VolitionRx Limited — Q2 2018 Form 10-Q
Reporting period: Three and six months ended June 30, 2018. The unaudited consolidated statements cover the company and its wholly owned subsidiaries. VolitionRx is developing blood-based cancer diagnostic tests and reported no revenue in either 2018 period.
Financial results and liquidity
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development | $2.69 million | $1.81 million | $5.11 million | $3.48 million |
| General and administrative | $1.64 million | $1.43 million | $3.49 million | $2.82 million |
| Sales and marketing | $0.24 million | $0.21 million | $0.60 million | $0.48 million |
| Total operating expenses | $4.57 million | $3.44 million | $9.19 million | $6.78 million |
| Net loss | $4.59 million | $3.46 million | $9.24 million | $6.81 million |
| Basic and diluted loss per share | $0.15 | $0.13 | $0.32 | $0.26 |
| Cash used in operating activities | — | — | $6.49 million | $5.48 million |
At June 30, cash and cash equivalents were $11.89 million, versus $10.12 million at December 31, 2017. Current assets were $12.52 million and current liabilities $3.34 million, implying working capital of approximately $9.18 million. Total assets were $16.30 million and total liabilities $6.25 million. Long-term debt, including its current portion, was $2.26 million; capital lease liabilities totaled $0.92 million. The filing provides no meaningful operating margin because there was no revenue.
Six-month financing provided $8.23 million, including $7.80 million net proceeds from a March public offering of 3.5 million shares at $2.40 per share. Investing activities used $0.13 million. Cash increased by $1.78 million over the six months, including a $0.17 million favorable foreign-exchange effect.
Changes versus prior comparable periods
- Q2 operating expenses rose 33% and net loss rose 33% year over year. For the first half, operating expenses rose 36% and net loss rose 36%.
- Research and development was the largest expense increase: management attributed the increase principally to participation in the University of Michigan trial and higher headcount.
- First-half general and administrative costs increased 23%, which management attributed mainly to higher foreign-exchange and capital-raise legal costs. Sales and marketing increased 26%, primarily due to higher marketing and professional fees.
- Operating cash use increased by about $1.01 million year over year. Management cited increased R&D and general and administrative spending, including stock-based compensation.
- Cash from financing was substantially higher than in the first half of 2017, principally because of the March 2018 equity offering.
Outlook, risks, and unusual items
- Going concern: The company has incurred cumulative losses of $64.96 million, has no revenue and has negative operating cash flow. Management states that these conditions raise substantial doubt about its ability to continue as a going concern for one year from issuance of the financial statements. Continued operations depend on financing, grants, licensing proceeds and/or commercialization; failure to obtain adequate capital could force cessation of operations.
- Plans, not formal financial guidance: Management intends to use cash predominantly for R&D and aims to launch an asymptomatic colorectal cancer screening test in Europe in 2019, with Asia soon after. The filing provides no revenue, earnings, or cash-runway forecast and cautions that development, clinical validation, and regulatory processes may be delayed.
- Financing after quarter-end: On August 10, 2018, Volition issued 5 million shares to Cotterford Company Limited at $1.80 per share in a private placement, for $9 million gross proceeds, and issued a warrant to purchase up to 5 million additional shares at $3.00 per share. The warrant is exercisable for six months beginning February 10, 2019 and expires August 10, 2019. These are post-period events.
- Commitments: Future collaborative research obligations totaled $3.64 million, including up to $2.25 million remaining under the University of Michigan agreement. The company also disclosed $8.31 million in approximate contractual payments across debt, leases, grants and collaborations; the debt-payment schedule includes the full SOFINEX facility although only half had been drawn at quarter-end.
- Other subsequent commitments: A July 2018 Walloon Region grant was €605,000, of which €181,500 is repayable over 12 years beginning in 2020. A University of Taiwan collaboration signed in July could cost up to $2.55 million over three years.
- Controls and risks: Management concluded disclosure controls remained ineffective because of material weaknesses, including inadequate segregation of duties in Finance and insufficient IT oversight. A remediation plan, including a financial reporting system intended to automate processes, was being implemented. The filing also identifies regulatory approval, market acceptance, competition, technological change, and access to financing as risks.
- The company reported no material pending legal proceedings and no material change in its previously disclosed risk factors. Financial statements are unaudited.
Important facts for investors to verify
- Whether additional financing, grants, licensing income, or other funding is sufficient to address the disclosed going-concern uncertainty and ongoing cash burn.
- Progress, results, timing, and regulatory requirements for clinical validation and the planned European colorectal screening launch.
- The cash impact and timing of research commitments, especially the University of Michigan and Taiwan collaborations, and the distinction between drawn and undrawn debt facilities.
- The final share count and potential dilution following the August PIPE and any exercise of its warrant; the filing reported 30,031,225 shares outstanding as of August 8, before the August 10 issuance.
- Whether the company remediates the disclosed internal-control weaknesses and improves disclosure-control effectiveness.