Hancock Jaffe Laboratories, Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. The supplied filing identifies Hancock Jaffe Laboratories, Inc. (NASDAQ: HJLI), not “Envveno Medical Corp.” The company is a development-stage medical-device business developing tissue-based cardiovascular products.
Business context and development
The lead candidates are VenoValve, a porcine device for deep-vein chronic venous insufficiency, and CoreoGraft, a bovine conduit for coronary bypass surgery. Both remain under development and require clinical evidence and FDA approval. The company’s stated business model includes licensing, sales, or strategic alliances with larger medical-device companies.
In the Colombian VenoValve first-in-human study, six patients had been implanted by June 2019. Management reported reduced reflux in four of the first five patients and no early adverse-event signs in reported procedures. At a July 2019 conference, the investigator reported 90-day results for four patients with functioning valves; these early, small-study findings are not FDA approval or proof of effectiveness. CoreoGraft had been implanted in eight animals by the end of June, with early 30- and 45-day results described as positive. Management planned further animal testing and data releases.
Financial results and liquidity
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $0 | $83,363 | $31,243 | $114,428 |
| Operating expenses | $1,959,949 | $3,195,142 | $3,573,533 | $4,682,643 |
| Operating loss | $1,959,949 | $3,111,779 | $3,542,290 | $4,568,215 |
| Net loss | $1,946,023 | $5,045,413 | $3,519,749 | $9,792,900 |
| Net loss per common share | $0.13 | $1.06 | $0.26 | $1.88 |
Revenue was immaterial and declining; Q2 revenue was zero. Royalty income from LeMaitre ended March 18, 2019, and no related-party contract research revenue was recorded in 2019. Operating expenses comprise SG&A and research and development; the company reported losses, not positive profit or operating margins.
For the six months, operating cash use was $2.92 million versus $3.17 million in 2018; investing cash use was $179,030. Financing provided $5.64 million, primarily from equity offerings. Cash and cash equivalents were $4.47 million at June 30, with $810,055 restricted, for total cash and restricted cash of $5.28 million. Working capital was $2.75 million. As of August 1, cash was $3.85 million and restricted cash remained $810,055.
Total assets were $7.25 million and total liabilities $2.60 million at June 30. Liabilities included $989,253 in operating lease liabilities; the balance sheet reported no notes payable. The company raised $2.70 million gross in a March private placement and $3.87 million gross in a June public offering. Shares outstanding rose to 17.92 million from 11.72 million at year-end 2018, diluting existing holders.
Changes, outlook, and risks
- Six-month net loss fell 64% year over year, largely because 2018 included substantial noncash debt-discount amortization and other financing-related charges. Q2 net loss fell 61% for similar reasons and lower SG&A; these comparisons do not indicate profitability.
- Six-month SG&A decreased 32% to $2.83 million, while R&D rose 42% to $741,323, reflecting VenoValve clinical work and preclinical studies. The company reported no revenue in Q2.
- Management expects continued losses and says additional capital is needed to sustain operations, fund product development, and meet obligations. The filing states that substantial doubt exists about the company’s ability to continue as a going concern within one year; financing may not be available on acceptable terms, and equity financing could further dilute shareholders. No specific financial guidance was provided.
- ATSCO amended its disputed supply-invoice claim to $1.61 million plus incidental damages and interest. $810,055 was restricted under a court attachment order. The company disputes the claim, says it has accrued the outstanding claims, and is defending the case. A separate law-firm invoice claim sought $178,926 plus interest and costs; the company disputes it and says it has accrued the claim.
- The company settled a separate fee dispute by issuing 157,000 shares and a five-year warrant for 150,000 shares. It also reported the end of LeMaitre royalties, clinical and regulatory execution risks, and reliance on external tissue suppliers. Management said disclosure controls were effective as of June 30, 2019.
Most important facts for investors to verify
- Current cash runway, spending rate, and ability to secure financing after the reported August 1 cash balance.
- Progress, safety, durability, and independently verifiable results from the VenoValve study, plus timing and requirements for a U.S. pivotal-trial IDE.
- Further CoreoGraft animal-study results and the development timeline.
- Outcome and cash impact of the ATSCO attachment and litigation, and resolution of the separate legal-fee dispute.
- Potential dilution from future fundraising, outstanding warrants and options, and the terms of any strategic or licensing arrangements.