Filing summary
Registrant and period: The supplied filing is Hancock Jaffe Laboratories, Inc.’s Form 10-K for the fiscal year ended December 31, 2020, filed March 31, 2021. This differs from the request metadata naming Envveno Medical Corp. It reports annual results, not a standalone fourth-quarter period.
Business context
Hancock Jaffe was a pre-revenue medical-device developer focused on biologic cardiovascular and vascular products. Its two lead candidates were VenoValve, a porcine-tissue valve intended to treat severe chronic venous insufficiency, and CoreoGraft, a bovine-tissue conduit intended for coronary bypass surgery. Both required further clinical evidence and FDA approval; neither was approved for U.S. commercial sale at the filing date.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $0 | $31,243 |
| Operating expenses | $9.14 million | $7.71 million |
| Net loss | $9.14 million | $7.63 million |
| Net loss attributable to common stockholders | $9.74 million | $7.63 million |
| Net loss per basic and diluted common share | $7.54 | $12.10 |
| Cash used in operating activities | $7.68 million | $5.90 million |
| Cash used in investing activities | $0.18 million | $0.36 million |
| Cash provided by financing activities | $15.07 million | $5.64 million |
| Cash and cash equivalents at year-end | $9.33 million | $1.31 million |
| Working capital | $6.38 million | Deficit of $0.45 million |
- R&D expense rose 93% to $4.25 million, principally for VenoValve and CoreoGraft studies, regulatory work, clinical-trial systems, and staffing. SG&A was nearly flat at $4.88 million.
- No meaningful gross margin or operating margin is available because the company had no FY2020 revenue.
- Year-end liabilities were $3.44 million, including a $312,700 Paycheck Protection Program loan, operating lease liabilities, accounts payable, and accrued expenses. The PPP loan bore 1% interest, matured in April 2022, and management intended to repay it within 12 months of year-end.
- In February 2021, after year-end, the company raised approximately $38.1 million net in a public offering. Management said year-end cash plus offering proceeds was sufficient to meet obligations and sustain operations for at least one year after the report date, while warning that future capital may still be needed.
Changes and notable items
- Net loss increased by $1.51 million, or 20%, year over year. Higher R&D spending and other expenses were partly offset by the absence of the prior-year $588,822 intangible-asset impairment and a $211,807 gain from remeasuring derivative liabilities.
- The prior royalty arrangement ended in March 2019; accordingly, FY2020 revenue was zero. The company stated it did not expect product revenue until a candidate is approved and licensed or marketed.
- The $607,220 deemed dividend associated with Series C preferred stock increased the loss attributable to common stockholders above net loss. The preferred shares were exchanged for common shares in November 2020.
- The company completed a 1-for-25 reverse stock split in November 2020 and raised equity capital through multiple 2020 transactions. Financing included common and preferred stock placements, warrant exercises, and the PPP loan.
- The independent auditor issued an unqualified opinion on the financial statements. Management found internal control over financial reporting ineffective at December 31, 2020 because of a material weakness in accounting for complex equity transactions and warrants. The financial statements were not revised for the identified issue; auditor attestation of internal controls was not provided.
Development, outlook, and risks
- VenoValve: The 11-patient Colombian first-in-human study reported average one-year improvements of 54% in reflux, 56% in Venous Clinical Severity Score, and 76% in pain scores. The company reported no device-related adverse events, while disclosing minor non-device-related issues and one occlusion associated with non-compliance with anticoagulation therapy. The company filed a U.S. IDE application on March 5, 2021, proposing a 75-patient, single-arm, multicenter pivotal study at up to 20 sites. FDA authorization and trial execution remained uncertain.
- CoreoGraft: A nine-sheep feasibility study reported graft patency through 180 days and no identified thrombosis or other listed graft failures. Three patients received implants in a Paraguayan first-in-human study in 2020. Two patients died following surgery; the company believed the events were not device-related, but they were under data and safety monitoring board review. Management expected enrollment might resume in the second quarter of 2021, subject to that review.
- Outlook: No quantified revenue, earnings, or cash-flow guidance was provided. Management expected continued losses and ongoing spending to develop the candidates. Its business plan contemplated licensing or selling products to larger medical-device companies; the company had no sales and marketing infrastructure.
- Principal risks: Clinical or regulatory failure or delay; patient deaths or adverse events; inability to raise capital on acceptable terms and resulting dilution; manufacturing scale-up and dependence on tissue and other suppliers; uncertain market adoption, reimbursement, and commercialization partners; competition and intellectual-property challenges; COVID-19-related disruption; and potential Nasdaq listing noncompliance.
- Contingencies and other unusual matters: Two lawsuits brought by former CFO Robert Rankin sought employment-related and other damages; the company intended to defend them, and the potential loss was not reasonably estimable, so no amount was accrued. The company also settled prior vendor disputes, including release of $810,055 in restricted cash to ATSCO in 2020. A contemplated merger with Catheter Precision did not proceed; related legal costs contributed to SG&A.
Investor verification priorities
- Confirm FDA status and timing for the VenoValve IDE and pivotal trial, including any changes to study design, endpoints, sites, enrollment, or funding needs.
- Review the CoreoGraft safety-board findings and any subsequent trial resumption, patient outcomes, and regulatory disclosures concerning the two deaths.
- Reconcile cash runway and subsequent financing proceeds against the company’s operating burn, planned trial costs, and any later capital raises or dilution.
- Track remediation of the material weakness in internal controls, especially accounting for warrants, preferred-stock terms, and other complex equity transactions.
- Assess the Rankin litigation, related-party payments to the clinical-data vendor affiliated with a significant shareholder, and the company’s reliance on key suppliers and potential commercial partners.