VolitionRx Limited — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Financial statements are unaudited. VolitionRx is a development-stage epigenetics company developing Nu.Q blood-based diagnostics for human and veterinary use.
Financial results and position
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $5,194 | $0 | $5,738 | $0 |
| Operating expenses | $5.22 million | $4.15 million | $11.09 million | $8.14 million |
| Operating loss | $5.21 million | $4.15 million | $11.08 million | $8.14 million |
| Net loss | $5.04 million | $4.16 million | $10.90 million | $8.36 million |
| Basic and diluted loss per share | $0.12 | $0.11 | $0.26 | $0.22 |
| Net cash used in operating activities | Not separately stated | Not separately stated | $9.23 million | $6.42 million |
Revenue remained immaterial relative to operating costs, so the filing does not provide a meaningful operating margin. R&D was the largest expense: $3.49 million in Q2, up 41%, and $7.39 million for six months, up 49%. Management attributed the increase mainly to antibody and sample costs, lab and personnel expenses, and Volition Germany-related compensation.
At June 30, cash and cash equivalents were $21.31 million, versus $16.97 million at year-end 2019. Current assets were $22.42 million and current liabilities $4.71 million. Total liabilities were $7.58 million. Long-term debt, including its current portion, was $2.61 million; total scheduled debt payments including interest were $2.88 million. Six-month investing cash use was $0.60 million, mainly for property and equipment. Financing provided $13.88 million, primarily from share issuances.
Changes, financing, and unusual items
- Compared with the first half of 2019, six-month net loss increased by $2.54 million, or 30%, and operating cash use rose by $2.81 million.
- In May, the company sold approximately 5.0 million shares in a public offering for $13.8 million gross proceeds and approximately $12.7 million net proceeds. It also raised approximately $1.7 million net under its equity distribution agreement during the first half. Shares outstanding were 46.66 million at June 30 and 47.92 million as of August 6.
- Q2 other income included $90,946 of grant income and a $93,202 gain on disposal of fixed assets. For the six-month comparison, 2019 included a $196,957 expense related to warrant modifications; this contributed to 2020’s reported improvement in other income.
- In January, the company acquired Octamer GmbH, renamed Volition Germany, treating the transaction as an asset acquisition and management hire rather than a business combination. It recorded approximately $753,000 in compensation expense related to the transaction.
Outlook, risks, and controls
The company gave no quantified revenue or earnings guidance. Management expects to use cash primarily for R&D and cited plans to pursue grants, debt or equity financing, licensing arrangements, and accelerated product development and commercialization. It said cost controls remain in place. Management and the filing state that substantial doubt exists about the company’s ability to continue as a going concern without additional financing; failure to obtain adequate capital could force it to cease operations. Collaborative research commitments totaled approximately $2.39 million, with about $1.10 million scheduled for the remainder of 2020.
Management reported no significant business or operating impact from COVID-19 through June 30, but said future effects remain uncertain and could be material. Key business risks include obtaining regulatory clearances, clinical validation, market acceptance, intellectual-property protection, competition, and access to financing. Disclosure controls remained ineffective due to material weaknesses involving finance segregation of duties, IT oversight, and monitoring of review controls for complex transactions. A remediation plan is being implemented. The company reported no material legal proceedings and no material change in its previously disclosed risk factors.
Important facts for investors to verify
- Whether available cash, subsequent financing, and operating cash use are sufficient to fund the company’s plans, given the going-concern warning.
- Progress and evidence supporting clinical validation, regulatory approvals, and commercialization of Nu.Q products, including veterinary applications.
- Subsequent equity sales and share-count changes: the company reported approximately $4.7 million of net proceeds from July 1 through August 6 under its equity distribution agreement.
- Execution of internal-control remediation and any changes in the disclosed material weaknesses.
- Timing and funding of research commitments, debt and lease payments, and the potential effects of COVID-19 and foreign-currency movements.