Business context and reporting period
Trovagene, Inc. (the registrant named in this filing) is a clinical-stage oncology therapeutics company developing onvansertib, an oral PLK1 inhibitor. This unaudited Form 10-Q covers the three months ended March 31, 2019; comparisons are with Q1 2018 unless otherwise noted. The company was advancing trials in acute myeloid leukemia (AML) and metastatic castration-resistant prostate cancer (mCRPC), and planned a trial in KRAS-mutated metastatic colorectal cancer (mCRC).
Financial performance and position
| Metric | Q1 2019 | Q1 2018 / prior date |
|---|---|---|
| Revenue | $162,000 | $100,000 |
| Operating expenses | $4.12 million | $4.76 million |
| Operating loss | $3.96 million | $4.66 million |
| Net loss | $3.90 million | $4.79 million |
| Net loss attributable to common stockholders | $4.18 million; $1.02 per share | $4.79 million; $6.23 per share |
| Operating cash used | $3.36 million | $2.86 million |
| Cash and cash equivalents, March 31 | $11.33 million | $11.45 million at December 31, 2018 |
| Working capital, March 31 | $9.05 million | $9.80 million at December 31, 2018 |
Research and development expense was $2.65 million, up from $1.88 million, primarily reflecting higher clinical-trial and outside-service costs. Selling, general and administrative expense fell to $1.48 million from $2.50 million, mainly due to lower headcount and stock-based compensation. Royalties were $62,000 and services and other revenue were $100,000; the latter included sublease income. Cost of revenues was zero, versus $366,000 in Q1 2018, following disposition of the CLIA laboratory. A conventional gross margin is not stated.
Cash declined by $123,000 during the quarter: operating and investing outflows were mostly offset by $3.24 million of financing proceeds, primarily from warrant exercises. The company reported no interest expense and said its equipment line of credit had been paid off. It reported $2.32 million in operating lease liabilities at March 31; these are lease obligations, not identified as borrowings. Total liabilities were $4.85 million.
Material changes and unusual items
- Revenue increased $62,000 year over year, while operating expenses decreased $631,000 and net loss attributable to common stockholders improved by $613,000. The lower per-share loss also reflects a larger weighted-average share count; share and per-share data were retroactively adjusted for a 1-for-6 reverse split effective February 19, 2019.
- In January, PoC Capital agreed to fund $1.675 million of mCRC clinical-study costs in exchange for common shares, Series C convertible preferred shares and warrants. The company recorded a $268,000 non-cash deemed dividend related to the Series C conversion feature. Funding is linked to clinical services, and the corresponding service receivable is recorded as contra-equity and released as services are performed.
- Warrant remeasurement produced a $9,761 loss in Q1. The company adopted lease accounting guidance (ASC 842), recognizing operating right-of-use assets and lease liabilities; it reported no material impact on operations.
- On April 4, 2019, after quarter-end, the company raised $1.5 million gross in a registered direct offering and concurrent private placement of shares and warrants. This is a subsequent event, not Q1 cash proceeds.
Outlook, risks and contingencies
Management expected existing resources to fund planned operations into the fourth quarter of 2019, but stated that significant additional capital would be required and that the circumstances raise substantial doubt about the company’s ability to continue as a going concern. The estimate depends on assumptions that may prove incorrect. Management was considering equity financings, new revenue initiatives, cost reductions and strategic partnerships. Failure to obtain funding could force delays, reductions or discontinuation of development programs, earlier or less favorable collaborations, or disposition of assets; equity financing could significantly dilute stockholders.
The company expected research and development costs to rise as onvansertib trials advanced and anticipated continued operating cash outflows. Its 2019 plans included further AML and mCRPC trial work and initiating the mCRC trial. The filing describes early clinical and preclinical observations, including responses in small patient groups; these are not established efficacy conclusions. The company also disclosed a related-party arrangement with Leucadia Life Sciences, whose principal stockholder was the CEO: approximately $254,000 of Q1 R&D expense was incurred for services under the arrangement. A separate agreement contemplated up to $575,796 for assay development.
The company disclosed a $1.0 million purchase commitment for services from Nerviano by June 30, 2019, of which approximately $950,000 had been ordered as of March 31. Management reported no material litigation claims or material changes to the prior annual report’s risk factors. Cash deposits exceeded federally insured limits, although management did not expect losses. Disclosure controls were concluded effective as of March 31, 2019.
Most important facts for investors to verify
- Whether additional financing was obtained on acceptable terms and whether cash runway extended beyond management’s fourth-quarter 2019 estimate.
- Actual cash burn, trial spending and the timing and terms of further funding; assess dilution and potential program curtailments.
- Progress, enrollment, safety and efficacy evidence from the onvansertib AML and mCRPC trials and the planned mCRC study, distinguishing preliminary company announcements from peer-reviewed or mature results.
- How the PoC clinical-trial funding commitment is being applied and the remaining service receivable and obligations.
- Subsequent share and warrant issuances and the resulting fully diluted share count; the filing reports 5,245,217 common shares outstanding as of April 30, 2019, versus 4,525,354 issued and outstanding at March 31.