VolitionRx Limited — Q3 2017 Form 10-Q
Reporting period: Three and nine months ended September 30, 2017. The interim financial statements are unaudited. VolitionRx is a development-stage life sciences company developing blood-based cancer diagnostics using its Nucleosomics platform, initially focused on colorectal cancer.
Financial performance and position
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Operating expenses | $4.029 million | $3.479 million | $10.843 million | $8.947 million |
| Net loss | $3.893 million | $3.479 million | $10.706 million | $8.921 million |
| Basic and diluted loss per share | $0.15 | $0.15 | $0.41 | $0.40 |
- Q3 operating expenses rose 16% year over year; nine-month expenses rose 21%. Nine-month R&D expense increased 11% to $5.774 million, while salaries and office administration rose 61% to $2.721 million, including higher stock-based compensation and staffing costs.
- Grant income was $136,556 in the first nine months, compared with $25,891 in the prior-year period; the company reported no income tax expense. Profit margins are not meaningful because the company had no revenue and reported losses.
- Cash and cash equivalents were $13.841 million at September 30, down from $21.679 million at December 31, 2016. Working capital was positive at $11.425 million.
- For the first nine months, operating cash outflow was $8.307 million, investing outflow was $1.340 million, and financing inflow was $1.744 million. The 2017 investing outflow primarily reflected equipment and improvements at the Belgian R&D facility.
- Total liabilities were $4.966 million. Long-term debt, including its current portion, totaled approximately $1.459 million; capital lease liabilities totaled approximately $1.034 million. Grant repayable totaled approximately $227,000. The $1.2 million SOFINEX loan agreement had not been drawn down by September 30.
Material changes, outlook and risks
- Nine-month net loss increased 20% year over year. The company attributed higher costs principally to R&D, staffing and stock-based compensation, the U.S. EDRN study, and the new Belgian facility. The share-based compensation expense included in operating cash flow adjustments was $1.828 million.
- The Nu.Q Colorectal Cancer Screening Triage Test received CE Mark in December 2016. Management aimed to launch a front-line CRC screening test in Europe in 2018 and in Asia thereafter; it did not expect significant revenue in 2017.
- A U.S. clinical study with the University of Michigan and the National Cancer Institute’s Early Detection Research Network involves approximately 13,500 samples. Volition’s maximum payment is $3 million in 12 quarterly installments; sample collection was expected to take up to three years. A Danish CRC pathway study was also underway, with first-phase payments of approximately $2.383 million.
- Management disclosed substantial doubt about the company’s ability to continue as a going concern, citing cumulative losses of $51.651 million, operating cash outflows and no revenue. It expects to rely on grants, debt or equity financing, licensing proceeds, and eventual commercialization; additional funding is not assured. Insufficient financing could delay studies and regulatory work or require cessation of operations.
- Key business risks include clinical validation and regulatory approval, market acceptance, competition and rapid technological change. The filing reported no material legal proceedings and no material change in previously disclosed risk factors.
- Disclosure controls remained ineffective as of September 30, 2017 because of material weaknesses involving inadequate segregation of finance duties and insufficient IT oversight. Management was implementing a remediation plan.
Most important facts for investors to verify
- Cash runway relative to operating cash use, and the availability and terms of future financing.
- Progress, cost and results of the U.S. and Danish clinical studies, including the timing of sample collection and regulatory submissions.
- Whether the targeted European 2018 launch and subsequent Asian plans remain achievable, and when meaningful revenue could begin.
- Repayment obligations and terms for debt, capital leases, grants and clinical-study commitments; confirm the status of the undrawn SOFINEX facility.
- Remediation of the disclosed internal-control weaknesses and any impact on the reliability of financial reporting.
- Potential dilution: common shares outstanding were 26.519 million at September 30, 2017, versus 26.126 million at December 31, 2016; additional options and warrants were outstanding.