Filing summary
Entity and period: The supplied filing is Trovagene, Inc.’s Form 10-K for the fiscal year ended December 31, 2012—not a Cardiff Oncology filing. The filing identifies Trovagene as a development-stage molecular diagnostics company.
Business context and reporting period
Trovagene was developing urine-based transrenal nucleic acid tests for cancer, infectious disease, transplantation and prenatal applications. It had no commercial molecular diagnostic products at year-end; reported revenue came from licensing, royalties and milestone payments. The company acquired CLIA laboratory assets in February 2012 and expected to begin offering laboratory-developed tests (LDTs) in 2013.
Key financial metrics
| Metric | 2012 | 2011 |
|---|---|---|
| Revenue | $450,404 | $257,696 |
| Operating expenses | $5,299,560 | $3,234,499 |
| Loss from operations | $4,849,156 | $2,976,803 |
| Net loss | $11,565,961 | $2,239,212 |
| Net loss attributable to common stockholders | $11,604,201 | $2,277,452 |
| Basic and diluted loss per share | $0.89 | $0.23 |
| Cash used in operating activities | $4,934,661 | $1,930,301 |
- Revenue increased $192,708; it comprised $175,404 in royalties, $150,000 in milestone fees and $125,000 in license fees. The milestone payment was from Ipsogen.
- Research and development expense rose to $1.92 million from $0.91 million; general and administrative expense increased to $3.38 million from $2.32 million.
- The 2012 net loss included a $6.72 million noncash loss from changes in fair value of derivative instruments, primarily warrants. This compares with a $170,673 gain in 2011.
- Cash and cash equivalents were $10.82 million at year-end, versus $0.70 million a year earlier. Working capital was $10.32 million, compared with a $0.59 million deficit. At March 22, 2013, working capital was reported as $8.80 million.
- Net cash provided by financing was $15.32 million, primarily from equity issuance. Investing activities used $270,080, principally for capital equipment.
- Year-end total liabilities were $9.50 million, including $8.77 million in derivative financial instrument liabilities and $730,370 in current liabilities. The filing describes the convertible debentures as settled in 2011; no conventional debt balance is presented for 2012.
- Revenue was very small relative to operating costs, and the company remained loss-making; a meaningful operating margin is not applicable to its development-stage business.
Changes, outlook and material risks
- Compared with 2011, revenue grew, but operating expenses and operating cash use also increased. Net loss widened substantially, in large part because of the derivative fair-value charge and increased operating costs.
- Management expected to launch products as LDTs in 2013, with further regulatory development and commercialization planned. The company cited a BRAF assay target for the third quarter of 2013 and expected broad commercialization of a first test kit through normal regulatory pathways to take approximately two to three years.
- Management said existing resources were expected to support development into 2014, but also stated that additional capital would be needed within 12 months. The company had no credit facility or committed financing source.
- The auditor’s April 1, 2013 report expressed substantial doubt about the company’s ability to continue as a going concern due to recurring losses and dependence on additional capital. The financial statements contain no adjustments for the outcome of this uncertainty.
- In January 2013, the company filed an effective shelf registration statement for offerings of up to $150 million and entered an agreement to sell up to $30 million of common stock through Cantor Fitzgerald, subject to a 3% commission. These arrangements could provide capital but may dilute shareholders.
- Management concluded disclosure controls and internal control over financial reporting were ineffective at December 31, 2012, citing weaknesses in the control environment, accounting staffing and monitoring. Remediation was planned for 2013, with no assurance that weaknesses would be fully corrected.
- Key business risks include clinical validation and regulatory approval, reimbursement, adoption by physicians and laboratories, competition, intellectual-property challenges, and the need for additional financing. The filing also notes a European patent application challenge and that past-due 2006–2011 federal and state tax returns were filed in March 2013; potential interest and penalties were unclear.
Important facts for investors to verify
- Confirm the issuer and filing: this document is for Trovagene, Inc., not Cardiff Oncology, Inc.
- Review the audited financial statements and notes for the going-concern qualification, cash runway assumptions, and funding needs.
- Assess the composition and valuation assumptions behind the $8.77 million derivative liability and the $6.72 million 2012 fair-value loss.
- Verify subsequent equity issuance under the shelf and controlled equity offering, including proceeds, commissions and dilution.
- Track actual LDT launches, clinical validation results, regulatory status, reimbursement and commercial revenue against management’s stated plans.
- Check whether the identified internal-control weaknesses were remediated and whether tax-related interest or penalties were assessed.