Volitionrx Ltd Q3 FY2020 Earnings Call

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to VolitionRx Limited's Third Quarter 2020 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference call will be opened for questions. This conference call is being recorded today, November 13, 2020. I'd now like to turn the conference call over to Scott Powell, Executive President of Investor Relations. Please go ahead.

Thank you, and welcome everyone to today's earnings conference call for VolitionRx Limited. This call will cover Volition's financial and operating results for the third quarter of 2020, along with a discussion of our recent activities and key upcoming milestones. Following our prepared remarks, we will open the conference call to a question-and-answer session. Also on our call today are Mr. Cameron Reynolds, President and Chief Executive Officer; Mr. David Vanston, Chief Financial Officer; and Dr. Jason Terrell, Chief Medical Officer. Before we begin, I'd like to remind everyone that some of the information discussed on this conference call will include forward-looking statements covered under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on our beliefs, as well as assumptions we have used based upon information currently available to us. Because these statements reflect our current views concerning future events, these statements involve risks, uncertainties and assumptions. Actual future results may vary significantly based on a number of factors that may cause the actual results or events to be materially different from future results, performance or achievements expressed or implied by these statements. We have identified various risk factors associated with our operations in our most recent annual report on Form 10-K, quarterly reports on Form 10-Q, and other filings with the Securities and Exchange Commission. We do not undertake an obligation to update any forward-looking statements made during the course of this call. I'd now like to turn the call over to our President and Chief Executive Officer, Mr. Cameron Reynolds. Cameron?

Thank you everyone for joining Volition's conference call today. I especially appreciate it, as always, given the busy earnings call season and the ongoing pandemic and lockdowns. I would like to again recognize the amazing commitment and hard work shown by our team over the past quarter during these challenging times, allowing so much progress in so many areas. Thanks also to those who attended our recent virtual Capital Markets event. After such a great reception, we'll be sure to host another event in the New Year. I will start today by covering our financials and then get straight down to discussing the upcoming launch of our first product, the Nu.Q Vet Cancer Screening Test that we are targeting for November 30, exciting times. We have strengthened our cash position this year, providing a great run rate to achieve our many milestones and giving us flexibility during the continuing pandemic. We closed out the third quarter with approximately $21 million in cash and cash equivalents compared with approximately $17 million at the end of last year. We continue to manage our expenditures carefully, and as we approach commercialization, our burn rate is approximately $1.6 to $1.7 million per month, which we expect to continue as we make additional investments towards product launches and expansion of our platform. Regarding product launches, I am glad to announce the target date of Monday, November 30, for the launch of the Nu.Q Vet Cancer Screening Test in the U.S. This is an extremely important milestone for the company, as this first launch is expected to be the first of many. It shows that our platform has reached the level of reliability and reproducibility to be launched in a completely independent lab. This test will be positioned for use in the animal health check of older dogs, those that are seven years and older, and for cases where there is a high suspicion of cancer. It may also be a complimentary test for younger dogs at high risk for developing cancer in their lifetimes, such as Bernese Mountain dogs, Golden Retrievers, Rottweilers, Beagles, Boxers, West Highland White Terriers and Shetland Sheepdogs. The test will initially be available from the GI Lab at Texas A&M University to potentially thousands of vets across Texas and the rest of the U.S. Further details will be released at launch, but in brief, vets will draw the blood as per the collection instructions and then ship it for processing to the GI Lab at Texas A&M. Results will be available within three to five business days of receipt. We expect the cost of the test from the GI Lab to be around $122, of which Volition receives approximately $45 per test at a greater than 85% margin. We anticipate vets to charge between $160 and $200 for the test. Cancer in dogs is widespread. It is the leading cause of death for dogs over the age of 10, and there are over 6 million new dog cancer diagnoses each year. As cancer screening is not commonplace in animal health as it is in human health, we believe blood tests like the Nu.Q Vet Cancer Screening Test could completely transform how vets manage cancer in companion animals. It is a simple, low-cost, easy-to-use ELISA-based screening blood test which we believe will help streamline the screening process for up to one-third of malignancies in dogs, including common malignancies such as lymphoma and hemangiosarcoma. As in humans, early diagnosis of cancer has the potential to improve treatment and quality of life as well as providing valuable additional information to inform the clinical decision-making process. If you've not had the opportunity to see it yet, I would recommend watching Professor Heather Wilson-Robles’ presentation from the recent Capital Markets Day that is available on our website. Heather did a great job of bringing our first vet product and its clinical relevance to life. As part of our pre-launch marketing, you might have seen a release earlier this week, a report entitled, 'A Look to the Future of Cancer Diagnostics,' which compiles contributions from some of the key opinion leaders in the vet oncology space. It's an interesting read and is also available to download on our website. It was fantastic to connect with these thought leaders who continue to support us either through ongoing studies or upcoming launch activities. So, watch this space. To leverage our global team, I'm also delighted to say that we've begun pre-launch work in Asia led by Dr. Jasmine Kway and supported by our vet team, and I'm looking forward to updating you on progress in the coming months. Certainly, we will announce further details at the time of launch, but I wanted to spend a couple of minutes discussing the commercial opportunity that this initial vet product represents. The only pre-question is, what is the size of the potential addressable market? As I said earlier, there is a high unmet need in the vet market with few simple, non-invasive tests currently available. Cancer is the leading cause of death in dogs over the age of two, and up to 50% of all dogs over the age of 10 develop cancer in their lifetime. There are approximately 77 million dogs in the U.S., and according to the 2019 AVMA U.S. pet study, which is completed every five years, 83% of all dogs visit the vet at least once per year, with 75% being routine preventative visits. So, we believe the market is both large and accessible. Clearly, building a market takes time, but just to give you an idea of the potential market, of the 77 million dogs in the U.S., approximately 20 million dogs are over the age of seven and therefore at a high risk for cancer. For every 1.2 million dogs of the 77 million dogs in the U.S. tested using the current platform of plates, we will generate approximately $54 million in sales revenue and over $45 million in gross margin. We are looking at a second wave; if just 10% of the older dogs in the U.S. get the test this year, that's 2 million dogs, we'll generate approximately $90 million in revenue and approximately $76 million in gross margin, and that's only 10% of the potential older dog market, not to mention the additional dogs that we will test with the suspicion of cancer or out of an abundance of caution for higher risk breeds and a wide array of potential new tests in dogs and other animals, such as cats. In short, whichever way you look at this, we believe that it's a huge commercial opportunity. Our current expectations are based only on our initial canine cancer diagnostic test and the U.S. market. However, we plan to launch additional veterinary tests and generate revenue outside the U.S. in the future, as well as in other species. We are hopeful, given the demonstrated strong accuracy of our test, to market additional products that could end up numbering in the millions of tests per year. While recognizing a desire to receive revenue guidance, we're unable to provide such guidance at this time as we don't know how quickly things will ramp up nor the total demand for the test. What we do know at this stage is that we have received a first request for a quote from the GI Lab for approximately $370,000. This means capacity for the first technicians in the first year in the lab, and we intend to announce the launch in further labs in the U.S. and across the world, once we review this detailed launch in the first quarter of next year. This is just the beginning, but a fantastic opportunity, and we're truly excited to start commercial operations. As discussed at the Capital Markets Day, our plan is to initially drive awareness of the Nu.Q Vet test with specialist oncologists at the top institutions, and have an extremely focused initiative in Texas training all of the oncology hospital specialists and an outreach program with general practice veterinarians. I am really proud of how hard the whole team has worked to prepare for the launch of our first physical product; it is an incredible milestone for the company, and we have exciting few months ahead for us to push through. Moving from the vet business to human cancers, we continue to make great progress. At the start of the Capital Markets Day, during the pandemic, we are focused on simplicity, particularly on our CE-marked H3.1 assay in blood cancers. You might ask why? This is a product we can launch with the simple assays during the pandemic, given the very similar results we have obtained in both humans and dogs in these cancers, with exactly the same assays. I think this makes a lot of sense during the pandemic to launch the same assays for the same cancers in humans and dogs. Again, we're showing the amazing versatility of our platform. To that end, I'm delighted to announce today that we have engaged Diagnostic Oncology, LLC, otherwise known as DXO. As a contract research organization, they are set to conduct a U.S. clinical trial for Non-Hodgkin's Lymphoma (NHL). The trial is designed to obtain multiple FDA-approved adjunct tests to aid in the diagnosis of the five most common and aggressive forms of NHL. DXO is the largest U.S. bureau specializing in oncology purpose in vitro diagnostic device clinical trials. We're delighted to have them on board. NHL accounts for approximately 4% of all cancers, with approximately 77,000 cases diagnosed per year in the U.S. and around 700,000 worldwide. As Dr. Terrell discussed at Capital Markets Day, rapid diagnosis is essential as that can result in weight, whereas early treatment is often curative. Diagnosis is often delayed as symptoms for NHL mimic those of common everyday conditions, such as tiredness. Existing data suggests Nu.Q will greatly aid physicians in distinguishing NHL from common conditions, fulfilling what we feel is a critical unmet clinical need, which represents a major market opportunity. The problem will enroll up to 1,500 subjects across 10 major U.S. healthcare institutions over a total of 22 months. This extensive program will cost approximately $2.9 million over the 2 years, assuming the completion of numerous projects, inclusion, not only in the clinical study but also data analysis and regulatory and reimbursement preparation. We anticipate that Diffuse Large B-Cell Lymphoma (DLBCL), which accounts for approximately 35% of NHL cases, will have accrued studying subjects more rapidly than the less prevalent types. To that end, we expect a DLBCL FDA 510(k) submission will be possible approximately 10 to 12 months into the trial. At that time, we will submit a DLBCL 510(k) while petitioning the FDA to accept subsequent 510(k)s, as sufficient NHL subjects are accrued. The FDA approval for Nu.Q DLBCL and subsequent 510(k)s can be found utilizing post-market data of an FDA-approved test. The strategy will streamline both FDA regulatory approval and CMS reimbursement approval to minimize our time to market and hopefully time to revenue. We're delighted to be working with Diagnostic Oncology LLC, DXO, and to get started on this pivotal study in the U.S. Dr. Terrell joins us on the call today to answer any questions on the current trial and potential product launch in our usual Q&A session at the end of the management summary. In addition to all of this, we've also made great progress on the research program for the use of Nu.Q technology in monitoring disease progression in COVID-19, and we're looking forward to rolling this into influenza and potentially other diseases, such as sepsis. Currently, we have several studies that have either been collected or have been negotiated in Europe, and we anticipate the next results will be rewarded before the end of this year. As announced in the last call, we are also negotiating a large FDA trial for the use of our assays in COVID-19 and influenza in the U.S., and we will announce the full details once they have been finalized. Early identification and triaging the patients testing positive for COVID-19, who are most likely to deteriorate and need critical care, will enable both improved outcomes for patients and a more efficient use of critical care resources for healthcare providers. We believe there is still a very much unmet need worldwide in fighting the impact of the pandemic, and given the information on the vaccine, many other conditions driven by the process, such as influenza and sepsis. If we continue to see positive results in the ongoing studies, we aim to have a CE-marked product available on multiple platforms in the first half of 2021, and look to launch low-cost products that could be used in any laboratory worldwide as soon as possible after that. We are yet again proud of the versatility of the Nu.Q platform and the range of applications for which these products can be leveraged. While the process is relatively novel, we have formed a Nu.Q NET team to provide focus and drive to the product development program. To that end, we hope to announce a visual study in overall NET and NETosis before the end of this year and are looking to use the Nu.Q technology in many ways in NET through diagnostics, disease monitoring, and as a companion diagnostic to monitor treatment responses. This again underlines the strong breadth of the Nu.Q platform technology, supported by a broad intellectual property portfolio. We plan to host another capital markets event focused on the Nu.Q NET program early next year. From the large colorectal clinical trial perspective, my free trials are now being affected by the continued pandemic, either by slower subject collection or by a host of other supply chain and travel-related communication issues. We believe we have successfully managed those areas under our control, such as assay developments and running samples, both on track with our milestones, but many issues are beyond our control. I particularly note that the EDRN study in the U.S., where in summary, the EDRN expects lower collections in 2020 than originally planned, and we expect this trial may be further extended as it is currently paused. As always, I will update with further details once available. On a better note, the collection for the large-scale study at the National Taiwan University continues, with the aim to complete collection in the middle of next year. We have completed probe discovery rate of Nu.Q assays and five more orthogonal biomarkers on subjects for both National Taiwan University studies, colorectal and lung, and they are working with us on data analysis. After a more rigorous presentation of data where we can, we aim to have peer-reviewed papers or accomplices an abstract accepted by the IAFLC meeting in January, where we look forward to presenting our lung cancer detection results. The APDW meeting originally planned for December 2020 has been delayed to later next year. So, we will provide updates regarding colorectal cancer data in due course. From the convention point of view, we are in the final paperwork stages for the Silver One production hub for our products and components through a lab in Belgium. We will soon be producing several key components and plan to achieve full assay certification next year. We anticipate that as with our previous real-estate transactions, at least some of these costs will be supported through non-diluting products and our loans from the local region. Our plan is to produce at large scale raw materials such as recombinant nucleosomes, which act as the calibrants for our Nu.Q assays, in addition to antibodies that are key elements to our branded products and indeed will manufacture our full diagnostic kit once finalized. We expect to offer all elements for both commercial sale and for clinical trial purposes and CE-marked products for sale in Europe and beyond. We also intend to install a service lab in the new facility which would undertake sample processing for external parties. This new facility will not only bring the manufacturing of key components in-house, thereby securing our supply chain, but will also significantly reduce the cost of production of many of these elements and in turn should reduce the cost of assay development. It's an exciting time, and I couldn't be happier that we could find a suitable site so closely situated to our current lab, marking another great step forward on our road to a diverse revenue stream. To that end, I'm also delighted to announce the appointment of our first sales manager, Emmanuel Demillecamps, who will start with the business in December. Emmanuel brings over 25 years of sales experience in the diagnostic field, having worked for companies such as Roche, Sanofi, and most recently Vela. We believe he will be an excellent addition to our team, focusing on driving revenue from our Silver One facility. I'm equally delighted to announce on the call today that we have opened a small shared laboratory at California State University in San Marcos, California. This lab, initially with a team of just two, will be led by Dr. Terry Kelly, our Chief Scientific Officer of Volition America. This lab will focus on blue-sky innovation and discovery research, which we hope will help lead us forward on some of our more cutting-edge research projects, such as Nu.Q Capture, which our team has been very active on over the past few months, so watch this space. I'm sure that you will agree that we have an incredible amount of existing and new activities underway. To support the runway needed for the new NHL clinical study, NET study, including COVID-19, the opening of the Silver One laboratory expansion, and of course the launch of our initial Nu.Q vet product, we are conducting a At The Market equity offering (ATM) of up to an aggregate of $25 million in shares of common stock to be sold periodically in the future. Oppenheimer and Cantor Fitzgerald will act as our sales agents under the ATM. The object for this new ATM, in contrast to our existing ATM, is to include more institutional investors over the life of the offering. As you may be aware from our filings with the SEC, our existing ATM has been in existence since September 2019, and we plan to utilize the available balance under the offering prior to the new ATM moving forward. I'd like to reiterate our vision and what makes us so excited about our progress and our space. Volition is an epigenetics company focused on advancing the science of epigenetics and exploiting these advantages in human and animal health. This has been our mission since our founding, and it's coming to fruition with our Nu.Q platform at the very heart of epigenetics. We believe strongly that the last decade of work at Volition, with our ever-expanding team in epigenetics, puts us in an extremely strong position with our extensive IP portfolio to be a significant player in this very key field. Overall, on so many fronts, with our ever-growing team and IP, I am delighted with the progress we are making, and I'm excited by the momentum we have developed in the epigenetics field. Indeed, our whole team is incredibly excited about the company's future opportunities. We aim to report through the end of this year and beyond into next year several key milestones including, most excitingly, the launch of our Nu.Q vet screening test. We will focus on driving revenue in the coming quarters, where possible during the pandemic, in four key areas: vet products, disease monitoring tests, through NETosis, for example, COVID-19, using our new production facility to drive reagent sales, and licensing our technology for others to commercialize. I, along with the rest of the Board and indeed the whole company, look forward to sharing the results of key studies over the coming months and years with our optimized platform. Despite the pandemic, 2020 has proven to be our most exciting year yet. Thanks for a fantastic hardworking team. Thanks for joining the call today. I very much appreciate it given the busy earnings call season and the pandemic. We're happy now to take questions.

Thank you. We're now conducting a question-and-answer session. Our first question today is coming from Jason McCarthy from Maxim Group. Your line is now live.

Hey, thanks, guys. Thanks for taking the question.

Good morning.

So, I'd like to ask about the NTU study. You mentioned that you completed 12 discovery-grade assays on the NTU subjects in both colorectal and lung cancer.

That's right.

So, my question is how will you use datasets, and should we expect to see any of that data in the near future, and also, are these in the plate or the beads format?

Yes, you can expect to see this in the short term. They are eager to present at conferences in January for lung cancer, and later for colorectal. These are subsets of the original population, so they are not the final trial, but it's great to see progress during the pandemic. Initially, we used plates and switched to magnetic beads. We started with one and are now using both. We'll present the data as soon as possible, starting with lung cancer in January and then colorectal.

Thank you, and then, so I wanted to ask about the data in the canines, since the nucleosomes are considered for them as they're included in tests, will you expect to see a similar result that you saw in dogs in the large-scale human trial?

Actually, yes.

And also will you expect to use it as a first lung test in at-risk patients who may not want a biopsy?

Yes, the short answer is that it's been remarkable. The pre-analytics and the process have been almost identical in the dogs. The kits we sent over were the human kits, the same ones with the CE-mark for blood cancers. It has been notably similar. As you saw, we achieved superb results in the animal space, with 97% and 87% AUC for the two cancers. For the blood cancers, we're in the high 80s. Jason is on the line; perhaps he could explain how they would be utilized, but I do believe it could be given to many people, not just a select few. Jason, would you like to provide a brief overview of who you envision the market being for the NHL blood test?

Yes, hi, this is Jason. Yes, absolutely. So, Cameron talked a little bit about the problems of NHL just in general, in the U.S., mentioning that there are approximately 77,000 new diagnoses made every year, but the tricky thing about making a diagnosis of lymphoma is that the symptoms often mimic the symptoms of very common everyday illnesses, routine infections, and autoimmune diseases, and things of that nature. The symptoms the patients present are very common among patients seen by primary care physicians. One of the most common lists of chief complaints that you'll see are fever, fatigue, things of that nature. So, even though there are 77,000 cases diagnosed in the U.S. every year, the market for patients who present with those symptoms that could be NHL is much, much larger, and one of the most common chief complaints in medicine, honestly.

Thank you, Jason. Essentially, this is one of the key aspects we're pursuing with NHL now. We can proceed through a 510(k) because it's not a screening test and isn't administered to everyone. Additionally, NHL can affect younger individuals. It falls somewhere in between; it is symptomatic in some people, but as Jason mentioned, it can manifest through very general symptoms that could apply to a wide range of individuals. Therefore, we are uncertain about the market size, which we'll assess during the trial. However, similar to the veterinary space, if we present strong data, many doctors may utilize it for those vague symptoms. Consequently, the market could potentially involve millions of tests annually, and we plan to charge a price comparable to what we do in the veterinary sector, maintaining a similar margin. Thus, the potential market is likely in the hundreds of millions or even billions of dollars per year. Our share will depend on trial outcomes and how we roll it out, but it is certainly not a small market and aligns well with our company's strategy since it does not require a large PMA study as in colorectal cases, yet it remains a sizeable market. If we can provide convincing data, it could become an outstanding product and significantly enhance our presence in the U.S. We're aiming for the first readout at the end of next year, which could lead to a 2022 story with an FDA-approved product and a major addressable market. Only time will tell, but we are very optimistic based on what we have observed so far.

Okay, thank you, and then I have one more question, if you don't mind, on the application as the pandemic subsides. Even after the COVID pandemic, COVID is likely to remain with us for some time, probably on a smaller scale, but how would this product be applied in patients who do get it or for other diseases like influenza. Would it be largely for patients with severe cases as you’re trying to determine whether they're progressing to critical? Could you go into a bit more detail on that?

Yes, it's a very good question. So, obviously, we got into this market; NETs have been on the cutting edge in the last few years, and they are much better understood now, and obviously with the pandemic, there has been a huge focus back on them. During the COVID pandemic, the main use for the NETosis tests would be to monitor disease progression, and come to the hospital. We've shown from the data we've presented that people with severe COVID have very high levels of NETs in their blood measured by our assay. People who are sick but not very sick have medium levels, and people with low double COVID or asymptomatic have low levels of NETs. So, it can monitor disease progression. We’re thinking how good it is as a prognostic in longitudinal samples, of which we’ll have data very soon, and I think, yes, I think it is going to progress for at least a few more years while we work this through, but the body's immune response, the NETosis is the driver in sepsis as well, and sepsis is the biggest killer in hospitals. It's very tricky for physicians because it’s very hard to know that it's actually happening. We've spoken to a lot of groups that have therapies underway for sepsis for NETosis from sepsis, COVID, influenza, and they all say the same thing. There is absolutely no good companion diagnostic for the treatments. It's very hard to treat somebody if you don't know if it's working or not beyond some observations. So, we’re working on trials now for COVID and influenza. I think, obviously, influenza has been with us for millennia. So, I think that's obviously going to continue. COVID, I think will continue for a bit longer, but the validity of the NETosis tests stretches way beyond even just COVID and influenza into things like sepsis. We expect to have a lot of data on that in the next six months because we have it set for now. It's very similar to the assays we've developed for different things. We've created a new small division within the company to focus on NETosis on the trials and the marketing side, and expect to see a lot more data soon, with very big expectations for what that's going to look like.

All right. Thanks, Cam.

Thank you. Have a good day.

Thank you. Our next question today is coming from Kyle Mikson from Cantor Fitzgerald. Your line is now live.

Hi, thanks so much for taking the questions. Congrats on all the great progress here. I just want to jump right into the Cancer Screening Test in the market, and Cameron, that was a great overview of the cancer market here. You mentioned the $20 million I think you said, you know, what testing penetration are you expecting to see early on, maybe a year or two post-launch, to kind of get to that point in your own thoughts here? This morning I want to get one more piece because it's ultimately like how long you think it'll take to get to maybe mid-single digit penetration, but 10% or so would be really incredible, but you mentioned nearly the test per year, and so I want to understand how that test could get there, and obviously it's super early, but if you could answer any of those questions, just comment on the different variables; that would be super helpful. Thanks a lot.

Yes, that's maybe a billion dollar question. We don't really know what that curve looks like because this is really something very unique, very new. Cancer screening in the U.S., it's not really common in dogs purely because there isn't a test. A very high percentage of dogs go to the vet every year in the U.S. 70% to 80%. So, the obvious addressable early market is the 20 odd million dogs who are geriatric, meaning over seven years old. Then you'd probably add a few million more dogs who are high risk. Also, probably looked at presentation, and your therapy monitoring is also a part of the solution I think going forward. So we're at zero today; I think that the general market either at least, I think 10% to 20% of the addressable market, which would be two to three million dogs. Now what does the curve look like? Is that going to take two years, three, or five? It’s very hard to tell. We are doing a lot of aggressive marketing on the – the good news in this population unlike the cancer market in humans, it says only about just over a thousand veterinary oncologists in the U.S. so I think a large percentage of those will know who we are in the next six months. We thought it was Texas because it's a very good discrete market of about 5,000 vets. We lost the majority have been trying to Texas, I think. So, there is quite a good outside network if you will, between all of those people. So, I think we can get a very large number of vets in Texas know who we are. So, we're attacking the top, definitely oncologists through lunch and learns to keep being in leaders, and they’re all very positive; and then we're going into vets in Texas the first 5000 and doing a beta launch. So we’re making the product available and then going through the marketing process now, which we've obviously begun. But don’t forget, that's just one lab. We intend to roll out a wide range of labs; some vendors have their own marketing. We've already started to work in Asia. Dr. Clay has contacted some groups there. We also could also start the European process. The short answer is, it's really hard to gauge what that curve looks like, but I think we have a fantastic test, fantastic partners, and there's a real need. We've incentivized everyone along the way. So I guess time will tell, but I think, like anything, we could be surprised on the upside of how well they take to this; it could be very profitable. I mean the addressable market is multiple billion dollars. If you take 22 million dogs, it's a $200 test; our section of it is – even that section of the addressable market is over a billion from just what we are, and because we don't have a sales force needed, because it's through the vets and through the labs, we don't need a big sales force, so almost 85% goes straight to the bottom line. It's very good potentially; we'll find out.

Got it, that was really helpful. Thanks a lot. I appreciate the color on the sales and marketing strategy as well. I guess, just turning to the blood test, the NHL test. Can you just kind of walk through the clinical regulatory pathway for that? I know you mentioned the trials could take 22 months working with the CRO, but first of all, has the trial gone enrollment yet? I wasn't quite sure when that started, I guess, and then what milestones and benchmarks are you looking for before you submit that first 510(k) for DLBCL? And I guess some of the medical backgrounds here on the line may be helpful?

Yes, Jason. Good idea. Jason, do you want to answer those questions please?

Yes, the trial has started enrollment, but we are still in the initial stages with the necessary approvals and protocol development. We expect enrollment to begin in the next quarter, hopefully sooner. The main objective for the trial is to start enrollment, and once we have about 20% of the total patients, which will likely correspond to 35% to 40% of the required diffuse large B-cell lymphomas, we will approach the FDA for a pre-submission meeting. During that meeting, we will provide interim data from this trial along with supporting evidence from our international trials and retrospective studies. We will request FDA approval for the 510(k) once we reach the required number of diffuse large B-cell patients. Our goal is to secure the 510(k) for diffuse large B-cell first, after which we will seek approval for other less common subtypes as we gather sufficient data, holding pre-submission meetings as the trial progresses.

Perfect, excellent. Cameron, if you close the Silver One acquisition soon, could you provide insight into the reagent revenue for next year and 2022? I understand it's complicated, but I'd appreciate any details you can share regarding the estimated run rate for reagent revenue related to Silver One. Given the size of the facility, what do you anticipate that might be? Any information on capacity would be helpful. Thanks a lot.

I expect that the first half of next year will be focused on establishing our operations and obtaining certifications. In the second half, we will begin to provide more precise guidance on the potential of the CRO market and the Nu.Q market. However, we prefer to be conservative and ensure we have accurate information before making any predictions. I believe this area has significant potential as the importance of epigenetics grows. The extensive work we've done to strengthen our platform and improve our offerings will likely lead to increased reagent sales and boost our own products. Additionally, when we license our technology to other groups, we aim to sell essential reagents to supply the Chinese market with nucleosomes and controls, which also represents a substantial opportunity. Although we are not providing guidance at this moment, we will be ready to do so once our lab is fully operational and we have completed our own analyses. We are confident in our position, but any meaningful developments are not expected until the latter half of next year due to the necessary ramp-up in the facility.

Okay, that's awesome. Thank you, and maybe just one last one for me, you actually kind of touched on this in your answer there. Can you just kind of update us, remind us where you kind of stand with the epigenetic toolbox and Nu.Q Capture liquid biopsy platform? It's really an interesting area of your business, and I know it's maybe more longer term obviously from a commercial standpoint, but we're just curious, just tell us what we should be expecting maybe in 2021 and maybe beyond? Thanks.

Yes, Kyle absolutely. We're unbelievably happy. It's actually very exciting to be on just very young. I'm very excited that the toolbox side, the Capture, and we're doing a lot of work on the math, the commentary and the sequencing, and actually, you might have noticed there’s a small bit in my presentation. We've opened a small laboratory in California, where Dr. Terry will have assistance, and that will grow slowly through the year, so that we have a team just focusing on the capture side. As Southern California is key to a lot of this area, it's where our luminous headquarters and a lot of other companies. So, we thought having a footprint there really helps us to become known in this space. So what you should expect to see? We've gone back, like we have to make sure that the platform we've got some very good results as you probably saw, and we presented last quarter, but I think to launch a product we're doing exactly what we did on the bead and the plate side. We're just making sure everything's fully optimized because when it's not optimized, you get very good results, and then things change around in what we did in a basic format. So we're now just optimizing the platform pulling. I'd expect that to be a lot more news on that in quarter one, quarter two as we go through that process, because we've now optimized the other platforms. It should be quick and easy compared to what it used to be like to optimize this platform. Expect to see a lot of news in the first half of next year and then second, all the way through next year as we optimize, and just as a reminder, what we're doing is separating long from short nucleosomes, and the short length has been shown to be associated with the cancer and short DNA and domestic commentary. We've identified several new biomarkers from mass spectrometry, which could potentially lead to a product in the coming years. So, we’re very keen to push the products we are but also spending a small amount of effort on this blue-sky work, which very much feeds off our basic work. So expect to see a lot in the next few quarters on that as well, and something which could potentially result in a product probably in the 2022 space; if we can achieve what we are, it'll be a really important part of the sequencing world, if we can concentrate the way we were hoping to as a product.

Perfect. Yes, it's definitely an exciting time in the Cancer Screening industry. Really appreciate you kind of answering all the questions and look forward to hearing more in the future here. Congrats on progress again. Thanks a lot.

Thank you, Kyle.

Thank you. Our next question is coming from Bruce Jackson from Benchmark Company. Your line is now live.

Hi, thanks for taking my questions. Regarding the upcoming abstract presentation at IASLC, will the offers be the same as before, particularly with the plates, and will the data be coming from the bead platform at this time?

Yes.

Okay, good. And then to be perfectly clear on the FDA strategy for the Non-Hodgkin's Lymphoma test. Is this a de novo 510(k) that you're going after first?

Yes.

So most likely the de novo 510(k), and then with the ones that followed after that, then you're hoping to make the first test the predicate device, and then just use the standard 510(k) process for the remaining tests. Is that the strategy here?

Yes, you're exactly right.

Okay, okay. Just want to clarify that. And then with the Nu.Q Capture, great progress. Have you gotten any inbound interest from anyone on that platform yet? It's a huge unmet need in terms of analyzing the cell-free DNA and circulating tumor DNA, given that there is an arms race right now in the space to get the assays working properly. Just curious to know if you're getting any interest.

Yes, absolutely. We've received a lot of interest in this area and are becoming a potential player in various sectors. Six months to a year ago, we had some promising assay results, but it's not a product until it's stable and fully optimized. Recently, we have been very focused on this. Dr. Terry, a leader in the epigenetic field, has joined us and is leading our efforts. We decided to concentrate on cash flow to ensure it is optimized as quickly as possible. Additionally, we've sought expert assistance from Israel for analysis to ensure we are approaching this correctly. We're aiming to obtain well-defined samples to demonstrate efficacy. There is indeed inbound interest, but I cannot disclose specific details unless something materializes. Currently, we are in the optimization phase, which shouldn't take long due to our considerable experience with this platform and the key components we utilize. It's an exciting time, and we anticipate more updates in the coming quarters. We're focused on optimizing now, and when we're ready, we hope to publish, showcasing our valuable tool in the epigenetic field, especially given the funding in this area. We are taking this very seriously, dedicating resources to ensure swift progress, and once we publish, it could lead to a product fairly quickly since we have done our homework.

All right, that's great. That's it for me. Thank you very much.

Thanks. Have a great day, Bruce. Thank you.

Thank you. Our next question is coming from Jason Kolbert from Dawson James. Your line is now live.

Hi, guys, great progress. I just would like to focus in on Nu.Q at the veterinarian level. I mean I think the real incentive to achieve market penetration for the vets is both what is the competitive landscape, so what is this replacing at the veterinary level, and how much revenue could this contribute in terms of margin to the veterinary and themselves? Because clearly a lot of veterinarians are doing in-house diagnostics, in-house testing, and so they're very, very strategic about what things they adopt and how it will change the profitability of their practice themselves. So if you could address those issues, it helps us understand the rate of market penetration in the future. Kind of a little bit of a follow-up on the direction that Dr. Okunewitch was going on the first few questions that he asked when you turned it over to him. Thanks.

Hi, Jason. Those are great questions, and we have put a lot of work into addressing them. Dr. Wilson-Robles would be able to provide a more detailed response, but I can share what I know. Currently, there are no diagnostic blood tests for dogs similar to those for humans, and imaging techniques are more challenging due to the need for anesthesia and the fact that dogs can’t communicate their issues. This may partly explain the increased vet visits during the pandemic as people spending more time at home have become more aware of their pets’ health. The market is lacking effective screening options for canine cancers, unlike the human sector, which has several strong competitors. Blood cancers are notably more common in dogs than in humans, and our product has shown impressive results with a straightforward assay. Right now, the test is a lab test conducted on plates, but we plan to transition to bead processing next year for higher throughput. We are also developing a point-of-care solution, potentially a blood sample taken from a dog’s paw. Veterinarians currently send samples to large oncology centers, and there are established relationships that could facilitate this process. We believe our pricing, around $45 per test, is fair and leaves room for profitability for the vets, who may charge between $160 to $200 based on their own pricing strategies. The accuracy of our test should encourage vets to adopt it, not only to aid in diagnosing cancer but also to generate additional income. We are ramping up our marketing efforts, and we expect that many veterinarians will become aware of our test soon, especially as we initially launch in a single facility to create a concentrated awareness before expanding. Vets can order the test easily, and while predicting uptake is challenging, we believe our product addresses a significant need and we have strong partnerships in place. We might be pleasantly surprised with its market acceptance, and it has great profit potential. With an addressable market worth billions and about 22 million dogs in the U.S., even a small portion represents a substantial opportunity. Additionally, because we leverage vets and labs for distribution rather than a large sales force, around 85% of the revenue goes directly to profit. Overall, the outlook is very promising, and we'll see how it unfolds.

Does it make sense to kind of explore contracting with some consolidated veterinary practices, for example, like Veterinary Centers of America and other such entities to establish proof of concept, where you get it contracted at that level, and you're instantly in 50 to 100 practices?

I can't go into specifics during this call as we're not ready to disclose everything, but we're evaluating numerous options. The margin for us is quite favorable at $45 per test, and if someone can sell a significant volume of tests, we can definitely get involved. Major companies like IDEXX dominate this market, and there's considerable consolidation happening. If we manage to reach millions, or even high millions, of tests per year—which seems feasible if things progress smoothly—we will need to collaborate with various groups to validate the concept and facilitate rollout. We're ready to adapt; our burn rate is minimal, so any revenue generated would be quite significant. This is just one avenue we’re pursuing. We’re also exploring opportunities to introduce products for cats, although they currently lack the same test options as dogs, but that's expected to change. We’re adaptable not only in our labs but also in potential point-of-care testing that veterinarians could perform in their practices. While there are many possibilities, right now our priority is to ensure a successful launch in Texas. Texas is not a small market—there are 7.5 million dogs and nearly 5,000 vets. I believe a substantial number will recognize our brand by the first quarter, which will help us gauge our progress effectively.

Sure. Thanks for the update.

Thank you. Thanks for your time, Jason.

Thank you. The next question today is coming from Steven Ralston from Zacks. Your line is now live.

Hello. Thank you for taking my questions. I'd like to concentrate on the top line. You mentioned that the first order for the Nu.Q Vet product was roughly $370,000, which I calculate to be at 8,000 tests. When will you record those sales on the income statement?

To clarify, the $370,000 mentioned is an initial estimate. Big universities typically request a larger amount than they actually order to keep the price stable, which also undergoes a review process to prevent fraud. The actual first order would come in increments, likely reported in the next filing. The $370,000 reflects what they intend to pay for hiring a person to conduct tests in one lab, which equates to about four or five tests per week. This amount may increase if demand rises, involving many universities and other organizations. While the immediate revenue won't be $370,000, this quote indicates their commitment as they are onboarding technicians to initiate the testing process. We will fulfill the first order in the coming weeks and gradually fulfill the larger quote until it's completed, ensuring proper pricing stability and reporting within their system.

Thank you. Regarding the Silver One facility, you mentioned that the setup will be completed in the first half of 2021, and you expect to provide contract lab services in the second half. When will you resume shipping test kits?

That's a good question for Gaetan, and I'll follow up with him. We are still determining how long the certification process will take and when specific components can be completed, as it varies based on their purpose, whether for research or clinical use. These are complex issues that we are addressing now, including the additional resources we might need. I anticipate that by the second half of next year, we should be able to conduct a significant number of operations. The fit-out is nearing completion, and we plan to start some activities there by the end of this year, gradually ramping up throughout next year. I can gather more details from Gaetan about the schedule and expectations once we fully resource the facility. The fit-out should be finished in the next few weeks, and we will commence work shortly thereafter. By the end of the quarter, we expect to produce our own plates, antibodies, and controls, and we are now incurring costs for the contract research facility. This will likely require more clarity in the upcoming quarter. He is managing things well, and we are dedicating significant resources to this project. From discussions with Jason, I believe we may see positive surprises. While there are always risks to sales, I want to ensure that if demand increases quickly for the dog test, COVID test, or blood cancer processes, we can adequately meet that demand with our facility, where we can achieve better margins. We are proceeding diligently yet swiftly, starting now and aiming to finish by the end of next year, with initial activities definitely taking place this year in the lab.

Thank you for taking my question.

Thank you, Steven.

Thank you. We've reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.

Thanks everyone for being on the call. It's an extremely exciting time for us, and I'd like to thank the entire team for working during the pandemic to make sure we could launch our first product. It's something which we're extremely charged about, and I think it could well be the first of many, many products. We're in a fantastic space. We have a fantastic team, and our platform and intellectual property are just fantastic. I think 2021 is going to be a great year. So, I'm really looking forward to reporting actual earnings on the next earnings call. Thank you very much for your time.

Thank you. That does conclude the teleconference. You may disconnect your line at any time, and have a wonderful day. We thank you for your participation today.