Allarity had reinitiated development efforts on all three of its leading assets, dovitinib, stenoparib and Ixempra. Stenoparib was previously in a Phase II study for ovarian cancer that has been ongoing since 2019, and in March 2021 Allarity initiated a DRP-guided Phase II study of Ixempra for metastatic breast cancer. We are hopeful that following the alleviation of COVID-19 restrictions these programs can proceed smoothly. The primary endpoint of the single-arm Ixempra study is clinical benefit rate compared to historical control, with progression free survival (PFS) and overall survival (OS) as secondary endpoints.
Additionally, the company also recently submitted a PMA for approval of the dovitinib DRP companion diagnostic in April 2021. The current marketing submission is using data and patient samples gathered during the pivotal Phase III study of dovitinib performed by Novartis. We should note that the DRP was not used during this study to guide the treatment of patients, so this data is fundamentally retrospective in nature. The FDA has not historically approved PMA applications for new diagnostics intended to diagnose or guide the treatment of a disease on the basis of retrospective data. However, a benefit of the current PMA submission is that the FDA is likely to provide very useful feedback that can be used to effectively guide future clinical trial design. The agency will outline any deficiencies in the data for the current application, which could provide useful insight into its thinking regarding which parameters will be important for a registration-enabling clinical study. The goal is to submit an NDA for the drug following an approval decision for the DRP in late 2021. This NDA submission will be using data gathered by Novartis during the previous Phase III clinical study of dovitinib.
Nasdaq becomes part of recapitalisation efforts
When Allarity announced its reorganization in 2019, it had been financed in large part to that point with debt, and one of the strategic goals was to reduce this debt load. However, in subsequent years, the company has been highly reliant on dilutive financing agreements with Negma/{Park Partners and Global Corporate Finance, which have expanded the company’s share count from 70.5m when the new management took over to 241.8m as of the Q121 report. Moreover, at the end of Q121, net debt was still over SEK10m. It has been difficult for the company to both reinitiate its development programs and also to attract new investment during the COVID-19 pandemic, but it is currently in multiple efforts to refinance the company to support it through its near-term readouts.
The first component of this recapitalization is an ongoing rights offering, which we discussed in our previous report. The offering is for c SEK100m, and shareholders can subscribe for one share and one warrant (exercisable at SEK1.70) for a price of SEK0.85 (for up to 120.9m shares). The rights issue is expected to complete in early June 2021. The goal for this financing is to support the company through its two Phase II clinical studies and the submission of the dovitinib NDA and provide funding into 2022.
Additionally, Allarity has subsequently announced that it has signed a securities purchase agreement with the 3i Fund. This agreement stipulates that 3i will invest $20m in the company in exchange for a 20% ownership stake following a Nasdaq listing (as convertible preferred stock). To do this, the company intends to redomicile as a US company, and we expect the process to begin following completion of the rights issue. This recapitalization plan, subject to shareholder approval, involves the company delisting from Nasdaq First North, transferring all its assets and liabilities to a wholly-owned US subsidiary (Allarity US, a Delaware C-corp), and Allarity shareholders receiving new shares in Allarity US at an exchange ratio of 0.02 shares of this US company’s common stock for each Allarity share held.
The 3i transaction values the company at $100m (after the money), and the agreement has anti-dilutive provisions (not detailed) to decrease the conversion price should the Allarity market cap fall below this on Nasdaq. This is a significant premium to the company’s current market cap of c SEK215m ($26m). Finally, 3i is due an 8% dividend (on its $20m investment) if the average daily volume falls below $2.5m on Nasdaq.
We forecast that these two sources of new cash can finance the company through completion of its current clinical studies and the dovitinib regulatory submissions. We believe that this should be possible given the company’s current cash run rates. The company ended Q121 with DKK10.2m in net debt (SEK14.4m) and a working capital deficit of DKK23.4m. Q121 operational losses were DKK16.0m. We expect expenses to increase as the clinical programs progress in 2021 and the company makes its NDA regulatory submission. We forecast an operational loss of DKK70.9m for 2021, which remains unchanged from our previous forecasts. Other adjustments to our forecasts are small and include adjustments to financial costs based on the recent report. We include DKK650m in additional financing in our models (DKK100m in 2021, DKK250m in 2022 and 2023, DKK50m in 2024), which is a reduction from DKK850m previously, primarily on account of the 3i investment. This financing schedule also reflects an adjustment to our cash flow timing estimates (ie the lowest cash level the company will reach before raising additional capital) to bring it closer in line with our estimates for other companies, at around DKK60m. Our new financing need forecast also does not include the ongoing rights offering, which would reduce this by an additional DKK73m (over SEK100m currently guaranteed).
Valuation
We have increased our valuation to SEK1,033m or SEK4.27 per basic share, from SEK1,007m or SEK4.21. The reason for the lift in valuation from previously is due to rolling forward our NPVs and offset by slightly higher net debt. This valuation is before the rights offering and the 3i deal. The rights offering has not been completed and the 3i deal has not calculated the number of shares to be delivered (which will occur on Nasdaq listing, which itself is conditional upon shareholder approval as stated above). For illustrative purposes, we have included a calculation of how these financings would affect our valuation if completed today: SEK1,299m or SEK2.87 per basic share or preferred share equivalent (SEK2.28 fully diluted after the new warrants), which assumes conversion of the preferred shares into common stock. Otherwise our models are unchanged.
Exhibit 1: Valuation of Allarity
Development program |
Indication |
Clinical stage |
Probability of success |
Launch year |
Launch pricing |
Peak sales ($m) |
rNPV (SEKm) |
Rights offering |
3i deal |
Post-deal valuation |
|||||
Stenoparib |
Recurrent ovarian cancer |
Phase II |
25% |
2025 |
$138,000 |
51.3 |
146.5 |
146.5 |
|||||||
Dovitinib |
Renal cancer |
NDA |
35–50% |
2026 |
$145,000 |
175.1 |
723.4 |
723.4 |
|||||||
Ixempra |
Metastatic breast cancer |
Phase II |
50% |
2025 |
$41,000 |
56.4 |
177.7 |
177.7 |
|||||||
Total |
|
|
|
|
|
|
1047.7 |
1047.7 |
|||||||
Net debt (Q121) |
(14.4) |
100.0 |
166.0 |
251.6 |
|||||||||||
Total firm value (SEKm) |
1,033.3 |
1,299.3 |
|||||||||||||
Total shares (m) |
241.8 |
120.9 |
90.7 |
453.3 |
|||||||||||
Value per basic share (SEK) |
4.27 |
2.87 |
|||||||||||||
Dilutive securities (m) |
22.5 |
120.9 |
90.7 |
234.0 |
|||||||||||
Fully diluted shares in issue (m) |
264.2 |
687.4 |
|||||||||||||
Fully diluted value per share (SEK) |
4.03 |
2.28 |
|||||||||||||
Source: Allarity reports, Edison Investment Research
Exhibit 2: Financial summary
DKK'000s |
2019 |
2020e |
2021e |
2022 |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||
Revenue |
|
|
801 |
0 |
0 |
0 |
Cost of Sales |
0 |
0 |
0 |
0 |
||
Gross Profit |
801 |
0 |
0 |
0 |
||
EBITDA |
|
|
(66,502) |
(58,958) |
(69,877) |
(247,181) |
Operating Profit (before amort. and except.) |
|
|
(148,102) |
(60,017) |
(70,936) |
(248,240) |
Intangible Amortisation |
0 |
0 |
0 |
0 |
||
Exceptionals/Other |
0 |
0 |
0 |
0 |
||
Operating Profit |
(148,102) |
(60,017) |
(70,936) |
(248,240) |
||
Net Interest |
(26,822) |
932 |
(4,073) |
0 |
||
Other |
0 |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
(174,924) |
(59,085) |
(75,009) |
(248,240) |
Profit Before Tax (IFRS) |
|
|
(174,924) |
(59,085) |
(75,009) |
(248,240) |
Tax |
36,792 |
11,379 |
2,488 |
4,728 |
||
Deferred tax |
0 |
0 |
0 |
0 |
||
Profit After Tax (norm) |
(138,132) |
(47,706) |
(72,521) |
(243,512) |
||
Profit After Tax (IFRS) |
(138,132) |
(47,706) |
(72,521) |
(243,512) |
||
Average Number of Shares Outstanding (m) |
63.4 |
163.2 |
253.2* |
265.9* |
||
EPS - normalised (DKK) |
|
|
(2.08) |
(0.29) |
(0.29) |
(0.92) |
EPS - IFRS (DKK) |
|
|
(2.08) |
(0.29) |
(0.29) |
(0.92) |
Dividend per share (ore) |
0.0 |
0.0 |
0.0 |
0.0 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
158,895 |
162,973 |
161,933 |
160,893 |
Intangible Assets |
155,978 |
155,720 |
155,720 |
155,720 |
||
Tangible Assets |
2,917 |
2,134 |
1,094 |
54 |
||
Other |
0 |
5,119 |
5,119 |
5,119 |
||
Current Assets |
|
|
22,306 |
13,949 |
157,200 |
189,582 |
Stocks |
0 |
0 |
0 |
0 |
||
Debtors |
5,937 |
1,722 |
7,380 |
24,423 |
||
Cash |
10,176 |
1,807 |
136,912 |
152,251 |
||
Other |
6,193 |
10,420 |
12,908 |
12,908 |
||
Current Liabilities |
|
|
(31,497) |
(34,724) |
(20,356) |
(45,210) |
Creditors |
(27,919) |
(24,971) |
(10,603) |
(35,457) |
||
Short term borrowings |
(3,578) |
(9,753) |
(9,753) |
(9,753) |
||
Long Term Liabilities |
|
|
(8,370) |
(1,615) |
(108,715) |
(358,715) |
Long term borrowings |
0 |
0 |
(107,100) |
(357,100) |
||
Other long term liabilities |
(8,370) |
(1,615) |
(1,615) |
(1,615) |
||
Net Assets |
|
|
141,334 |
140,583 |
190,063 |
(53,450) |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
(54,511) |
(55,391) |
(93,976) |
(234,642) |
Net Interest |
(26,846) |
(1,085) |
0 |
0 |
||
Tax |
8,942 |
5,354 |
0 |
0 |
||
Capex |
(56) |
(19) |
(19) |
(19) |
||
Acquisitions/disposals |
0 |
0 |
0 |
0 |
||
Financing |
62,715 |
24,737 |
122,000 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
||
Other |
(4,253) |
(572) |
0 |
0 |
||
Net Cash Flow |
(14,009) |
(26,976) |
28,005 |
(234,661) |
||
Opening net debt/(cash) |
|
|
17,345 |
(6,598) |
7,946 |
(20,059) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
||
Exchange rate movements |
(98) |
(304) |
0 |
0 |
||
Other |
38,050 |
12,736 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(6,598) |
7,946 |
(20,059) |
214,602 |
Source: Allarity reports, Edison Investment Research. Note: *Does not include common shares that would result from the conversion of the preferred shares issued as part of 3i transaction
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