The following table sets forth the outstanding potentially dilutive securities that have been excluded in the calculation of diluted net loss per share because their effect was anti-dilutive:
3. Fair Value Measurements
The following table presents the Company’s assets and liabilities that are measured and recognized at fair value on a recurring basis classified under the appropriate level of the fair value hierarchy as of September 30, 20172022 and December 31, 2016:2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurements at September 30, 2022 |
(in thousands) | Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total |
Assets: | | | | | | | |
Money market fund | $ | 18,079 | | | $ | — | | | $ | — | | | $ | 18,079 | |
| | | | | | | |
Total included in cash and cash equivalents | 18,079 | | | — | | | — | | | 18,079 | |
| | | | | | | |
Available for sale investments: | | | | | | | |
Certificate of deposit | — | | | 14,202 | | | — | | | 14,202 | |
Corporate debt securities | — | | | 55,647 | | | — | | | 55,647 | |
Commercial paper | — | | | 10,483 | | | — | | | 10,483 | |
| | | | | | | |
U.S. treasury securities | 15,254 | | | — | | | — | | | 15,254 | |
Total available for sale investments (1) | 15,254 | | | 80,332 | | | — | | | 95,586 | |
| | | | | | | |
Total assets measured at fair value on a recurring basis | $ | 33,333 | | | $ | 80,332 | | | $ | — | | | $ | 113,665 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
|
| | | | | | | | | | | | | | | |
| Fair Value Measurements at September 30, 2017 |
| Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total |
Assets: | | | | | | | |
Money market fund (1) | $ | 6,510,214 |
| | $ | — |
| | $ | — |
| | $ | 6,510,214 |
|
Total Assets | $ | 6,510,214 |
| | $ | — |
| | $ | — |
| | $ | 6,510,214 |
|
Liabilities: | | | | | | | |
Derivative financial instruments—warrants | $ | — |
| | $ | — |
| | $ | 2,037,712 |
| | $ | 2,037,712 |
|
Total Liabilities | $ | — |
| | $ | — |
| | 2,037,712 |
| | $ | 2,037,712 |
|
|
| | | | | | | | | | | | | | | |
| Fair Value Measurements at December 31, 2016 |
| Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total |
Assets: | | | | | | | |
Money market fund (1) | $ | 12,095,620 |
| | $ | — |
| | $ | — |
| | $ | 12,095,620 |
|
Corporate debt securities (2) | — |
| | 14,160,686 |
| | — |
| | 14,160,686 |
|
Commercial paper (3) | — |
| | 2,393,948 |
| | — |
| | 2,393,948 |
|
U.S. treasury securities (2) | — |
| | 8,621,892 |
| | — |
| | 8,621,892 |
|
Total Assets | $ | 12,095,620 |
| | $ | 25,176,526 |
| | $ | — |
| | $ | 37,272,146 |
|
Liabilities: | | | | | | | |
Derivative financial instruments—warrants | $ | — |
| | $ | — |
| | $ | 834,940 |
| | $ | 834,940 |
|
Total Liabilities | $ | — |
| | $ | — |
| | $ | 834,940 |
| | $ | 834,940 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurements at December 31, 2021 |
(in thousands) | Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total |
Assets: | | | | | | | |
Money market fund | $ | 10,990 | | | $ | — | | | $ | — | | | $ | 10,990 | |
| | | | | | | |
Total included in cash and cash equivalents | 10,990 | | | $ | — | | | — | | | 10,990 | |
| | | | | | | |
Available for sale investments: | | | | | | | |
Certificate of deposit | — | | | 1,260 | | | — | | | 1,260 | |
Corporate debt securities | — | | | 88,390 | | | — | | | 88,390 | |
Commercial paper | — | | | 14,454 | | | — | | | 14,454 | |
Non U.S. government | — | | | 728 | | | — | | | 728 | |
U.S. treasury securities | 24,046 | | | — | | | — | | | 24,046 | |
Total available for sale investments (1) | 24,046 | | | 104,832 | | | — | | | 128,878 | |
| | | | | | | |
Total assets measured at fair value on a recurring basis | $ | 35,036 | | | $ | 104,832 | | | $ | — | | | $ | 139,868 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
(1) Included as a component of cash and cash equivalents on the accompanying condensed consolidated balance sheets.
(2) Included in short-term investments onin the accompanying condensed consolidated balance sheets.
(3) $0 and $1,198,504 of commercial paper was included as a component of cash and cash equivalents at September 30, 2017 and December 31, 2016, respectively, and the remaining amount was included in short-term investments on the accompanying consolidated balance sheets.
The following table sets forth a summaryCompany’s policy is to recognize transfers between levels of changes in the fair value hierarchy on the date of the Company’sevent or change in circumstances that caused the transfer. There were no transfers into or out of Level 3 liabilities forduring the nine months ended September 30, 2017:
2022.
|
| | | | | | | | | | | | | | | |
Description | | Balance at December 31, 2016 | | Issuance of Derivative Financial Instruments | | Realized Gain | | Balance at September 30, 2017 |
Derivative financial instruments—warrants | | $ | 834,940 |
| | 3,215,519 |
| | $ | (2,012,747 | ) | | $ | 2,037,712 |
|
The realized gains or losses on the derivative financial instruments—warrants are recorded as a change in fair value of derivative financial instruments—warrants in the Company’s consolidated statement of operations. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. At each reporting period, the Company reviews the assets and liabilities that are subject to ASC Topic 815-40. At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs or instruments that trade infrequently and therefore have little or no price transparency are classified as Level 3.
4. Short-Term InvestmentsSupplementary Balance Sheet Information
AsInvestments available for sale
Investments available for sale consist of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| As of September 30, 2022 |
(in thousands) | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Market Value |
Maturity less than 1 year: | | | | | | | |
Certificate of deposit | $ | 14,285 | | | $ | 4 | | | $ | (87) | | | $ | 14,202 | |
Corporate debt securities | 49,055 | | | 3 | | | (498) | | | 48,560 | |
Commercial paper | 10,528 | | | 4 | | | (49) | | | 10,483 | |
| | | | | | | |
U.S. treasury securities | 15,348 | | | — | | | (94) | | | 15,254 | |
Total maturity less than 1 year | 89,216 | | | 11 | | | (728) | | | 88,499 | |
Maturity 1 to 2 years: | | | | | | | |
Corporate debt securities | 7,148 | | | 4 | | | (65) | | | 7,087 | |
U.S. treasury securities | — | | | — | | | — | | | — | |
Total maturity 1 to 2 years | 7,148 | | | 4 | | | (65) | | | 7,087 | |
| | | | | | | |
Total short-term investments | $ | 96,364 | | | $ | 15 | | | $ | (793) | | | $ | 95,586 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2021 |
(in thousands) | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Market Value |
Maturity less than 1 year: | | | | | | | |
Certificate of deposit | $ | 1,260 | | | $ | — | | | $ | — | | | $ | 1,260 | |
Corporate debt securities | 58,822 | | | 2 | | | (38) | | | 58,786 | |
Commercial paper | 14,453 | | | 4 | | | (3) | | | 14,454 | |
Non U.S. government | 728 | | | — | | | — | | | 728 | |
U.S. treasury securities | 20,380 | | | — | | | (24) | | | 20,356 | |
Total maturity less than 1 year | 95,643 | | | 6 | | | (65) | | | 95,584 | |
Maturity 1 to 2 years: | | | | | | | |
Corporate debt securities | 29,676 | | | 1 | | | (73) | | | 29,604 | |
U.S. treasury securities | 3,701 | | | — | | | (11) | | | 3,690 | |
Total maturity 1 to 2 years | 33,377 | | | 1 | | | (84) | | | 33,294 | |
| | | | | | | |
Total short-term investments | $ | 129,020 | | | $ | 7 | | | $ | (149) | | | $ | 128,878 | |
Unrealized losses in investments available for sale debt securities at September 30, 2017, all short-term2022, were primarily due to increases in interest rates, not due to increased credit risks associated with specific securities. We do not intend to sell these investments and it is not more likely than not that we will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity.
Investments available for sale that have been sold to satisfyin a continuous unrealized loss position for greater than one-year consist of the Company’s outstanding obligations under the Loan and Security Agreement dated as of June 30, 2014 upon demanding repayment by the lenders.following:
| | | | | | | | | | | |
| As of September 30, 2022 |
(in thousands) | Fair Market Value | | Gross Unrealized Loss |
| | | |
Corporate debt securities | 751 | | | (6) | |
| | | |
U.S. treasury securities | 1,839 | | | (22) | |
Total short-term investments | $ | 2,590 | | | $ | (28) | |
The following table sets forth the composition of short-term investments as of December 31, 2016.
|
| | | | | | | | | | | | | | | | | |
| December 31, 2016 |
| | | | | Unrealized | | |
| Maturity in Years | | Cost | | Gains | | Losses | | Fair Value |
Corporate debt securities | Less than 1 year | | $ | 14,165,915 |
| | $ | 44 |
| | $ | (5,273 | ) | | $ | 14,160,686 |
|
Commercial paper | Less than 1 year | | 1,195,444 |
| | — |
| | — |
| | 1,195,444 |
|
U.S. treasury securities | Less than 1 year | | 8,625,728 |
| | 330 |
| | (4,166 | ) | | 8,621,892 |
|
Total Investment | | | $ | 23,987,087 |
| | $ | 374 |
| | $ | (9,439 | ) | | $ | 23,978,022 |
|
5. Property and Equipmentequipment
Property and equipment consist of the following:
| | | | | | | | | | | |
(in thousands) | As of September 30, 2022 | | As of December 31, 2021 |
Furniture and office equipment | $ | 1,069 | | | $ | 955 | |
Leasehold improvements | 2,545 | | | 1,962 | |
Laboratory equipment | 1,019 | | | 906 | |
| 4,633 | | | 3,823 | |
Less—accumulated depreciation and amortization | (3,329) | | | (3,441) | |
Property and equipment, net | $ | 1,304 | | | $ | 382 | |
|
| | | | | | | |
| As of September 30, 2017 | | As of December 31, 2016 |
Furniture and office equipment | $ | 1,076,709 |
| | $ | 1,144,741 |
|
Leasehold improvements | 1,994,514 |
| | 1,994,514 |
|
Laboratory equipment | 2,584,363 |
| | 2,449,645 |
|
| 5,655,586 |
| | 5,588,900 |
|
Less—accumulated depreciation and amortization | (2,528,617 | ) | | (1,761,985 | ) |
Property and equipment, net | $ | 3,126,969 |
| | $ | 3,826,915 |
|
Accrued Liabilities
Accrued liabilities consisted of the following:
| | | | | | | | | | | |
(in thousands) | As of September 30, 2022 | | As of December 31, 2021 |
Accrued compensation | $ | 1,609 | | | $ | 1,435 | |
Preferred stock dividend | 432 | | | 414 | |
Clinical trials | 2,132 | | | 1,639 | |
Research agreements and services | 1,125 | | | 726 | |
Director fees | 125 | | | 141 | |
Professional fees and outside services | 29 | | | 63 | |
Patent, license and other fees | 122 | | | 43 | |
| | | |
Other accrued liabilities | 564 | | | 66 | |
Total accrued liabilities | $ | 6,138 | | | $ | 4,527 | |
6. Debt5. Leases
As a lessee, the Company’s current leases include its master facility lease and immaterial equipment leases, all of which are considered operating leases.
Equipment Line of Credit
Master Facility Lease
In November 2015, the Company entered into a Loan and Security Agreement (“Equipment Line of Credit”) with SVB that provided for cash borrowings for equipment (“Equipment Advances”) of up to $2.0 million, secured by the equipment financed. Under the terms of the agreement, interest is equal to 1.25% above the Prime Rate. At September 30, 2017, the interest rate was 5.50%. Interest only payments are due on borrowings through November 30, 2016, with both interest and principal payments commencing in December 2016. All unpaid principal and interest on each Equipment Advance will be due on November 1, 2019.
The Company has an obligation to make a final payment equal to 7%currently leases 12,300 square feet of total amounts borrowed at the loan maturity date.office and lab space in San Diego that expires on February 28, 2027. The Company is also subject to certain affirmative and negative covenants under the Equipment Line of Credit.
On June 20, 2017, the Company received a Notice of Event of Default (“Default Letter”) from SVB which stated that Events of Default had occurred and SVB will decide in its sole discretion whether or not to exercise rights and remedies. Pursuant to the Default Letter, the Company has classified the entire balance of $1,488,041 as a current liability as of September 30, 2017 and also started recording accrued interest at a default rate. The Company recorded $209,082 in interest expense related to the Equipment Line of Credit during the nine months ended September 30, 2017. The Company islease currently working with lender for resolution.
Loan and Security Agreement
In June 2014, the Company entered into a $15,000,000 Loan and Security Agreement (“Agreement”) under which the lenders provided the Company a term loan. On July 20, 2016, the Company signed the 5th Amendment to Loan and Security Agreement to refinance its existing term loan. Under the Amendment, interest is equal to 3.75% plus the Wall Street Journal Prime Rate, subject to a floor of 7.25%. The Company is required to make interest only payments on the outstanding amount of the loan on a monthly basis through September 1, 2017, after which equalrequires monthly payments of principalapproximately $60,000 per month with 3% annual escalation.
The components of lease expense were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
Operating lease cost | $ | 188 | | | $ | 281 | | | $ | 568 | | | $ | 468 | |
Operating sublease income | — | | | (101) | | | — | | | (303) | |
Net operating lease cost | $ | 188 | | | $ | 180 | | | $ | 568 | | | $ | 165 | |
Supplemental balance sheet information related to leases was as follows:
| | | | | | | | | | | |
(in thousands) | As of September 30, 2022 | | As of December 31, 2021 |
Operating lease ROU assets | $ | 2,388 | | | $ | 2,796 | |
| | | |
Current operating lease liabilities | $ | 674 | | | $ | 551 | |
Non-current operating lease liabilities | 2,174 | | | 2,568 | |
Total operating lease liabilities | $ | 2,848 | | | $ | 3,119 | |
| | | |
Weighted-average remaining lease term–operating leases | 4.5 years | | 5.2 years |
Weighted-average discount rate–operating leases | 7.0 | % | | 7.0 | % |
Supplemental cash flow and interest are due until the loan maturity date of February 1, 2020.other information related to leases was as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
Cash paid for amounts included in the measurement of lease liabilities: | | | | | | | |
Operating cash flows from operating leases | $ | 180 | | | $ | 243 | | | $ | 431 | | | $ | 726 | |
ROU assets obtained in exchange for lease liabilities: | | | | | | | |
Operating leases | $ | — | | | $ | 3,061 | | | $ | — | | | $ | 3,061 | |
On June 1, 2017, the Company received a Notice of Event of Default from the lenders which stated that Events of Default had occurred and all
Total remaining annual commitments under non-cancelable lease agreements for each of the obligation under the Agreement were immediately due and payable. On June 6, 2017, the lenders took the total pay-off amountyears ended December 31 are as follows:
| | | | | | | | | |
(in thousands) | | | | | |
Year Ending December 31, | Operating Leases | | | | |
| | | | | |
2022 (excluding the nine months ended September 30, 2022) | $ | 120 | | | | | |
2023 | 737 | | | | | |
2024 | 754 | | | | | |
2025 | 775 | | | | | |
2026 | 796 | | | | | |
| | | | | |
Thereafter | 137 | | | | | |
Total future minimum lease payments | 3,319 | | | | | |
Less imputed interest | (471) | | | | | |
Total | $ | 2,848 | | | | | |
Table of $16,668,583 for the principal, interest, final payment, and other amounts out of the Company’s bank accounts which satisfied all of the Company’s outstanding obligations under the Agreement. Accordingly, the Agreement was terminated in June 2017. Upon termination of the Agreement, the prepayment fee of $450,000, unamortized debt discount of $400,562 and unamortized final fee of $738,196 were recorded as loss on debt extinguishment. The Company recorded total interest expense of $801,173 related to the Agreement during the nine months ended September 30, 2017. 7. Derivative Financial Instruments — Warrants
Based upon the Company’s analysis of the criteria contained in ASC Topic 815-40, Contracts in Entity’s Own Equity (“ASC 815-40”) or ASC Topic 480-10, Distinguishing Liabilities from Equity (“ASC 480-10”), Trovagene determined that certain warrants issued in connection with the execution of certain equity financings must be recorded as derivative liabilities. In accordance with ASC 815-40 and ASC 480-10, the warrants are also being re-measured at each balance sheet date based on estimated fair value, and any resultant change in fair value is being recorded in the Company’s condensed consolidated statements of operations. The Company estimates the fair value of these warrants using the Black-Scholes option pricing model.
The range of assumptions used to determine the fair value of the warrants valued using the Black-Scholes option pricing model during the periods indicated was:
|
| | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
Estimated fair value of Trovagene common stock | 0.73-1.26 |
| | 4.49-4.65 |
|
Expected warrant term | 1.3-5.5 years |
| | 2.3-2.8 years |
|
Risk-free interest rate | 1.27-1.95% |
| | 0.71-0.87% |
|
Expected volatility | 86-109% |
| | 82-89% |
|
Dividend yield | 0 | % | | 0 | % |
Expected volatility is based on historical volatility of Trovagene’s common stock. The warrants have a transferability provision and based on guidance provided in Staff Accounting Bulletin (“SAB”) No. 107, Share-Based Payment (“SAB No. 107”), for instruments issued with such a provision, Trovagene used the remaining contractual term as the expected term of the warrants. The risk free rate is based on the U.S. Treasury security rates consistent with the expected remaining term of the warrants at each balance sheet date.
The following table sets forth the components of changes in the Company’s derivative financial instruments—warrants liability balance, valued using the Black-Scholes option pricing method, for the periods indicated.
|
| | | | | | | | | |
Date | | Description | | Number of Warrants | | Derivative Instrument Liability |
December 31, 2016 | | Balance of derivative financial instruments—warrants liability | | 967,295 |
| | $ | 834,940 |
|
| | Issuance of derivative financial instruments | | 4,643,626 |
| | 3,215,519 |
|
| | Change in fair value of derivative financial instruments—warrants during the period recognized as a gain in the condensed consolidated statements of operations | | — |
| | (2,012,747 | ) |
September 30, 2017 | | Balance of derivative financial instruments—warrants liability | | 5,610,921 |
| | $ | 2,037,712 |
|
8.6. Stockholders’ Equity
Common Stock
During the nine months ended September 30, 2017, the Company issued a total of 7,408,460 shares of Common Stock. The Company received gross proceeds of approximately $7.1 million from the sale of 6,191,500 shares of its common stock and 4,643,626 share of warrants through registered direct offering and private placement in July 2017. The Company received gross proceeds of approximately $0.1 million from the sale of 102,081 shares of its common stock at a weighted average price of $1.08 under the agreement with Cantor Fitzgerald & Co. (“Agent”). In addition, 369,487 shares were issued upon vesting of restricted stock units (“RSU”), and 745,392 shares were issued upon vesting of restricted stock awards (“RSA”).
Stock Options
Stock-based compensation expense related to TrovageneCardiff Oncology equity awards have been recognized in operating results as follow:follows:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Included in research and development expense | $ | 219,480 |
| | $ | 872,792 |
| | $ | 798,143 |
| | $ | 1,862,069 |
|
Included in cost of revenue | 15,633 |
| | 42,639 |
| | 56,998 |
| | 99,164 |
|
Included in selling and marketing expense | 118,434 |
| | 476,865 |
| | 550,317 |
| | 1,493,744 |
|
Included in general and administrative expense | 1,067,633 |
| | 437,075 |
| | 1,837,128 |
| | 2,487,415 |
|
Benefit from restructuring | — |
| | — |
| | (125,222 | ) | | — |
|
Total stock-based compensation expense | $ | 1,421,180 |
| | $ | 1,829,371 |
| | $ | 3,117,364 |
| | $ | 5,942,392 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | |
Included in research and development expense | $ | 286 | | | $ | 174 | | | $ | 746 | | | $ | 286 | |
Included in selling, general and administrative expense | 751 | | | 766 | | | 2,498 | | | 1,958 | |
| | | | | | | |
| | | | | | | |
Total stock-based compensation expense | $ | 1,037 | | | $ | 940 | | | $ | 3,244 | | | $ | 2,244 | |
The unrecognized compensation cost related to non-vested stock options outstanding at September 30, 2017 and 2016,2022, net of expectedestimated forfeitures, was $3,271,046 and $10,416,565, respectively,$9.8 million, which is expected to be recognized over a weighted-average remaining vesting period of 2.2 and 3.0 years, respectively.2.8 years. The weighted-average remaining contractual term of outstanding options as of September 30, 20172022, was approximately 7.27.6 years. The total fair value of stock options vested during the nine months ended September 30, 20172022 and 2016 was $3,378,2432021, were $4.0 million and $5,416,168,$1.2 million, respectively.
The estimated fair value of stock option awards was determined on the date of grant using the Black-Scholes option valuation model with the following weighted-average assumptions during the following periods indicated:
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2022 | | 2021 |
Risk-free interest rate | 1.87 | % | | 0.95 | % |
Dividend yield | 0 | % | | 0 | % |
Expected volatility of Cardiff Oncology common stock | 106 | % | | 108 | % |
Expected term | 6.0 years | | 6.0 years |
|
| | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
Risk-free interest rate | 1.82 | % | | 1.48 | % |
Dividend yield | 0 | % | | 0 | % |
Expected volatility | 87 | % | | 103 | % |
Expected term | 5.2 years |
| | 5.5 years |
|
A summary of stock option activity and changes in stock options outstanding is presented below:
| | | | | | | | | Total Options | | Weighted-Average Exercise Price Per Share | | Intrinsic Value |
| Total Options | | Weighted-Average Exercise Price Per Share | | Intrinsic Value | |
Balance outstanding, December 31, 2016 | 5,528,628 |
| | $ | 5.49 |
| | $ | — |
| |
Balance outstanding, December 31, 2021 | | Balance outstanding, December 31, 2021 | 3,771,984 | | | $ | 7.13 | | | $ | 6,405,258 | |
Granted | 823,106 |
| | $ | 0.84 |
| | |
| Granted | 1,731,136 | | | $ | 3.15 | | | |
Exercised | | Exercised | (28,858) | | | $ | 2.60 | | | |
Canceled / Forfeited | (2,077,246 | ) | | $ | 6.24 |
| | |
| Canceled / Forfeited | (371,125) | | | $ | 4.77 | | | |
Expired | (17,457 | ) | | $ | 4.74 |
| | |
| Expired | (1,565) | | | $ | 184.73 | | | |
Balance outstanding, September 30, 2017 | 4,257,031 |
| | $ | 4.23 |
| | $ | 381 |
| |
Exercisable at September 30, 2017 | 2,492,242 |
| | $ | 4.79 |
| | $ | — |
| |
Balance outstanding, September 30, 2022 | | Balance outstanding, September 30, 2022 | 5,101,572 | | | $ | 5.92 | | | $ | 30,739 | |
Exercisable at September 30, 2022 | | Exercisable at September 30, 2022 | 2,178,676 | | | $ | 7.44 | | | $ | 16,013 | |
Vested and expected to vest at September 30, 2022 | | Vested and expected to vest at September 30, 2022 | 5,017,818 | | | $ | 5.94 | | | $ | 29,723 | |
On2021 Equity Incentive Plan
In June 13, 2017,2021 the Company's stockholders approved the 2021 Omnibus Equity Incentive Plan ("2021 Plan"). The number of authorized shares in the Trovagene2021 Plan is equal to the sum of (i) 3,150,000 shares, plus (ii) the number of shares of Common Stock reserved, but unissued under the 2014 Equity IncentivePlan; and (iii) the number of shares of Common Stock underlying forfeited awards under the 2014 Plan. On June 9, 2022 the shareholders approved an increase of shares authorized in the 2021 Plan (“2014 EIP”) was increasedto 5,150,000 from 7,500,000 to 9,500,000.3,150,000. As of September 30, 20172022, there were 3,670,2323,055,281 shares available for issuance under the 2021 Plan.
2014 EIP.Equity Incentive Plan
Restricted Stock Units
The weighted-average grant date fair valueSubsequent to the adoption of the RSU was $1.592021 Plan, no additional equity awards can be made under the terms of the 2014 Plan.
Inducement Grants
In July 2021, the Company began issuing equity awards to certain new employees as inducement grants outside of its 2021 Plan. As of September 30, 2022, an aggregate of 920,208 shares were issuable upon the exercise of inducement grant stock options approved by the Company.
Modification of Stock Options
In June 2022 one of the Company's directors did not seek another term on the Board of Directors. At the time of departure, the Compensation Committee passed a resolution to extend the expiration date of the vested stock options, and $4.06 per shareto immediately accelerate the vesting of the unvested options. The Company recorded incremental reduction to stock compensation expense of $0.1 million during the nine months ended September 30, 2017 and 2016, respectively.
A summary of the RSU activity is presented below:
|
| | | | | | | | | | |
| Number of Shares | | Weighted-Average Grant Date Fair Value Per Share | | Intrinsic Value |
Non-vested RSU outstanding, December 31, 2016 | 272,000 |
| | $ | 3.99 |
| | $ | 571,200 |
|
Granted | 2,249,242 |
| | $ | 1.59 |
| | |
Vested | (369,487 | ) | | $ | 3.48 |
| | $ | 645,775 |
|
Forfeited | (874,453 | ) | | $ | 1.75 |
| | |
Non-vested RSU outstanding, September 30, 2017 | 1,277,302 |
| | $ | 1.44 |
| | $ | 932,430 |
|
At September 30, 2017, total unrecognized compensation cost2022, related to non-vested RSU was $1,011,494, which is expected to be recognized over a weighted-average period of 2.5 years. The total fair value of vested RSU during the nine months ended September 30, 2017 was $1,285,578.modifications.
Restricted Stock Awards
During the nine months ended September 30, 2017, a total of 745,392 shares of RSA were granted, all of which were vested immediately. The total fair value of vested RSA during the nine months ended September 30, 2017 was $596,314. The weighted-average grant date fair value of the RSA was $0.80 per share during the nine months ended September 30, 2017. There were no such awards granted during the nine months ended September 30, 2016.
Warrants
A summary of warrant activity and changes in warrants outstanding, including both liability and equity classifications is presented below:
| | | | | | | | | | | | | | | | | |
| Total Warrants | | Weighted-Average Exercise Price Per Share | | Weighted-Average Remaining Contractual Term |
Balance outstanding, December 31, 2021 | 4,490,159 | | | $ | 5.80 | | | 3.0 years |
| | | | | |
| | | | | |
| | | | | |
Balance outstanding, September 30, 2022 | 4,490,159 | | | $ | 5.80 | | | 2.2 years |
Preferred Stock
A summary of our Company's classes of preferred stock is presented below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Shares outstanding |
Class | | Par value | | Shares designated | | Liquidation preference | | As of September 30, 2022 | | As of December 31, 2021 |
Series A Convertible Preferred Stock | | $ | 0.001 | | | 277,100 | | | $ | 606,000 | | | 60,600 | | | 60,600 | |
Series B Convertible Preferred Stock | | $ | 0.001 | | | 8,860 | | | None | | — | | | — | |
Series C Convertible Preferred Stock | | $ | 0.001 | | | 200,000 | | | None | | — | | | — | |
Series D Convertible Preferred Stock | | $ | 0.0001 | | | 154,670 | | | None | | — | | | — | |
Series E Convertible Preferred Stock | | $ | 0.001 | | | 865,824 | | | None | | 327,509 | | | 655,044 | |
In March 2017, the Company entered into a license agreement with Nerviano which granted the Company development and commercialization rights to NMS-1286937, which TrovageneCardiff Oncology refers to as PCM-075. PCM-075onvansertib. Onvansertib, an investigational drug, is an oral, investigative drug and a highly-selectivehighly selective adenosine triphosphate competitive inhibitor of the serine/threonine PLK 1. The Company plans to develop PCM-075 initially in patients with AML. Upon execution of the agreement, the Company paid $2.0 million in license fees which were expensed to research and development costs during the nine months ended September 30, 2017.PLK1. The Company is committed to pay $1.0 milliondeveloping onvansertib in cancer indications with the greatest medical need for future services provided by Nerviano, such as the costs to manufacture drug product, no later than June 30, 2019.new treatment options. Terms of the agreement also provide for the Company to pay development milestones and royalties based on certain development and sales milestones.volume.
The Company is a party to various agreements under which it licenses technology on an exclusive basis in the field of human diagnostics.oncology therapeutics. These agreements include License fees, Royalties and Milestone payments. The Company also has a legacy license agreement in the field of oncology diagnostics under which royalty payments are generallydue. These royalty payments are calculated as a percentagepercent of product revenues, with rates that vary by agreement. To date,revenue. For the nine months ended September 30, 2022 and 2021, payments have not been material.
10. Restructuring Charges
On March 15, 2017, in connection with the addition of precision medicine therapeutics to its business, the Company announced a restructuring plan (the “Restructuring”) which included a reduction in force. The Restructuring is expected to be completed in the last quarter of 2017. The Company estimates that it will incur approximately $2.0 million in charges related to this Restructuring. During the nine months ended September 30, 2017, the Company incurred approximately $1.7 million in restructuring charges which included approximately $1.2 million of personnel termination costs and an approximately $0.5 million charge related to impairment of capitalized license fees. As of September 30, 2017, approximately $0.4 million of these restructuring costs were included in accrued liabilities in the condensed consolidated balance sheet.
11. Related Party Transactions
In March 2016, the Company engaged Rutan & Tucker, LLP, a law firm to represent Trovagene, Inc. with respect to various lawsuits. One of the partners from Rutan & Tucker, LLP, is the son of the Company’s Chairman of the Board. The fees for legal services are based on the hourly rates of the individuals performing the legal services. During the nine months ended September 30, 2017 and 2016, the Company has incurred approximately $763,075 and $377,464 of legal expenses, net of insurance reimbursements, for services performed by Rutan & Tucker, LLP, respectively.
12. Subsequent Event
On October 25, 2017, the Company filed a registration statement on Form S-1 with the SEC for a best efforts public offering of up to $17.5 million of common stock and warrants. H.C. Wainwright & Co. is acting as placement agent.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding the future financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions.
In addition, our business and financial performance may be affected by the factors that are discussed under “Risk Factors” in the Annual Report on Form 10-K for the year ended December 31, 2016,2021, filed on March 15, 2017, on Form 10-Q
for the period ended March 31, 2017, filed on May 10, 2017, and on Form 10-Q for the period ended June 30, 2017, filed on August 9, 2017.February 24, 2022. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for us to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
You should not rely upon forward lookingforward-looking statements as predictions of future events. We cannot assure you that the events and circumstances reflected in the forward lookingforward-looking statements will be achieved or occur. Although we believe that the expectations reflected in the forward lookingforward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.
The following discussion and analysis is qualified in its entirety by, and should be read in conjunction with, the more detailed information set forth in the financial statements and the notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management.
Overview
We are a precision medicineclinical-stage biotechnology company developing oncology therapeutics for improved cancer care, optimizing drug development by leveraging our proprietary PCM technology inPLK1 inhibition to develop novel therapies across a range of cancers with the greatest unmet medical need. Our goal is to target tumor genomics. Our broad intellectual property and proprietary technology enables us to measure ctDNA in urine and blood to identify and quantify clinically actionable markers for predictingvulnerabilities with treatment combinations that overcome disease resistance, improve disease response to cancer therapies.standard treatment regimens and increase overall survival. We offer our PCM technology at our CLIA-certified/CAP-accredited laboratoryare developing onvansertib, an oral and planhighly selective PLK1 inhibitor, in combination with standard-of-care chemotherapy and targeted therapeutics. Our clinical development programs incorporate tumor genomics and biomarker assays to continuerefine assessment of patient response to vertically integrate our PCM technologytreatment.
Our Drug Candidate, Onvansertib
Onvansertib is an oral, small molecule drug candidate that is highly specific for PLK1 inhibition with the development of precision cancer therapeutics.a 24-hour half-life.
We believe wethe attributes of onvansertib described below, as well as clinical evidence of favorable safety and efficacy, with expected on-target, easy to manage and reversible side effects, may prove beneficial in addressing clinical therapeutic needs across a variety of cancers:
•Onvansertib is highly potent and highly selective against the PLK1 enzyme (IC50 = 2nM; IC50 is the concentration for 50% inhibition), compared to prior PLK1 inhibitors that were pan-inhibitors of several PLK targets. Low or no activity of onvansertib was observed on a panel of 63 kinases (IC50>500 nM), including the PLK members PLK2 and PLK3 (IC50>10,000 nM);
•Onvansertib has a relatively short drug half-life of 24 hours, allowing for flexible dosing and scheduling which has shown favorable safety and tolerability across multiple clinical trials;
•Onvansertib is orally bioavailable, allowing for relative ease and flexibility of dosing.
In vitro studies have an opportunityshown synergistic effects when onvansertib was administered in combination with different cytotoxic agents including microtubule-targeting agents, topoisomerase 1 inhibitors, antimetabolites, alkylating agents, proteasome inhibitors, kinase inhibitors, BCL-2 inhibitors, and androgen biosynthesis inhibitors.
In addition, in vivo combination studies have confirmed the positive results obtained in vitro and synergistic effects have been observed in xenograft models of onvansertib in combination with irinotecan, 5-fluorouracil ("5-FU"), abiraterone, PARP inhibitors, venetoclax, and paclitaxel, while additive effects in combination with cytarabine or bevacizumab have been demonstrated. Combining onvansertib with standard-of-care cancer agents provides opportunities for synergy with many cancer therapies.
There are five ongoing or soon to utilize precision diagnostics to improvebe activated clinical trials of onvansertib: two trials (TROV-054 and ONSEMBLE) in second line treatment outcomes for cancer patients using our proprietary technology to detect clinically actionable mutations and monitor patient response to therapy. On March 15, 2017, we announced the licensing of PCM-075, a PLK1 inhibitor, from Nerviano. We have a supplier agreement with NerPharMa, S.r.l., a pharmaceutical manufacturing company and a subsidiary of Nerviano, to manufacture drug product for PCM-075. The agreement covers the clinical and commercial supply of PCM-075, and includes both Active Pharmaceutical Ingredients and Good Manufacturing Process production of capsules. The licensing of global development and commercialization rights to PCM-075 allows us to execute our strategy to vertically integrate our PCM technology with precision cancer therapeutics, by developing drugs where our deep understanding of tumor genomics may allow for effective targeting of appropriate cancer patients.
We have completed a Phase 1 safety study of PCM-075 in patients with KRAS-mutated Metastatic Colorectal Cancer ("mCRC"), one trial in second line treatment in patients with Metastatic Pancreatic Ductal Adenocarcinoma ("mPDAC"), and two investigator-initiated trials in patients with unresectable locally advanced or metastatic solid tumorsTriple Negative Breast Cancer ("TNBC") and we received notification from the U.S. Food and Drug Administration (“FDA”relapsed Small Cell Lung Cancer ("SCLC") that our .
Phase 1b/2 Clinical Trial in KRAS-mutated mCRC
TROV-054 is a Phase 1b/2 open-label multi-center clinical trial of PCM-075 in patients with AML may proceed. PCM-075 has positive preclinical data as a single agent andonvansertib in combination with select chemotherapeuticsstandard of care FOLFIRI and targeted agents used in many hematologic and solid cancers, including AML, Non-Hodgkin Lymphoma, mCRPC, Adrenocortical Carcinoma, and Triple Negative Breast Cancer.
We have significant experience and expertise with biomarkers and technology in cancer, including AML. We are one ofbevacizumab (Avastin®)for the patent holders of NPM1 for diagnosis and monitoring of patients. NPM1-mutated AML is a genetic marker in leukemia and accounts for approximately one-third of all AML patients. We plan to use our PCM technology to profile other dominant AML markers, such as FLT3, DNMT3A, NRAS, and KIT, as well as to measure PLK1 enzymatic activity to potentially identify patients most likely to respond to PCM-075 and to measure patient therapy response.
Our accumulated deficit through September 30, 2017 is $170,470,696. To date, we have generated minimal revenues and expect to incur additional losses to perform further research and development activities and expand commercial operations. During 2017, we have advanced our business with the following activities:
Announced preclinical research demonstrating synergy of PCM-075 with Zytiga® (abiraterone acetate) in Castration-Resistant Prostate Cancer tumor cells.
Announced that the FDA granted Orphan Drug Designation to PCM-075 for thesecond line treatment of patients with AML.KRAS-mutated mCRC, which is being conducted at seven clinical trial sites across the U.S. - USC Norris Comprehensive Cancer Center, The Mayo Clinic Cancer Centers (Arizona, Minnesota, and Florida), Kansas University Medical Center, Inova Schar Cancer Institute and CARTI Cancer Center.
AnnouncedThe primary objectives of this trial are to evaluate the expansionDose-Limiting Toxicities ("DLTs"), maximum tolerated dose ("MTD") and strengtheningrecommended Phase 2 dose ("RP2D") of its Board of Directors with the appointment of Athena Countouriotis, M.D. Dr. Countouriotis brings significant experience in oncology clinical development and orphan indications
Announced PCM-075 synergy with a HDAC Inhibitor in Non-Hodgkin Lymphoma Cell Lines. Additionally, PCM-075 demonstrates synergyonvansertib in combination with more than ten chemotherapeuticFOLFIRI and targeted therapies across a broad range of solid tumorbevacizumab (Phase 1b) and hematologic cancers.
Announced preclinical AML data shows PCM-075 significantly enhancesto continue to assess the safety and preliminary efficacy of a FLT3 inhibitoronvansertib in combination therapy.with FOLFIRI and bevacizumab patients with KRAS-mutated mCRC (Phase 2).
Announced FDA approvalThe scientific rationale for this clinical trial is based on the two key principles of INDsynthetic lethality and synergy, with the objective of demonstrating a proof-of-concept of clinical benefit within this phase1b/2 trial. Synthetic lethality refers to a critical vulnerability to tumor cell death by way of PLK1 inhibition within CRC tumor cells harboring KRAS mutations versus KRAS wild-type isogenic cells. Synergy occurs when the combination of two drugs results in an unexpected greater activity than an expected additive effect of the two drugs. Onvansertib in combination with two DNA-damaging agents, irinotecan, and 5-FU (two components of FOLFIRI), demonstrated synergy in colorectal cancer cell lines and both combinations have demonstrated significantly greater tumor growth inhibition than either drug alone in CRC in vivo models. We believe this synergy occurs because PLK1 can promote the repair of DNA damage caused by chemotherapeutic agents and by inhibiting PLK1, onvansertib leaves damaged tumor cells unable to replicate.
Data presented on September 12, 2022 provided an update of the ongoing TROV-054 phase 1b/2 single arm clinical trial in KRAS-mutated metastatic colorectal cancer:
•Objective response rate ("ORR") across all evaluable patients was 35%, with 17 of 48 evaluable patients achieving an objective response. Responses have been observed across multiple KRAS variants;
•Median duration of response ("mDoR") across all evaluable patients was 11.7 months (95% confidence interval ("CI"): 8.9 – not reached);
•Median progression free survival ("mPFS") across all evaluable patients was 9.3 months (95% CI: 7.6 – 13.5). Historical control trials of different drug combinations, including the standard-of-care ("SOC") of FOLFIRI with bevacizumab, in similar patient populations have shown ORR and mPFS of 5 – 13% and ~4.5 – 5.7 months, respectively.
•A subgroup analysis of patients who were bevacizumab naïve vs patients who had received prior bevacizumab in 1st line therapy showed that patients who were bevacizumab naïve (n=13) had an ORR of 69% and mPFS of 13.5 months , which is well above historical controls. In contrast, patients previously treated with bevacizumab (n=35) had an ORR of 23% and mPFS of 7.8 months.
Phase 2 Randomized Clinical Trial in KRAS-mutated mCRC (the ONSEMBLE trial)
The ONSEMBLE trial (CRDF-003), is a Phase 2 open-label, randomized multi-center clinical trial of onvansertib in combination with standard of care FOLFIRI and bevacizumab (Avastin®) for the second line treatment of patients with KRAS-mutated mCRC, which will be conducted at approximately 40 clinical trial sites across the U.S.
The primary objective of the ONSEMBLE trial is to evaluate onvansertib’s safety and efficacy in combination with the standard-of-care FOLFIRI/bevacizumab regimen in patients with second-line KRAS/NRAS-mutated mCRC. The trial is expected to enroll approximately 150 patients who will be randomized 1:1:1 to receive standard-of-care alone, standard-of-care plus 20 mg onvansertib, or standard-of-care plus 30 mg onvansertib, with onvansertib administered on days 1-5 and 15-19 of 28-day treatment cycles.
The primary endpoint of the trial is objective response rate. Progression-free survival and duration of response will be key secondary endpoints. Activation of the trial is expected in Q4 2022, with topline data anticipated in 2H 2024.
Phase 2 Clinical Trial in mPDAC
CRDF-001 is a Phase 2 open-label multi-center clinical trial of onvansertib in combination with nanoliposomal irinotecan (Onivyde®), leucovorin, and fluorouracil for second line treatment of patients with mPDAC, which is being conducted at six clinical trial sites across the U.S. – The Mayo Clinic Cancer Centers (Arizona, Minnesota, and Florida), Kansas University Medical Center, Inova Schar Cancer Institute, and the University of Nebraska Medical Center.The first patient was dosed in June 2021.
The objective of this trial is to assess the safety and preliminary efficacy of onvansertib in combination with nanoliposomal irinotecan (Onyvide®), 5-FU and leucovorin as a second-line treatment in patients with mPDAC who have failed first-line gemcitabine-based therapy. The trial is expected to enroll approximately 45 patients.
Preliminary data presented on September 12, 2022 provided an update of the ongoing CRDF-001 phase 2 open label clinical trial in mPDAC:
•Preliminary data from 5 evaluable patients showed 1 patient achieving an initial partial response (PR) and 3 patients achieving stable disease (SD);
•The 4 patients achieving SD or PR remain on study; the fifth evaluable patient discontinued treatment due to disease progression and an additional 3 patients remain on study awaiting their first post-baseline scan;
•Additional data is anticipated in mid 2023.
Phase 1b/2 Investigator-Initiated Clinical Trial in TNBC
A single-arm, Phase 1b/2 trial of PCM-075onvansertib in combination with paclitaxel in patients with AML.unresectable locally advanced or metastatic TNBC is open for enrollment at Dana Farber Cancer Institute ("DFCI"). In Phase 1b, approximately 14-16 patients will be treated with different doses of onvansertib in combination with a fixed dose of paclitaxel to determine the maximum tolerated dose and RP2D of onvansertib. In Phase 2, approximately 34 patients will be treated with the selected onvansertib RP2D in combination with paclitaxel.
Announced peer-reviewed publicationThe primary endpoint of first-in-human Phase 12 of the trial resultsis ORR, with PCM-075 in the journal Investigational New Drugs. ThePFS included as a secondary endpoint. Preliminary data from the trial demonstrated PCM-075’s potentialare expected in Q4 2023 or Q1 2024. For more information, please visit NCT05383196 at www.clinicialtrials.gov.
Phase 2 Investigator-Initiated Clinical Trial in SCLC
A single-arm, two-stage, Phase 2 trial of onvansertib monotherapy in patients with relapsed SCLC is open for enrollment at the University of Pittsburgh Medical Center ("UPMC"). The trial is designed to enroll 15 patients in Stage 1, with the study proceeding to Stage 2 if 2 or more Stage 1 patients achieve an objective response. Stage 2 is designed to enroll an additional 20 patients. The primary endpoint of the trial is ORR, while key secondary endpoints include PFS and overall survival. Preliminary data from the trial are expected in mid 2023. For more information, please visit NCT05450965.
Critical Accounting Policies
Our accounting policies are described in ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS of our Annual Report on Form 10-K as safeof and effective treatment for solid tumorthe year ended December 31, 2021, filed with the SEC on February 24, 2022. There have been no changes to our critical accounting policies since December 31, 2021.
RESULTS OF OPERATIONS
Three Months Ended September 30, 2022 and hematological malignancies.2021
Completed a registered direct offeringRevenues
Total revenues were $93,000 for the three months ended September 30, 2022, as compared to $86,000 for the prior period. Revenues are from our sales-based or usage-based royalties on other intellectual property licenses, unrelated to onvansertib. Revenue recognition of 6,191,500the royalty depends on the timing and overall sales activities of the licensees.
Research and Development Expenses
Research and development expenses consisted of the following:
| | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
(in thousands) | 2022 | | 2021 | | Increase (Decrease) |
Salaries and staff costs | $ | 1,000 | | | $ | 521 | | | $ | 479 | |
Stock-based compensation | 286 | | | 174 | | | 112 | |
Clinical trials, outside services, and lab supplies | 4,279 | | | 3,104 | | | 1,175 | |
| | | | | |
| | | | | |
Facilities and other | 444 | | | 355 | | | 89 | |
Total research and development | $ | 6,009 | | | $ | 4,154 | | | $ | 1,855 | |
Research and development expenses increased by $1.9 million for the three months ended September 30, 2022, compared to the same period in 2021. The overall increase in expenses was primarily related to chemistry, manufacturing, and controls ("CMC") and clinical pharmacology for studies to support the development of our lead drug candidate, onvansertib. Salaries and staff costs increased primarily due to additional hires in senior management and our clinical operations team (research and development average headcount grew by 73% over the comparative period).
Selling, General and Administrative Expenses
Selling, general and administrative expenses consisted of the following:
| | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
(in thousands) | 2022 | | 2021 | | Increase (Decrease) |
Salaries and staff costs | $ | 808 | | | $ | 671 | | | $ | 137 | |
| | | | | |
Stock-based compensation | 751 | | | 766 | | | (15) | |
Outside services and professional fees | 840 | | | 914 | | | (74) | |
| | | | | |
| | | | | |
| | | | | |
Facilities and other | 678 | | | 579 | | | 99 | |
Total selling, general and administrative | $ | 3,077 | | | $ | 2,930 | | | $ | 147 | |
Selling, general and administrative expenses increased by $0.1 million for the three months ended September 30, 2022, compared to the same period in 2021. Salaries and staff costs increased due to merit increases and higher headcount (average headcount grew by 27% over the comparative period). Facilities and other costs increased due to higher insurance costs and the amending of our operating lease. The decrease in outside services and professional fees was due to recruiting fees incurred for the recruitment of officers and directors in the prior period.
Net Loss
Net loss and per share amounts were as follows:
| | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
(in thousands, except per share amounts) | 2022 | | 2021 | | Increase (Decrease) |
Net loss | $ | (8,571) | | | $ | (6,913) | | | $ | 1,658 | |
Preferred stock dividend | (6) | | | (6) | | | — | |
Net loss attributable to common shareholders | $ | (8,577) | | | $ | (6,919) | | | $ | 1,658 | |
| | | | | |
Net loss per common share — basic and diluted | $ | (0.20) | | | $ | (0.17) | | | $ | 0.03 | |
| | | | | |
| | | | | |
Weighted average shares outstanding — basic and diluted | 43,333 | | | 39,552 | | | 3,781 | |
| | | | | |
The $1.7 million increase in net loss attributable to common shareholders was primarily the result of an increase of operating expenses for the three months ended September 30, 2022, compared to the same period in the prior year. The $0.03 increase in net loss per share was impacted by the increase in basic weighted average shares outstanding resulting primarily from the issuance of approximately 3.8 million shares of common stock and a concurrent private placement issuing warrantscommon stock equivalents from October 1, 2021 through September 30, 2022.
Nine Months Ended September 30, 2022 and 2021
Revenues
Total revenues were $258,000 for the nine months ended September 30, 2022, as compared to purchase up$226,000 for the prior period. Revenues are from our sales-based or usage-based royalties on other intellectual property licenses, unrelated to 4,643,626onvansertib. Revenue recognition of the royalty depends on the timing and overall sales activities of the licensees.
Research and Development Expenses
Research and development expenses consisted of the following:
| | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
(in thousands) | 2022 | | 2021 | | Increase (Decrease) |
Salaries and staff costs | $ | 3,131 | | | $ | 1,095 | | | $ | 2,036 | |
Stock-based compensation | 746 | | | 286 | | | 460 | |
Clinical trials, outside services, and lab supplies | 15,699 | | | 9,510 | | | 6,189 | |
| | | | | |
| | | | | |
Facilities and other | 1,089 | | | 661 | | | 428 | |
Total research and development | $ | 20,665 | | | $ | 11,552 | | | $ | 9,113 | |
Research and development expenses increased by $9.1 million for the nine months ended September 30, 2022, compared to the same period in 2021. The overall increase in expenses was primarily related to CMC and clinical pharmacology for studies to support the development of our lead drug candidate, onvansertib. Salaries and staff costs increased primarily due to additional hires in senior management and our clinical operations team (research and development average headcount grew by 108% over the comparative period). The increase in stock-based compensation is primarily due to additional stock option grants to employees granted subsequent to the prior period.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consisted of the following:
| | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
(in thousands) | 2022 | | 2021 | | Increase (Decrease) |
Salaries and staff costs | $ | 2,460 | | | $ | 1,752 | | | $ | 708 | |
| | | | | |
Stock-based compensation | 2,498 | | | 1,958 | | | 540 | |
Outside services and professional fees | 3,119 | | | 2,799 | | | 320 | |
| | | | | |
| | | | | |
| | | | | |
Facilities and other | 2,026 | | | 1,494 | | | 532 | |
Total selling, general and administrative | $ | 10,103 | | | $ | 8,003 | | | $ | 2,100 | |
Selling, general and administrative expenses increased by $2.1 million for the nine months ended September 30, 2022, compared to the same period in 2021. Salaries and staff costs increased due to merit increases and higher headcount (average headcount grew by 37% over the comparative period). The increase in stock-based compensation is primarily due to additional stock option grants to employees granted subsequent to the prior period. Facilities and other costs increased due to higher insurance costs and the amending of our operating lease.
Net Loss
Net loss and per share amounts were as follows:
| | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
(in thousands, except per share amounts) | 2022 | | 2021 | | Increase (Decrease) |
Net loss | $ | (30,007) | | | $ | (18,849) | | | $ | 11,158 | |
Preferred stock dividend | (18) | | | (18) | | | — | |
Net loss attributable to common shareholders | $ | (30,025) | | | $ | (18,867) | | | $ | 11,158 | |
| | | | | |
Net loss per common share — basic and diluted | $ | (0.69) | | | $ | (0.49) | | | $ | 0.20 | |
| | | | | |
| | | | | |
Weighted average shares outstanding — basic and diluted | 43,291 | | | 38,501 | | | 4,790 | |
| | | | | |
The $11.2 million increase in net loss attributable to common shareholders was primarily the result of an increase in operating expenses for the nine months ended September 30, 2022, compared to the same period in the prior year. The $0.20 increase in basic net loss per share was impacted by the increased net loss attributable to common shareholders and the increase in weighted average shares outstanding resulting primarily from the issuance of approximately 3.8 million shares of common stock.stock from October 1, 2021 through September 30, 2022.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities for the nine months ended September 30, 2022, was $24.4 million, compared to $15.7 million for the nine months ended September 30, 2021. Our use of cash was primarily a result of the net loss of $30.0 million for the nine months ended September 30, 2022, adjusted for non-cash items related to stock-based compensation of $3.2 million, amortization of premiums on short-term investments of $0.7 million, and release of clinical trial funding commitment of $0.1 million. The net change in our operating assets and liabilities was $1.4 million increasing cash used in operations. At our current and anticipated level of operating loss, we expect to continue to incur an operating cash outflow for the next several years.
Net cash provided by investing activities was $31.1 million primarily related to sales and maturities in excess of purchases of marketable securities, offset by purchases of capital equipment during the nine months ended September 30, 2022, compared to net cash used in investing activities of $122.7 million for net purchases of marketable securities during the same period in 2021.
Net cash provided in financing activities was $75,000 from the exercise of stock options during the nine months ended September 30, 2022, compared to $20.5 million of proceeds from the registered direct offeringsale of common stock and concurrent private placement were approximately $6.5proceeds from warrant exercises for the same period in 2021.
As of September 30, 2022, and December 31, 2021, we had working capital of $111.5 million and $139.6 million, respectively.
We have incurred net losses since our inception and have negative operating cash flows. As of September 30, 2022, we had $114.3 million in July 2017.cash, cash equivalents and short-term investments and we believe we have sufficient cash to meet our funding requirements for at least the next 12 months following the issuance date of this Quarterly Report on Form 10-Q. Based on our current projections we expect that our capital resources are sufficient to fund our operations into 2025.
Entered into an agreement with Novogene Co. Ltd. (“Novogene”), a leading global provider of genomic services and solutions and the largest sequencing capacity in the world, whereby Novogene will purchase NextCollect™, our proprietary urine collection and nucleic acid preservation device for validation in the Chinese market.
Engaged PRA Health Sciences, a leading, global contract research organization, to conduct our Phase 1b/2 clinical trial of PCM-075.
Executed a supplier agreement with NerPharMa, S.r.l., a pharmaceutical manufacturing company and a subsidiary of Nerviano Medical Sciences S.r.l., to manufacture drug product for PCM-075.
Submitted an IND application to FDA to conduct a Phase 1b/2 clinical trial of PCM-075 in AML.
Announced expansion of key claims for our NPM1 patent portfolio for AML.
Entered into an agreement with a global biopharmaceutical company to utilize Trovera® ctDNA tests and services in cancer clinical trials.
Entered into an agreement with AstraZeneca to utilize Trovera® ctDNA test and services in prospective biomarker study.
Announced phase 1 safety study conducted by Nerviano Medical Sciences supports planned development of PCM-075 in AML.
Established a Clinical Advisory Board, appointing Dr. Jorge Cortes, of MD Anderson, Dr. Sandra Silberman, a leading clinical researcher in hematology/oncology, and practicing physician at the Duke VAMC, Dr. Filip Janku, of City of Hope Cancer Center, and Dr. David Berz, of the Beverly Hills Cancer Center. Dr. Cortes and Dr. Silberman have extensive experience in the development of novel therapies for the treatment of hematologic cancers. Dr. Cortes will serve as the Principal Investigator for the Phase 1b/2 clinical trial in AML.
Entered into a license agreement with Nerviano that grants us exclusive global development and commercialization rights to NMS-1286937, which we refers to as PCM-075. PCM-075 is an oral, investigative drug and a highly-selective PLK 1 inhibitor for the treatment of AML.
Our drug development efforts are in their early stages, and we cannot make estimates of the costs or the time that our development efforts will take to complete, or the timing and amount of revenues related to the sale of our drugs.drug candidates. The risk of completion of any program is high because of the many uncertainties involved in developing new drug candidates to market, including the long duration of clinical testing, the specific performance of proposed products under stringent clinical trial protocols, extended regulatory approval and review cycles, our ability to raise additional capital, the nature and timing of
research and development expenses, and competing technologies being developed by organizations with significantly greater resources.
Off-Balance Sheet Arrangements
We had no off-balance sheet arrangements as of September 30, 2017.
Critical Accounting Policies
Financial Reporting Release No. 60 requires all companies to include a discussion of critical accounting policies or methods used inFor the preparation of financial statements. Our accounting policies are described in ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS of our Annual Report on Form 10-K as of and for the year ended December 31, 2016, filed with the SEC on March 15, 2017. There have been no changes to our critical accounting policies since December 31, 2016.
RESULTS OF OPERATIONS
Three Months Ended September 30, 2017 and 2016
Revenues
Our total revenues were $123,329 and $89,114 for the three months ended September 30, 2017 and 2016, respectively. The components of our revenues were as follows:
|
| | | | | | | | | | | |
| Three Months Ended September 30, |
| 2017 | | 2016 | | Increase (Decrease) |
Royalties | $ | 58,779 |
| | $ | 47,236 |
| | $ | 11,543 |
|
Diagnostic services | 58,119 |
| | 37,978 |
| | 20,141 |
|
Clinical research services | 6,431 |
| | 3,900 |
| | 2,531 |
|
Total revenues | $ | 123,329 |
| | $ | 89,114 |
| | $ | 34,215 |
|
The increase in royalty income related primarily to higher receipts of payments in excess of minimum royalties in comparison to the same period of the prior year. Revenue from diagnostic services is recognized when payment is received for the test results. The number of payments received was higher in 2017 as compared to the same period in the prior year. Revenue from clinical research services consists of revenue from the sale of urine and blood collection supplies and tests performed under agreements with our clinical research and business development partners. Revenue is recognized when supplies and/or test results are delivered. There were more sales of clinical research services for the three months ended September 30, 2017 as compared to the same period of 2016.
We expect our royalties to fluctuate as the royalties are based on the minimum royalty payments as well as the timing of when payments are received for royalties in excess of minimum royalties. In addition, our diagnostic service revenue may be impacted by our expansion into oncology therapeutics. We expect revenue from clinical research services to fluctuate based on timing of delivery of supplies and/or test results under agreements.
Cost of Revenues
Our total cost of revenues was $473,202 for the three months ended September 30, 2017, compared to $424,559 in the same period of 2016. Cost of revenues mainly relates to the costs of our diagnostic service revenues. The costs are recognized at the completion of testing. Increase in cost of revenues for the three months ended September 30, 2017 compared to the same period of last year is mainly due to the higher percentage allocation of volume of tests processed. Due to revenue being recognized when cash is received, costs incurred in one period may relate to revenue recognized in a later period which could result in negative gross margins.
Research and Development Expenses
Research and development expenses consisted of the following:
|
| | | | | | | | | | | |
| Three Months Ended September 30, |
| 2017 | | 2016 | | Increase (Decrease) |
Salaries and staff costs | $ | 301,919 |
| | $ | 1,407,529 |
| | $ | (1,105,610 | ) |
Stock-based compensation | 219,480 |
| | 872,792 |
| | (653,312 | ) |
Outside services, consultants and lab supplies | 604,140 |
| | 1,215,889 |
| | (611,749 | ) |
Facilities | 254,681 |
| | 372,891 |
| | (118,210 | ) |
Travel and scientific conferences | 28,000 |
| | 51,203 |
| | (23,203 | ) |
Other | 6,486 |
| | 17,094 |
| | (10,608 | ) |
Total research and development | $ | 1,414,706 |
| | $ | 3,937,398 |
| | $ | (2,522,692 | ) |
Research and development expenses decreased by $2,522,692 to $1,414,706 for the three months ended September 30, 2017 from $3,937,398 for the same period in 2016. As a result of the two strategic restructuring activities which occurred in December 2016 and March 2017, our average internal research and development personnel decreased from thirty-four to six, resulting in a decrease of expenses in salaries and staff costs, stock-based compensation, and travel and scientific conferences. In addition, due to the shifting of our business focus, we terminated certain clinical studies and collaboration agreements. Research and development expenses incurred related to samples processed and validated in connection with the clinical collaborations, as well as lab supplies, decreased accordingly. We expect a reduction of research and development costs that relate to CLIA services as a result of our expansion into oncology therapeutics; however, other costs may increase as we complete the development of PCM-075.
Selling and Marketing Expenses
Selling and marketing expenses consisted of the following:
|
| | | | | | | | | | | |
| Three Months Ended September 30, |
| 2017 | | 2016 | | Increase (Decrease) |
Salaries and staff costs | $ | 158,097 |
| | $ | 1,427,254 |
| | $ | (1,269,157 | ) |
Stock-based compensation | 118,434 |
| | 476,865 |
| | (358,431 | ) |
Outside services and consultants | 51,717 |
| | 441,699 |
| | (389,982 | ) |
Facilities | 51,388 |
| | 112,573 |
| | (61,185 | ) |
Trade shows, conferences and marketing | 31,017 |
| | 243,692 |
| | (212,675 | ) |
Travel | 54 |
| | 212,375 |
| | (212,321 | ) |
Other | 9,220 |
| | 26,404 |
| | (17,184 | ) |
Total sales and marketing | $ | 419,927 |
|
| $ | 2,940,862 |
|
| $ | (2,520,935 | ) |
Selling and marketing expenses decreased by $2,520,935 to $419,927 for the three months ended September 30, 2017 from $2,940,862 for the same period in 2016. The overall decrease in selling and marketing expenses was primarily due to our strategic restructuring activities. During the three months ended September 30, 2017 we decreased the number of our field sales, customer support and marketing personnel, bringing our average headcount to two from twenty-two in the same period of the prior year. As a result, costs associated with selling and marketing activities as well as personnel related costs were decreased accordingly. We expect decreases in personnel and related costs as a result of the reduction in force.
General and Administrative Expenses
General and administrative expenses consisted of the following:
|
| | | | | | | | | | | |
| Three Months Ended September 30, |
| 2017 | | 2016 | | Increase (Decrease) |
Personnel and outside services costs | $ | 1,450,261 |
| | $ | 1,136,266 |
| | $ | 313,995 |
|
Board of Directors’ fees | 120,085 |
| | 122,187 |
| | (2,102 | ) |
Stock-based compensation | 1,067,633 |
| | 437,075 |
| | 630,558 |
|
Legal and accounting fees | 595,194 |
| | 695,061 |
| | (99,867 | ) |
Facilities and insurance | 291,547 |
| | 149,921 |
| | 141,626 |
|
Travel | 14,185 |
| | 47,769 |
| | (33,584 | ) |
Fees, licenses, taxes and other | 120,682 |
| | 122,503 |
| | (1,821 | ) |
Total general and administrative | $ | 3,659,587 |
|
| $ | 2,710,782 |
| | $ | 948,805 |
|
General and administrative expenses increased by $948,805 to $3,659,587 for the three months ended September 30, 2017, from $2,710,782 for the same period in 2016. The significant components of the increase were primarily due to the increase in personnel and outside services cost and stock-based compensation. In August 2017, a total of 745,392 shares of immediately vested RSA were granted to our CEO. Per the agreement, the CEO’s income taxes associated with the RSA were also paid by our Company. Therefore, personnel costs and stock-based compensation expenses were increased. Our general and administrative costs may increase inforeseeable future, periods in order to support fundraising activities and general business activities as we continue to develop and introduce new product offerings.
Restructuring
On March 15, 2017, we announced a strategic restructuring plan in connection with the expansion of precision medicine therapeutics to our business. The restructuring plan includes a reduction in force and is expected to be completed in the last quarter of 2017. The $46,472 restructuring benefit for the three months ended September 30, 2017 was primarily due to certain employee termination costs expensed was less than estimated.
Net Interest Expense
Net interest expense was $16,473 and $354,993 for the three months ended September 30, 2017 and 2016, respectively. The decrease of net interest expense is primarily due to a decrease in interest expense, resulting from pay-off of our $15.0 million term loan. We expect net interest expense to decrease as a result of repayment of our equipment line of credit.
Change in Fair Value of Derivative Financial Instruments — Warrants
We have issued warrants that are accounted for as derivative liabilities. As of September 30, 2017, the derivative financial instruments—warrants liabilities were revalued to $2,037,712, resulting in an increase in value of $1,686,850 from June 30, 2017, based primarily upon the issuance of new derivative financial instruments—warrants in connection with July fundraising activities, offset by the decrease in our stock price as well as the changes in the expected term, volatility, and risk free interest rates for the expected term. The issuance of new warrants was recorded as a liability under derivative financial instruments—warrants in the condensed consolidated balance sheets. The decrease in value upon remeasurement at September 30, 2017 was recorded as a gain from the change in fair value of derivative financial instruments—warrants in the condensed consolidated statement of operations.
Net Loss
Net loss and per share amounts were as follows:
|
| | | | | | | | | | | |
| Three Months Ended September 30, |
| 2017 | | 2016 | | Increase (Decrease) |
Net loss attributable to common shareholders | $ | (4,298,026 | ) | | $ | (10,197,332 | ) | | $ | (5,899,306 | ) |
Net loss per common share — basic | $ | (0.12 | ) | | $ | (0.34 | ) | | $ | (0.22 | ) |
Net loss per common share — diluted | $ | (0.12 | ) | | $ | (0.34 | ) | | $ | (0.22 | ) |
| | | | | |
Weighted average shares outstanding — basic | 36,465,672 |
| | 30,339,774 |
| | 6,125,898 |
|
Weighted average shares outstanding — diluted | 36,465,672 |
| | 30,339,774 |
| | 6,125,898 |
|
The $5,899,306 decrease in net loss attributable to common shareholders and the $0.22 decrease in basic net loss per share was primarily the result of a decrease in operating expenses of $4,092,651 for the three months ended September 30, 2017 compared to the same period in the prior year.
Nine Months Ended September 30, 2017 and 2016
Revenues
Our total revenues were $320,378 and $313,000 for the nine months ended September 30, 2017 and 2016, respectively. The components of our revenues were as follows:
|
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 | | Increase (Decrease) |
Royalties | $ | 169,415 |
| | $ | 207,869 |
| | $ | (38,454 | ) |
Diagnostic services | 142,482 |
| | 69,558 |
| | 72,924 |
|
Clinical research services | 8,481 |
| | 35,573 |
| | (27,092 | ) |
Total revenues | $ | 320,378 |
| | $ | 313,000 |
| | $ | 7,378 |
|
The $38,454 decrease in royalties related primarily to lower receipts of payments in excess of minimum royalties in comparison to the same period of the prior year. Revenue from diagnostic services is recognized when payment is received for the test results. The number of tests payments received were higher for the nine months ended September 30, 2017 as compared to the same period in the prior year. Revenue from clinical research services consists of revenue from the sale of urine and blood collection supplies and tests performed under agreements with our clinical research and business development partners. Revenue was recognized when supplies and/or test results were delivered.
We expect our royalties to fluctuate as the royalties are based on the minimum royalty payments as well as the timing of when payments are received for royalties in excess of minimum royalties. Our diagnostic service revenue may be impacted by our expansion into oncology therapeutics. In addition, we expect revenue from clinical research services to fluctuate based on timing of delivery of supplies under agreements.
Cost of Revenues
Our total cost of revenues was $1,427,831 for the nine months ended September 30, 2017, compared to $1,143,293 in the same period of 2016. Cost of revenues relates to the costs of our diagnostic service revenues. The costs are recognized at the completion of testing. Increase in cost of revenues for the nine months ended September 30, 2017 compared to the same period of last year is mainly due to the higher percentage allocation of volume of tests. Due to revenue being recognized when cash is received, costs incurred in one period may relate to revenue recognized in a later period which could result in negative gross margins.
Research and Development Expenses
Research and development expenses consisted of the following:
|
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 | | Increase (Decrease) |
Salaries and staff costs | $ | 1,468,491 |
| | $ | 4,263,595 |
| | $ | (2,795,104 | ) |
Stock-based compensation | 798,143 |
| | 1,862,069 |
| | (1,063,926 | ) |
Outside services, consultants and lab supplies | 1,456,504 |
| | 3,837,485 |
| | (2,380,981 | ) |
Facilities | 842,196 |
| | 1,042,682 |
| | (200,486 | ) |
Travel and scientific conferences | 72,901 |
| | 157,445 |
| | (84,544 | ) |
Fees, licenses and other | 2,038,016 |
| | 58,600 |
| | 1,979,416 |
|
Total research and development | $ | 6,676,251 |
| | $ | 11,221,876 |
| | $ | (4,545,625 | ) |
Research and development expenses decreased by $4,545,625 to $6,676,251 for the nine months ended September 30, 2017 from $11,221,876 for the same period in 2016. Our costs have decreased primarily due to the average number of our internal research and development personnel decreasing from thirty-three to eleven. In addition, research and development expenses incurred related to clinical studies, samples processed and validated in connection with the clinical collaborations, as well as lab supplies, decreased for the nine months ended September 30, 2017 as compared to the same period in 2016 as a result of the shifting of our business focus. The total decrease of research and development expenses was offset by the increase in fees, license and other. The increase in fees, license and other was primarily due to the $2.0 million license fee payment in March 2017 to Nerviano for development and commercialization rights to PCM-075. We expect a reduction of research and development costs that relate to CLIA services as a result of our expansion into oncology therapeutics; however, other costs may increase as we continue the development of PCM-075.
Selling and Marketing Expenses
Selling and marketing expenses consisted of the following:
|
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 | | Increase (Decrease) |
Salaries and staff costs | $ | 977,040 |
| | $ | 4,266,029 |
| | $ | (3,288,989 | ) |
Stock-based compensation | 550,317 |
| | 1,493,744 |
| | (943,427 | ) |
Outside services and consultants | 219,800 |
| | 1,117,368 |
| | (897,568 | ) |
Facilities | 220,860 |
| | 362,339 |
| | (141,479 | ) |
Trade shows, conferences and marketing | 357,233 |
| | 1,082,883 |
| | (725,650 | ) |
Travel | 71,865 |
| | 716,473 |
| | (644,608 | ) |
Other | 45,816 |
| | 88,614 |
| | (42,798 | ) |
Total sales and marketing | $ | 2,442,931 |
| | $ | 9,127,450 |
| | $ | (6,684,519 | ) |
Selling and marketing expenses decreased by $6,684,519 to $2,442,931 for the nine months ended September 30, 2017 from $9,127,450 for the same period in 2016. The overall decrease in selling and marketing expenses was primarily due to our strategic restructuring activities. As part of our restructuring, we reduced the number of our field sales, customer support and marketing personnel, bringing down our average headcount to five from twenty-two in the same period of the prior year. We expect decreases in personnel and related costs due to the reduction in force.
General and Administrative Expenses
General and administrative expenses consisted of the following:
|
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 | | Increase (Decrease) |
Personnel and outside services costs | $ | 3,270,134 |
| | $ | 3,279,860 |
| | $ | (9,726 | ) |
Board of Directors’ fees | 347,205 |
| | 345,240 |
| | 1,965 |
|
Stock-based compensation | 1,837,128 |
| | 2,487,415 |
| | (650,287 | ) |
Legal and accounting fees | 3,358,411 |
| | 2,077,585 |
| | 1,280,826 |
|
Facilities and insurance | 742,405 |
| | 551,382 |
| | 191,023 |
|
Travel | 81,106 |
| | 151,355 |
| | (70,249 | ) |
Fees, licenses, taxes and other | 278,970 |
| | 290,924 |
| | (11,954 | ) |
Total general and administrative | $ | 9,915,359 |
| | $ | 9,183,761 |
| | $ | 731,598 |
|
General and administrative expenses increased by $731,598 to $9,915,359 for the nine months ended September 30, 2017, from $9,183,761 for the same period in 2016. The increase was primarily due to an increase in legal fees offset by the decrease of stock-based compensation. Legal fees increased primarily as a result of a litigation related loss contingency of $2.1 million expensed during the nine months ended September 30, 2017. Stock-based compensation, a non-cash expense, will fluctuate based on the timing and amount of options granted, forfeitures and the fair value of the options at the time of grant or remeasurement.
Restructuring
On March 15, 2017, we announced a strategic restructuring plan in connection with the addition of precision medicine therapeutics to our business. The restructuring plan includes a reduction in force and is expected to be completed in the last quarter of 2017. Restructuring charges of approximately $1.7 million were incurred and have been included as a component of operating loss for the nine months ended September 30, 2017. Of the total restructuring charges, approximately $1.2 million was related to termination of employees and an approximately $0.5 million charge related to impaired license fees.
Net Interest Expense
Net interest expense was $877,741 and $967,522 for nine months ended September 30, 2017 and 2016, respectively. The decrease of net interest expense is due to a decrease in interest expense of approximately $184,000, resulting from pay-off of our $15.0 million term loan, offset by a decrease in interest income as a result of liquidation of our short-term investments.
Change in Fair Value of Derivative Financial Instruments — Warrants
We have issued warrants that are accounted for as derivative liabilities. As of September 30, 2017, the derivative financial instruments—warrants liabilities were revalued to $2,037,712, resulting in an increase in value of $1,202,772 from December 31, 2016, based primarily upon the issuance of new derivative financial instruments—warrants in connection with July fundraising activities, offset by the decrease in our stock price as well as the changes in the expected term, volatility, and risk free interest rates for the expected term. The issuance of new warrants was recorded as a liability under derivative financial instruments—warrants in the condensed consolidated balance sheets. The decrease in value was recorded as a gain from the change in fair value of derivative financial instruments—warrants in the condensed consolidated statement of operations.
Net Loss
Net loss and per share amounts were as follows:
|
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 | | Increase (Decrease) |
Net loss attributable to common shareholders | $ | (22,355,494 | ) | | $ | (30,674,248 | ) | | $ | (8,318,754 | ) |
Net loss per common share — basic | $ | (0.68 | ) | | $ | (1.02 | ) | | $ | (0.34 | ) |
Net loss per common share — diluted | $ | (0.68 | ) | | $ | (1.04 | ) | | $ | (0.36 | ) |
| | | | | |
Weighted average shares outstanding — basic | 32,826,306 |
| | 30,018,841 |
| | 2,807,465 |
|
Weighted average shares outstanding — diluted | 32,826,306 |
| | 30,136,572 |
| | 2,689,734 |
|
The $8,318,754 decrease in net loss attributable to common shareholders and the $0.34 decrease in basic net loss per share was primarily the result of a decrease in operating expenses compared to the same period in the prior year. This decrease was offset by a loss on extinguishment of debt of $1.7 million.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2017, we had $7,434,298 in cash and cash equivalents. Net cash used in operating activities for the nine months ended September 30, 2017 was $19,949,652, compared to $22,034,998 for the nine months ended September 30, 2016. Our use of cash was primarily a result of the net loss of $22,337,314 for the nine months ended September 30, 2017, adjusted for non-cash items related to stock-based compensation of $3,117,364, loss on extinguishment of debt of $1,655,825, impairment loss of $485,000, depreciation and amortization of $956,995, and the gain from the change in fair value of derivative financial instruments—warrants of $2,012,747. The changes in our operating assets and liabilities consisted of lower accounts payable and accrued expenses, an increase in accounts receivable and a decreased prepaid expenses. At our current and anticipated level of operating loss, we expect to continue to incur an operating cash outflow for the next several years.
Net cash provided by investing activities was $23,925,535 during the nine months ended September 30, 2017, compared to $25,249,392 used in investing activities for the same period in 2016. Investing activities during the nine months ended September 30, 2017 consisted of net sales and maturities of short-term investments of $24,061,786 offset by net purchases for capital equipment of $136,251.
Net cash used in financing activities was $10,447,842 during the nine months ended September 30, 2017, compared to $2,361,994 provided in financing activities for the same period in 2016. Financing activities during the nine months ended September 30, 2017 related primarily to the pay-off of long-term debt resulting in debt extinguishment offset by the sale of common stock, while financing activities during the same period of the prior year consisted primarily of sales of common stock offset by repayment of long-term debt. On June 1, 2017, we received a Notice of Event of Default from the lenders which stated that Events of Default had occurred and all of the obligation under the Loan and Security Agreement dated as of June 30, 2014 were immediately due and payable. On June 6, 2017, the lenders took the total pay-off amount of $16,668,583 out of our bank accounts which satisfied all of our outstanding obligations under the Agreement. We disagree with the lenders that any Event of Default has occurred and are reserving all of our options with respect to the Agreement.
As of September 30, 2017, and December 31, 2016, we had working capital of $3,469,622 and $31,152,936, respectively.
On October 25, 2017, we filed a registration statement on Form S-1 with the SEC for a best efforts public offering of up to $17.5 million of common stock and warrants. H.C. Wainwright & Co. is acting as placement agent.
Based on our current business plan and assumptions, we expect to continue to incur significant losses and require significant additional capital to further advance our clinical trial programs and support our other operations. Considering our current cash resources, including the net proceeds received from the offering of our equity securities in July 2017, we believe our existing resources will be sufficient to fund the Company’s planned operations into the first quarter of 2018. In addition, we have based our cash sufficiency estimates on our current business plan and assumptions that may prove to be wrong. We could utilize our available capital resources sooner than we currently expect, and we could need additional funding to sustain
our operations even sooner than currently anticipated. These circumstances raise substantial doubt about our ability to continue as a going concern.
Our working capital requirements will depend upon numerous factors including but not limited to the nature, cost and timing of our research and development programs. To date, our sources of cash have been primarily limited to the sale of equity securities. We cannot be certain that additional funding will be available on acceptable terms, or at all. To the extent that we can raise additional funds by issuing equity securities, our stockholders may experience significantadditional dilution. Any debt financing, if available, may involve restrictive covenants that impact our ability to conduct business. If we are unable to raise additional capital when required or on acceptable terms, we may have to significantly delay, scale back or discontinue the development and/or commercialization of one or more product candidates, all of which may have a material adverse impact on our operations. We may also be required to (i) seek collaborators for product candidates at an earlier stage than otherwise would be desirable and on terms that are less favorable than might otherwise be available; or (ii) relinquish or otherwise dispose of rights to technologies, product candidates or products that we would otherwise seek to develop or commercialize ourselves on unfavorable terms. We are evaluating the following options to raise additional capital, increase revenue, as well as reduce costs, in an effort to strengthen our liquidity position: (1) Raising capital through public and private equity offerings; (2) Adding capital through short-term and long-term borrowings; (3) Introducing operation and business development initiatives to bring in new revenue streams by leveraging capabilities within our CLIA lab, as well as monetizing our proprietary NextCollect™ DNA collection and preservation cup; (4) Reducing operating costs by identifying internal synergies; (5) Engaging in strategic partnerships; and (6) Taking actions to reduce or delay capital expenditures. We continually assess any spending plans, including a review of our discretionary spending in connection with certain strategic contracts, to effectively and efficiently address our liquidity needs.
NASDAQ Notice
On September 5, 2017, we received a written notice from the NASDAQ Stock Market LLC (“NASDAQ”) that we were not in compliance with NASDAQ Listing Rule 5550(a)(2) for continued listing on the NASDAQ Capital Market, as the minimum bid price of our common stock had been below $1.00 per share for 30 consecutive business days. The Notice had no immediate effect on the listing of our common stock, and our common stock continue to trade on the NASDAQ Capital Market under the symbol “TROV”.
In accordance with NASDAQ Listing Rule 5810(c)(3)(A), we have a period of 180 calendar days, or until March 5, 2018, to regain compliance with the minimum bid price requirement. To regain compliance, the closing bid price of our common stock must meet or exceed $1.00 per share for at least ten consecutive business days during this 180 calendar day period.
CONTRACTUAL OBLIGATIONS
For a discussion of our contractual obligations see (i) our Financial Statements and Notes to Consolidated Financial Statements Note 9. Commitments and Contingencies, and (ii) Item 7 Management Discussion and Analysis of Financial Condition and Results of Operations — Contractual Obligations and Commitments, included in our Annual Report on Form 10-K as of December 31, 2016.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate RiskNot applicable.
Our primary exposure to market risk is interest income and expense sensitivity, which is affected by changes in the general level of interest rates, particularly because our equipment line of credit has a floating interest rate as of September 30, 2017. Changes in interest rates could affect the amounts of interest that we pay in the future.
Our cash and cash equivalent primary consists of deposits, and money market deposits managed by commercial banks as of September 30, 2017. The goals of our investment policy are preservation of capital, fulfillment of liquidity needs and fiduciary control of cash and investments.
Our investments are in short-term money marketable funds. Due to the short-term duration of our investment portfolio and the relatively low risk profile of our investments, a sudden change in interest rates would not have a material effect on the fair market value of our portfolio, nor our operating results or cash flows.
We do not believe our cash and cash equivalents have significant risk of default issues; however, we maintain significant amounts of cash and cash equivalents at one or more financial institutions that are in excess of federally insured limits. Given the current stability of financial institutions, we believe that we will not experience losses on these deposits.
Foreign Currency Risk
Our foreign currency exchange risk mainly arises from our operations in Italy. Our functional and reporting currency is the United States dollar. We translate our foreign operations’ assets and liabilities denominated in foreign currencies into U.S. dollars at current rates of exchange as of the balance sheet date and income and expense items at the average exchange rate for the reporting period. Translation adjustments resulting from exchange rate fluctuations are recorded in the cumulative translation account, a component of consolidated accumulated other comprehensive income. In addition, we face the foreign currency risk as a result of entering into transactions denominated in currencies other than U.S. dollars. Changes in foreign currency exchange rates can create foreign exchange gains or losses to us.
Effects of Inflation
We do not believe that inflation and changing prices during the nine months ended September 30, 2017 had a significant impact on our results of operations.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We have performed an evaluation under the supervision and with the participation of our management, including our principal executive officer (CEO) and principal financial officer (CFO), of the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of September 30, 20172022, to provide reasonable assurance that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives as specified above. Management does not expect, however, that our disclosure controls and procedures will prevent or detect all errors and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Companyour company have been detected.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting during the three months ended September 30, 20172022, that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 9 to the unaudited Condensed Consolidated Financial Statements for a summary of legal proceedings.None.
ITEM 1A. RISK FACTORS
There have been no material changes from the risk factors disclosed in our Form 10-K for the year ended December 31, 2016, Form 10-Q for the periods ended March 31, 2017, and Form 10-Q for the periods ended June 30, 2017, except for the following:2021.
Our financial statements include an explanatory paragraph that expresses substantial doubt about our ability to continue as a going concern, indicating the possibility that we may not be able to operate in the future.
Primarily as a result of our losses incurred to date, our expected continued future losses, and limited cash balances, we have included an explanatory paragraph in our financial statements expressing substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is contingent upon, among other factors, the sale of the shares of our common stock or obtaining alternate financing.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
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31.2 | | |
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32.2 | | |
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104 | | Cover Page Interactive Data File - the cover page from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, is formatted in Inline XBRL |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| CARDIFF ONCOLOGY, INC. |
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November 3, 2022 | TROVAGENE, INC.By: | /s/ Mark Erlander |
| | Mark Erlander |
November 9, 2017 | By: | /s/ William J. Welch |
| | William J. Welch |
| | Chief Executive Officer (Principal Executive |
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| CARDIFF ONCOLOGY, INC. |
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November 3, 2022 | By: | /s/ James Levine |
| | James Levine |
| | Chief Financial Officer and Principal Financial Officer) |