Cardiff Oncology, Inc. annual report, FY2018

Business context and reporting period

Filing identity: The supplied filing is Trovagene, Inc.’s Form 10-K for the fiscal year ended December 31, 2018, filed March 6, 2019—not a Cardiff Oncology filing or a standalone 2018 Q4 report. The filing describes Trovagene as a clinical-stage oncology therapeutics company focused on onvansertib, an oral PLK1 inhibitor; it had no approved product.

Financial results and liquidity

Revenue fell about 25%, primarily reflecting lower service revenue after the CLIA laboratory was closed and termination of certain royalty agreements. Cost of revenue exceeded revenue, producing a gross loss of about $219,000 (approximately negative 58% gross margin). Net loss attributable to common stockholders included a one-time, non-cash $2.77 million deemed dividend on Series B preferred stock.

At December 31, 2018, cash and cash equivalents were $11.45 million, working capital was $9.80 million, total assets were $14.17 million, and total liabilities were $4.09 million. The equipment credit line had been repaid; no long-term debt was reported at year-end. Operating cash outflow improved year over year, but the company continued to burn cash. Financing activities provided $16.40 million, principally from 2018 equity and preferred-stock financing and warrant exercises. Outstanding warrants included 3.45 million warrants exercisable at $6.60 per share, creating potential dilution.

Material changes versus the prior year

• Revenue declined $127,079; service revenue fell after the laboratory disposition, and royalty income also decreased.
• R&D increased $281,361 as clinical-trial, outside-service, and laboratory costs rose; lower license fees partly offset the increase.
• SG&A decreased $6.23 million, reflecting lower legal and accounting costs and a reduction in administrative headcount. 2017 expenses included a litigation settlement and other one-time costs.
• Restructuring charges were approximately $665,000 in 2018, mainly relating to the CLIA laboratory closure and sublease loss, versus approximately $2.2 million in 2017.
• Net loss attributable to common stockholders narrowed, but the 2018 Series B deemed dividend increased the common-stockholder loss relative to net loss. Weighted-average shares rose substantially following equity issuance and preferred-stock conversion.

Outlook, risks and unusual items

Management expected continued significant losses and said year-end cash was expected to fund planned operations only into the third quarter of 2019. The auditor highlighted substantial doubt about the company’s ability to continue as a going concern. Management was considering further equity financing, cost reductions, business-development initiatives, and partnerships; additional funding was not assured and could dilute shareholders or require unfavorable arrangements.

Onvansertib development was early-stage. The AML Phase 1b/2 trial completed three dose-escalation levels without reported dose-limiting toxicities; the company reported preliminary activity, including reductions in leukemic cells, but the patient numbers were small and results were not conclusive evidence of efficacy. The mCRPC Phase 2 trial was ongoing. FDA clearance to proceed with a KRAS-mutant metastatic colorectal cancer trial was received in January 2019, with initiation planned for mid-2019. The filing’s 2019 milestones were plans, not guarantees.

Key risks include clinical failure or delay, regulatory uncertainty, dependence on external manufacturers and trial vendors, reliance on additional financing, competition, intellectual-property and license risks, and potential dilution. The filing reported no legal claims management believed would have a material adverse effect. It disclosed a related-party assay-development arrangement with Leucadia, in which CEO Thomas Adams was a principal stockholder; approximately $183,000 of 2018 R&D expense was recorded for services by Leucadia and the CEO’s son.

Other notable items: the company closed its CLIA laboratory in May 2018; the Nerviano license required $1.0 million for future services by June 30, 2019, with approximately $458,000 paid as of year-end; and lease and service commitments totaled approximately $3.38 million at year-end. The filing also reports reverse stock splits of 1-for-12 effective June 2018 and 1-for-6 effective February 2019, with share data stated as retroactively adjusted. A $1.675 million clinical-study financing arrangement with PoC Capital was entered into in January 2019 in exchange for equity and warrants, with excess study costs remaining the company’s responsibility.

Important facts for investors to verify

• Confirm the issuer: this is Trovagene, Inc. (ticker TROV), not Cardiff Oncology; confirm the intended company and reporting period.
• Review the audited statements and going-concern disclosure, including the cash runway estimate and subsequent financing activity.
• Check updated trial enrollment, safety, efficacy, and dose-selection data against the filing’s preliminary claims and planned milestones.
• Assess dilution from outstanding warrants, preferred securities, subsequent PoC Capital securities, and the reverse-split-adjusted share count.
• Verify the status of the Nerviano payment commitment, lease obligations, and related-party assay agreement.
• Distinguish the $16.46 million net loss from the $19.25 million loss attributable to common stockholders, which includes preferred dividends and the Series B deemed dividend.