Business context and reporting period
Filing identity discrepancy: The request identifies Cardiff Oncology, Inc., but the supplied 10-Q is for Trovagene, Inc. and its subsidiary. This summary describes the supplied filing, for the quarter ended March 31, 2013; verify the issuer before relying on it.
Trovagene described itself as a development-stage molecular diagnostics company developing urine-based nucleic-acid tests. It said it introduced its first urine-based HPV screening test in March 2013. The financial statements are unaudited.
Financial results and position
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Revenue | $119,123 | $34,153 |
| Research and development expense | $802,245 | $337,407 |
| General and administrative expense | $1,706,717 | $826,964 |
| Operating loss | $2,389,839 | $1,130,218 |
| Net loss | $1,110,696 | $1,162,642 |
| Net loss attributable to common stockholders | $1,116,581 | $1,172,202 |
| Basic and diluted loss per share | $0.07 | $0.11 |
| Net cash used in operating activities | $1,628,660 | $905,088 |
Revenue consisted of royalty income; the filing does not report product-sales revenue for the quarter. Gross profit and operating margins are not separately presented.
- Liquidity: March 31 cash and cash equivalents were $9,164,275; working capital was $8,173,063. Cash at May 9, 2013 was approximately $8.6 million.
- Balance sheet: Total assets were $10,198,512 and total liabilities were $8,662,845. Current liabilities were $1,176,360. The largest liability was $7,486,485 of derivative financial instruments; the filing does not show a conventional borrowing balance at quarter-end.
- Cash flow: Investing activities used $93,351; financing activities provided $66,505, from warrant exercises. No cash interest was paid.
- Other: Stockholders’ equity was $1,535,667. The accumulated development-stage deficit was $56,319,213.
Material changes versus the prior comparable period
- Revenue increased $84,970, primarily from higher royalties received above minimum amounts and royalties under two agreements that generated no revenue in Q1 2012.
- R&D expense rose $464,838, reflecting expanded research activity, staffing, lab supplies, samples, and research agreements.
- G&A expense rose $879,753, mainly as the company added personnel and built sales, marketing, and business-development infrastructure.
- Operating loss increased by about $1.26 million. Net loss attributable to common stockholders nevertheless improved by $55,621, aided by a $1,279,143 noncash gain from the decline in derivative fair value and higher revenue.
- Operating cash use increased by $723,572 year over year. Cash declined from $10,819,781 at December 31, 2012 to $9,164,275 at March 31, 2013.
Outlook, risks, contingencies, and unusual items
- Funding and going concern: Management said additional capital would be required within the next 12 months to develop and commercialize product candidates and fund operations. It warned that financing may not be available on acceptable terms; equity financing could dilute stockholders, and failure to raise capital could lead to delays, scaled-back programs, or relinquished rights. The company expected operating cash outflows to continue for several years. No specific revenue or earnings guidance was provided.
- Financing capacity: A shelf registration effective February 4, 2013 permitted offerings up to $150 million. A separate agreement allowed sales of up to $30 million of common stock through Cantor Fitzgerald, subject to a 3% commission; no amounts had been raised under that agreement as of the filing.
- Derivative valuation: $7.49 million of warrant-related derivative liabilities were valued using Level 3 inputs. A $1.28 million fair-value gain reduced reported net loss, but was not operating cash flow.
- Contingencies and agreements: The company had committed $152,900 for MD Anderson research services and had incurred $78,990 by March 31. A MultiGen agreement provides for up to $3.7 million of potential milestone consideration; its recorded fair value remained zero. An April 25, 2013 PerkinElmer agreement provides for milestone payments and options to negotiate exclusive licenses; no milestones had been met as of the filing.
- Controls: Management concluded disclosure controls and procedures were not effective because of weaknesses in internal control over financial reporting, and said remediation was underway. No material control changes during the quarter were reported.
- The filing reported no material pending legal proceedings and no off-balance-sheet arrangements.
Important facts for investors to verify
- Confirm that Trovagene, rather than Cardiff Oncology, is the intended issuer and that the quarter and filing match the requested company.
- Assess the company’s financing needs and cash runway against its stated requirement to raise capital within 12 months.
- Review the assumptions and potential volatility underlying the Level 3 warrant-related derivative liabilities and fair-value gains.
- Track commercialization, revenue generation, and costs associated with the HPV test and other development programs.
- Review progress on internal-control remediation and the terms or exercise of the PerkinElmer license options.