Kazia Therapeutics(KZIA) - 2022 Q4 - Annual Report

PART I Key Information The company faces significant financial, operational, and securities-related investment risks Risk Factors Financial vulnerability is highlighted by historical net losses, funding dependency, and clinical trial risks - The company has a history of significant net losses and anticipates continued losses, with no revenue from product sales[25] Net Losses for Fiscal Years 2020-2022 | Fiscal Year Ended June 30 | Net Loss (A$ million) | | :--- | :--- | | 2020 | 12.5 | | 2021 | 8.4 | | 2022 | 24.6 | - As of June 30, 2022, the company had accumulated losses of A$68.3 million[26] - The company's ability to continue as a going concern depends on raising additional capital, with cash sufficient only until Q1 CY2023[40][41] - Lead programs paxalisib and EVT801 face risks of clinical trial failure or unexpected safety concerns[33][34] - There is a risk the company may be classified as a Passive Foreign Investment Company (PFIC), creating adverse U.S. tax consequences[88] - The company's ADSs could be delisted from NASDAQ if the share price remains below US$1.00 for 30 consecutive business days[86] Information on the Company Kazia Therapeutics is an oncology-focused biotech developing drug candidates through a model of licensing and collaboration Business Overview The company's oncology pipeline is led by paxalisib for brain cancer and EVT801 for advanced solid tumors - The lead drug candidate is paxalisib, a PI3K / AKT / mTOR pathway inhibitor in eight active clinical trials for brain cancers[95] - The second clinical asset is EVT801, a VEGFR3 inhibitor, which commenced a Phase I trial in November 2021[97][98][125] - Paxalisib has received multiple FDA special designations, including Orphan Drug, Fast Track, and Rare Pediatric Disease Designations[108] - Phase II data for paxalisib showed a median overall survival of 15.7 months, comparing favorably to the standard of care (12.7 months)[109] - Post-period, the paxalisib arm of the GBM AGILE study did not meet pre-defined criteria to advance to a second stage[113] - An "at-the-market" (ATM) equity program was established in May 2022, raising gross proceeds of US$2.95 million by June 30, 2022[163] Organizational Structure The Australian parent company operates through wholly-owned subsidiaries in Australia, the United States, and Hong Kong Wholly-Owned Subsidiaries | Name | Country of incorporation | | :--- | :--- | | Kazia Laboratories Pty Ltd | Australia | | Kazia Research Pty Ltd | Australia | | Kazia Therapeutics Inc. | United States (Delaware) | | Glioblast Pty Ltd | Australia | | Kazia Therapeutics (Hong Kong) Limited | Hong Kong | Operating and Financial Review and Prospects The company's net loss increased significantly in FY2022 due to higher R&D expenses and a lack of licensing revenue Operating Results The net loss widened to A$24.6 million in FY2022, driven by increased R&D spending and no licensing revenue Summary of Revenue and Other Income (A$'000) | | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Revenue | — | 15,183 | — | | Finance income | — | 42 | 66 | | Other income | 25 | 2 | 995 | | Total revenue and other income | 25 | 15,227 | 1,061 | - R&D expenses increased by 39% to A$20.3 million in FY2022, driven by clinical trials for paxalisib and EVT801[173] - General and administrative costs decreased by 36% to A$4.5 million in FY2022, partly due to a prior-year tax expense[173] - The net loss after tax increased to A$24.6 million in FY2022 from A$8.4 million in FY2021[174] Liquidity and Capital Resources The company's liquidity is constrained, with its going concern status dependent on raising additional capital via equity - As of June 30, 2022, the company had cash of A$7.4 million and accumulated losses of A$68.3 million[176][177] Cash Flow Summary (A$'000) | | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net cash used in operating activities | (22,763) | (9,111) | (8,810) | | Net cash from investing activities | (2,365) | — | — | | Net cash from financing activities | 3,726 | 28,109 | 12,139 | - In FY2022, the company issued 6,743,167 ordinary shares, primarily through its ATM facility and a convertible note conversion[188] - The Triaxial convertible note was fully converted into 1,855,357 ordinary shares on May 5, 2022[191] Research and Development R&D spending has steadily increased, driven by clinical trial costs for the company's lead product candidates Company-Sponsored R&D Spending (A$ million) | Fiscal Year | R&D Spending | | :--- | :--- | | 2020 | 9.5 | | 2021 | 14.5 | | 2022 | 20.3 | - R&D expenses primarily cover costs for developing product candidates, including clinical trial expenses and manufacturing[193] Directors, Senior Management and Employees The company is led by an experienced board and management team, with compensation tied to performance incentives Compensation Executive remuneration combines fixed salary, cash bonuses, and long-term equity incentives through an employee option plan - The executive remuneration framework consists of fixed remuneration, short-term cash bonuses, and long-term share-based payments[212] FY2022 Key Management Personnel Compensation (A$) | Name | Role | Salary & fees | Bonus | Share-based payments | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | I Ross | Chairman | 150,546 | — | 46,159 | 196,705 | | B Carmine | Non-Exec Director | 85,000 | — | 46,159 | 139,659 | | S Coffey | Non-Exec Director | 85,000 | — | 46,159 | 139,659 | | J Garner | CEO | 530,500 | 325,000 | 1,015,198 | 2,004,227 | | J Friend | CMO | 430,279 | 201,978 | 250,194 | 943,606 | | K Krumeich | CFO | 277,972 | — | 100,331 | 399,882 | | Total | | 1,858,798 | 577,978 | 1,559,930 | 4,264,968 | - During fiscal year 2022, the company issued 4,800,000 share options under its ESOP, with 4,200,000 granted to Key Management Personnel[220] Board Practices The board comprises a majority of independent directors and operates with two key committees for governance and oversight - The Board comprises four directors, three of whom are independent non-executive directors[238][243] - The Board has two key committees: the Audit, Risk and Governance Committee and the Remuneration and Nomination Committee[246][247][249] - Directors must retire and stand for re-election at least every three years[241] Employees The company's employee base has grown, particularly in R&D and in the United States, to support expanding operations Full-Time Equivalent Employees by Year and Location | Category | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | By Activity | | | | | Research and Development | 6.8 | 4.6 | 3.6 | | Finance and Administration | 2.2 | 1.7 | 1.7 | | Total | 9.0 | 6.3 | 5.3 | | By Location | | | | | Australia | 5.0 | 5.3 | 5.3 | | United States | 4.0 | 1.0 | 0.0 | | Total | 9.0 | 6.3 | 5.3 | Share Ownership Key Management Personnel collectively hold a minority stake in the company through shares and options KMP Shareholdings as of June 30, 2022 | Name | Balance at start of year | Purchased | Exercise of options | Balance at end of year | | :--- | :--- | :--- | :--- | :--- | | B Carmine | 372,693 | 47,169 | — | 419,862 | | S Coffey | 434,265 | 50,000 | — | 484,265 | | I Ross | 1,000,001 | 75,000 | — | 1,075,001 | | J Garner | 430,000 | 70,000 | — | 500,000 | | K Hill | 295,000 | — | 25,000 | 320,000 | | Total | 2,645,127 | 242,169 | 25,000 | 2,799,128 | KMP Option Holdings as of June 30, 2022 | Name | Balance at start of year | Granted | Exercised | Balance at end of year | | :--- | :--- | :--- | :--- | :--- | | J Garner | 2,000,000 | 2,500,000 | — | 4,500,000 | | K Hill | 125,000 | 100,000 | (25,000) | 200,000 | | I Ross | 400,000 | — | — | 400,000 | | B Carmine | 400,000 | — | — | 400,000 | | S Coffey | 400,000 | — | — | 400,000 | | J Friend | — | 800,000 | — | 800,000 | | K Krumeich | — | 800,000 | — | 800,000 | | Total | 3,520,500 | 4,300,000 | (25,000) | 7,500,000 | Major Shareholders and Related Party Transactions Hyecorp is the only substantial shareholder, and no significant related party transactions occurred in FY2022 5% or Greater Shareholders' Ownership | Shareholder | Oct 7, 2022 (%) | Sep 30, 2021 (%) | Aug 14, 2020 (%) | | :--- | :--- | :--- | :--- | | Hyecorp | 12.7% | 14.44% | 16.1% | | Platinum Int'l Healthcare Fund | <5% | 5.47% | 9.9% | | Quest Asset Partners Pty Ltd | <5% | 8.4% | 6.3% | - As of October 7, 2022, 40.0% of the company's outstanding ordinary shares were held in the form of ADSs[262] - The company did not enter into any significant transactions or loans with related parties during fiscal year 2022[264] Financial Information The company's full financial statements are provided elsewhere, with no dividends paid or significant subsequent events - Consolidated financial statements are included in Item 18 of this report[267] - No dividends were paid, recommended, or declared during fiscal years 2022, 2021, or 2020[269] - No significant changes have occurred since the date of the annual financial statements included in this report[270] The Offer and Listing The company's securities are dual-listed on the ASX in Australia and the NASDAQ in the United States - The company's ordinary shares are listed on the Australian Securities Exchange (ASX) with the trading symbol 'KZA'[273] - The company's American Depositary Shares (ADSs) trade on the NASDAQ Capital Market under the symbol 'KZIA'[274] Additional Information This section details material contracts, regulatory frameworks, and key tax considerations for investors Material Contracts The company's operations are underpinned by key licensing and clinical trial agreements with global partners - Entered a worldwide licensing agreement with Genentech in October 2016 to develop and commercialize paxalisib[307] - Entered a clinical trial agreement with GCAR in October 2020 for paxalisib's inclusion in the GBM AGILE trial[313] - In March 2021, licensed Cantrixil to Vivesto AB for an upfront payment of US$4 million and future milestones[315] - In March 2021, licensed paxalisib to Simcere for Greater China, receiving an upfront payment of US$11 million[316] - In April 2021, licensed EVT801 from Evotec SE for a €1 million upfront payment and future milestones[317] Taxation U.S. investors face a significant risk of adverse tax consequences due to the company's likely PFIC status - The company believes it may be treated as a Passive Foreign Investment Company (PFIC) for U.S. tax purposes[339] - If classified as a PFIC, U.S. holders would be subject to a special tax regime on "excess distributions" and gains[340] - For Australian tax purposes, dividends paid to non-Australian shareholders are subject to a 30% withholding tax on unfranked portions[356] - Non-Australian shareholders are generally exempt from Australian capital gains tax on the disposal of shares[357] Quantitative and Qualitative Disclosures about Market Risk The company is primarily exposed to interest rate, credit, and foreign currency risks, which it manages without derivatives - The company's primary market risks are interest rate risk, credit risk, and foreign currency risk (mainly USD)[374][375][378] - As of June 30, 2022, the company did not use derivative financial instruments for hedging[379] Description of Securities Other than Equity Securities Investors in the company's American Depositary Shares are subject to various fees charged by the depositary bank American Depositary Share (ADS) Fees | Fee | For | | :--- | :--- | | US$5.00 (or less) per 100 ADSs | Issuance or cancellation of ADSs | | US$.05 (or less) per ADS | Any cash distribution | | US$.05 (or less) per ADS per calendar year | Depositary services | | Taxes and governmental charges | As incurred (e.g., stamp duty, withholding taxes) | PART II Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective - Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2022[390] - Management concluded that the company's internal control over financial reporting was effective as of June 30, 2022[391] - No material changes in internal control over financial reporting occurred during the period[396] Audit Committee Financial Expert The Board has determined that independent director Steven Coffey qualifies as an audit committee financial expert - The Board has identified Steven Coffey as the "audit committee financial expert"[397] - Steven Coffey is an independent director and qualified Chartered Accountant with over 30 years of public practice experience[397] Code of Ethics The company has adopted a Code of Ethics and Business Conduct that applies to all personnel - The company has adopted a Code of Ethics and Business Conduct applicable to all directors, management, and employees[398] Principal Accounting Fees and Services Grant Thornton served as the independent auditor, with all services pre-approved by the Audit Committee Audit Fees (A$'000) | | 2022 | 2021 | | :--- | :--- | :--- | | Audit fees - Grant Thornton Audit Pty Ltd | 181 | 151 | - The Audit Committee pre-approves 100% of all audit and permitted non-audit services[402] Corporate Governance As a foreign private issuer, the company follows Australian governance practices in lieu of certain NASDAQ rules - As a foreign private issuer, the company is exempt from certain SEC rules, including proxy and short-swing profit reporting[406] - The company utilizes NASDAQ exemptions to follow Australian corporate governance practices[407][408] PART III Financial Statements The auditor's report raises substantial doubt about the company's ability to continue as a going concern Report of Independent Registered Public Accounting Firm The auditor's report highlights a going concern uncertainty and critical audit matters related to intangible assets - The auditor's report includes a 'Going Concern' paragraph, citing recurring losses and negative cash flow[420] - Critical Audit Matters identified were the impairment assessment of intangible assets and the valuation of contingent consideration[424][425][429] Consolidated Financial Statements The company reported a net loss of A$24.6 million for FY2022, leading to a significant decrease in net assets Consolidated Statement of Profit or Loss (A$'000) | | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Revenue from continuing operations | — | 15,183 | — | | Research and development expense | (20,252) | (14,541) | (9,494) | | General and administrative expense | (4,512) | (7,022) | (3,690) | | Loss after income tax expense for the year | (24,648) | (8,422) | (12,467) | Consolidated Statement of Financial Position (A$'000) | | 2022 | 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | 7,361 | 27,587 | | Intangibles | 20,050 | 22,003 | | Total assets | 34,958 | 58,088 | | Liabilities | | | | Trade and other payables | 3,760 | 4,933 | | Contingent consideration | 9,515 | 12,091 | | Total liabilities | 16,320 | 20,237 | | Net assets | 18,638 | 37,851 | Earnings Per Share (Cents) | | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Basic earnings per share | (18.61) | (7.16) | (17.07) | | Diluted earnings per share | (18.61) | (7.16) | (17.07) | Notes to the Financial Statements Key disclosures include material uncertainty over going concern status and critical estimates for intangible assets - The financial statements were prepared on a going concern basis, but material uncertainty exists due to dependency on future funding[444][445][446] - Critical accounting judgments include R&D expense timing, share-based payment valuation, and intangible asset impairment[529][530][533] Intangible Assets Breakdown (A$'000) | Licensing Agreement | 2022 Carrying Value | 2021 Carrying Value | | :--- | :--- | :--- | | Paxalisib | 10,241 | 11,326 | | EVT-801 | 9,809 | 10,677 | | Total | 20,050 | 22,003 | Contingent Consideration (A$'000) | Liability Type | 2022 | 2021 | | :--- | :--- | :--- | | Current | 759 | 3,165 | | Non-current | 8,756 | 8,927 | | Total | 9,515 | 12,091 | - During FY2022, 4,800,000 options were granted under the ESOP, with a total share-based payment expense of $1,674,581[624][629] - Post-period end, the company was advised the paxalisib arm of the GBM AGILE study did not meet criteria to proceed[638][639]