BioCardia, Inc. — FY 2016 Form 10-K
Reporting period: Year ended December 31, 2016. This is an annual report, not a standalone fourth-quarter report. BioCardia Lifesciences was the accounting acquirer in the October 24, 2016 reverse merger; the company changed its name to BioCardia, Inc. and assumed the acquired business. Accordingly, the pre-merger financial statements principally reflect BioCardia Lifesciences.
Business context and development
BioCardia is a clinical-stage regenerative medicine company developing cardiovascular cell therapies. Its lead program, autologous CardiAMP, was in an FDA-accepted Phase III pivotal IDE trial for ischemic systolic heart failure. The second program, donor-derived CardiALLO, was planned for further development, including a Phase II trial. Existing commercial products were enabling and delivery devices, including Morph; neither therapeutic candidate had FDA marketing approval.
Financial performance and liquidity
| Metric | 2016 | 2015 |
|---|---|---|
| Total revenue | $576,000 | $904,000 |
| Operating loss | $7.608 million | $5.409 million |
| Net loss | $10.310 million | $6.697 million |
| Net loss per share, basic and diluted | $0.10 | $0.36 |
| Cash used in operating activities | $5.522 million | $7.023 million |
- Product revenue was $517,000, down from $860,000; collaboration revenue was $59,000, versus $44,000.
- Cost of goods sold was $746,000 against revenue of $576,000, a gross loss of $170,000.
- Research and development expense rose to $3.330 million from $1.518 million, principally reflecting preparation for the CardiAMP Phase III trial. Selling, general and administrative expense increased to $4.108 million from $3.734 million.
- At year-end, cash and cash equivalents were $21.352 million, current assets $21.917 million, current liabilities $1.444 million, total liabilities $1.500 million, and stockholders’ equity $20.582 million. The company reported no year-end convertible notes; prior convertible notes converted into common stock in connection with the merger.
- The company reported a $60.142 million accumulated deficit. Management said available cash was expected to fund operations for at least 12 months from issuance of the financial statements, but anticipated needing additional capital. No off-balance-sheet arrangements were reported.
Material changes, unusual items, and management outlook
- Revenue declined by $328,000, mainly because Morph sales volumes fell after a reduction in sales and production staff in 2015. Management expected 2017 sales to be generally consistent with 2016.
- Net loss widened by $3.613 million. In addition to higher operating costs, 2016 included $1.736 million of interest expense and $966,000 of net expense from other items, principally fair-value changes in financing-related derivatives. 2015 included a $1.634 million write-off of deferred IPO costs.
- The company acquired approximately $19.0 million of cash in the merger and raised approximately $4.4 million net through convertible notes that converted at closing. The merger materially changed the capital structure: common shares outstanding were 457.6 million at December 31, 2016, compared with 18.9 million a year earlier, on a retrospectively adjusted basis.
- Inventory fell to $135,000 from $759,000. The company charged $597,000 of finished goods to research and development because they were to be used in the Phase III study.
- Management expected CardiAMP Phase III enrollment of up to 260 patients at up to 40 U.S. sites and anticipated top-line results in 2019. A second IDE for CardiAMP in post-acute myocardial infarction was planned for 2017. CardiALLO IND preparation was anticipated, with its Phase II trial intended to follow CardiAMP enrollment.
- The company reported a material weakness in financial reporting controls related to limited qualified accounting personnel, inadequate segregation of duties, and untimely or ineffective review of reconciliations and non-routine transactions. Management concluded disclosure controls were ineffective at year-end and described remediation efforts; the weakness remained unremediated.
- A 2016 FDA facility inspection resulted in one Form 483 observation, which the company said had been addressed to FDA’s satisfaction. A February 2017 European notified-body inspection identified one major and four minor observations, which were being addressed. Management said it knew of no currently pending legal proceedings it believed material.
- The company’s San Carlos lease was extended through 2021; disclosed future minimum lease payments totaled $3.062 million. Cash was held at one financial institution in excess of FDIC insurance limits.
Key risks and items to verify
- Verify CardiAMP trial enrollment, site expansion, safety monitoring, and whether the primary six-minute-walk endpoint can be met; prior-stage results do not establish Phase III success or FDA approval.
- Verify cash burn and financing needs against the stated 12-month runway, including the funding required to complete CardiAMP development and advance CardiALLO.
- Track remediation of the material weakness and the results of management’s required internal-control assessment for the 2017 Form 10-K.
- Confirm the status and resolution of the European inspection observations, as well as manufacturing, supply, and companion-diagnostic readiness.
- Assess dilution and trading-liquidity risks: the stock traded on OTC Pink, and the filing described limited trading activity and merger-related lock-ups affecting 286.6 million shares.
- Review the merger accounting, financing-related fair-value adjustments, and the $597,000 inventory charge; these affect comparability and interpretation of reported losses.
- Evaluate whether the company can secure reimbursement and market acceptance if CardiAMP or CardiALLO is approved. The filing’s market estimates and expected clinical and commercial outcomes are management’s assessments, not established results.