Champions Oncology, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended January 31, 2012. Amounts are in U.S. dollars; financial statement amounts are in thousands unless otherwise stated.
Business context
The company develops oncology services using its Tumorgraft Technology Platform. Revenue comes from Personalized Oncology Solutions (POS), serving physicians and patients, and Translational Oncology Solutions (TOS), serving pharmaceutical and biotechnology companies. Management said it was emphasizing both businesses, expanding its Tumorbank, and moving laboratory work in-house.
Financial performance
| Metric | Three months ended Jan. 31, 2012 | Three months ended Jan. 31, 2011 | Nine months ended Jan. 31, 2012 | Nine months ended Jan. 31, 2011 |
|---|---|---|---|---|
| Revenue | $2.396 million | $2.805 million | $5.768 million | $5.338 million |
| Operating loss | $1.773 million | $0.786 million | $6.463 million | $2.396 million |
| Net loss | $1.719 million | $0.415 million | $6.111 million | $1.060 million |
| Loss per share, basic and diluted | $0.04 | $0.01 | $0.13 | $0.03 |
- Quarterly revenue declined 14.6%; nine-month revenue increased 8.1%. Quarterly POS revenue fell 54%, while TOS revenue rose 26%. For nine months, POS revenue fell 34.8% and TOS revenue rose 55.9%.
- Quarterly operating expenses were $4.169 million, up 16.1%; nine-month expenses were $12.231 million, up 58.1%. Nine-month sales and marketing expense increased to $1.885 million from $0.356 million, and general and administrative expense rose to $4.421 million from $2.649 million.
- Reported gross margins: POS was 19% for the quarter and 20% for nine months, versus 49% and 57% in the comparable periods. TOS was 54% and 52%, versus 50% and 45%.
- Stock-based compensation was $2.612 million for nine months, compared with $1.578 million. Other income included a $0.354 million nine-month gain from a decrease in the fair value of warrant liability. Prior-year other income included grant income that did not recur in the 2012 period.
Cash, liquidity and capital structure
- Cash and cash equivalents were $6.482 million at January 31, 2012, down from $10.457 million at April 30, 2011. Working capital was $4.1 million, according to management.
- Nine-month operating cash flow was negative $3.704 million, versus positive $0.504 million a year earlier. Investing cash outflow was $0.371 million; financing cash inflow was $0.098 million. Management attributed the increase in operating cash use primarily to higher working capital requirements.
- Total liabilities were $4.086 million, including $3.468 million in current liabilities and a $0.618 million warrant liability. The balance sheet reports no conventional borrowings or debt.
- Stockholders’ deficit was $3.380 million. The company had $8.159 million of redeemable common stock associated with 12.533 million shares subject to a put right upon a change of control or sale of substantially all assets, subject to specified termination conditions.
Changes, outlook and risks
- Management said lower POS prices contributed to lower panel revenue and margins, while volumes increased: 25 tumorgraft implants and five drug studies in the quarter, compared with one implant and no studies a year earlier. For nine months, implants were 70 versus nine and drug studies were nine versus three.
- Management expected the in-house laboratory transition to be largely complete by the end of fiscal 2013’s first quarter, with anticipated future cost savings. The transition was underway and had increased costs in the current quarter. The company was also investing in laboratory capacity, Tumorbank and sales infrastructure.
- Management believed cash on hand would fund operations for at least the next 12 months, but warned that additional capital might be needed and could be unavailable or involve dilution, high-cost debt or restrictive terms.
- A $0.5 million grant receivable was outstanding at January 31 and was received on February 13, 2012. An IRS examination of the grant program, including fiscal 2011, was ongoing; management did not expect a material financial statement effect.
- The Cephalon agreement could provide up to $27 million in milestone payments, subject to conditions; no milestones had been achieved and no royalties had been earned. The filing also describes up to $3 million in development milestones and future royalties under a drug license agreement.
- Registration rights could trigger cash penalties of $41,000 per 30-day period of default; the company said payment was not probable and recorded no accrual. Management reported no material legal matters or material changes to previously disclosed risk factors.
Most important facts to verify
- Whether POS volume growth can offset lower pricing and the decline in POS revenue and margins.
- Whether TOS growth, including Cephalon study revenue, is sustainable and milestone conditions are met.
- Actual cash burn and runway as laboratory transition and growth spending continue; management’s runway estimate is not a guarantee.
- Completion, costs and expected savings of the in-house laboratory transition, and capacity to meet demand.
- Outcome of the IRS examination and status of the share put option, warrant liability and registration obligations.