Business context and reporting period
VolitionRx Limited’s unaudited Form 10-Q covers the three and nine months ended September 30, 2019. The company is developing blood-based cancer and other disease diagnostics using its Nucleosomics/Nu.Q platform; operations remained predominantly research and development, with only early-stage service and royalty revenue.
Financial and operating metrics
| Metric | Q3 2019 | Nine months 2019 | Prior comparable period |
|---|---|---|---|
| Revenue | $17,096 | $17,096 | $0 in 2018 |
| Operating expenses | $4.19 million | $12.34 million | $4.45 million; $13.64 million |
| Operating loss | $4.18 million | $12.32 million | $4.45 million; $13.64 million |
| Net loss | $4.18 million | $12.54 million | $4.48 million; $13.72 million |
| Loss per share, basic and diluted | $0.10 | $0.33 | $0.14; $0.46 |
| Cash used in operations | Not separately presented for quarter | $10.14 million | $11.10 million |
Gross margin was not meaningfully reported given minimal revenue. At September 30, cash and cash equivalents were $19.70 million, total assets $23.78 million, and total liabilities $5.97 million. Current liabilities were $3.24 million. Long-term debt, including current portion, had a carrying amount of approximately $2.30 million; finance lease liabilities totaled approximately $720,000, and repayable grants were approximately $328,000. Contractual payments disclosed across debt, leases, grants and research collaborations totaled approximately $6.52 million, including interest where applicable.
Cash increased from $13.43 million at year-end 2018. Nine-month investing cash use was $359,502; financing provided $16.39 million, principally from warrant exercises. Stockholders’ equity was $17.80 million, and shares outstanding rose to 41.09 million from 35.34 million at December 31, 2018.
Changes versus prior comparable periods
- Revenue began to appear in 2019 but remained immaterial: $16,204 in services and $892 in royalties for the nine months.
- Nine-month operating expenses fell 10%, mainly reflecting lower general and administrative costs and reduced research collaboration spending. Research and development declined 3%; general and administrative declined 19%; sales and marketing declined 15%.
- Nine-month net loss improved 9% year over year, while weighted-average shares increased 28% to 38.54 million, reflecting equity issuance.
- Operating cash use decreased by approximately $1.0 million year over year. The company raised approximately $16.5 million from warrant exercises in 2019; Cotterford Company Limited exercised its remaining warrant during the period.
Outlook, risks and unusual items
- Going concern: Management disclosed substantial doubt about the company’s ability to continue as a going concern for one year from issuance. It has incurred cumulative losses of $86.3 million, has negative operating cash flow and limited revenue. Continued operations depend on financing, grants, licensing proceeds and/or increased revenue; management said it would conserve cash. No quantified cash runway or formal revenue guidance is provided.
- Funding and dilution: The company expects to rely on future debt or equity financing or licensing. Additional financing may not be available on acceptable terms; equity issuance could dilute shareholders, while debt could restrict operations. Delayed funding could defer clinical validation and regulatory work or, if prolonged, force cessation of operations.
- Development and market risks: Commercialization depends on clinical validation, regulatory clearances or approvals, market acceptance, and competition and rapid technological change. Management described intended launches in Europe and Asia before the U.S., working with partners and/or distributors; these are plans, not assured outcomes.
- Unusual expense: A warrant amendment reducing Cotterford’s exercise price temporarily resulted in $196,957 of financing cost recorded in other expense during the nine-month period.
- Controls: Disclosure controls remained ineffective due to material weaknesses involving segregation of finance duties, IT oversight and review of complex accounting transactions. The company was implementing a remediation plan, including selection of a financial reporting system.
- Commitments and subsequent event: Research and collaboration commitments were approximately $2.54 million at quarter-end. On October 25, 2019, the company agreed to pay Texas A&M University and affiliated entities an aggregate $400,000 and provide an approximate 12.5% equity stake in Volition Vet in connection with veterinary diagnostic development.
- The company reported no material pending legal proceedings and no material changes to the risk factors in its prior annual report.
Important facts for investors to verify
- Whether subsequent financing, grant awards, licensing deals or revenue are sufficient to address the disclosed going-concern uncertainty, and the company’s updated cash runway.
- Progress, validation results and regulatory timelines for human and veterinary diagnostic products, as well as evidence of commercial demand.
- Actual revenue growth and the terms and economics of commercial, licensing and collaboration agreements.
- Cash use and the timing of the disclosed $6.52 million in contractual payments and $2.54 million in research commitments.
- Remediation of internal-control weaknesses and any resulting changes to financial reporting reliability.
- The dilution and ownership implications of the 2019 share issuances and the Texas A&M/Volition Vet arrangement.