Q3 Results – Largely In-line With Our Expectations
CardioGenics Holdings (CGNH) filed their 10-Q for the period ending July 31, 2010 on September 15, 2010. Operating loss was $665.8k, up significantly from the $346.3k loss posted in the second quarter of this year and larger than our ($502.4k) estimate.
While R&D expenses came in almost $90k lighter than we had anticipated, this was more than offset by higher G&A relative to our estimate — mostly as a result of additional consulting and professional fees as a result of the company retaining a new PR firm and legal fees associated with an ongoing lawsuit related to the acquisition by JAG Media Holdings. We expect a more moderate impact from these expenses in Q4. EPS was in-line with our ($0.01) estimate.
Operating cash-burn was $391k during the quarter and $1.54 million through the first nine months of the year (ex changes in working capital cash burn was $581k and $1.34 million, respectively). This remains largely in-line with our expectations, and we continue to expect the rate of cash-burn to increase at least up until the magnetic beads launch (by current year-end).
As we detail in our report, cash flow will remain negative throughout 2011 as bead sales will likely not be sufficient to offset elevated operating expenses related to research trials and regulatory activities. The company exited the quarter with $767k in cash and equivalents — as anticipated and based on our cash-burn estimates, the company will likely need additional financing by calendar year-end.
The company did not provide a business update in their 10-Q filing, however we believe the company is making progress on several near-term milestones including the commencement of field trials for the QLCA and Troponin I test, commercial launch of the magnetic beads and securing additional financing. We look for the Troponin I test and QLCA to enter field testing by the end of October (~1 month delay), the magnetic beads to launch before year-end (and possibly slightly ahead of our prior expectations) and additional financing to be in place by late November. The company also continues to work with an outside firm in negotiating partnering and distribution deals for the QLCA.
We are maintaining our Outperform rating on CardioGenics and near term price target of $1.22/share. Go to Zacks.com for our full 25-page report on CGNH.
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