Volitionrx Ltd Q3 FY2021 Earnings Call

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to VolitionRx Limited's Third Quarter 2021 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference call will be open for questions. This conference call is being recorded today, November 11, 2021. I'd now like to turn the conference over to Scott Powell, Executive Vice 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 2021, 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. Terig Hughes, our Chief Financial Officer; and Dr. Tom Butera, Chief Executive Officer of Volition Veterinary Diagnostics Development, LLC. 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 of these 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 know I always say it, but we especially appreciate your time given how busy you all are during the earnings call season. While we usually kick off with Terig and our financial report, this quarter, given the anticipated updates surrounding Volition Vets, we will start our presentation with Dr. Tom Butera, Chief Executive of our veterinary subsidiary. Tom, over to you.

Thanks a lot, Cameron, and thanks, everyone, for joining the call today. While it's been quite a ride since I joined the team in May, to use an American football analogy for all the sports fans out there, I believe we are on the 10-yard line with respect to executing the term sheet for our first licensing distribution deal for our Nu.Q Vet Cancer Screening Test. I’m delighted to report that we are in advanced term sheet discussions with three top global veterinary companies and anticipate signing the term sheet with one of those parties before the end of 2021. We have been in extensive and wide-ranging negotiations with each of these companies regarding launching our test product worldwide, both via reference labs and point-of-care tests, and on both an exclusive and nonexclusive basis. Large multinational organizations and deals of this nature require extensive due diligence, particularly before launching a revolutionary test like ours. After all, this would be the first launch of a low-cost companion animal cancer screening test, so they definitely need to be sure. I'm excited to say that I believe each of these potential partners either have completed or are near completion of their extensive due diligence process for our product. The due diligence process has included, but is not limited to, our intellectual property, validating the test in their own labs, understanding learnings from our beta launch in Texas, and determining the potential total addressable market and platform development. It's very clear to me from this process to date that all three companies share our vision for the Nu.Q Vet Cancer Screening Test as a simple, low-cost, easy-to-use test available to veterinarians and pet owners globally. Pricing has probably been our biggest learning from the beta launch, and it’s comforting to note that all three companies share the desire for a sub-$75 price point and possibly even as low as $50 for the pet owner. We feel at this price point, our test can be a mass market product, especially through these large multinational sales teams. It's even more comforting to note that all three potential counterparties identified the significant unmet need in the market for a simple cancer screening test and want to develop their blood-based oncology diagnostic franchises. They have also expressed the belief that the potential total addressable market runs into the millions of tests each year which, at a $50 to $75 price point, could result in very substantial revenue for everyone involved. Indeed, our potential partners have expressed a general belief that our Nu.Q Vet Cancer Screening Test could eventually become one of the most popular diagnostic tests utilized by the veterinary community in the future, certainly a great target that we feel the same enthusiasm for. It requires patience; we are not quite there yet, but I think we are close. While we don't want to overemphasize the football analogy too much, this has been a great team effort, with every member of the squad contributing. I’d like to publicly thank the entire team for their hard work. Let’s keep up the great momentum we have. In particular, I'd like to thank Chief Commercial Officer Gael Forterre and Cheyenne Kruse, our Senior Business Administrator, for their fantastic focus and organizational management. From a personal perspective, I want to reassure you that finalizing one or more of these licensing distribution deals is our absolute priority at Volition Vet, and I promise we will stay focused on our goal of getting the first term sheet signed by the end of 2021. Before I hand the call back to Cameron, I wanted to briefly discuss some of the fantastic work our colleagues at the Texas A&M Veterinary School Oncology Department and Volition's R&D team have been jointly working on. This includes the recent presentations at the Veterinary Cancer Society Annual Conference, which was held virtually last week. I'm very excited that the first data was published related to what will likely be our second Nu.Q Vet product, on track for a planned launch in 2022. We believe this additional test has significant potential to help improve the treatment and quality of life for dogs by providing valuable information to inform the clinical decision-making process for both veterinarians and pet owners. Not to get too technical here, but the data demonstrates that Nu.Q Vet may serve as a more sensitive measurement of both minimal residual disease and remission and could be a very useful monitoring test for dogs with cancer. Given Nu.Q is a simple blood test, this could be an incredibly useful tool in the clinic and in a general practitioner veterinarian's office. Being able to use the Nu.Q test will not only screen for cancer as part of our current product, helping identify disease earlier, but also assist in monitoring disease progression as an early indication that a dog is coming out of remission, meeting a real unmet need in the market. Really great first data, and I know that Dr. Robles and the whole team are excited to finish this study of over 100 dogs to publish findings early in 2022 and progress the product for expected launch in 2022. The second poster presented at the conference reports our first study using Nu.Q Capture, Volition's enrichment tool to better understand the types of circulating nucleosomes and their genome patterns in the plasma of dogs with lymphoma. It was exciting to see that, once again, the animal data shows similar findings to human studies in that canine lymphoma patients have circulating nucleosomes lacking linker DNA, meaning shorter nucleosomes that are not detected in plasma from healthy canines, and that Nu.Q Capture is capable of enriching canine cancer-associated nucleosomes in the plasma of lymphoma patients. This is truly cutting-edge research and an exciting set of findings for us, so please watch this space as we look forward to expanding our research in this area. Lastly, as I appreciate I've taken quite a bit of time with the veterinary update, we are also continuing our education campaign for veterinarians with Dr. Sue Ettinger, aka Dr. Sue Cancer Vet, presenting on the future of cancer diagnostics at the New York Vet Show last week, and this week will be presenting at the prestigious London Vet Show. As the world slowly opens up, I am looking forward to hearing continued thoughts about Nu.Q Vet from our veterinary colleagues globally. All findings to date indicate that a low-cost, easy-to-use blood test could become ubiquitous. I would say please stay tuned for veterinary updates; we expect that 2022 will be an exciting year for Nu.Q Vet with the planned commercialization of our products. And with that, I will pass it back to Cameron. Cam?

Thanks very much, Tom, for that comprehensive update, and thanks to the veterinary team for their hard work this quarter. It's an exciting, fast-moving part of our business, with significant potential for not only helping man's best friend but also generating substantial revenue for the company. I look forward to our first deal signed and the launch of our second product in cancer treatment monitoring, expected in 2022. Moving to another exciting part of our business, Nu.Q NETs, NETosis. I'm delighted that our team is involved in cutting-edge research with several internationally renowned institutions. As a reminder, we believe our Nu.Q NETs assays have wide applicability for monitoring diseases with a NETs component such as COVID-19, influenza, sepsis, autoimmune diseases, and even cancer, and potentially in risk stratifying patients for treatment selection. During this quarter, our new product manager, Remy Rebus, joined the team and is spearheading the NETosis product development while immediately focusing on defining the intended use of the product and our regulatory strategy. I am pleased to announce that we expect to register CE marks for our first Nu.Q NETs product across multiple platforms, including ELISA plates, automated beads, and a proof of concept on a very high throughput platform by the summer of 2022. These are ambitious yet achievable targets, given the significant amount of background work we have done on our platform. We intend to register our Nu.Q NETs product with a broad C-reactive protein-style claim for the detection and evaluation of infection, tissue injury, inflammatory disorders, and diseases associated with NETosis. We believe not only that this broad claim is achievable, but it also provides us with the largest possible market opportunity. For example, C-reactive protein is used extensively worldwide, with approximately 85 million tests each year. We are also in the process of developing our U.S. clinical study plan, which is likely to start with a pilot study in the second half of 2022 using the CE mark product as a base. More details of this will be announced in the coming months. Other NETosis-related activities this quarter included data published at an international congress by two collaborators from leading U.K. hospitals using our Nu.Q NETs assays in COVID-19 studies. These posters included early data showing that results for the Nu.Q NETs test on admission could predict future COVID-19 disease severity and that serial results correlated with disease progression, a fantastic result and exciting for our data to be reported at such a prestigious congress. We are pleased to be making progress in our more rigorous approach to present data whenever possible, either in peer-reviewed papers or at conferences. However, this does mean a lag in time from study results to publication. By way of example, the data from these studies was finalized in February-March, however, only released at the end of July. That said, these studies resulted in strong findings, and I am delighted to say we have further large studies completed in COVID-19 and sepsis, which are now awaiting data analysis and publication, as well as other diseases in progress with results expected in the coming quarters. So to summarize our position in this exciting new area utilizing our proprietary Nu.Q platform, we have had excellent results with various world-class collaborators, and further results will be published. We are now shifting gears to focus on regulatory registration to transform these results into products worldwide, starting in Europe. Given the broad use claims we have identified and our expectation for further identified uses, we have expanded the team to include an experienced industry professional to assist us with this process. We anticipate our first CE mark NETs product by summer 2022 across several platforms and will outline our full strategy for FDA approval of NETs products in the next few months. Moving on from Nu.Q NETs to our work in human cancer. As I have stated on previous calls, unfortunately, due to the pandemic, some but thankfully not all of our studies have been affected by the very difficult collection and enrollment environment, and we have pivoted to areas where we can still make progress during lockdowns. The brightest note in this pillar during the pandemic is Asia, where we have reached our target patient cohorts for both colorectal and lung cancer, all collected in conjunction with National Taiwan University, a fantastic effort by the team there. We are excited to have completed preliminary analysis of the colorectal cancer study involving both asymptomatic and symptomatic populations, and have submitted these findings for presentation at a conference in early 2022. We have just completed preliminary analysis of the lung cancer study and look forward to reviewing these with Professor Chen and his team ahead of publication through a clinical paper or conference abstract. As previously reported, collection for the U.S. EDRN study re-initiated enrollment in June of this year. The latest update indicates enrollment has been slow but steady. The EDRN has diverted efforts to enhance recruitment, and as announced during the last earnings call, we anticipate study completion in the fourth quarter of 2022. Our two U.S. blood cancer studies have also been impacted to varying degrees by the pandemic due to collection and protocol issues. The smaller proof-of-concept monitoring study is ongoing, and interim analysis of a small subset appears promising thus far. However, due to missing samples, we are not yet in a position to publish data, so data collection continues. We look forward to analyzing a more complete dataset in 2022. Given the pandemic delays in the larger NHL study involving over 1,000 subjects, we have taken the opportunity to alter the study protocol, upgrading the platform through a high throughput method that will facilitate an FDA-compliant product. Consequently, we now expect to initiate recruitment in the first quarter of 2022, with study completion anticipated in 2023. Something that has become more apparent during the pandemic and particularly concerning U.S. studies is that we have been under-resourced from a personnel perspective. We are therefore significantly expanding our U.S. operations. The delays have primarily resulted from lockdowns; however, we are using this time to strengthen our U.S. team and operations to be robust enough to handle multiple FDA studies in both human cancer and NETosis, while outsourcing a U.S. production facility compliant with FDA regulations for various products. Dr. Gaetan Michel, our Chief Operating Officer, has relocated to the U.S. and has started building the team with roles expected to be filled in quality, regulatory, and manufacturing functions. He is a brilliant operator, having built the Belgian Volition team from about 10 people to around 50 and commissioning both our R&D and production facilities in Belgium. Now he has the task of upgrading our U.S. operations. Dr. Terry Kelly has also continued recruiting team members for our innovation hub in San Diego, many of whom are focusing on our next pillar, Nu.Q Capture. As I have mentioned previously, we believe the Nu.Q Capture technology will be transformational as a DNA enrichment technology, potentially aiding diagnostics, treatment selection, and monitoring of both treatment and disease, used in combination with sequencing and/or our Nu.Q assays. We've made great progress in the Nu.Q Capture program this quarter, identifying multiple methods for enrichment and conducting experiments utilizing different applications such as mass spectrometry. As previously mentioned, we recently published a poster at the Vet Cancer Society meeting using our Nu.Q Capture technology in dogs with lymphoma. It is exciting to observe our Nu.Q Capture pillar branching out in research from human to veterinary applications as well. We feel this cutting-edge use of our Nu.Q platform will be a key facet of product development starting next year. Lastly, to reiterate, as part of the U.S. expansion, we've added several hires to our early research innovation team based in California State University in San Diego, signaling another significant turn for us, and I look forward to sharing publications and data on that front in the coming quarters. We have made significant progress on many of our pillars this year, shaping up to what promises to be an amazing year for us, despite the challenges posed by the pandemic. To wrap up the call, I will now pass over to our Chief Financial Officer, Terig, for the all-important financial report. Terig?

Thanks, Cameron, and thank you, everyone, for joining our earnings call today. I will now provide a summary of the key financial results for the quarter ended September 30, 2021. We closed out the third quarter of 2021 with cash and cash equivalents of approximately $22.9 million compared with $19.4 million at the end of last year. The cash burn rate this quarter averaged approximately $1.7 million per month, a little lower than in the prior quarter and our previous guidance, mainly reflecting our ongoing efforts to tightly manage costs and improve cash management. Nevertheless, we continue to expect a gradual increase in the monthly cash burn rate to around $2 million a month by year-end, excluding the impact of any receipts from a licensing deal or deals, if any. The main reasons for the expected increase in spending is due to increased human resources costs as we build the organization, including the U.S. team, as Cameron just mentioned. From a revenue perspective, the sales of our Nu.Q Vet Screening Tests have remained stable quarter-on-quarter, as expected, given the nature of our beta launch. We also anticipate Nu.Q Discover to contribute to revenue this year, with several contracts currently in process. The net loss this quarter was $7.2 million versus $5.6 million in the prior quarter, with its increase primarily due to noncash items. From an operational perspective, the finance team, along with senior management, has been working with managers across the business on a detailed planning exercise for 2022 and beyond. This ensures we have clear priorities and good visibility over the resources required, further strengthening our financial control over the business. So to summarize, the company continues to be in a healthy financial position, with sufficient runway to achieve our near-term commercial milestones. Cameron, Tom, and I, along with the rest of the Board, and indeed the whole company, very much look forward to sharing Volition Vet licensing news and the results of key studies and publications in the coming months and quarters. Thank you for joining the call today; we greatly appreciate your time, given the busy earnings call season. We're happy to take your questions.

Our first question comes from the line of Bruce Jackson with The Benchmark Company.

So with the vet product, obviously, you're contemplating some menu expansion with additional tests. In terms of the negotiations with the vet companies, how do those term sheets contemplate the new test? Is it something that can get folded in automatically? Or do you have to renegotiate for every new test?

Thanks for the question. A couple of things on that. So each agreement is a bit different. Obviously, each company has its own worldwide reach. Some are more lab-based, some are very vet-focused, some are quite point-of-care focused. So each one is a bit different. Typically, these negotiations try to roll everything together at the beginning, and we aim to break it out to ensure we receive value for each new addition as we present it. So, it could easily be either case rolled in, depending on the company’s preferences. However, it is for the same cancer, so it naturally aligns with the first test. It’s a different market, and monitoring could represent millions of tests per year because there are 6 million dogs with cancer, and they may need the test three to five times for monitoring or even more. In some discussions, it is included, and in others, it’s separate. However, I see a strong potential for additional products in the vet space. But if all goes well, we prefer to maintain relationships with the same partner or partners to develop a cancer franchise. We are having conversations with multiple companies, and each one is slightly different. We will likely work with the same company or companies on both products.

Okay, got it. Then moving over to the human data for National Taiwan University. Can you tell us which meeting it could be presented at, or just generally, is it going to be a regional meeting or an international meeting?

An international meeting in Asia. We are not announcing it yet due to pandemic-related changes in scheduling. It's due in Q1, and they have submitted it. This will hopefully be early in Q1 at a major international meeting.

Our next question comes from the line of Steven Ralston with Zacks.

Could you go into the progress at Silver One and bringing up the revenue base there? You've gotten some approvals. You mentioned that you had some inquiries in the last quarter. How is that panning out?

Yes, very well. Silver One has been a fantastic approach for us. It’s a facility where we can manufacture key components for ourselves, notably the antibodies and controls. As you rightly pointed out, Nu.Q Discover is where we offer our services to various companies. Yes, as we've mentioned before, there’s been a lot of interest. We have a handful of contracts in negotiation for different applications across various companies. This is currently the maximum we can handle, and we are working through these discussions, expecting to sign one or more contracts this year. I think there’s a good chance that a number of these will reach completion; there has been significant interest. Silver One will be producing key components worldwide, both antibodies and controls, and we aim to expand our point-of-care services. We’ve been working on a lateral flow test, which we also produce externally, backed by our controls and antibodies. Additionally, we’re looking to implement a very high throughput platform, particularly strong in sepsis and COVID. This facility has become a critical part of our strategy for controlling what we do, not just protecting our intellectual property but also launching our products successfully across multiple platforms, which can be leveraged across all areas of our business, including human, veterinary, cancer, and NETosis approaches.

You also received another tranche of grant money from the local government there in Belgium, at least $400,000. That's over $800,000 in the last two quarters. Are there any contingencies that dictate where that money is allocated, or is that funding flexible for you?

Yes, the funding is targeted. The region in Belgium has been incredibly generous. We chose to establish our operations there for several reasons, not least due to the qualified staff that have significantly built our facilities. The facilities are reasonably priced, and we have developed two outstanding centers. The grants are usually allocated to specific projects but can support various initiatives, whether developing antibodies or other aspects. Notably, the Nu.Q platform allows progress in one area to benefit many others. For example, a point-of-care test for veterinary applications can also be applied in the human space, as demonstrated with our plates and beads. While the funding is designated for specific projects, it can assist us across various initiatives. The generosity of the Belgian regions has been tremendously impactful, providing us with several million dollars in non-dilutive funding.

Our next question comes from the line of Jason McCarthy with Maxim Group.

This is Michael Okunewitch on the line for Jason. Cameron, obviously, the pandemic has placed a bit of pressure on timelines across biotechs. Could you walk us through the expected timing for some of the near-term potential human commercial assets and which data sets you need for those regarding the different regulatory environments?

Certainly. In terms of human commercial, we'll start globally and move across. In Asia, where the pandemic has been less disruptive, we’re working with a large group in China, who have been adapting our platform to their systems. We hope to commence licensing work with them in the next quarter or two. They achieved great results in colorectal cancer and are looking to license our technology. National Taiwan University is progressing with their lung and colorectal cancer studies. We have the data readout which looks promising for publication, which they plan to present at a conference in early 2022 by utilizing our platform for early detection. As for U.S. studies, the monitoring study faced challenges due to the pandemic. We are working to get a complete and comprehensive dataset before publishing any findings, which we expect in the next year. As for EDRN, they continue to target completion by the end of next year, pending no further disruptions. Regarding the Non-Hodgkin's Lymphoma study, we opted to upgrade the study protocol to feature a high-throughput platform. We aim to initiate recruitment in Q1 2022 and complete the study within 2023. We also realized we are under-resourced in the U.S. regarding personnel, leading us to expand significantly. Lockdowns were a significant factor, and during this time, we will strengthen our U.S. team to ensure robust handling of FDA studies across human cancer and NETosis projects while outsourcing a compliant production facility. Dr. Michel has relocated to the U.S. to enhance operations, focusing on quality, regulatory, and manufacturing roles to support our growth going forward.

On that larger NHL study, could you expand on the practical advantages from a regulatory and commercial perspective of upgrading to the high-throughput assay format? Does that provide data leading to a more commercial-ready product?

Yes, the platform we initially used was effective, but moving to high throughput is essential for scalability and efficiency. Our plates format serves well for initial tests and works regarding vet products, but for mass marketing, it becomes constraining. The high-throughput option available will run tests quickly; the platforms we consider can achieve results within minutes, certainly ideal for urgent situations like emergency rooms. We have worked intensively on point-of-care tests—so we have various options from plates, beads, and large machinery designed for high throughput use. This broader range will ensure we can meet different market needs effectively. So we have leveraged our downtime to expand development, making us stronger and better prepared post-pandemic.

Ladies and gentlemen, this concludes our question-and-answer session. I'll turn the floor back to Mr. Reynolds for any final comments.

I just want to express my gratitude to everyone for your participation today. This is an incredibly exciting moment for Volition. We've managed to pivot toward what we can accomplish during the pandemic in the veterinary area and NETosis while further expanding our platform and team. I believe the upcoming months are poised to be very exciting, so please stay tuned for our updates. Thank you for your time.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.