Business context and reporting period
This is Trovagene, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2012. The request metadata names Cardiff Oncology, Inc.; that does not match the issuer identified in this filing. Trovagene describes itself as a development-stage molecular diagnostics company developing urine-based tests, including for cancer and women’s health.
Financial performance and position
| Metric | Q3 2012 / Sep. 30, 2012 | Comparable period / prior year-end |
|---|---|---|
| Revenue | $211,500 for the quarter; $287,153 for nine months | $55,000 for Q3 2011; $223,946 for nine months 2011 |
| Net loss attributable to common stockholders | $659,785 for the quarter; $5,267,955 for nine months | $291 for Q3 2011; $1,020,555 for nine months 2011 |
| Operating expenses | $1,250,475 for the quarter; $3,701,863 for nine months | $787,154 for Q3 2011; $2,323,529 for nine months 2011 |
| Cash and cash equivalents | $7,815,128 | $700,374 at Dec. 31, 2011 |
| Working capital | $7,243,025 | Deficit of $587,709 at Dec. 31, 2011 |
| Total liabilities | $3,595,650, including $2,838,107 in derivative liabilities | $5,270,525 at Dec. 31, 2011 |
| Stockholders’ equity | $4,975,392 | Deficit of $4,231,268 at Dec. 31, 2011 |
Nine-month operating cash use was $3,619,141, versus $1,409,707 in 2011. Investing cash use was $212,220, mainly capital equipment. Financing provided $10,946,115, chiefly from stock sales. No interest expense was reported for the 2012 nine-month period. The company reported no material commercial-product revenue; gross margin is not clearly provided and is not meaningful from the figures presented.
Material changes versus prior periods
- Nine-month revenue rose $63,207, with a $150,000 Ipsogen milestone payment partly offset by a $76,793 decline in royalties, primarily following termination of a Sequenom license in 2011.
- Nine-month R&D expense increased $723,969 to $1,326,197, reflecting the CLIA laboratory launch, additional staff, supplies, and research activity.
- Nine-month G&A expense increased $654,365 to $2,375,666, including higher executive and advisory costs, bonuses, and public-relations and filing expenses.
- The May 2012 public offering and subsequent overallotment raised $9.1 million net; private placements raised a further $1.9 million gross. The company also effected a 1-for-6 reverse stock split in May.
- Derivative fair-value changes materially affected reported results: the nine-month statement reports a $1,824,565 loss, while the quarter reports a $388,750 gain. These are noncash valuation items.
Outlook, risks, contingencies, and unusual items
Management stated that cash at November 9, 2012 was approximately $7.29 million and expected it to fund ordinary expenses through November 2013. The filing nonetheless identifies substantial doubt-related funding dependence: additional capital is required within a year to develop and commercialize candidates and maintain operations. Management warns that financing may not be available on acceptable terms; equity financing could dilute shareholders, while unavailable funding could force delays, reductions, discontinuation, or less favorable collaborations or asset dispositions.
The company reported a cumulative development-stage deficit of $48,866,386 and expected further losses. A $3.7 million payment to MultiGen Diagnostics is contingent on sales and earnings targets; its fair value was recorded as zero at acquisition, subject to reassessment. The company also committed $90,400 for an MD Anderson research agreement. No material pending legal proceedings or off-balance-sheet arrangements were reported.
Management concluded disclosure controls were ineffective because of weaknesses in the financial closing process and said remedial measures were intended. The filing states this conclusion was based on an evaluation “as of June 30, 2012,” despite covering the quarter ended September 30; this date discrepancy should be checked. The filing also contains differing derivative-liability roll-forward figures in its notes; the balance sheet reports $2,838,107 at September 30.
Investor facts to verify
- Confirm the issuer identity: this filing is for Trovagene, Inc., not Cardiff Oncology, Inc.
- Assess the cash runway and the need and availability of additional financing, including dilution and program-continuation consequences.
- Reconcile derivative-liability and fair-value disclosures, and distinguish noncash valuation changes from operating cash use.
- Verify the control-effectiveness evaluation date and the status of remediation for the financial-close weaknesses.
- Track whether license and collaboration arrangements generate recurring royalties and whether the MultiGen contingent milestones become payable.