VolitionRx Limited — FY2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013. The filing is an annual report, not a standalone fourth-quarter report; quarterly financial results are not clearly provided. VolitionRx is a development-stage life sciences company developing blood-based cancer and other disease tests.
Financial performance and position
| Metric | FY2013 | FY2012 |
|---|---|---|
| Revenue | $0 | $54,968 |
| Operating expenses | $4,575,912 | $4,138,018 |
| Research and development expense | $2,503,765 | $2,773,142 |
| Operating loss | $4,575,912 | $4,083,050 |
| Grant income | $865,623 | $0 |
| Net loss | $3,710,289 | $4,083,050 |
| Basic and diluted loss per share | $0.34 | $0.44 |
| Net cash used in operating activities | $3,084,206 | $2,314,582 |
- The lower net loss reflected $865,623 of grant income, not operating revenue. The company recorded no revenue from operations in 2013; 2012 revenue was from contract research.
- Operating expenses increased 11%, including a $350,000 patent impairment and higher professional fees. R&D expense decreased by $269,377, principally due to lower share-option expense, partly offset by higher payroll costs.
- At December 31, 2013, cash was $888,704, total current assets $1,005,451, and current liabilities $957,274, for working capital of $48,177. Total liabilities were $1,390,085; equity was $680,674.
- Liabilities included $432,811 of repayable grant funding, scheduled for repayment in installments from 2014 to 2023. The filing reports no significant off-balance-sheet arrangements.
- Cash increased by $512,283 during 2013. Financing provided $3,593,429, primarily from share issuances and grants; operating activities used $3,084,206.
- Accumulated development-stage losses were $11,295,922. The auditor issued an unmodified opinion but highlighted substantial doubt about the company’s ability to continue as a going concern.
Material changes and financing
- Compared with 2012, revenue fell to zero, operating expenses rose 11%, and R&D spending declined about 10%. Net loss narrowed 9%, mainly because of non-repayable grant income.
- During 2013, the company received $2,828,250 from common-stock issuances and issued shares and warrants in multiple private placements. Common shares outstanding were 11,679,757 at year-end.
- After year-end, the company raised $3,000,000 in a February 2014 private placement of 1.5 million shares at $2.00 per share, each with a five-year warrant exercisable at $2.20. The filing also reports $183,086 in cash agent fees and additional agent securities.
- The company expects to rely on further equity financing. Additional share issuance may dilute existing holders, and the filing states that operations could be suspended or discontinued if adequate funding is unavailable.
Business, outlook, and key risks
- The company reported development of 20 NuQ blood-test assays using nucleosome-based technology. It is pursuing research-use-only (RUO) and clinical in-vitro diagnostic (IVD) markets, plus HyperGenomics tumor profiling and a NuQ Endo endometriosis test.
- The filing describes NuQ research products as released for RUO and reports two RUO distribution agreements signed in 2013, with sales expected to begin in April 2014. Elsewhere, it says no products were available for sale on the RUO or IVD market. The commercial status is therefore not consistently described.
- IVD products require regulatory and clinical validation. The company expected to apply for European CE marking for NuQ-X and the NuQ panel in 2014; it estimated CE marking at approximately $500,000 per test. U.S. FDA approval was estimated at approximately $825,000 per product and expected to take longer. The filing says FDA prospective validation was expected to run from 2014 to 2016.
- Management outlined potential point-of-care launches in Europe in 2016 and the U.S. in 2017, but noted that manufacturing costs, pricing, partnerships, and timelines for several products were undetermined. These are forward-looking plans, not assured outcomes.
- Key risks include ongoing cash burn and financing dependence; uncertain test performance, clinical validation, regulatory approval, and commercialization; competition from substantially better-resourced companies; possible delays or obsolescence; and patent, grant, and foreign-currency exposures.
- A $350,000 impairment was recorded after discovery of an earlier-filed patent similar to one licensed by the company. The filing lists nine patent families, with several applications still pending.
- Management concluded disclosure controls were ineffective and internal control over financial reporting had material weaknesses: no independent audit committee or financial expert, inadequate cash controls and segregation of duties, and no formal data-backup/off-site-storage procedures. The auditor did not attest to internal controls.
- The filing identifies related-party service and office-support arrangements, including approximately $300,000 paid to PB Commodities in each of 2013 and 2012. No material legal proceedings were reported.
Important facts for investors to verify
- Whether RUO kits were commercially available and generating sales by the expected April 2014 start date, given the filing’s inconsistent descriptions of product availability.
- Current cash runway, subsequent operating cash burn, and whether additional financing or grant funding was obtained after the disclosed $3 million placement.
- Progress and actual costs of clinical validation, CE marking, and FDA pathways versus the filing’s projected milestones and per-product cost estimates.
- The status, enforceability, and commercial scope of key patents, including the patent associated with the $350,000 impairment.
- Remediation of the disclosed material weaknesses and establishment of independent audit oversight and effective cash and IT controls.
- Repayment terms and any revenue-based royalty obligations under the Walloon Region grant, including the stated 6% royalty and funding repayment cap.