Champions Oncology, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended July 31, 2021, compared with the three months ended July 31, 2020. Champions provides oncology research services and develops computational, software and drug-discovery platforms, including Lumin Bioinformatics.
Financial performance
| Metric | Q1 FY2022 | Q1 FY2021 |
|---|---|---|
| Revenue | $11.253 million | $9.547 million |
| Gross profit / gross margin | $5.857 million / 52.0% | $4.211 million / 44.1% |
| Operating income (loss) | ($175,000) | $24,000 |
| Net income (loss) | ($172,000) | $75,000 |
| Diluted earnings (loss) per share | ($0.01) | $0.01 |
| Cash from (used in) operations | $216,000 | ($715,000) |
| Capital expenditures | $907,000 | $718,000 |
Revenue increased 17.9%, mainly from a greater number and size of pharmacology studies and more complex study designs. Pharmacology services generated $10.703 million; other TOS revenue was $526,000, versus $21,000 a year earlier; personalized oncology services were $24,000, versus $113,000. Gross margin improved as the company reduced outsourced laboratory work.
Operating expenses rose 20.0% to $11.428 million, outpacing revenue growth. R&D increased 44.3% to $2.304 million, sales and marketing rose 30.3% to $1.574 million, and general and administrative expense grew 55.9% to $2.154 million. Management attributed increases primarily to investment in therapeutic discovery, expanded business-development teams and company infrastructure.
Financial position and liquidity
At July 31, 2021, cash was $3.998 million, down from $4.687 million at April 30, 2021. Working capital was $919,000 and the accumulated deficit was $72.7 million. Total assets were $28.108 million and total liabilities were $20.570 million. The company reported no off-balance-sheet debt; operating lease liabilities totaled $9.506 million, including $854,000 current and $8.652 million non-current. Deferred revenue was $5.481 million, down from $6.256 million at fiscal year-end.
Operating cash flow improved to $216,000 from cash use of $715,000, while investing cash use increased to $907,000, primarily for laboratory equipment and software development. Cash declined by $689,000 during the quarter. Management said cash on hand and expected positive operating cash flow in fiscal 2022 should fund operations for at least 12 months from filing. It noted that lower-than-expected revenue could require cost reductions and that additional capital, if needed, might not be available on acceptable terms.
Outlook, risks and notable items
- No specific revenue, earnings or cash-flow guidance was provided. Management described a pipeline of discovery and validation targets, with some advancing to therapeutic development, and said the commercial strategy for resulting targets and therapeutics remains under development.
- Lumin enhancements remained in development; approximately $1.2 million of related costs were included in assets in progress. The company expected these enhancements to be ready for service and sale in the latter half of fiscal 2022.
- Management disclosed a material weakness in internal controls related to identifying and reviewing royalty obligations and timely recording related liabilities. Remediation measures were being developed and formalized. Management nevertheless concluded the financial statements fairly presented the company’s financial position and results.
- Royalty arrangements generally carry rates of 2%–12.5% under certain agreements; approximately $44,000 was paid or accrued for the quarter. No legal proceedings were reported, and no liquidated damages were accrued under the registration-rights arrangement.
- The company maintained a full valuation allowance against net deferred tax assets. It reported $181,000 in liabilities for uncertain tax positions related to a foreign operation.
Key facts for investors to verify
- Whether revenue growth and improved gross margin continue as study volumes expand and outsourced work remains lower.
- Whether rising R&D, selling and administrative expenses can be supported by revenue growth and operating cash generation.
- Actual cash conversion, working-capital needs and progress toward management’s stated 12-month liquidity outlook.
- Completion and effectiveness of the royalty-control remediation, and the completeness of recorded royalty liabilities.
- Timing, commercialization and returns from Lumin development spending and the therapeutic-discovery pipeline.