Business context and reporting period
This is Trovagene, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2017; the filing does not identify Cardiff Oncology as the registrant. Trovagene describes itself as a precision-medicine biotechnology company developing oncology therapeutics and liquid-biopsy diagnostics. Its strategy shifted toward integrating its diagnostic platform with drug development through the March 2017 license of PCM-075, an investigational PLK1 inhibitor intended initially for acute myeloid leukemia (AML).
Key financial metrics
| Metric | Q1 2017 | Comparable period / balance date |
|---|---|---|
| Revenue | $95,000 | $120,000 in Q1 2016 |
| Operating expenses | $10.22 million | $10.58 million in Q1 2016 |
| Operating loss | $10.13 million | $10.46 million in Q1 2016 |
| Net loss attributable to common shareholders | $10.01 million; $0.32 per share | $10.27 million; $0.35 basic per share in Q1 2016 |
| Operating cash used | $8.76 million | $6.92 million in Q1 2016 |
| Cash and short-term investments | $28.80 million | $37.89 million at December 31, 2016 |
| Working capital | $20.77 million | $31.15 million at December 31, 2016 |
| Total debt carrying value | Approximately $16.57 million | Approximately $16.54 million at December 31, 2016 |
Cost of revenue was $616,000 against revenue of $95,000, producing a negative gross margin. The company reported $429,000 in net interest expense. The net loss included a $556,000 noncash gain from the lower fair value of warrant liabilities. Total assets were $33.93 million and stockholders’ equity was $10.68 million at March 31, 2017.
Material changes versus the prior comparable period
- Revenue fell by $25,000, mainly because royalty revenue declined $47,000; diagnostic-services revenue increased from $8,000 to $29,000.
- Operating expenses declined overall, but research and development increased $1.07 million, principally due to a $2.0 million PCM-075 license fee. Selling and marketing and general and administrative expenses fell, including from workforce reductions and lower stock-based compensation.
- Q1 included $1.72 million in restructuring charges, including employee termination costs and an impairment related to the terminated Boreal collaboration. The plan was expected to be completed in Q2 2017, with total charges estimated at about $2.0 million.
- Operating cash use increased $1.84 million year over year. Cash and investments declined by about $9.09 million from year-end; investing cash inflow primarily reflected net maturities of short-term investments.
Outlook, commentary, risks and unusual items
Management said it expected operating cash outflows to continue for the next several years and identified additional equity or debt financing, cost reductions, partnerships, and new revenue initiatives as options to strengthen liquidity. The company stated it could not assure that financing would be available on acceptable terms. Failure to raise capital could require delaying, scaling back, or discontinuing development or commercialization. The filing’s going-concern discussion makes continued operations dependent on additional financing, operating efficiencies, and ultimately increased revenue.
Management planned to submit an investigational new drug application for PCM-075 in Q2 2017, including a proposed Phase 1/2 AML protocol. This is a stated plan, not a reported submission or approval. PCM-075’s prior Phase 1 safety study involved advanced metastatic cancer patients; the company described its safety profile as acceptable with antitumor activity, while emphasizing the early development stage and substantial clinical, regulatory, manufacturing, and funding risks. No quantified financial guidance was provided.
Debt bears variable interest rates; the term loan rate was 7.75% at quarter-end, with interest-only payments through September 1, 2017, followed by principal and interest payments. The loan also carries a $1.125 million final fee. The company reported covenant compliance. A controlled equity offering of up to $20.7 million was available under a prospectus supplement, but no proceeds had been raised in 2017 as of the filing. A lawsuit between the company and former executives remained in discovery; management did not identify other probable or reasonably possible legal liabilities requiring accrual or disclosure. Management concluded disclosure controls were effective as of March 31, 2017.
Important facts for investors to verify
- Confirm the identity of the issuer: this filing is for Trovagene, Inc., despite the Cardiff Oncology metadata.
- Track cash burn, financing activity, and liquidity; the filing provides no firm cash-runway estimate and reports continuing operating outflows.
- Verify whether the planned Q2 2017 PCM-075 IND submission occurred, and monitor clinical progress, trial costs, and regulatory milestones.
- Assess restructuring completion and realized savings, and monitor ongoing diagnostic gross-margin performance.
- Review debt repayment requirements, variable-rate exposure, the final fee, and any potential dilution from equity financing.
- Follow the former-executive litigation and the obligations and milestones under the Nerviano license.