VolitionRx Limited — Q3 2018 Form 10-Q
Reporting period: Three and nine months ended September 30, 2018. Financial statements are unaudited. VolitionRx is a development-stage life sciences company developing blood-based cancer diagnostic tests using its Nucleosomics and Nu.Q platforms. It reported no revenue in either 2018 or the comparable 2017 period.
Financial performance
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development | $2.74 million | $2.13 million | $7.85 million | $5.62 million |
| General and administrative | $1.45 million | $1.56 million | $4.95 million | $4.37 million |
| Sales and marketing | $0.26 million | $0.19 million | $0.85 million | $0.66 million |
| Total operating expenses | $4.45 million | $3.88 million | $13.64 million | $10.66 million |
| Net loss | $4.48 million | $3.89 million | $13.72 million | $10.71 million |
| Basic and diluted loss per share | $0.14 | $0.15 | $0.46 | $0.41 |
Q3 operating expenses rose 15% year over year, with higher R&D and sales and marketing partly offset by lower G&A. For the nine-month period, operating expenses rose 28% and net loss increased 28%. Management attributed increased R&D spending primarily to antibody purchases, the University of Michigan trial, and increased headcount; higher nine-month G&A reflected foreign-exchange and capital-raise legal costs. No gross margin is available because the company had no revenue.
Cash, liquidity, and capital
- Cash and cash equivalents were $16.37 million at September 30, 2018, versus $10.12 million at December 31, 2017. Current assets were $17.06 million and current liabilities $2.67 million.
- For the first nine months, operating cash use was $11.10 million, compared with $8.31 million in 2017; investing cash use was $0.18 million, down from $1.34 million. Financing provided $17.33 million, versus $1.74 million in 2017.
- Financing included $7.8 million net proceeds from a March public offering and $9.0 million gross proceeds from an August private placement with Cotterford. The placement included a warrant to buy up to 5 million additional shares at $3.00 each. A separate equity distribution agreement permits up to $10 million of sales; none had been made by quarter-end.
- Total liabilities were $5.61 million. Balance-sheet long-term debt, including its current portion, was approximately $2.21 million; capital lease liabilities were approximately $0.88 million and grants repayable were approximately $0.36 million. The contractual-payments table reports $3.11 million of long-term debt payments including interest and the undrawn portion of the SOFINEX facility, so it is not directly comparable to the recorded debt balance.
- Contractual commitments included $5.32 million for research and collaboration agreements, including up to $2.0 million remaining under the University of Michigan agreement and $2.42 million under the July 2018 Taiwan collaboration. Total listed contractual payments were approximately $10.0 million, including leases, debt, grants, and collaborations.
Outlook, risks, and other notable items
- Management aimed to launch a front-line colorectal cancer screening blood test for asymptomatic patients in Europe in 2019, with Asia planned soon after. This is an expectation, not a guarantee; the filing notes that clinical validation and regulatory processes may be delayed.
- The company stated that it expects to use cash principally for R&D and expects to rely on further financing, grants, licensing, or future revenues. Management cited cost controls, but the filing states that accumulated losses of $69.44 million, operating cash outflows, and no revenue raise substantial doubt about the company’s ability to continue as a going concern for one year from issuance. Failure to obtain adequate capital could force it to cease operations.
- Key business risks include successful product development and commercialization, regulatory clearance or approval, market acceptance, and competition and rapid technological change. Additional equity financing could dilute shareholders; debt financing could restrict operations.
- Disclosure controls remained ineffective because of material weaknesses: inadequate segregation of duties in parts of Finance and insufficient IT oversight. The company was implementing a remediation plan, including selecting a financial reporting system to automate processes.
- No material legal proceedings were reported, and the company reported no material change to its previously disclosed risk factors. Subsequent to quarter-end, warrants were exercised for total proceeds of approximately $0.72 million.
Most important facts for investors to verify
- Whether cash, financing access, and spending levels are sufficient to fund operations and clinical development, given the explicit going-concern uncertainty.
- Progress and evidence supporting the targeted 2019 European colorectal screening launch, including clinical validation and regulatory requirements.
- Actual costs and timing of the University of Michigan and Taiwan collaborations and other contractual commitments.
- Remediation of the disclosed internal-control weaknesses and any resulting changes to financial reporting reliability.
- Potential dilution from outstanding warrants, options, and the unused $10 million equity distribution facility; the filing reported 35,335,378 common shares outstanding as of November 2, 2018.