VolitionRx Limited — Q3 2020 Form 10-Q
Business and period. VolitionRx develops blood-based diagnostic tests using its Nucleosomics/Nu.Q platform for human and veterinary applications. This unaudited report covers the three and nine months ended September 30, 2020; comparisons are with the corresponding 2019 periods. The company remained at an early, research-and-development stage with minimal revenue.
Financial results and liquidity
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $575 | $17,096 | $6,313 | $17,096 |
| Operating expenses | $4.50 million | $4.19 million | $15.60 million | $12.34 million |
| Operating loss | $4.50 million | $4.18 million | $15.59 million | $12.32 million |
| Net loss | $4.34 million | $4.18 million | $15.24 million | $12.54 million |
| Net loss per share, basic and diluted | $0.09 | $0.10 | $0.34 | $0.33 |
| Operating cash used | Not stated for quarter | Not stated for quarter | $13.73 million | $10.14 million |
Balance sheet at September 30, 2020. Cash and cash equivalents were $20.93 million, versus $16.97 million at December 31, 2019. Current assets were $22.16 million and current liabilities $4.32 million. Total assets were $26.09 million; total liabilities were $7.13 million; stockholders’ equity was $18.96 million. Long-term debt, including its current portion, totaled $2.60 million; finance lease liabilities totaled approximately $0.65 million, and grants repayable were $0.32 million. The filing does not present a meaningful gross margin, given the very small revenue and no separately reported cost-of-revenue line.
Cash flows and financing. Nine-month investing cash use was $0.58 million and financing cash provided was $18.48 million. Financing included approximately $12.7 million net proceeds from a May public offering and approximately $6.5 million from the existing equity distribution agreement. Cash increased by $3.96 million over the nine-month period.
Material changes and unusual items
- Nine-month revenue fell 63% to $6,313. Research and development expense rose 39% to $10.57 million, primarily from higher antibody, sample, laboratory and personnel costs; total operating expenses increased 26%.
- Nine-month net loss widened 22% to $15.24 million. Q3 net loss increased modestly to $4.34 million from $4.18 million, despite a $200,393 gain on disposal of fixed assets. The nine-month gain was $293,595; $196,207 of sale proceeds remained recorded in other current assets at quarter-end.
- Management attributed higher operating cash use to increased spending on antibodies, samples, collaborator stage payments and stock issued for services. Net loss also included noncash stock-based compensation.
- Shares outstanding increased to 48,064,575 at September 30, 2020 from 41,125,303 at year-end 2019, principally reflecting equity financing. As of November 4, 2020, 48,197,687 shares were outstanding.
- The company acquired Octamer GmbH, renamed Volition Germany, in January 2020. It treated the transaction as hiring a management member rather than a business combination and recorded approximately $753,000 in compensation expense related to the transaction.
Outlook, risks and contingencies
- Going concern: The company reported accumulated losses of $105.0 million, negative operating cash flow and limited revenue. Management stated there is substantial doubt about the company’s ability to continue as a going concern for one year from issuance without additional capital or revenue. Plans include grants, debt or equity financing, licensing and accelerated product development; there is no assurance financing will be available. Management warned that delays or lack of funding could delay studies and regulatory work or require cessation of operations.
- Development and commercialization: Management described continued development of Nu.Q assays and planned a late-2020 launch of the Nu.Q Vet Cancer Screening Test. The filing provides no financial guidance or quantified revenue outlook. Commercialization depends on clinical validation, regulatory clearances or approvals, market acceptance and adequate funding.
- COVID-19: The company reported no significant effect on its business or results through September 30, 2020, but said future impacts could materially affect financial condition, results and cash flows.
- Subsequent events: After quarter-end, the company borrowed $973,000 to finance a Belgian production facility and announced a new ATM program of up to $25 million, with no obligation to sell shares. It also entered into an agreement for potential Non-Hodgkin’s lymphoma clinical and regulatory services costing up to $2.9 million over 22 months, subject to project terms. These events may affect liquidity, future spending and dilution.
- Controls: Management concluded disclosure controls remained ineffective because of material weaknesses involving segregation of finance duties, IT oversight and review controls for complex accounting transactions. A remediation plan was being implemented.
- The company reported no material pending legal proceedings and no material change in its previously disclosed risk factors. COVID-19, financing access, regulatory outcomes, competition, product acceptance and intellectual-property protection remain identified risks.
Most important facts for investors to verify
- Cash runway under actual operating spending, and whether additional financing, grants, licensing or product revenue will be available.
- Progress, timing, regulatory requirements and commercial demand for human diagnostics and the planned veterinary test.
- Potential share dilution and proceeds from the post-quarter $25 million ATM program, alongside existing equity distribution activity.
- Timing and amounts of clinical, research, debt, lease and grant-repayment commitments, including the potential $2.9 million lymphoma services agreement.
- Remediation of the disclosed material weaknesses and any subsequent changes in financial reporting controls.