VolitionRx Limited — Q2 2016 Form 10-Q
Reporting period: Three and six months ended June 30, 2016. VolitionRx is a clinical-stage life sciences company developing blood-based diagnostic tests; it reported 32 assays developed to date and no operating revenue.
Financial performance and liquidity
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Operating expenses | $2.98 million | $2.02 million | $5.47 million | $4.37 million |
| Net loss | $2.95 million | $1.87 million | $5.44 million | $3.88 million |
| Basic and diluted loss per share | $0.13 | $0.10 | $0.25 | $0.23 |
| Cash used in operating activities | Not separately stated | Not separately stated | $4.56 million | $4.14 million |
Q2 operating expenses rose 47% year over year, with increases in research and development, professional fees, salaries and administration. For the first half, expenses rose 25%; management attributed much of the R&D increase to antibody and sample testing costs and higher staffing. The prior-year first-half net loss benefited from a $339,744 derivative remeasurement gain that did not recur.
At June 30, cash and cash equivalents were $14.50 million, versus $5.92 million at December 31, 2015. Working capital surplus was $13.38 million; current liabilities were $1.55 million. Total liabilities were $2.03 million, including capital lease obligations and grant repayment liabilities. The filing reports no revenue-based margins.
First-half investing cash outflow was $68,382. Financing provided $13.26 million, primarily from approximately $13.1 million net proceeds from a March public offering of about 4.3 million shares; warrant exercises also contributed approximately $0.2 million. Cash increased by $8.58 million during the six-month period.
Material changes and outlook
- Net loss increased 58% in Q2 and 40% for the six-month period versus the corresponding 2015 periods.
- Management expects to use cash predominantly for R&D and anticipates relying on additional financing; the filing provides no specific financial guidance or commercialization timetable.
- Management identified additional financing as the most significant near- to medium-term risk. If financing is delayed, clinical validation and regulatory work could be delayed; continued inability to secure funds could force the company to discontinue operations.
- The company disclosed substantial doubt about its ability to continue as a going concern, citing cumulative losses of $34.48 million and no revenue. Management plans to seek grants and debt or equity financing, accelerate product development and control costs.
- Disclosure controls remained ineffective due to material weaknesses in parts of cash-process controls, segregation of accounting duties and implementation of purchase-order controls. A remediation plan was being implemented; one previously reported bank dual-signature weakness was remediated in May 2016.
Commitments, contingencies and unusual items
- Research commitments included a Bonn University agreement extension costing $233,180 through May 2017 and a Hvidovre Hospital testing agreement with stated total payments of $1.53 million, expiring August 2016, plus a $50,000 sample commitment through April 2017.
- The Walloon Region grant agreement includes $252,507 outstanding for repayment and a 6% royalty on defined product or service revenue, subject to the agreement’s stated cap.
- The company extended certain warrant and option expiration periods, and granted options to purchase 790,000 shares during the quarter. The filing reports 2.21 million warrants and 2.46 million options outstanding at June 30.
- No material legal proceedings were reported. Management reported no significant off-balance-sheet arrangements.
- Significant cash balances exceeded applicable deposit-insurance limits in domestic and foreign accounts.
Key facts investors should verify
- Whether cash burn, financing access and available cash are sufficient to fund clinical validation, regulatory work and operations.
- Progress toward product validation, regulatory clearance and commercialization, including any change in expected timing or costs.
- Whether the disclosed internal-control weaknesses are remediated and whether further weaknesses are identified.
- The terms and potential dilution from outstanding warrants, options and any future equity financing.
- Repayment and royalty obligations under the Walloon grant, and the status of research and lease commitments.