VolitionRx Limited — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017. VolitionRx is developing blood-based cancer diagnostics using its Nucleosomics platform, initially targeting colorectal cancer. The unaudited results are in U.S. dollars.
Financial performance and liquidity
- Revenue: None, unchanged from Q1 2016. The company reported no gross margin.
- Operating expenses and loss: Operating expenses were $3.35 million, up 34% from $2.49 million. Net loss was $3.35 million versus $2.49 million; basic and diluted loss per share was $0.13 in both periods.
- Expense changes: R&D rose 26% to $1.84 million; salaries and office administrative fees rose 146% to $794,000, partly due to $376,000 of additional stock-option and warrant amortization. Sales and marketing increased to $149,000 from $32,000. Professional fees declined 28% to $323,000.
- Cash flow: Operating cash use was $2.67 million, compared with $2.16 million a year earlier. Investing cash use was $875,000, mainly for equipment and improvements at the Belgian R&D facility. Financing provided $301,000, including $288,000 of loan proceeds. Cash fell $3.21 million during the quarter.
- Cash and working capital: Cash and equivalents were $18.47 million at quarter-end, down from $21.68 million at December 31, 2016. Working capital was $16.72 million; current liabilities were $2.27 million.
- Debt and leases: Balance-sheet long-term debt was $758,000, including its current portion; capital lease liabilities totaled $995,000. The company also had $243,000 repayable under the Walloon grant. Total liabilities were $4.04 million.
- Other balance-sheet items: Total assets were $22.53 million and stockholders’ equity was $18.49 million. Property and equipment, net, increased to $2.96 million from $2.12 million.
Changes, outlook, and material matters
- Volition’s colorectal cancer screening triage test received a CE Mark in December 2016, enabling commercialization in the EU. The company was preparing submissions in Singapore and Taiwan and reported approval to proceed with its first pathway-design study in Denmark.
- Management did not anticipate significant revenue in 2017 and expected to use cash primarily for R&D. It expects to rely on future financing; no assurance was given that financing will be available.
- The filing states that cumulative losses since inception were $44.30 million and that losses, negative operating cash flows, and no revenue create substantial doubt about the company’s ability to continue as a going concern. Management cited potential grants, debt or equity financing, accelerated development and commercialization, and cost controls as plans; failure to obtain adequate capital could force cessation of operations.
- Clinical validation, regulatory approvals, market acceptance, competition, and the cost and timing of commercialization are key risks. The filing highlights future EU medical-device rules, including the IVDR’s full applicability in 2022, as a potential source of added requirements, cost, and delay.
- Disclosure controls were deemed ineffective at March 31, 2017 because of material weaknesses, including insufficient segregation of duties in Finance and insufficient IT and Human Resources oversight. Remediation was underway.
- Subsequent events included warrant exercises generating approximately $554,000 in proceeds through May 5, 2017, a $374,000 loan agreement entered into May 2, and appointment of a new CFO effective April 10. The company also granted 686,000 options in March; Q1 stock-based compensation was $584,000.
- No material legal proceedings or significant off-balance-sheet arrangements were reported.
Important facts for investors to verify
- Progress and timing of clinical validation, EU commercialization, and regulatory submissions in the U.S., Singapore, and Taiwan.
- Cash runway and financing needs, including the terms and repayment obligations of existing and subsequent loans and leases.
- Whether the company can generate revenue and complete development and commercialization without materially increasing dilution or debt.
- Progress in remediating the disclosed internal-control weaknesses.
- Potential effects of EU regulatory changes and the Walloon Region grant’s repayment and revenue-royalty provisions.