Business context and reporting period
CHF Solutions, Inc. (the registrant named in this filing) filed this Form 10-K for the fiscal year ended December 31, 2017; it is not a quarterly report. The company focused on commercializing its Aquadex FlexFlow system, used for ultrafiltration treatment of patients with fluid overload who have failed diuretic therapy. It had discontinued clinical evaluations of its earlier C-Pulse and neuromodulation programs and was transitioning Aquadex manufacturing from Baxter to its Minnesota facility.
Financial performance and liquidity
| Metric | 2017 | 2016 |
|---|---|---|
| Revenue | $3.553 million | $1.289 million |
| Gross profit / margin | $0.790 million / 22.2% | $0.576 million / 44.7% |
| Operating loss | $14.812 million | $15.662 million |
| Net loss | $13.382 million | $15.792 million |
| Cash used in operating activities | $11.920 million | $16.292 million |
| Cash and cash equivalents at year-end | $15.595 million | $1.323 million |
- Revenue increased 176%; however, 2016 included Aquadex sales only after its August 2016 acquisition, limiting comparability. 2017 sales were primarily disposable blood sets and catheters.
- Gross margin fell year over year, with 2017 cost of sales including manufacturing-transfer startup costs. Management expected margins to improve in 2018 as in-house production and scale increased.
- 2017 included $3.951 million of goodwill and intangible-asset impairment ($3.762 million intangible assets and approximately $0.2 million goodwill). The filing reports no intangible assets or goodwill remaining at year-end.
- Year-end current assets were $17.864 million and current liabilities $2.091 million. No debt was outstanding at December 31, 2017. The company had a $1 million revolving credit facility, subject to conditions, but had not drawn on it.
- Financing provided $26.454 million of net cash in 2017, including approximately $24.2 million net from April and November public offerings. The company reported an accumulated deficit of $182.4 million.
Changes, outlook, risks and unusual items
- SG&A rose 25% to $10.170 million, including higher commercialization spending; R&D fell 82% to $1.481 million after the company stopped its earlier clinical programs. Management expected sales expenses and R&D investment to increase, while general and administrative expense was expected to remain level or decline.
- The independent auditor and management disclosed substantial doubt about the company’s ability to continue as a going concern. Management said it expected to need additional capital to fund operations beyond 2018; future financing may not be available on acceptable terms or at all.
- The company began in-house manufacturing in the fourth quarter of 2017 and had $1.2 million of Baxter inventory purchases remaining under its agreement at year-end. Manufacturing execution, supplier dependence and product quality are material risks.
- Near-term prospects depend heavily on one product. The ten largest customers accounted for 50.9% of 2017 revenue; the largest customer represented approximately 14–15%. Medicare had not issued favorable national coverage for Aquadex ultrafiltration, although some private insurers reimbursed specified uses.
- Clinical evidence was mixed: UNLOAD reported greater fluid and weight loss and fewer heart-failure rehospitalizations; CARRESS reported no weight-loss difference and increased creatinine versus control; AVOID-HF was terminated early and underpowered, though management cited favorable trends. Further studies and reimbursement support remained objectives, not assured outcomes.
- Two reverse stock splits occurred in 2017. The company regained Nasdaq minimum-bid compliance after the October 1-for-20 split, but warned that future noncompliance could risk delisting. The November financing included Series F preferred stock and warrants; substantial potential dilution remained.
- Other notable items include a $1.475 million gain from changes in warrant fair value and $11.590 million of deemed preferred-stock dividends used in calculating loss attributable to common shareholders. Reported loss per share was $(37.51) versus $(536.12); reverse splits, financing-related dilution and differing weighted-average share counts make direct comparison difficult.
Important facts for investors to verify
- Cash runway, operating burn and whether additional financing is secured, given the going-concern disclosure and stated need for capital beyond 2018.
- Revenue growth, customer concentration, repeat utilization and the durability of demand for Aquadex, including reimbursement coverage.
- Whether in-house manufacturing achieves expected scale, quality and gross-margin improvements, and whether supply commitments are fulfilled.
- Outstanding preferred-stock conversion rights, warrants, exercise prices and potential dilution; confirm current capitalization because share and security counts may have changed after year-end.
- Progress and results of planned clinical studies, reimbursement initiatives and any changes in product indications or regulatory status.