Volitionrx Ltd Q2 FY2023 Earnings Call

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to VolitionRx Limited Second Quarter 2023 Earnings Conference Call. During this presentation all parties will be in a listen-only mode. Following the presentation the conference call will be open for questions. This conference is being recorded today, August 15, 2023. I'd now like to turn the call 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 second quarter of 2023 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 Mr. Cameron Reynolds, President and Group Chief Executive Officer; Mr. Terig Hughes, Group Chief Financial Officer; and Dr. Tom Butera, Chief Executive Officer of our Volition Veterinary subsidiary. 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 upon 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 conference call. I would now like to turn the call over to our President and Group Chief Executive Officer, Mr. Cameron Reynolds. Cameron?

Thanks, Scott, and thank you, everyone, for joining Volition's second quarter 2023 earnings call today. I especially appreciate it given this is the busy earnings call season. We will commence the call with a financial report from our Group Chief Financial Officer, Terig Hughes, before moving on to Dr. Tom Butera, Chief Executive of Volition Veterinary for an update on the rollout of Nu. Q Vet via our global supply and licensing agreements. Finally, I will provide an update on the great progress the team has been making with regards to our product pillars, in particular, Nu. Q Vet. Without further ado, I'll hand you across to Terig for the financial report. Terig?

Thanks very much, Cameron, and thank you, everyone, for joining our earnings call today. I'll now provide a summary of the key financial results for the quarter ended June 30, 2023. We ended the quarter with cash and cash equivalents of approximately $19.7 million compared with $10.9 million at the end of 2022. In June, we received approximately $17.6 million in net proceeds from a public offering of our common stock before deducting offering expenses payable by the company. Looking ahead, we expect to receive a further $13 million in milestone payments from Heska Corporation and additional funding, including significant non-dilutive funding from several Belgian agencies in the coming months. Net cash used in operating activities during the quarter was approximately $7.3 million and included payments related to our U.S. clinical trial activities. Moving on to the P&L. Whilst we continue to manage our costs carefully, as expected, the overall level of expenditure has increased in comparison to the second quarter of 2022. Total operating expenses for the quarter were $9.8 million compared to $8.1 million for the second quarter of 2022. This increase was primarily the result of increased research and development expenditures, mainly reflecting the cost of our U.S. clinical trials, which added $1.2 million to the costs in the quarter. Net loss for the quarter was $9.6 million compared to $7.7 million for the 3 months ended June 30, 2022. From a revenue perspective, we recorded revenue of $216,000 for the quarter, a fivefold increase over the same period last year. And I'm pleased to report that in the first half of 2023, we achieved $366,000 in revenue, which exceeds the $306,000 in revenue reported for the entire year of 2022, so great progress. Year-on-year revenue growth was driven by sales of the Nu. Q Vet Cancer Test, which grew fivefold over the prior year, reflecting sales of the reference kits through our agreements with both IDEXX and Heska. Revenue for Nu. Q Discover for the first half of 2023 was $73,000. Looking ahead, as we have previously stated, it is difficult in these early stages of commercialization to provide meaningful revenue guidance. But as both Tom and Cameron will cover in their updates, we are pleased with the progress we are making across a number of the product pillars. And with that, I will pass over to Dr. Tom Butera, CEO of our Volition Veterinary subsidiary. Tom?

Thanks very much, Terig, and good morning, everybody. The second quarter of 2023 was another busy period not only for the Volition Veterinary team but for our licensing and distribution colleagues as well. Following the launch of our Nu. Q Vet Cancer Test through IDEXX's reference lab network in the U.S. in January, the team has continued to integrate the technology into the processes and procedures of IDEXX, laying a strong foundation for the rollout to other labs across not only the U.S. but across their extensive laboratory network worldwide. Progress with the tech transfer of our test onto the Heska point-of-care system has unfortunately been a little slower than anticipated. And while we appreciate this is frustrating, I frequently remind the team that this will be the first time that our Nu. Q technology will be used outside of centralized laboratory testing, which is very important. To use a sporting analogy, we are deep into the final quarter. We are in regular contact with the Heska team who are working diligently to ensure the transfer is completed to the highest standards, and we thank them for their tenacious efforts. Heska remains highly committed to providing veterinarians with rapid, accurate, low-cost and easy-to-use on-site testing in the veterinary clinic to support their clinical decision-making. I look forward to providing further updates in due course. Outside of the U.S., we are making strong progress with several other potential licensing and supply agreements and/or distribution partners and hope to sign several and launch in at least one significant market such as the U.K., Germany, and/or a large Asian market later this year. In June, John McKenna joined the Volition Veterinary team as our Global Accounts Manager. John has over 20 years of sales experience in the human and veterinary fields and has been tasked initially with driving revenue through what we term the corporate consolidators here in the U.S. Great to have John onboard. From a publications and product development perspective, I am happy to report this quarter that Professor Wilson Robles' peer-reviewed paper on the use of Nu. Q Vet Cancer Test for monitoring the disease was published in the journal Plus 1. The publishing of this monitoring paper achieved another very important milestone for us, and we believe has the potential to open up a considerable new market for our existing Nu. Q Vet Cancer Test. As discussed in the paper, findings from the study show that nucleosome concentrations can be a useful tool for treatment monitoring and disease progression in dogs with hematopoietic cancers such as lymphoma. While veterinarians can already use our Nu. Q Vet Cancer Test as a reliable and affordable screening tool for dogs with increased risk of developing cancer, this new research demonstrates another potentially significant utility of the test as an innovative monitoring tool for canine lymphoma management, providing actionable information and helping guide treatment decisions to potentially aid early detection as well as improve outcomes. It is a huge step forward and fantastic news for veterinarians, pet owners, and their pets. Subsequent to quarter end, in July, we were delighted to welcome Dr. Rebecca Timmins to the Volition Veterinary team as our Research Director. Dr. Timmins brings broad-ranging experience to the team. Rebecca started her career at Colorado State University Veterinary School and held several positions from undergraduate researcher in our microbiology lab to lab manager and technician in the clinical science department at CSU's Veterinary Teaching Hospital. In veterinary schools, she was actively involved as the Vice President of her class and was a DVM ambassador guiding new students. Most recently, in her research career, she worked for a nanotechnology company but is also a practicing general practitioner relief veterinarian here in the United States. Dr. Timmins has great experience and is a great fit with our team. From a research and development perspective, we are continuing to develop our pipeline products and extend our Nu. Q platform into emergency medicine, specifically looking at NETosis. I certainly look forward to bringing you more detailed updates on these exciting topics in the future. In the second half of the year, we will continue to drive awareness of Nu. Q Vet among veterinarians through conferences, sponsored webinars, digital marketing, and press engagement. Pet cancer awareness month is November, and so we expect to provide more details on these and other activities on our next earnings call. And with that, I'll pass back to Cameron Reynolds, our Group CEO. Cameron?

Thanks, Tom, and thank you, Terig, for those updates. The first half of 2023 has certainly been transformational for Volition. Through IDEXX, a global leader in pet health care innovation, our Nu. Q Vet Cancer Test is now available throughout the U.S. with coverage expanding around the world in sight. This was an incredible step forward for us as we commercialize our transformational Nu. Q technology within the companion animal health care sector. More recently, I'm delighted to report that, as planned, we submitted our breakthrough device designation request, or BDDR, with the U.S. FDA in June. This was a real milestone moment in our company's history. For the first time, we are in very active discussions with the FDA; exciting times indeed. As a reminder, the BDDR submission is seeking feedback from the FDA on two basic questions: Does the FDA agree that we meet the definition of a breakthrough device? And does the FDA agree with the proposed path of a 510(k)? We believe our case is strong and are delighted to be in active discussions with the FDA now and look forward to agreeing upon a clear regulatory pathway to approval for what we hope will be significant products. We're also making considerable progress with our centers of excellence in Europe for Nu. Q NETs, with the first clinical paper resulting from one center already submitted for peer review and abstracts from several centers accepted for the European Society of Intensive Care Medicine Congress in October. Remi Rabeuf and Dr. Andy Retter, both of whom presented at our Capital Markets Day in May, together with Dr. Jake Micallef, our Chief Scientific Officer, who is well known to many of you, have excelled in developing a strong network of some of the world's leading experts in sepsis. I'm excited to announce today that we are hosting our first sepsis-focused key opinion leader workshop in September. This event provides an opportunity for these experts and centers of excellence to share their challenges in diagnosing and managing sepsis, their findings from working with Nu. Q NETs, and their hopes for the future. Professor Dejili Annan will be chairing the session and plans to publish a physician paper following the event. September is also sepsis awareness month, so we hope to raise awareness about this devastating condition. There are between 47 million to 50 million sepsis cases reported each year, resulting in 11 million deaths. This is a shocking 1 in 5 deaths worldwide associated with sepsis. It is the number one cause of death in hospitals, the number one cause for hospital readmissions, and the number one condition in terms of overall health care cost to treat, costing a staggering $62 billion annually in the U.S. alone. Lots of numbers, I know, but this is just to exemplify how significant and important this potential market opportunity is for Volition. We believe that the Nu. Q NETs test is a groundbreaking diagnostic aid that clinicians will be able to use to detect the disease associated with NETosis. So please watch out in September. We hope to be able to provide further insights into sepsis and Nu. Q NETs then. Turning briefly to our other product pillars. First up, Nu. Q Cancer. In the interest of time, I'm going to focus on lung cancer, the second most common and deadly cancer in the world. Early in the second quarter, Professor Léa Payen, a collaborator from Lyon University Hospital in France, presented 2 posters at the American Association of Cancer Research Congress. These posters demonstrated that Nu. Q assays in combination with circulating DNA molecular profiling at both diagnosis and during treatment progression improve the level of detection. Fantastic results, which may help reduce unnecessary biopsies. The team is already working on introducing the technology into Lyon University Hospital. These results have, of course, been written up, and I'm delighted to say the clinical paper was recently accepted for publication and should be out soon. Also in lung, looking ahead, I'm delighted to say Professor Chen of the National Taiwan University has been selected for an oral presentation of his results at the upcoming European Society for Medical Oncology, or ESMO, in the fourth quarter of this year. This is one of our largest clinical studies using Nu. Q in conjunction with low-dose CT, and we look forward to issuing the results in October. We are also excited that two of our abstracts involving Nu. Q have been accepted for publication at ESMO. One of these abstracts is due to the fact that we're making strong progress in Nu. Q Capture, and we hope to update you more on this in the coming months and quarters. Continuing on publications for a moment, but jumping over to our other product pillars, another clinical paper detailing the use of our Nu. Q Capture mass spec technology has been submitted for peer review and publication during the second quarter, and both Nu. Q Capture and Nu. Q Discover featured in conference posters. As a quick reminder, in giving a commercial update for Nu. Q Discover, the Nu. Q Discover pillar aids academic institutions, pharmaceutical firms, and others in drug development and biomarker discovery. It is an innovative, mainly service-oriented platform, although kits are also available, which leverage our R&D and proprietary technology. On the whole, projects usually start as a modest revenue pilot study, but the hope is they evolve into more substantial revenue streams as drugs move through the drug development pathway from preclinical to clinical. We are thrilled to announce that one of our oncology pharmaceutical contracts has progressed to Phase Ib with their drug development program, and our assays are very much an integral part of said clinical program, an exciting step forward. We also signed a contract focusing on drug development within the field of neuroblastoma. While this rare disease is not necessarily a large commercial opportunity, providing proof of concept in a rare disease may help improve their future treatments. All in all, a very positive first half of 2023. The level of interest in our technology is truly fantastic, and we're excited to continue expanding its reach and potential. And so to sum up, I'm very proud of the progress we are making as a team at Volition after many years of developing and optimizing Nu. Q, which we believe is a groundbreaking nucleosome quantification technology; we are now commercially opening the platform and generating revenue. It is a hugely exciting time for us as a company, and powered by Nu. Q, we look forward to sharing further updates and milestones with you over the coming quarters. In drawing this earnings call to a close, I'd like to thank you all for joining the call today. As before, we very much appreciate it during this busy earnings call season. I'm very happy to take your questions now.

Operator instructions. And our first question is from the line of Bruce Jackson with Benchmark Company. Please proceed with your question.

So a follow-up question on the study in Lyon. If I recall correctly, it was originally put together to help develop a protocol for lung cancer screening in France. So was the data presented part of that study? And if it's not part of that study, can you maybe give us an update on how that study is going?

There's a lot going on in lung cancer and a couple of things just in France alone, and of course, in Taiwan. I can give you more details, I guess, after the call, but it's a lot to go through. So the poster presented at AACR and the paper actually is what we talked about on the call. It's not the screening, but a reduction as we talked about. There is a lot of work going on in the screening program. It's in process. We didn't update this quarter. Hopefully, we'll have more updates next quarter. And the work in Taiwan has also gone very, very well with an oral presentation due at ESMO. So a lot of progress, and we hope to update on the screening program later this year. But overall, lung has become a real standout in the Nu. Q Cancer pillar.

And then with the new contract for the Phase Ib study, is this something where it's going to start generating a revenue stream?

Yes. Regarding Nu. Q Discover, we have previously mentioned this initiative. We have signed approximately 10 agreements, 8 of which are currently generating revenue. At this point, it's a reasonable and significant contribution to our overall operations. Typically, these agreements begin modestly, often in the tens of thousands of dollars during the initial phase. If they progress to the final stage, the revenue potential could reach into the millions. This not only brings in early revenue, but we can also see from our accounts that it constitutes a considerable portion of our current activities. The number of leads has increased significantly, and our team members are collaborating with various pharmaceutical companies, including some well-known major players, whose names we can't disclose. We are very pleased with the level of interest and the progress being made. The potential revenue in the millions from each contract would materialize in the later phases of development. It's also crucial for us to deploy our technology, which we believe is highly valuable. Currently, 8 groups are paying for the rights to use our technology, and I anticipate that this number will grow over the coming years.

And then last question on the feline program for Vet. You're originally thinking that you might get the milestone payment in the first quarter of 2024. What's your current thinking on the timeline for that program?

We should be completing the pre-analytics for feline by the end of this year. Anticipation is probably that it will extend into the first half of 2024 rather than the first quarter.

I think it's important to highlight that we are focusing on research in the veterinary space, specifically regarding both feline and other animals in NETosis. We are making good progress in that area, as Tom has mentioned.

Our next question is from the line of Steven Ralston with Zacks. Please proceed with your question.

A few detailed questions. I see the licensing and supply agreement with IDEXX Lab. I'm wondering about the scope of the agreement. Sometimes you mentioned that it's for the processing within the reference labs of IDEXX, in other words, their in-house reference labs. Other times, it's open-ended, where you mentioned that just in any reference lab. Could you clarify that, please?

Tom, do you want to…

When we speak of IDEXX, we only speak of IDEXX reference labs that are owned and specifically affiliated with IDEXX. So their network, both domestically and internationally, falls into one of two categories. They are all IDEXX supervised, and they are predominantly in the U.S.; all IDEXX reference labs. Internationally, they have affiliates that are associated with IDEXX employees in those labs, but they are all reference labs associated with IDEXX. I hope that answers your question.

Yes, it does. And continuing with Nu. Q Vet. Could you detail the process of launching the monitoring claim? The paper has been published; what are the next steps? When will you be able to use that monitoring claim?

Yes, that's a great question. Thank you, Steven. We are currently working on raising awareness among oncologists and veterinarians about how to utilize monitoring with Nu.Q as a biomarker device. Additionally, we aim to ensure that they use our Nu.Q screen test as an initial screening test, which will then lead into monitoring. As we progress with our awareness and education campaign, we anticipate that discussions around monitoring will intensify, especially with the upcoming launch of the point-of-care product. Around that time, we expect increased usage in reference labs as well. Throughout the latter part of 2023 and into 2024, we are focusing on educating the veterinary community on how to implement this application.

Jumping over to Nu. Q Discover, the service line base increased significantly from $5,000 to $50,000. You mentioned having 8 contracts generating revenue, but there's also a trial currently in Phase Ib. Is that specific contract responsible for most of that increase, or is the growth more evenly distributed?

It's more evenly spread. There is a lot coming in from various groups in bits and pieces. To achieve many hundreds of thousands each quarter, we would obviously need to progress to a later stage in one of the contracts, but the revenue is quite well distributed throughout the quarter. We can discuss the specifics further. Some of the contracts are confidential, so we can't provide too much detail, but we have a broad range across different contracts. They are all at early phases, but we are very optimistic that as they develop, we will secure more of these smaller contracts that lead to larger ones. Terig, do you want to add anything?

Yes, that's about right. We've got - like Cameron said, we've got about 8 agreements that are actually delivering revenue this quarter. And there is a very good spread across those agreements. We're quite hopeful that some of those will progress to the next stage.

We're also seeing quite a few more coming into the pipeline. In 3 or 4 years' time, given the potential very large market of Vet, NET and human cancer and capture, this probably will not be a significant percentage of what we do in a few years' time. But it's just very good to get the revenue now and get the name out. Some of them could be very meaningful, but it's going to take a few years on the Discover side.

The other thing I'd say, Steven, just for clarity, is that the project that has now flipped into Phase Ib from a clinical study perspective, that is not yet recognized within these numbers. So while the pilot phase might have been one of the projects that are included in the numbers, in terms of the Phase Ib hyper project, that's not yet within the numbers.

Last question, your R&D expense line is increasing. I'm trying to figure out the dynamics of that. Of course, you filed here in the FDA or at least submitted the application. But I also read in your verbiage that you have this new program targeting circulating tumor DNA. First of all, is that being conducted in the United States in your California lab? And secondly, how much of that is part of the increase in your R&D expenses?

So just on the Nu. Q Capture side, we mentioned a couple of things. There's a few publications on mass spec. We've also made very good progress on one of the other pillars. We're not talking about it too much because obviously, we're in the process now. It potentially is a very big outcome. So we're in the process of confirming and patenting. Hopefully, in the next sort of 6 months, we can confirm all of that and make some good news. Terig, do you have anything to add?

The primary reason for the year-on-year increase in R&D costs is the DxO clinical studies, which added just over $1 million to the quarterly expenses. This is the main contributor to the rise.

Operator instructions. At this time, I see no additional questions. I hand the call back to Mr. Cameron Reynolds for closing remarks.

So thank you, everyone. Thank you for your attention during our earnings call. I'm really looking forward to the next few months as we continue to drive the launches of Nu. Q Vet and get to the situation now. The battle is joined with the FDA with regard to NETosis in the U.S. And we're expecting a lot of data coming through on the NETosis side and hopefully some more news on the capture side as well. So it's all coming through well, and I think we should have a very good end of the year. I'm looking forward to updating you. Again, thank you for your time. Bye.

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