Kazia Therapeutics(KZIA) - 2024 Q4 - Annual Report

PART I Key Information The company faces significant financial, operational, and securities-related risks, with substantial doubt about its ability to continue as a going concern Risk Factors - The company has a history of significant net losses and anticipates they will continue, having never achieved profitability; as of June 30, 2024, accumulated losses were A$115.1 million[9] Net Losses (Fiscal Years 2022-2024) | Fiscal Year Ended June 30 | Net Loss (A$ million) | | :--- | :--- | | 2024 | 26.8 | | 2023 | 20.5 | | 2022 (restated) | 25.0 | - There is substantial doubt about the company's ability to continue as a going concern, with cash on hand of A$1.7 million as of June 30, 2024, expected to fund operations only until March 2025[16][17] - The company's lead drug candidates, paxalisib and EVT801, are still in clinical trials and failure to demonstrate sufficient benefit could materially harm the business[14][15] - The company faces risks related to its securities, including a potential delisting from Nasdaq for failing to meet the minimum bid price requirement, which prompted a 1-for-10 reverse ADS split[46] - The company delisted from the Australian Securities Exchange (ASX) on November 15, 2023, which may adversely affect the liquidity and value of its ADSs[50] - Based on its 2023 asset and income composition, the company believes it was a Passive Foreign Investment Company (PFIC), which could have adverse U.S. tax consequences for investors[54] Information on the Company The company is an oncology-focused biotechnology firm with lead drug candidates paxalisib and EVT801 in clinical development Business Overview - Kazia's lead program is paxalisib, a brain-penetrant PI3K inhibitor which has received Orphan Drug Designation (ODD) and Fast Track Designation (FTD) for various brain cancers[60][61] - The GBM AGILE pivotal study for paxalisib in glioblastoma patients showed a median Overall Survival (OS) of 15.54 months versus 11.89 months for standard of care[64] - The second lead program is EVT801, a selective VEGFR3 inhibitor for which a Phase I study in advanced solid tumors was completed, identifying a recommended Phase 2 dose[76][79] Anticipated Milestones for Fiscal Year 2025 | Milestone | | :--- | | Final data presentation from the GBM AGILE study of paxalisib | | Additional results from the PNOC clinical trial of paxalisib | | Expansion cohort results from the Phase I study of paxalisib in brain metastases | | Discussions with regulatory authorities regarding next steps for paxalisib | | Pre-clinical results from the QIMR collaboration in advanced breast cancer models | - During FY 2024, the company raised US$1.66 million via its At-The-Market (ATM) facility and US$0.52 million via an Equity Line of Credit, and also delisted from the ASX[101][102][103] Operating and Financial Review and Prospects The company reported a net loss of A$26.8 million for FY2024, driven by increased R&D and G&A expenses, with a challenging financial position Operating Results Summary of Revenue and Income (A$'000) | Income Source | FY 2024 | FY 2023 | FY 2022 | | :--- | :--- | :--- | :--- | | Revenue | 2,308 | — | — | | Finance income | 12 | 22 | 2 | | Other income | 173 | 1 | 25 | | Total | 2,493 | 23 | 27 | - Research and development (R&D) expenses increased by 12% to A$17.4 million in FY2024, mainly due to transaction fee expenses[110] - General and administrative (G&A) costs rose 58% to A$13.5 million in FY2024, driven by costs related to warrants, audit, and NASDAQ fees[110] - Net loss after tax increased to A$26.8 million in FY2024 from A$20.5 million in FY2023, primarily due to higher R&D and G&A expenditures[111] Liquidity and Capital Resources - As of June 30, 2024, the company had cash and cash equivalents of A$1.7 million and accumulated losses of A$115.1 million, with substantial doubt about its ability to continue as a going concern[112][113] Consolidated Cash Flows (A$'000) | Cash Flow Activity | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Net cash used in operating activities | (9,581) | (15,156) | (22,762) | | Net cash used in investing activities | — | — | (2,365) | | Net cash provided by financing activities | 5,985 | 12,972 | 3,726 | - Financing activities in FY2024 included raising funds through the sale of ADSs via its ATM facility and a new equity line of credit with Alumni Capital[101][103][114] Directors, Senior Management and Employees The company's leadership compensation combines fixed salary with equity incentives, overseen by two independent board committees Key Management Personnel Compensation (FY 2024, A$) | Name | Position | Total Remuneration | | :--- | :--- | :--- | | J. Friend | CEO | 1,279,844 | | B. Carmine | Chairman | 95,417 | | S. Coffey | Non-Executive Director | 94,350 | | E. Davidson | Non-Executive Director | 94,350 | | R. Apple | Non-Executive Director | 39,301 | | K. Krumeich | CFO (until Jan 2024) | 399,040 | - During FY2024, the company issued 2,850,000 ADS options under its Employee Share Option Plan (ESOP), with 1,500,000 granted to CEO John Friend[134][138] - The Board has two key committees: the Audit, Risk and Governance Committee and the Remuneration and Nomination Committee, both chaired by independent directors[149][151] Employee Headcount (Full-Time Equivalents) | Category | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Research and Development | 5.0 | 6.8 | 6.8 | | Finance and Administration | 1.8 | 2.0 | 2.2 | | Total | 6.8 | 8.8 | 9.0 | Major Shareholders and Related Party Transactions No shareholder holds over 5% beneficial ownership, and no significant related party transactions occurred in FY2024 - As of the report date, no shareholder holds a beneficial ownership of 5% or more of the company's voting securities[160] - As of October 28, 2024, HSBC Custody Nominees (Australia) Ltd. held 96.04% of ordinary shares, representing the shares underlying the ADSs traded on Nasdaq[161] - The company did not enter into any material transactions or loans with related parties during fiscal year 2024[162] Financial Information The company paid no dividends and executed a 1-for-10 reverse ADS split subsequent to the fiscal year end - The company paid no dividends during fiscal years 2024, 2023, or 2022[163] - A significant change occurred after the fiscal year end: on October 28, 2024, the ADS ratio was changed, equivalent to a 1-for-10 reverse ADS split[164] Additional Information The company's operations are governed by key licensing agreements and its likely PFIC status has tax implications for U.S. investors - The company has several key material contracts, including a worldwide licensing agreement with Genentech for paxalisib, a licensing agreement with Simcere for paxalisib in Greater China, and a worldwide licensing agreement with Evotec SE for EVT801[188][194][195] - In March 2024, the company entered into an exclusive licensing agreement with Sovargen Co., Ltd for paxalisib in certain epilepsy indications, receiving a US$1.5 million upfront payment[196] - The company believes it was a Passive Foreign Investment Company (PFIC) for the 2023 taxable year, which could result in adverse U.S. federal income tax consequences for U.S. holders[205] - For non-Australian shareholders, dividends are subject to withholding tax and capital gains on share disposal are generally disregarded unless the shareholder holds 10% or more of the company's capital[213] Quantitative and Qualitative Disclosures about Market Risk The company's primary market exposures are foreign currency risk, particularly with the U.S. dollar, and interest rate risk - The company's primary market risk is foreign currency exchange risk, mainly with respect to the U.S. dollar, arising from international operations[222] - Interest rate risk pertains to cash balances held in variable-rate accounts; a 100-basis-point change in interest rates would impact profit before tax by approximately $16,575[354] - Credit risk is managed by depositing cash with high-credit-quality financial institutions and limiting exposure to any single counterparty[221][357] Controls and Procedures Management concluded that disclosure controls and internal controls over financial reporting were effective as of June 30, 2024 - Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2024[226] - Management concluded that internal control over financial reporting was effective as of June 30, 2024, based on the COSO 2013 framework[227] - A material weakness identified in 2023 related to the accounting for new significant transactions was remediated as of June 30, 2024[228] Corporate Governance As a foreign private issuer, the company follows home country governance practices and maintains a cybersecurity risk program Principal Accountant Fees (BDO, A$) | Service Category | 2024 | 2023 | | :--- | :--- | :--- | | Audit or review of financial statements | 418,039 | 292,772 | | Comfort letters | 28,774 | 18,000 | | Consent letter - F-1 | 104,687 | — | | Consent letter - F-3 | 11,199 | — | | Total | 562,699 | 310,772 | - As a foreign private issuer, Kazia is exempt from certain Nasdaq corporate governance rules, including the requirement for a majority-independent board[239][240] - The company has a cybersecurity risk management program overseen by the CEO, VP of Finance, and the Audit Committee, and engages a third-party service provider for risk assessment[243][244] PART III Financial Statements Audited statements show a net loss of A$26.8 million, a going concern warning, and a total equity deficit of A$10.0 million - The independent auditor's report includes a paragraph expressing substantial doubt about the Company's ability to continue as a going concern, citing recurring losses and negative cash flows[251] - Critical audit matters identified were the valuation of contingent consideration (A$7.0M liability) and the valuation and classification of warrants (A$6.5M liability)[255][256] Consolidated Statement of Profit or Loss (A$'000) | Line Item | 2024 | 2023 | 2022 (restated) | | :--- | :--- | :--- | :--- | | Licensing revenue | 2,308 | — | — | | Research and development expense | (17,380) | (15,564) | (20,169) | | General and administrative expense | (13,563) | (8,583) | (5,113) | | Loss after income tax benefit | (26,778) | (20,465) | (25,014) | Consolidated Statement of Financial Position (A$'000) | Line Item | 2024 | 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | 1,657 | 5,241 | | Intangibles | 15,400 | 17,269 | | Total Assets | 21,585 | 28,084 | | Liabilities & Equity | | | | Trade and other payables | 15,067 | 4,329 | | Other financial liabilities (warrants) | 6,478 | — | | Contingent consideration | 7,005 | 6,871 | | Total Liabilities | 31,602 | 16,034 | | Total Equity | (10,017) | 12,050 | - Subsequent to the fiscal year end, from July to September 2024, the company raised A$5.3 million from its ATM facility and A$0.8 million from its equity line of credit[384]