Champions Oncology, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended January 31, 2017; comparatives are the periods ended January 31, 2016. Financial statements are unaudited. The company develops TumorGraft-based oncology solutions, reported in Personalized Oncology Solutions (POS) and Translational Oncology Solutions (TOS).
Financial performance
| Metric | Three months ended Jan. 31, 2017 | Three months ended Jan. 31, 2016 | Nine months ended Jan. 31, 2017 | Nine months ended Jan. 31, 2016 |
|---|---|---|---|---|
| Revenue | $3.565 million | $2.552 million | $11.691 million | $8.345 million |
| Operating loss | $1.401 million | $2.373 million | $4.420 million | $7.767 million |
| Net loss | $1.409 million | $2.412 million | $4.460 million | $7.872 million |
| Net loss per share, basic and diluted | $0.13 | $0.28 | $0.44 | $0.90 |
| Operating cash flow | Cash used: approximately $684,000 | Not separately stated | Cash used: $3.238 million | Cash used: $5.853 million |
Amounts are losses or cash uses where indicated. For the nine months, TOS revenue rose 48.6% to $10.337 million; POS revenue decreased 2.4% to $1.354 million. TOS represented 88.4% of nine-month revenue. TOS gross margin improved to 42.3% from 32.7%, and POS gross margin improved to 13.8% from negative 19.8%. Company-wide operating loss margin improved to 37.8% of revenue from 93.1%.
Balance sheet, liquidity and capital
- At January 31, 2017, cash and cash equivalents were $3.488 million, current assets $6.055 million, current liabilities $5.272 million, and working capital $783,000. Total assets were $7.546 million and total liabilities $5.506 million.
- The filing reports no off-balance-sheet debt or similar obligations. A laboratory-equipment capital lease had a $68,000 present-value obligation ($25,000 current and $43,000 non-current); no other material borrowing is disclosed.
- Nine-month investing cash use was $181,000, primarily for property and equipment. Financing provided $4.322 million, principally net proceeds from the June 2016 public offering. Cash increased $903,000 from April 30, 2016.
- The company issued 2,258,749 shares in the public offering at $2.25 per share and received net proceeds of approximately $4.3 million after $742,000 of offering costs. Shares outstanding were 10,970,738 at January 31, 2017.
Changes, outlook and risks
- Nine-month revenue increased 40.1%, while total operating expenses were essentially flat. Management attributed the smaller losses and reduced operating cash use primarily to revenue growth and cost reductions begun in fiscal Q4 2016.
- Management attributed TOS growth to earlier-quarter bookings, including an increase in the number and size of studies. Higher TOS revenue leveraged fixed laboratory costs; the company also cited management of variable lab costs. POS cost reductions and improved margins reflected higher-margin sequencing revenue and laboratory cost control.
- Management intends to prioritize expansion of TOS and the TumorGraft platform; POS is not expected to be the company’s growth focus. No specific revenue or earnings guidance was provided.
- Management believed January 31 cash would fund operations through at least March 2018. Continued operations beyond then depend on revenue growth and cost savings and may require external financing. If financing is unavailable or operations do not improve, the company may reduce, delay or eliminate research and other activities. Equity financing could dilute shareholders; debt financing could impose payment obligations and restrictive covenants.
- Potentially notable items include a July 2016 option exchange that generated $414,756 of incremental stock-based compensation, with $41,932 remaining to be recognized over the following year and a half; and the CEO’s transition to Chairman effective January 31, 2017. Stock-based compensation for the nine months was $1.901 million.
- The filing reports no current legal proceedings and no accrued registration-rights penalties. It records $185,000 of uncertain-tax-position liabilities. Disclosure controls were assessed as effective; no material change in internal control was reported.
Most important facts for investors to verify
- Whether TOS bookings and revenue growth continue, and whether study timing causes material quarterly fluctuations.
- Whether cash use remains consistent with management’s stated funding runway through March 2018, given ongoing losses and the need for further growth or savings.
- Whether TOS and POS gross-margin improvements persist as volumes and service mix change.
- Potential dilution from outstanding options and warrants: 2.309 million options and 2.110 million warrants were outstanding at January 31, 2017; basic and diluted loss per share were the same because potential shares were anti-dilutive.
- Execution of the strategy to emphasize TOS, including the commercial and operational implications of deemphasizing POS.