Kintara Therapeutics(KTRA) - 2019 Q4 - Annual Report

Part I Business DelMar Pharmaceuticals is a clinical-stage biopharmaceutical company developing VAL-083 for drug-resistant cancers, primarily MGMT-unmethylated glioblastoma multiforme, with two Phase 2 studies underway - The company's lead product candidate is VAL-083, a novel DNA-targeting agent for treating drug-resistant solid tumors, particularly glioblastoma multiforme (GBM)[13][14] - DelMar's development strategy focuses on biomarker-selected patient populations, specifically MGMT-unmethylated GBM, which represents over 60% of GBM patients and is associated with resistance to the standard chemotherapy, temozolomide (TMZ)[15][17] - VAL-083 has received Orphan Drug designation from the FDA for glioma, medulloblastoma, and ovarian cancer, and from the EMA for glioma, providing potential market exclusivity[21][196] - The company is conducting two Phase 2 studies in MGMT-unmethylated GBM: one at MD Anderson Cancer Center for recurrent and adjuvant settings, and another at Sun Yat-sen University Cancer Center for newly-diagnosed patients[17][58][67] Research and Development Expenses | Category | FY 2019 ($) | FY 2018 ($) | | :--- | :--- | :--- | | Research and Development Expenses | 3,662,056 | 7,132,952 | Recent Developments and Financing DelMar completed significant financing activities in fiscal year 2019, raising over $9 million to fund clinical studies, relocated its headquarters, and regained Nasdaq compliance - In August 2019, the company closed an underwritten public offering, raising net proceeds of approximately $6.7 million to fund clinical studies and general corporate purposes[27][31][32] - In June 2019, the company raised approximately $3.2 million in net proceeds from a registered direct offering of common stock and warrants[29][38] - The company regained compliance with Nasdaq stockholders' equity requirements in September 2019 following its recent financing activities[29] - The company relocated its headquarters from Vancouver, British Columbia to San Diego, California as of September 1, 2019[27] Clinical Pipeline: VAL-083 VAL-083's clinical development focuses on glioblastoma multiforme with two Phase 2 trials ongoing, showing promising preliminary data, while ovarian cancer strategy is being reassessed - The company is conducting a Phase 2 study at MD Anderson Cancer Center for MGMT-unmethylated GBM patients in two arms: recurrent (Avastin-naïve) and adjuvant (post-chemoradiation)[53][58] - A Phase 2 study in newly diagnosed MGMT-unmethylated GBM patients is ongoing at SYSUCC in China, evaluating VAL-083 with radiotherapy. As of August 1, 2019, of 17 evaluable patients, 53% achieved a complete response and 41% had stable disease[67][71][72] - Preliminary data from the SYSUCC study indicates that VAL-083 crosses the blood-brain barrier, with concentrations in cerebrospinal fluid (CSF) generally higher than in plasma two hours post-infusion[72][73][74] - The FDA has granted Fast Track designation for VAL-083 in recurrent GBM, which may expedite the review process[77][78] - The company is reassessing its ovarian cancer program and evaluating strategic options, including potential combinations with PARP inhibitors, despite having an allowed IND for a Phase 1/2 study[19][76] Intellectual Property DelMar protects VAL-083 through a broad patent portfolio extending to 2038 and Orphan Drug designations in the U.S. and E.U., providing potential market exclusivity - The company's patent portfolio is organized into fourteen series, covering synthesis, methods of use for various cancers (GBM, NSCLC, ovarian), analytical methods, and combination therapies, with some patents expected to expire as late as 2038[182][194] - VAL-083 has been granted Orphan Drug designation by the FDA for glioma, medulloblastoma, and ovarian cancer, and by the EMA for glioma[196][197] - The company intends to rely on the Hatch-Waxman Amendments, which could provide five years of data exclusivity for VAL-083 as a new chemical entity upon approval[199] Competition The oncology market is highly competitive, with DelMar facing larger pharmaceutical companies and other GBM developers, requiring strong efficacy and regulatory success to compete - The company faces competition from large pharmaceutical and biotechnology companies with greater resources, including those with currently marketed products for GBM such as Merck (Temodar) and Genentech (Avastin)[227][229] - Other companies developing oncology immunotherapy products for GBM include Northwest Biotherapeutics (DCVax-L) and Celldex Therapeutics (Rindopepimut)[229] - Competitive success depends on demonstrating superior safety and efficacy, obtaining timely regulatory approvals, maintaining a strong proprietary position, and building an effective sales and marketing infrastructure[233] Risk Factors The company faces substantial risks including a history of losses, reliance on VAL-083, internal control weaknesses, Nasdaq listing concerns, and dependence on third parties for operations - The company has a history of operating losses and expects to incur significant additional losses. It will need to raise more capital to fund operations beyond the fourth quarter of calendar 2020[244][245] - The company's success is highly dependent on a single product candidate, VAL-083. Failure of this product in clinical trials would severely impact the business[258] - A material weakness in internal control over financial reporting has been identified due to inadequate segregation of duties, which could affect the accuracy of financial reporting[255][569] - The company has previously faced non-compliance with Nasdaq's listing requirements (e.g., minimum bid price) and may be delisted if it fails to maintain compliance in the future[251][253] - The company relies on third parties for manufacturing clinical supplies and conducting clinical trials, which reduces control over these critical activities and exposes the company to risks of delay or non-performance[342][344][355] Properties The company's corporate headquarters are in San Diego, with an administrative office in Vancouver and clinical operations in Menlo Park, facilities deemed sufficient for immediate needs - Corporate headquarters are located at 12707 High Bluff Dr., Suite 200, San Diego, CA, 92130, having recently relocated from Vancouver, BC[366] - The Vancouver office is maintained on a month-to-month lease for C$3,725 per month[366] Legal Proceedings As of the report date, DelMar Pharmaceuticals, Inc. is not a party to any legal proceedings, nor is any of its property the subject of such proceedings - There are no legal proceedings to which the company is a party[367] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under 'DMPI', with approximately 314 holders of record, and it has no plans to pay cash dividends in the foreseeable future - The company's common stock is traded on The Nasdaq Capital Market under the symbol 'DMPI'[371] - The company has never paid cash dividends and does not intend to in the foreseeable future[373] Management's Discussion and Analysis of Financial Condition and Results of Operations For FY2019, net loss decreased to $8.0 million due to reduced R&D expenses, while G&A increased, with post-fiscal year financing alleviating going concern doubts Financial Performance Comparison | | Years ended June 30, | Change | | :--- | :--- | :--- | | | 2019 ($) | 2018 ($) | $ | % | | Research and development | 3,662,056 | 7,132,952 | (3,470,896) | (49) | | General and administrative | 4,736,440 | 4,041,711 | 694,729 | 17 | | Net loss and comprehensive loss | 8,048,221 | 11,138,312 | (3,090,091) | (28) | - R&D expenses decreased by 49% to $3.7 million in FY2019, largely due to the termination of the STAR-3, Phase 3 study, which had incurred significant start-up costs in the prior year[395][397] - G&A expenses increased by 17% to $4.7 million in FY2019, primarily due to professional fees of $555,664 related to a terminated Rights Offering and increased personnel costs[399][400] Cash Flows | | Years ended June 30, | | :--- | :--- | | | 2019 ($) | 2018 ($) | | Cash flows from operating activities | (6,327,425) | (9,850,850) | | Cash flows from financing activities | 4,074,188 | 9,249,480 | - The company's ability to continue as a going concern was in substantial doubt, but this was alleviated by a post-year-end financing in August 2019 that raised approximately $6.7 million in net proceeds[441] Financial Statements and Supplementary Data Audited financial statements for FY2019 show the company in a development stage with no revenue, a net loss of $8.0 million, and subsequent financing alleviating going concern doubts Balance Sheet Data | | June 30, 2019 ($) | June 30, 2018 ($) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | 3,718,758 | 5,971,995 | | Total assets | 4,037,255 | 7,074,855 | | Liabilities & Equity | | | | Total liabilities | 2,069,725 | 1,639,632 | | Total stockholders' equity | 1,967,530 | 5,435,223 | Income Statement Data | | Year ended June 30, 2019 ($) | Year ended June 30, 2018 ($) | | :--- | :--- | :--- | | Research and development | 3,662,056 | 7,132,952 | | General and administrative | 4,736,440 | 4,041,711 | | Net and comprehensive loss | 8,048,221 | 11,138,312 | | Basic and fully diluted loss per share | 3.16 | 5.42 | - The independent auditor's report from Ernst & Young LLP provides an unqualified opinion on the consolidated financial statements[426] - Subsequent to year-end, in August 2019, the company completed an underwritten public offering for net proceeds of approximately $6.7 million, which alleviated substantial doubt about its ability to continue as a going concern[441][557][558] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were ineffective as of June 30, 2019, due to inadequate segregation of duties, with remediation efforts underway - Management concluded that disclosure controls and procedures were not effective as of June 30, 2019[567] - A material weakness in internal control over financial reporting was identified due to inadequate segregation of duties over authorization, review, and recording of transactions[569] - The company's remediation plan includes engaging an external consulting firm to assist with internal accounting functions and enhance internal controls[570] Part III Directors, Executive Officers, and Corporate Governance This section details biographical information for directors and executive officers, the Board's committee structure, and the company's adopted Code of Ethics and Business Conduct Key Personnel | Name | Age | Position | | :--- | :--- | :--- | | Robert E. Hoffman | 53 | Chairman of the Board | | Saiid Zarrabian | 67 | President, Chief Executive Officer and Director | | Dennis Brown, PhD | 70 | Chief Scientific Officer | | Scott Praill, CPA | 53 | Chief Financial Officer | | John K. Bell, FCPA, CPA | 72 | Director | | Lynda Cranston, BScN, MScN, ICD.D | 72 | Director | | Napoleone Ferrara, MD | 63 | Director | | Robert J. Toth, Jr., MBA | 56 | Director | - The Board of Directors has an Audit Committee, a Nominating and Corporate Governance Committee, and a Compensation Committee[590][591][592] - The company has adopted a Code of Ethics and Business Conduct, which is available on its website[597] Executive Compensation Executive compensation for FY2019 included salaries, bonuses, and equity awards, with director compensation comprising retainers and stock options, and all PSUs cancelled in April 2019 Named Executive Officer Compensation | Name and Principal Position | Period | Salary (US$) | Bonus (US$) | Equity Awards (US$) | Total (US$) | | :--- | :--- | :--- | :--- | :--- | :--- | | Saiid Zarrabian, President and CEO | FY 2019 | 470,000 | 165,665 | — | 635,665 | | | FY 2018 | 237,412 | 85,631 | 615,992 | 939,035 | | Dennis Brown, PhD, Chief Scientific Officer | FY 2019 | 200,000 | — | — | 200,000 | | | FY 2018 | 200,000 | — | — | 200,000 | | Scott Praill, Chief Financial Officer | FY 2019 | 220,000 | 52,250 | 30,627 | 302,877 | | | FY 2018 | 200,000 | 10,000 | — | 210,000 | - Independent directors received an annual retainer of $35,000, with additional retainers for committee chairs and the board chairman. They also received stock option grants in November 2018[609][610] - All outstanding Performance Stock Units (PSUs) held by directors were cancelled on April 30, 2019[521][610] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters As of September 6, 2019, directors and executive officers collectively owned 2.93% of common stock, with no single beneficial owner exceeding 5%, and shares available under the equity incentive plan - As of September 6, 2019, all officers and directors as a group beneficially owned 335,019 shares, representing 2.93% of the outstanding common stock[613] - No stockholder was reported as beneficially owning more than 5% of the common stock[612] Equity Compensation Plan Information | Plan Category | Securities to be issued upon exercise | Weighted-average exercise price | Securities remaining available for future issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 122,698 | $8.81 | 491,817 | | Equity compensation plans not approved by security holders | 165,485 | $32.32 | - | | Totals | 288,183 | $22.31 | 491,817 | Certain Relationships and Related Transactions, and Director Independence The company has a related party transaction with Valent Technologies LLC for VAL-083 rights, and five directors are deemed independent under Nasdaq Marketplace Rules - The company acquired the rights to VAL-083 from Valent Technologies LLC, an entity controlled by Chief Scientific Officer Dr. Dennis Brown, in exchange for future royalties[618][620] - A $250,000 loan from Valent was settled in 2014 through the issuance of 278,530 shares of Series A Preferred Stock, which carry a 3% annual dividend[619] - Five directors are deemed independent under Nasdaq Marketplace Rules: John K. Bell, Robert J. Toth, Jr., Lynda Cranston, Robert E. Hoffman, and Napoleone Ferrara, MD[621] Principal Accountant Fees and Services The company paid Ernst & Young LLP $315,600 in fees for FY2019, primarily for audit and audit-related services, all pre-approved by the audit committee Auditor Fees | Fee Category | Year Ended June 30, 2019 ($) | Year Ended June 30, 2018 ($) | | :--- | :--- | :--- | | Audit fees | 132,800 | 137,800 | | Audit related fees | 182,800 | 22,000 | | Tax fees | - | - | | All other fees | - | - | | Total fees | 315,600 | 159,800 | - Ernst & Young LLP (E&Y) was appointed as the company's auditor on October 7, 2016[622] Part IV Exhibits This section lists all exhibits filed with the Form 10-K, including corporate governance documents, material contracts, and required certifications from management and the auditor - Lists key corporate documents such as Articles of Incorporation (3.1), Bylaws (3.4), and various amendments[631] - Includes material agreements such as the collaboration agreement with Guangxi Wuzhou Pharmaceutical (10.5), the Patent Assignment Agreement with Valent (10.6), and various financing and employment agreements[633][634] - Contains required certifications from the CEO and CFO under Sections 302 and 906 of the Sarbanes-Oxley Act, and the consent of the auditor, Ernst & Young, LLP[634]