VolitionRx Limited — Q2 2017 Form 10-Q
Reporting period: Three and six months ended June 30, 2017. Unaudited results; all amounts in U.S. dollars. VolitionRx is a development-stage life sciences company developing blood-based cancer diagnostic tests.
Financial results and liquidity
| Metric | Q2 2017 | Six months 2017 | Comparable 2016 period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Operating expenses | $3.46 million | $6.81 million | $2.98 million / $5.47 million |
| Net loss | $3.46 million | $6.81 million | $2.95 million / $5.44 million |
| Loss per share, basic and diluted | $0.13 | $0.26 | $0.13 / $0.25 |
| Cash used in operating activities | — | $5.48 million | $4.56 million |
| Cash used in investing activities | — | $1.23 million | $0.07 million |
At June 30, cash and cash equivalents were $16.51 million, down from $21.68 million at year-end 2016. Working capital was $14.71 million. Total liabilities were $4.39 million, including $1.20 million of long-term debt and current debt, and $1.03 million of capital lease liabilities. The filing reports no operating revenue, so operating margins are not meaningful. Stockholders’ equity was $16.58 million.
Material changes versus 2016
- First-half net loss increased 25% to $6.81 million; operating expenses rose 25% to $6.81 million.
- First-half R&D expense increased 11% to $3.57 million. Salaries and office administrative fees more than doubled to $1.78 million, partly due to higher stock-based compensation and headcount.
- Operating cash use increased by $0.92 million. Investing cash use rose to $1.23 million, mainly for equipment and improvements at the new Belgian R&D facility.
- Financing cash provided was $1.44 million, versus $13.26 million in 2016, when the company completed a substantial share offering. First-half 2017 financing included $0.88 million from warrant exercises and $0.66 million from loans.
Outlook, risks and unusual items
- Management said it did not expect significant revenue in 2017 and expects to rely on additional financing until products are marketed and revenues develop. It identified additional grants, debt or equity financing, and accelerated product development as potential funding measures.
- The filing states that cumulative losses since inception were $47.76 million and that negative operating cash flows and no revenue raise substantial doubt about the company’s ability to continue as a going concern. Insufficient capital could force it to cease operations; delayed financing could postpone clinical validation and regulatory work.
- 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, with Asia to follow; these are plans, not guaranteed outcomes.
- After quarter-end, Volition America signed a University of Michigan/NCI Early Detection Research Network study agreement involving approximately 13,500 samples, with maximum payments of $3 million over 12 quarterly installments. The filing says enrollment and sample collection may take up to three years. The company also described a Danish pathway-design study.
- A first-half Preface loan of approximately $0.40 million was designated to fund a pathway study for the Nu.Q CRC Screening Triage Test. The company also has a $2.30 million first-phase Hvidovre Hospital agreement and capital-lease and operating-lease commitments.
- Disclosure controls and procedures remained ineffective at June 30 due to material weaknesses involving segregation of finance duties and IT oversight. Management was implementing a remediation plan.
- No material legal proceedings were reported. Management said there had been no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Cash consumption and the timing, amount, and terms of any future financing; the going-concern disclosure is central to the company’s funding risk.
- Progress, costs, enrollment, and results of the U.S. and Danish clinical studies, and whether product development and regulatory plans remain on schedule.
- Whether the European 2018 launch target is achieved and whether commercialization generates meaningful revenue.
- Execution of internal-control remediation and any subsequent changes in control effectiveness.
- Outstanding and potentially dilutive warrants and options, including the effect of future exercises or equity financing on shareholders.