VolitionRx Limited — Q3 2016 Form 10-Q
Reporting period: Three and nine months ended September 30, 2016. VolitionRx is a clinical-stage diagnostics company developing blood-based tests for cancer and other diseases. It reported no operating revenue in either 2016 period or the comparable 2015 periods.
Financial performance and liquidity
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Operating expenses | $3.48 million | $2.97 million | $8.95 million | $7.33 million |
| Net loss | $3.48 million | $2.96 million | $8.92 million | $6.84 million |
| Loss per share, basic and diluted | $0.15 | $0.16 | $0.40 | $0.39 |
| Operating cash used | Not provided for quarter | Not provided for quarter | $6.70 million | $6.48 million |
Q3 comprehensive loss was $3.46 million. No meaningful revenue or profit margins are available because the company had no revenue and remained in development. At September 30, cash and cash equivalents were $12.53 million, versus $5.92 million at December 31, 2015; working capital was $10.89 million. Total liabilities were $2.48 million, including $0.33 million of capital lease obligations and $0.25 million of repayable grants. The company funded operations principally through equity issuance; nine-month financing cash inflow was $13.43 million.
Changes versus comparable periods
- Q3 operating expenses rose 17% and net loss increased 17% year over year. Salaries and office administrative fees rose 40%, professional fees 31%, and research and development 7%.
- For the first nine months, operating expenses increased 22% and net loss increased 30%. R&D expense rose 19%, primarily from higher antibody and sample testing costs and development of new antibody clones; salaries and office administrative fees rose 35%.
- Prior-year nine-month other income included a $339,744 derivative remeasurement gain; 2016 other income was $25,891, consisting of grant funds. The prior-period gain partly explains the larger increase in net loss relative to operating expenses.
- Cash increased by $6.61 million during the first nine months, versus $4.71 million in 2015, largely reflecting equity financing. Common shares outstanding at September 30 were 23.61 million, compared with 18.76 million at year-end 2015.
Outlook, risks, and notable items
- Management gave no specific revenue, earnings, or cash-flow guidance. It said cash would primarily fund R&D and commercialization preparation and expects to rely on additional financing; it did not assure that financing will be available.
- The filing states that accumulated losses were $37.96 million, there was no revenue, and these conditions raise substantial doubt about the company’s ability to continue as a going concern. Management cited grants, debt or equity financing, product development and commercialization, and cost controls as plans to address funding needs.
- After quarter-end, the company raised approximately $10.6 million net in an October public offering and approximately $1.1 million net from the underwriters’ overallotment. A Belgian subsidiary also received a $478,700 loan in October. These subsequent proceeds are not included in September 30 cash.
- Subsequent commitments included a research-facility property transaction financed in part through a long-term lease arrangement and a clinical research agreement with Hvidovre Hospital requiring $2.22 million for its first phase.
- Management reported disclosure controls and procedures remained ineffective due to material weaknesses, including inadequate segregation of some cash-accounting duties and incomplete implementation of purchase-order controls across subsidiaries. Remediation was underway.
- Key business risks include obtaining regulatory clearances, validating and commercializing products, market acceptance, competition, building sales and distribution capabilities, and potential financing needs. The filing reported no material pending legal proceedings.
Important facts for investors to verify
- Progress and cost of clinical validation, regulatory review, and commercialization, including whether products generate revenue.
- Cash runway and financing needs, including the effect of post-quarter equity proceeds, loans, lease obligations, and research commitments.
- Remediation and subsequent testing of the disclosed internal-control material weaknesses.
- Potential dilution from equity financing and outstanding warrants and options; the filing reports 2.12 million warrants and 2.48 million options outstanding at September 30.