VolitionRx Limited — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016; financial statements are unaudited. VolitionRx is a clinical-stage life sciences company developing blood-based cancer and disease diagnostic tests. It reported no operating revenue in the quarter.
Financial performance and position
| Metric | Q1 2016 | Q1 2015 / comparison |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $1.46 million | $1.21 million; up 21% |
| Total operating expenses | $2.49 million | $2.35 million; up 6% |
| Net loss | $2.49 million | $2.01 million; loss widened 24% |
| Loss per share, basic and diluted | $0.13 | $0.12 |
| Net cash used in operations | $2.16 million | $2.21 million |
| Cash and cash equivalents at period end | $17.01 million | $5.92 million at Dec. 31, 2015 |
| Working capital | $15.99 million surplus | At March 31, 2016 |
| Total liabilities | $1.99 million | $1.67 million at Dec. 31, 2015 |
Operating cash use was broadly similar year over year; the company attributed the reduction mainly to higher legal costs associated with its 2015 NYSE MKT listing. Investing cash flow was zero, versus $73,302 used in Q1 2015. Financing provided $13.24 million, principally from a March public offering that generated approximately $13.1 million net proceeds; cash increased by $11.09 million during the quarter. Operating margins are not meaningful because the company had no revenue.
At March 31, total assets were $18.90 million and stockholders’ equity was $16.91 million. Liabilities included $349,550 of capital lease obligations and $294,563 outstanding under the Walloon Region grant repayment arrangement. The filing reports no significant off-balance-sheet arrangements.
Material changes and developments
- R&D expense rose $252,038, primarily due to a $226,636 increase in antibody expenditures for testing.
- Professional fees declined 14% and general and administrative expense declined 8%, largely reflecting lower legal and fundraising costs than in the prior-year listing period.
- The March offering issued approximately 4.33 million shares at $3.25 per share before underwriting discounts and commissions. Common shares outstanding were 23,397,887 at March 31, versus 18,763,272 at year-end 2015.
- The company reported a $339,744 derivative remeasurement gain in Q1 2015, but none in Q1 2016; this contributed to the year-over-year increase in net loss.
Outlook, risks, and contingencies
Management expects to use cash primarily for R&D and does not anticipate significant revenue until intended products can be marketed in the clinical in-vitro diagnostics market. The filing provides no quantified revenue, earnings, or commercialization guidance. Management says delayed financing could postpone clinical validation and regulatory work; continued inability to finance operations could force the company to discontinue operations. The financial statements disclose substantial doubt about the company’s ability to continue as a going concern, citing cumulative losses of $31.53 million, no revenue, and dependence on future financing, grants, and cost controls.
- Key execution risks include clinical validation, product development, regulatory clearances or approvals, market acceptance, competition, and the company’s limited direct sales and marketing experience. The filing also discusses potential added EU regulatory requirements and intellectual-property risks.
- Disclosure controls and procedures remained ineffective at March 31 because of material weaknesses in financial reporting controls, including incomplete segregation of certain accounting duties and an incompletely implemented purchase-order process. The company said dual authorization had been added to all bank accounts by May 13, 2016; remediation of other weaknesses remained in progress.
- No material legal proceedings were reported. The Walloon grant arrangement includes a 6% royalty on qualifying product or service revenue, subject to the agreement’s repayment cap.
- After quarter-end, Belgian Volition agreed to buy a larger R&D facility for approximately $1.36 million, conditional in part on suitable local financing and regulatory clearances. The filing also reports 775,000 options granted in April and, in May, revised executive and consulting compensation arrangements.
Important facts for investors to verify
- Cash runway relative to operating cash use, planned R&D and clinical-validation spending, and the timing and availability of further financing.
- Progress, timelines, and costs for clinical validation and regulatory pathways in Europe and the United States, including the company’s intended sales strategy.
- Whether the purchase of the Belgian facility closes, the financing terms, and the effect on cash and future obligations.
- Execution of the internal-control remediation plan and confirmation that material weaknesses are resolved.
- Potential dilution from outstanding warrants and options, future equity financing, and the effect of subsequent grants and compensation agreements.