Champions Oncology, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended July 31, 2016; comparisons are with the three months ended July 31, 2015. Amounts are in U.S. dollars.
Business context
Champions develops and sells oncology research and personalized-care solutions using its TumorGraft platform. Revenue comes from Personalized Oncology Solutions (POS), serving physicians and patients, and Translational Oncology Solutions (TOS), serving pharmaceutical and biotechnology companies. Management said it plans to prioritize expansion of TOS; POS is not expected to be a primary growth focus.
Financial performance and liquidity
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Revenue | $3.670 million | $2.822 million |
| Operating loss | $2.523 million | $2.897 million |
| Net loss | $2.546 million | $2.913 million |
| Basic and diluted loss per share | $0.26 | $0.33 |
| Cash used in operations | $2.439 million | $2.543 million |
- TOS revenue rose 35.2% to $3.159 million; POS revenue rose 5.4% to $511,000. TOS represented 86.1% of revenue.
- Reported gross margin was 7.2% for POS versus negative 36.3% a year earlier, and 35.1% for TOS versus 31.0%. Consolidated operating margin improved to negative 68.7% from negative 102.7%.
- Operating expenses increased 8.3% to $6.193 million. Research and development was $1.211 million; sales and marketing was $925,000; general and administrative expense was $1.534 million.
- At July 31, cash and cash equivalents were $4.463 million, working capital was approximately $2.0 million, and total current liabilities were $4.426 million. Management said available cash should fund operations through at least September 2017.
- The company reported no off-balance-sheet debt or similar obligations. Capital lease payments had a present value of $78,000; no material borrowing balance is reported.
Changes, outlook, and risks
- Revenue growth was driven primarily by TOS studies, reflecting prior-quarter bookings, larger and more numerous studies, new customers, and platform growth. Management attributed improved TOS margin to higher revenue against fixed laboratory costs and management of variable costs.
- Cash and cash equivalents increased from $2.585 million at April 30 to $4.463 million, primarily because of a June 2016 public offering. The offering sold 2,258,749 shares at $2.25 per share and raised net proceeds of approximately $4.3 million after $742,000 of offering costs. Proceeds were intended for TumorGraft research and development, working capital, and general corporate purposes.
- Net losses have been recurring. Management expects operating losses to continue until revenue grows sufficiently; it cautioned that additional financing may be needed beyond the stated cash runway. Financing may be unavailable or dilutive, and inability to raise capital could require cuts or delays to research and other activities.
- Stock-based compensation increased to $1.129 million from $775,000. A July option exchange replaced 1,793,781 existing options with 1,568,191 options at a lower exercise price; the modification added $414,756 of expense, of which $330,945 was recognized in the quarter and $83,811 is expected to be recognized over the following 18 months.
- Management reported effective disclosure controls and no material changes in internal control over financial reporting. The company reported no current legal proceedings. It had not accrued registration-rights penalties and anticipated continued compliance.
- Leases for the New York laboratory and corporate headquarters were due to expire in September and November 2016, respectively; the company said it was reviewing its options for the New York facility.
Important facts for investors to verify
- Whether TOS bookings convert into recognized revenue and whether TOS margins remain sustainable as study mix and costs change.
- Actual quarterly cash burn and whether the September 2017 runway estimate remains achievable without further financing.
- The effect of the June offering and outstanding options and warrants on future share dilution.
- Progress in TumorGraft platform development and the company’s ability to grow revenue enough to reduce recurring losses.
- Renewal, relocation, or other arrangements for expiring laboratory and headquarters leases.