Filing summary: Trovagene, Inc. (10-Q, quarter ended September 30, 2017)
Entity note: The supplied filing is for Trovagene, Inc., not Cardiff Oncology, Inc. The summary below reflects the filing’s stated registrant.
Business context and reporting period
Trovagene described itself as a clinical-stage precision-medicine oncology company developing therapeutics and using its tumor-genomics diagnostic technology. Its lead candidate, PCM-075, is an investigational PLK1 inhibitor; the company reported that its Phase 1 safety study was complete and its Phase 1b/2 AML trial had FDA authorization to proceed. Financial results cover the three and nine months ended September 30, 2017, compared with the same periods in 2016; balance-sheet comparisons are with December 31, 2016.
Financial performance and position
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $123,329 | $89,114 | $320,378 | $313,000 |
| Operating loss | $5.80 million | $9.92 million | $21.81 million | $30.36 million |
| Net loss | $4.29 million | $10.19 million | $22.34 million | $30.66 million |
| Net loss per common share, basic | $0.12 | $0.34 | $0.68 | $1.02 |
- Cost of revenue exceeded revenue: gross loss was approximately $350,000 for Q3 and $1.11 million for the nine-month period. The company cautioned that diagnostic costs may be incurred before related revenue is recognized, as diagnostic revenue was recorded on cash collection.
- At September 30, cash and cash equivalents were $7.43 million, short-term investments were zero, working capital was $3.47 million, total assets were $12.22 million, and stockholders’ equity was $3.94 million. Working capital was $31.15 million at December 31, 2016.
- Operating cash use was $19.95 million for the first nine months, versus $22.03 million in 2016. Investing activities provided $23.93 million, primarily from sales and maturities of investments; financing activities used $10.45 million, largely reflecting debt repayments, partly offset by equity proceeds.
- The $15.0 million term loan was paid off in June, when lenders withdrew a payoff amount of $16.67 million. The company reported $1.49 million of equipment-line debt as current and in default at quarter-end. It also reported a $2.04 million derivative-warrant liability, not classified as debt.
Changes versus the prior comparable period
- Q3 revenue increased $34,215 year over year; nine-month revenue increased only $7,378. For the nine months, higher diagnostic-service revenue was largely offset by lower royalties and clinical-research revenue.
- Q3 net loss narrowed by $5.90 million and nine-month net loss narrowed by $8.32 million. Lower research and development and selling and marketing spending—following restructuring and reduced staffing—were principal factors. The nine-month improvement was partly offset by a $1.66 million loss on debt extinguishment.
- Q3 and nine-month results included noncash gains from changes in the fair value of warrant liabilities of $1.53 million and $2.01 million, respectively; these gains reduced reported net loss.
- Cash and investments declined substantially from year-end: cash fell from $13.92 million and short-term investments from $23.98 million to $7.43 million and zero, respectively. The filing says investments were sold to satisfy lender obligations.
Outlook, risks, contingencies, and unusual items
- Going concern: Management said existing resources were expected to fund planned operations only into the first quarter of 2018 and disclosed substantial doubt about the company’s ability to continue as a going concern. It expected continued losses and operating cash outflows and said additional capital was necessary.
- Financing: On October 25, 2017, the company filed to offer up to $17.5 million of common stock and warrants. Additional equity financing could dilute existing stockholders; debt financing might impose restrictive covenants. Failure to raise capital could force delays, reductions, or discontinuation of development programs.
- Debt default: The equipment-line lender issued a default notice in June and retained discretion over remedies; the company said it was working with the lender toward resolution. The company disputed that an event of default had occurred under the separate term-loan agreement, although that loan was paid off and terminated.
- Restructuring and legal settlement: The March 2017 restructuring was expected to conclude in Q4 2017, with approximately $2.0 million of total charges estimated; about $1.7 million had been recorded through September, including employee termination costs and an impairment charge. A dispute with former executives settled in July, at a net company cost of approximately $2.1 million.
- Clinical and commercial uncertainty: PCM-075 remained investigational. The filing identified clinical, regulatory, funding, and competition risks and provided no specific revenue or earnings guidance. Management expected development costs could increase as PCM-075 advanced; diagnostic and royalty revenues could fluctuate.
- Listing risk: Nasdaq notified the company that its share price did not meet the $1.00 minimum bid requirement. The stated compliance deadline was March 5, 2018.
- Management reported disclosure controls and procedures were effective as of September 30, 2017, and no material change in internal control over financial reporting occurred during the quarter.
Important facts for investors to verify
- Confirm the issuer identity: this filing names Trovagene, Inc., not Cardiff Oncology, Inc.
- Review subsequent financing results and updated cash runway, given the stated first-quarter 2018 funding horizon and substantial doubt about going concern.
- Check the status and terms of the equipment-line default resolution and any remaining lender claims or obligations.
- Assess progress, enrollment, safety, and costs for the PCM-075 AML trial, along with the timing and evidence needed for later clinical milestones.
- Verify Nasdaq bid-price compliance and the effects of equity offerings, warrants, and other potential dilution.
- Distinguish recurring operating performance from noncash warrant remeasurement gains and one-time restructuring, debt-extinguishment, and litigation-settlement costs.