Business context and reporting period
Champions Oncology, Inc. develops oncology research and personalized-care solutions using its TumorGraft platform. This Form 10-Q covers the three and six months ended October 31, 2016; the company’s fiscal year ends April 30. Results are unaudited and stated in U.S. dollars. Revenue is generated through Personalized Oncology Solutions (POS) and Translational Oncology Solutions (TOS), with TOS the larger business.
Financial performance and position
| Metric | Three months ended Oct. 31, 2016 | Three months ended Oct. 31, 2015 | Six months ended Oct. 31, 2016 | Six months ended Oct. 31, 2015 |
|---|---|---|---|---|
| Revenue | $4.457m | $2.971m | $8.126m | $5.793m |
| Operating loss | $0.493m | $2.493m | $3.017m | $5.390m |
| Net loss | $0.504m | $2.548m | $3.051m | $5.461m |
| Net loss per share, basic and diluted | $0.05 | $0.29 | $0.32 | $0.63 |
Quarterly revenue grew 50%; six-month revenue grew 40%. TOS revenue increased 59% for the quarter and 48% for six months, while POS revenue rose 2% and 4%, respectively. Disclosed gross margins improved: TOS was 53.8% for the quarter and 45.5% for six months; POS was 24.8% and 15.9%, respectively. Management attributed improvements to higher-margin sequencing revenue, revenue growth against fixed lab costs, and cost management.
At October 31, 2016, cash and cash equivalents were $4.328m, current assets $6.664m, current liabilities $4.598m, and working capital approximately $2.1m. Total liabilities were $4.839m and stockholders’ equity $3.205m. The filing reports no off-balance-sheet debt; it reports capital-lease obligations with a present value of $73,000. Six-month operating cash outflow was $2.555m, investing cash outflow $30,000, and financing cash inflow $4.328m. Cash increased from $2.585m at April 30 to $4.328m at October 31.
Material changes and notable items
- Quarterly and six-month operating losses narrowed substantially versus 2015, reflecting revenue growth and lower expenses. Quarterly general and administrative expense declined 40%; six-month sales and marketing expense declined about 16%.
- TOS drove most growth, supported by more and larger studies signed in prior quarters, new customers, and platform expansion. POS growth was modest; management said POS would not be the focus of future growth.
- On June 15, 2016, the company raised $4.3m net in a public offering of 2,258,749 shares, including partial exercise of the underwriter’s over-allotment option. The proceeds were intended for TumorGraft research and development, working capital, and general corporate purposes.
- Common shares outstanding increased to 10,967,491 at October 31, from 8,704,846 at April 30. Stock-based compensation was $1.664m for the six-month period. A July option exchange resulted in approximately $415,000 of additional compensation expense, of which about $45,000 was to be recognized over the following 18 months.
Outlook, risks, and contingencies
Management estimated that cash on hand at October 31 would fund operations through at least January 2018. It also cautioned that continued operation depends on revenue growth and further cost savings, and that additional external capital may be needed. If revenue, cost savings, or financing prove insufficient, the company may need to reduce, delay, or eliminate research and development or other activities. Equity financing could dilute shareholders; debt financing could bring significant payment obligations and restrictive covenants.
Management reported a six-month net loss of $3.1m and operating cash outflow of $2.6m, while quarterly net loss and operating cash outflow were approximately $504,000 and $116,000, respectively. The Teva agreement was terminated and work under its upfront payment completed; the company recognized $42,000 of related revenue for the six months. The company reported no current legal proceedings and no accrued liquidated damages under a registration-rights agreement, while noting that penalties could apply in specified circumstances. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether TOS study growth and reported margins can continue, and how much revenue depends on study timing and customer concentration.
- Whether the January 2018 cash-runway estimate remains supportable given operating cash use, working-capital movements, and the need for further cost savings or financing.
- The effect of the public offering, outstanding options and warrants, and future equity needs on dilution.
- Potential costs or constraints from the capital lease, uncertain tax positions, and registration-rights provisions.