Champions Oncology, Inc. — Fiscal 2021 First Quarter (10-Q)
Reporting period: Three months ended July 31, 2020; comparison is the three months ended July 31, 2019. Amounts are in thousands of dollars except per-share data. Champions provides oncology research and development services, primarily through its TumorGraft platform and pharmacology studies for pharmaceutical and biotechnology customers.
Financial performance
| Metric | Q1 FY2021 | Q1 FY2020 |
|---|---|---|
| Revenue | $9,547 | $6,737 |
| Gross profit / gross margin | $4,211 / 44.1% | $2,985 / 44.3% |
| Operating income (loss) / margin | $24 / 0.2% | $(614) / (9.1)% |
| Net income (loss) | $75 | $(641) |
| Basic and diluted EPS | $0.01 | $(0.06) |
| Net cash used in operating activities | $(715) | $(279) |
| Net cash used in investing activities | $(626) | $(749) |
Pharmacology services generated $9,413 of revenue, versus $6,530 a year earlier. The filing reports no segment-level profit or operating cash flow margin.
Balance sheet and liquidity
- At July 31, 2020, cash was $6,943, working capital was approximately $1.3 million, and accumulated deficit was approximately $72.6 million. Cash was $8,342 at April 30, 2020.
- Total liabilities were $17,307 and stockholders’ equity was $5,513. Current liabilities included $5,669 of deferred revenue. The company reported no off-balance-sheet debt or similar obligations; balance-sheet finance lease liabilities included a $72 current portion. Operating lease liabilities totaled $6,559, with future minimum lease payments of $15,765.
- Cash declined by $1,399 during the quarter. Operating cash use was $715; investing cash use was $626, principally for laboratory equipment and software; financing cash use was $58.
Changes versus the prior comparable period
- Revenue increased $2.8 million, or 41.7%, attributed by management to more and larger studies, increased demand, platform growth, expanded offerings, and customers seeking more complex study designs and endpoint analyses.
- Cost of oncology services rose 42.2% to $5,336, broadly tracking revenue growth but leaving gross margin slightly lower at 44.1%, versus 44.3%. Management cited compensation and outsourced lab services, including costs incurred ahead of related revenue recognition.
- Research and development expense rose 22.6% to $1,597, mainly from compensation, lab supplies, and TumorBank characterization and sequencing. Sales and marketing expense rose 38.9% to $1,208, reflecting sales-force expansion and commissions. General and administrative expense was $1,382, down 3.1%.
- The company moved from a $641 net loss to $75 net income and from an operating loss to modest operating income. Operating cash use increased from $279 to $715, primarily reflecting working-capital movements, including higher receivables and lower accounts payable and accrued expenses.
Outlook, risks, and unusual items
- No numerical revenue or earnings guidance was provided. Management expects positive operating cash flow for fiscal 2021 and believes cash on hand and expected cash flows can fund operations for at least 12 months from the filing. If revenue expectations are not met, management says it could implement cost reductions; future capital raising may be needed, with no assurance of acceptable financing.
- Management said COVID-19 had not materially affected operations or required workforce reductions as of the filing, and it did not expect a material long-term impact at that time. The filing warns that future outbreaks or restrictions could disrupt travel, partnerships, biologic-material shipments, suppliers, and customer interactions; the eventual impact was uncertain.
- The company recognized a gain on termination of a Maryland lease of approximately $76 (cash-flow reconciliation reports $75). It terminated that location and shifted activities to expanded laboratory premises, recognizing approximately $3.8 million of new operating lease assets and liabilities. The expansion contributed to higher lease obligations.
- The company said its POS program would not be its growth focus; it planned to continue expanding the TumorGraft platform and TOS program. No legal proceedings were reported. Disclosure controls were deemed effective, with no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether rapid revenue growth converts into improved gross margins and sustainable operating profitability, given rising service-delivery costs and timing differences in study expenses and revenue.
- Whether management’s expectation of positive fiscal 2021 operating cash flow is achieved, considering quarterly operating cash use and working-capital needs.
- Cash runway and financing needs if revenue or cash-flow expectations fall short; also review the company’s lease commitments and expansion costs.
- Customer demand, study volume and contract size, and the concentration and durability of pharmacology-services revenue.
- Any subsequent COVID-19 effects on operations, customer activity, suppliers, or the timing of studies.