VolitionRx Limited — Q3 2021 Form 10-Q
Business context and period: VolitionRx develops blood-based diagnostic tests using its Nucleosomics and Nu.Q platforms, including veterinary cancer screening products. This unaudited quarterly report covers the three and nine months ended September 30, 2021; comparisons are to the corresponding 2020 periods.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $25,483 | $575 | $75,795 | $6,313 |
| Operating expenses | $7.59 million | $4.50 million | $19.62 million | $15.60 million |
| Operating loss | $7.56 million | $4.50 million | $19.55 million | $15.59 million |
| Net loss | $7.18 million | $4.34 million | $18.88 million | $15.24 million |
| Basic and diluted loss per share | $0.13 | $0.09 | $0.36 | $0.34 |
- Revenue remained minimal and was primarily from direct sales of the Nu.Q Vet Cancer Screening Test through Texas A&M’s Gastrointestinal Laboratory. The filing does not report meaningful gross margins.
- For the nine months, operating cash used was $16.44 million, compared with $13.73 million in 2020; investing cash used was $0.84 million versus $0.58 million. Financing provided $20.76 million, compared with $18.48 million.
- At September 30, cash and cash equivalents were $22.90 million, up from $19.44 million at December 31, 2020. Current assets were $24.42 million and current liabilities $5.85 million. Total liabilities were $8.82 million, versus $9.86 million at year-end.
- Long-term debt was $2.79 million, including current maturities; finance lease liabilities were approximately $0.58 million and operating lease liabilities approximately $0.27 million. The filing lists $3.13 million of remaining long-term debt payments including interest.
- Stockholders’ equity totaled $21.18 million. Shares outstanding increased to 53.22 million from 48.61 million at year-end, principally reflecting equity financing.
Material changes versus the prior period
- Year-to-date revenue rose from $6,313 to $75,795, but remained immaterial relative to operating costs.
- Nine-month operating expenses increased 26% and net loss increased 24%. Management cited higher personnel and stock-based compensation, as well as higher legal and professional and marketing costs. R&D expense rose 13%; G&A rose 41%; sales and marketing more than doubled.
- Cash used in operations increased by approximately $2.7 million year over year. The company received approximately $18.9 million net from a February 2021 public offering and raised additional funds through equity distribution agreements.
- Grant income was $0.81 million for the first nine months, compared with $0.10 million a year earlier; it partly offset operating costs.
Outlook, risks and unusual items
- Going concern: The company has incurred approximately $129.0 million of cumulative losses, has minimal revenue and negative operating cash flow. Management disclosed substantial doubt about its ability to continue as a going concern for at least one year from issuance. It expects to rely on grants, debt or equity financing, licensing and commercialization; there is no assurance funding will be available. If financing is delayed, clinical validation and regulatory work may be delayed, and continued funding shortfalls could force cessation of operations.
- Development and commercialization: The company intends to use cash primarily for R&D. COVID-19 may disrupt clinical trials through enrollment and sample-collection delays and diversion of healthcare resources. Regulatory clearances, market acceptance, intellectual-property protection, competition and technology changes are identified risks. No quantitative revenue or profitability guidance is provided.
- Financing and dilution: A new September 2021 at-the-market program permits sales of up to $25 million, with no sales under that program reported as of the filing. The filing reports $1.21 million of net proceeds from October 1 through November 4, 2021 under the prior program. Further equity issuance could dilute shareholders; debt financing could impose operating restrictions.
- Equity compensation: The company recognized additional option expense of $452,433 and $315,858 from option-term amendments in 2021. It also granted performance-based options and RSUs tied to corporate goals and accrued cash bonuses based on expected performance outcomes.
- Commitments: Future collaborative research payments were approximately $0.93 million. A separate CRO agreement for lymphoma clinical and regulatory services may obligate up to $2.9 million, payable project by project; none was payable for services rendered at quarter-end. Grant agreements also include repayment and revenue-based royalty provisions.
- Controls and legal matters: Management concluded disclosure controls were not effective at September 30, 2021 because of previously identified material weaknesses involving finance duty segregation, IT oversight and review of complex transactions. Remediation was underway. The company reported no material legal proceedings and no material change in risk factors from its 2020 Form 10-K.
Important facts for investors to verify
- Whether cash burn, financing availability and any future equity sales support operations and planned clinical, regulatory and commercialization milestones.
- Progress, validation results and regulatory status for Nu.Q products, including the veterinary test and planned human diagnostic applications.
- Whether the material weaknesses in internal controls are fully remediated and controls are operating effectively.
- Actual commercial demand and revenue growth relative to the very low reported revenue base and rising operating expenses.
- Achievement of performance goals attached to equity awards and bonuses, and the resulting compensation expense and potential dilution.