Business context and reporting period
This is Trovagene, Inc.’s unaudited Form 10-Q for the three months ended March 31, 2016. The request metadata names Cardiff Oncology, Inc.; the filing itself identifies Trovagene, Inc., so the issuer should be verified. Trovagene develops and commercializes urine-based cell-free DNA diagnostics, with a primary focus on cancer monitoring. The company reported minimal revenue and continued investment in research and commercialization.
Financial performance and position
| Metric | Q1 2016 | Q1 2015 / prior date |
|---|---|---|
| Revenue | $120,486 | $126,970 |
| Operating expenses | $10.58 million | $4.97 million |
| Operating loss | $10.46 million | $4.85 million |
| Net loss | $10.26 million | $7.17 million |
| Net loss attributable to common stockholders | $10.27 million; $0.35 basic loss per share | $7.18 million; $0.33 basic loss per share |
| Net cash used in operating activities | $6.92 million | $4.73 million |
| Cash and cash equivalents | $59.99 million at March 31 | $67.49 million at December 31, 2015 |
| Working capital | $50.77 million at March 31 | $60.18 million at December 31, 2015 |
| Total debt on balance sheet | $16.22 million | Not separately stated as a comparable total |
Revenue comprised $112,868 of royalties and $7,618 of diagnostic services. Cost of revenue was $309,271, exceeding revenue; management said gross margins were negative as test volume and laboratory capacity were being built. The filing does not present a clear gross-margin percentage.
Investing activities used $352,023, primarily for capital expenditures. Financing activities used $235,954, including debt repayments partially offset by $550,297 borrowed under the equipment credit line. The company had no off-balance-sheet arrangements. It reported compliance with debt covenants at quarter-end.
Material changes versus the prior comparable period
- Revenue decreased $6,484, or about 5%, while operating expenses rose $5.60 million. R&D increased $1.01 million, selling and marketing increased $2.26 million, and general and administrative expense increased $2.20 million.
- Net loss attributable to common stockholders increased $3.09 million. The $533,750 gain from the lower fair value of warrant liabilities partly offset higher operating expenses.
- Operating cash use increased $2.18 million year over year. Cash declined $7.50 million from year-end 2015.
- Weighted-average basic shares increased from 21.82 million to 29.76 million, reflecting prior equity offerings and other share issuances described in the filing.
Outlook, risks, contingencies, and unusual items
- Management expected operating cash outflows to continue for several years, with R&D, commercial, and capital-equipment spending expected to increase. It gave no specific revenue, earnings, or cash-flow guidance and said the timing and amount of future test and royalty revenue were uncertain.
- The company signed a term sheet in February 2016 to refinance its June 2014 term loan, but refinancing documents were not fully executed as of March 31. Management expected to complete refinancing in 2016; completion was not assured, and management expected interest expense to increase after refinancing.
- Management said future funding may be needed and may not be available on acceptable terms. Failure to obtain capital could require delaying or reducing development or commercialization, seeking less favorable collaborations, or relinquishing rights. Equity financing could dilute stockholders.
- Stock-based compensation was $2.81 million versus $711,741 a year earlier. General and administrative expense included approximately $1.2 million of expense for a fully vested option granted to the former CEO. A further 996,000 options issued to executives and directors remained subject to stockholder approval and were recorded as a liability.
- After quarter-end, William J. Welch entered a CEO employment agreement effective May 6, 2016, including a $475,000 annual base salary, potential bonus, and 750,000-share option grant. The filing also disclosed an April 2016 lease expansion expected to commence near year-end.
- Legal matters included Trovagene’s March 2016 complaint against former executives alleging breach of fiduciary duty, and an April 29, 2016 complaint by Pathway Genomics against the company and Welch. Trovagene disputed the latter allegations and said it planned to defend itself.
- The filing cited risks related to product development, clinical validation and regulatory review, competition, access to capital, and retaining key personnel. Directors, officers, principal stockholders, and affiliates beneficially owned approximately 30.1% of outstanding common shares.
Important facts for investors to verify
- Confirm that Trovagene, rather than Cardiff Oncology, is the intended issuer for this filing.
- Check the status and final terms of the proposed debt refinancing, including maturity, interest rate, fees, warrants, and covenant requirements.
- Monitor cash burn against the $59.99 million quarter-end cash balance, working-capital decline, and management’s expectation of continued operating outflows.
- Assess whether diagnostic test volume, reimbursement collections, and pricing improve enough to address negative gross margins and minimal revenue.
- Track clinical and regulatory progress, the outcome of the disclosed litigation, and stockholder approval of the option-plan amendment and subject options.