VOLITIONRX LTD quarterly report, Q1 FY2019

VolitionRx Limited — Q1 2019 Form 10-Q

Business and period: The company develops blood-based diagnostic tests using its Nucleosomics technology, with programs focused on colorectal, lung, prostate and pancreatic cancers and veterinary applications. This unaudited report covers the three months ended March 31, 2019; comparisons are with Q1 2018 unless noted. Volition had no revenue and remained in the research and development stage.

Financial results and position

MetricQ1 2019 / March 31, 2019Comparable period / December 31, 2018
Revenue$0$0 in Q1 2018
Research and development expense$2.47 million$2.42 million
Total operating expenses$3.98 million$4.63 million
Operating loss$3.98 million$4.63 million
Net loss$4.20 million; $0.12 per share$4.65 million; $0.17 per share
Cash used in operating activities$3.65 million$3.51 million
Cash and cash equivalents$16.17 million$13.43 million
Total assets$20.63 million$17.49 million
Total liabilities$5.52 million$5.35 million
Long-term debt, including current portion$2.26 million—

Operating cash outflow was partly offset by $6.57 million of net financing cash flow, principally $6.66 million of proceeds from warrant exercises. Investing cash outflow was $112,102. No income tax was recorded. Gross margin is not meaningful because there was no revenue. The filing provides no formal financial guidance.

Changes and notable items

  • Net loss narrowed by about 10%, and operating expenses fell 14%, primarily reflecting lower stock-based compensation and legal and professional fees. R&D expense rose 2%, with higher laboratory and collaboration costs partly offset by lower stock-based compensation.
  • Weighted-average shares increased 33% to 36.21 million. During Q1, 2.48 million warrants were exercised for $6.66 million gross proceeds. A Cotterford warrant amendment generated a $196,957 expense; Cotterford exercised additional warrants for $5 million after quarter-end, on May 3, 2019.
  • The company adopted the new lease accounting standard on January 1, 2019, recognizing operating lease right-of-use assets and liabilities; prior periods were not restated.
  • Research and collaboration commitments were approximately $4.15 million, including $2.26 million due during the remainder of 2019. Management said cash would primarily fund R&D and that delayed financing could delay clinical validation and regulatory work.

Outlook, risks and controls

Management and the financial statements identify substantial doubt about the company’s ability to continue as a going concern. Volition has accumulated losses of $77.9 million, negative operating cash flows and no revenue. It expects to rely on additional grants, debt or equity financing, licensing proceeds and eventual commercialization; there is no assurance of funding. Management cautions that inadequate capital could force the company to cease operations.

Key business risks include successful product development and clinical validation, regulatory clearances, market acceptance, competition and rapid technological change. The filing reports no material pending legal proceeding and no material change to the risk factors in the prior annual report. Disclosure controls remained ineffective because of material weaknesses in segregation of duties, IT oversight and review of complex transactions; a remediation plan, including financial-reporting system improvements, was in progress.

Investor facts to verify

  • Funding needs and cash runway, considering quarterly operating cash use, planned R&D spending and the company’s going-concern warning.
  • Progress, results and timing of clinical validation, regulatory submissions and commercialization, including plans to launch in Europe and Asia before the United States.
  • Potential dilution from outstanding warrants and options and from future equity financing; confirm the impact of post-quarter warrant exercises.
  • Debt and contractual-payment disclosures: the balance sheet reports $2.26 million of debt, while the MD&A contractual-payments table reports $2.81 million including interest and the undrawn SOFINEX amount. Reconcile these figures and the payment schedules.
  • Execution and effectiveness of the internal-control remediation plan.