VolitionRx Limited — Q3 2015 Form 10-Q
Reporting period: Three and nine months ended September 30, 2015. The condensed consolidated 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 2015 periods.
Key financial metrics
| Metric | Q3 2015 | Nine months 2015 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $2.97 million | $7.33 million |
| Net loss | $2.96 million | $6.84 million |
| Net loss per share, basic and diluted | $0.16 | $0.39 |
| Cash used in operating activities | Not separately reported for the quarter | $6.68 million |
- Liquidity at September 30: Cash of $6.85 million; current assets of $7.26 million; current liabilities of $1.09 million; working capital surplus of $6.18 million.
- Cash flow and financing: Nine-month investing cash outflow was $326,000; financing cash inflow was $11.70 million. Cash increased $4.71 million from year-end 2014.
- Debt and obligations: Capital lease liability was $413,616, including $83,326 current. Grant repayments outstanding totaled $291,651. The filing also describes operating leases and research-study commitments.
- Margins: The company had no 2015 operating revenue, so an operating margin is not meaningful.
Changes versus comparable periods
- Q3 operating expenses rose 67% to $2.97 million, mainly reflecting higher R&D spending, salaries and professional fees. Q3 net loss narrowed to $2.96 million from $5.89 million in 2014, principally because the prior-year quarter included a $4.13 million derivative remeasurement loss.
- For the first nine months, operating expenses increased 80% to $7.33 million. R&D costs rose by $1.70 million, professional fees by $729,000 and salaries and office administrative fees by $582,000.
- Nine-month net loss decreased 6% to $6.84 million from $7.27 million. The comparison includes a $339,744 derivative remeasurement gain in 2015 versus a $3.36 million loss in 2014, as well as grant income in both periods.
- Cash was substantially higher than at December 31, 2014, mainly after approximately $9.7 million of net proceeds from a February public offering and about $1.5 million from a first-quarter private placement. Common shares outstanding were 18,072,215 at quarter-end and 18,472,215 as of November 4, 2015.
Outlook, risks and unusual items
- Management expects to use cash primarily for R&D and says it will continue cost controls, seek additional grant funding and pursue debt or equity financing. The filing provides no specific financial guidance or revenue forecast.
- The company has accumulated losses of $26.35 million, no current revenue and substantial doubt about its ability to continue as a going concern. Management states that inadequate financing could delay clinical validation and regulatory work or force the company to discontinue operations.
- Key business risks include successful product development and clinical validation, regulatory clearance or approval, market acceptance, competition, intellectual-property protection and access to additional financing. The filing highlights uncertainty around possible FDA oversight of laboratory-developed tests and proposed changes to European IVD requirements.
- Disclosure controls remained ineffective due to material weaknesses in cash-process controls, including insufficient segregation of duties and missing dual authorization on some bank accounts. The company said it was implementing remediation; it also reported that automated off-site backups had been implemented at other subsidiaries.
- Unusual financing and accounting items include the 2015 elimination of a derivative liability associated with warrant ratchet provisions, and a five-year capital lease for laboratory equipment. After quarter-end, warrant exercises generated $880,000 in October proceeds; the company also approved a 2015 equity incentive plan authorizing 1,000,000 shares.
- The filing reports no material pending legal proceedings and no significant off-balance-sheet arrangements.
Important facts for investors to verify
- Cash runway relative to the reported $6.68 million nine-month operating cash outflow, and the timing and terms of any further financing.
- Progress, costs and timelines for clinical validation, regulatory pathways and commercialization, including any effect of FDA or European rule changes.
- Whether the company remediates the disclosed internal-control weaknesses and whether the next assessment confirms remediation.
- Potential dilution from outstanding warrants and options, subsequent warrant exercises, and the new 1,000,000-share incentive-plan authorization.
- Amount and timing of remaining research, lease and grant-repayment commitments, and whether development results support the carrying value of intellectual property.