VolitionRx Limited — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. VolitionRx develops blood-based diagnostic tests for cancer and other diseases; operations remained at the research and development stage. Amounts are in U.S. dollars.
Financial performance and position
| Metric | Q2 2019 | Six months 2019 | Comparable 2018 period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Operating expenses | $4.12 million | $8.10 million | $4.57 million / $9.19 million |
| Operating loss | $4.12 million | $8.10 million | $4.57 million / $9.19 million |
| Net loss | $4.16 million | $8.36 million | $4.59 million / $9.24 million |
| Basic and diluted loss per share | $0.11 | $0.22 | $0.15 / $0.32 |
| Operating cash used | Not separately stated | $6.42 million | $6.49 million |
Operating margins are not meaningful because the company had no revenue. At June 30, cash and cash equivalents were $18.51 million; current assets were $19.24 million and current liabilities $3.50 million. Total assets were $22.88 million, total liabilities $6.50 million, and stockholders’ equity $16.38 million. Long-term debt, including its current portion, was $2.52 million; finance lease liabilities were $0.79 million and grants repayable $0.38 million.
Six-month investing cash outflow was $0.24 million and financing cash inflow was $11.76 million. Financing included approximately $11.7 million from warrant exercises. The company reported $4.34 million of future research and collaboration commitments and $8.70 million in total scheduled contractual payments, including debt, leases, grants and collaborations.
Changes versus prior comparable periods
- Q2 net loss narrowed 9% and operating expenses declined 10% year over year. Management attributed lower R&D costs mainly to less collaborator work and a Walloon Region grant, partly offset by higher laboratory costs; lower G&A reflected reduced foreign-exchange costs and stock compensation.
- For the first half, net loss narrowed 10% and operating expenses declined 12%. Lower G&A and sales and marketing costs contributed; R&D decreased modestly.
- Six-month other expenses included a $196,957 charge for modifying a significant stockholder’s warrant. Interest expense increased compared with the prior year.
- Shares outstanding rose from 35.34 million at December 31, 2018 to 39.48 million at June 30, 2019, primarily reflecting warrant exercises and associated equity financing.
Outlook, risks and unusual items
- Going concern: Management disclosed substantial doubt about the company’s ability to continue as a going concern, citing accumulated losses of $82.1 million, operating cash outflows and no revenue. It depends on additional financing, grants, licensing proceeds and/or commercialization; inadequate capital could force cessation of operations. Management said it is controlling costs.
- No quantified revenue or earnings guidance was provided. The company intends to use cash primarily for R&D and described plans to advance clinical validation and regulatory processes, with a potential launch sequence beginning in Europe and Asia before the U.S. Timing and commercial success remain uncertain.
- Key risks include obtaining financing on acceptable terms, dilution or debt restrictions, regulatory clearance, clinical validation, market acceptance, competition and technology change. Delayed funding could delay studies and approvals.
- On July 24, 2019, after quarter-end, Cotterford exercised the remaining warrant for 1,609,195 shares at $3.00 per share, generating $4.8 million gross proceeds.
- Disclosure controls remained ineffective due to material weaknesses involving segregation of finance duties, IT oversight and review controls for complex transactions. Management was implementing a remediation plan.
- The company reported no material pending legal proceedings and no material changes to its previously disclosed risk factors.
Investor verification priorities
- Assess cash burn, contractual commitments and the company’s funding runway, including whether further capital or licensing proceeds are needed.
- Verify post-quarter financing proceeds, remaining share dilution and the status of the equity distribution agreement; no shares had been sold under that agreement by June 30.
- Track clinical validation, regulatory progress and commercialization milestones, since no revenue had yet been generated.
- Review progress in remediating the disclosed material weaknesses and any subsequent changes in internal controls.
- Confirm the nature and timing of the $196,957 warrant-modification charge and monitor debt, lease and grant repayment obligations.