Earnings Call Transcript - VNRX Q1 2021

Operator, Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to VolitionRx Limited First 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 opened for questions. This conference is being recorded today, May 12, 2021. I would now like to turn the conference call over to Mr. Scott Powell, Executive Vice President of Investor Relations. Please go ahead.

Scott Powell, Executive Vice President of Investor Relations

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 first 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. On our call today are Mr. Cameron Reynolds, President and Chief Executive Officer; Mr. Terig Hughes, our Chief Financial Officer. Before we begin, I would 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 any obligation to update any forward-looking statements made during the course of this call. I would now like to turn the call over to our President and Chief Executive Officer, Mr. Cameron Reynolds.

Cameron Reynolds, President and CEO

Thank you, everyone, for joining Volition’s conference call today. I especially appreciate it, given the busy earnings call season. We have had quite a start to the year and made excellent progress in developing a range of products based on our proprietary Nu.Q platform. I expect that we will have a lot of news throughout the remainder of this year on additional product developments worldwide. I will be updating you today on our products, people, patents, publications and most importantly, progress within all four key pillars: Nu.Q cancer, Nu.Q vet, Nu.Q nets and Nu.Q capture. But to start off, I will quickly hand over to Terig for the financial report.

Terig Hughes, CFO

Thanks very much, Cameron, and thank you everyone for joining our call today. I will now provide a summary of the key financial results for the quarter ended March 31, 2021. During the 2021 quarter, we reported a net loss of $6.1 million as compared to a net loss of $5.9 million in the same period last year. This result reflected research and development expenditure of $3.9 million, which was in line with last year. General and administrative expenses of $1.8 million, approximately $100,000 higher than last year and sales and marketing expenditures of $0.4 million approximately $150,000 higher than last year. The slight increase in operating expenses during the first quarter of 2021 was primarily driven by our ongoing transition to a commercial organization. During the first quarter of 2021, we significantly strengthened our balance sheet by adding aggregate net proceeds of approximately $20.3 million in cash, through an underwritten public offering of our common stock in February as well as through our at-the-market equity distribution program, with the last sale during the quarter under the ATM occurring on February 10th. We were also delighted to announce in January the award of approximately $4 million in non-diluted funding from the Walloon region and the more invest. We have a long history of support from agencies of the Walloon region, who to date have awarded Volition approximately $13 million in non-diluted funding, including this most recent award. This additional funding consisted of a cash grant of $1.3 million and $2.7 million in loans. We closed out the first quarter of 2021 with cash and cash equivalents of approximately $33.1 million, compared with approximately $19.4 million at the end of 2020. With continued work on commercialization and the expected national rollout of Nu.Q Vet in the United States, soon to be underway, we expect the cash burn rate going forward to average around $2 million per month. The company is in its strongest ever cash position which provides us both a great runway to achieve our many milestones, and continuing flexibility to weather the ongoing pandemic. From a revenue perspective, we recorded $25,000 in the first quarter of 2021, mainly from the beta launch of new Nu.Q Vet, which Cameron will discuss in greater detail later. We are seeing a lot of interest in the Vet product on the licensing side. We expect to see this revenue grow strongly through the year for the Vet product set during the beta launch. Last but not least, our new commercial team is building a solid pipeline of sales opportunities, as we are also seeing a lot of interest from Nu.Q discover, our sample processing service for external parties such as pharmaceutical companies, biotech companies and academic researchers in Europe. We believe that this opportunity should also translate into solid revenue this year. And with that, I will pass it back to Cameron for further operational and product updates.

Cameron Reynolds, President and CEO

Thanks, Terig. I’m delighted to have the strongest balance sheet we have ever had combined with the expectation of significant revenue growth throughout 2021. While we are talking about new team members, I will kick off with a people update, which has mainly been focused on broadening the team with top talent to assist with commercialization of our Nu.Q platform. We remain committed to our exceptional R&D team to continue to drive world-class innovation. In the first quarter of 2021, alongside Terig joining us as our new Chief Financial Officer, we also welcome Gael Forterre, our Chief Commercial Officer to our executive management team to help manage the broadening range of products, including potential products. In addition to the promotion of Gaetan Michel to the role of Chief Operating Officer and Dr. Mark Eccleston, one of our founding scientists to the newly created role of Chief Technology Officer. We also announced the appointment of two independent directors to our main Board. Kim Nguyen, an HR executive with global expertise at Google, and Richard Brudnick, a pharmaceutical business executive with extensive commercial know-how. More recently, as of May 1st, Dr. Tom Butera has joined the team as Chief Executive Officer of our veterinary subsidiary. Given our belief that Nu.Q vet has enormous potential, we felt we needed a world-class leader for our veterinary product launches. Tom, a seasoned veterinary executive with a fantastic track record, joined us directly from the Veterinary Centers of America, VCA, part of the Mars Veterinary Group, where he served as business development director. We are truly humbled to have someone of Tom’s caliber and experience join us on a full-time basis to build a strong focus on driving revenue from our veterinary business. As we transition from a research and development company to a commercial company, we are excited to strengthen the leadership team with these key appointments. We have been very fortunate throughout our 10-year history to have a stable, committed and hardworking team, which has grown in both strength and number. I would like to thank all of our team; I could not be prouder of their efforts. From people to patents, a core element of our competitive advantage. We have a broad intellectual property portfolio, which covers both human and animal applications. As of March 31, 2021, our portfolio includes 28 patent families, 10 granted patents in the U.S., 14 in Europe and a further 42 granted worldwide. We also have 93 patents pending. Our R&D team is highly innovative and prolific, and we work hard to ensure their inventions are protected to the fullest extent of the law so that we might gain commercial advantage. The first quarter of 2021 was busy from a patent filing point of view, and we expect our patent portfolio to continue to grow in the quarters in the years ahead. Publications remain one of our key objectives, and our list of publications continues to grow. During the March 2021 quarter, data for Nu.Q was presented at two international conferences, and we collaborated on two clinical paper publications, with a third published just last week, and a further two awaiting imminent publication. These publications are another very important step forward for our company. I’m extremely pleased that we continue to be at the very cutting edge of epigenetics, and delighted that our publications span our four key pillars. These recent abstracts and papers cover fundamental research into Nu.Q mix and Nu.Q performance in lung cancer, the use of Nu.Q Capture technology as a sampling preparation platform for mass spectrometry to aid biomarker discovery, and the performance of Nu.Q Net in monitoring disease progression in COVID-19 subjects and in an animal model study in the treatment of sepsis. In the relatively near term, we anticipate two additional papers to be published from our Nu.Q Vet clinical studies. Many of these topics are perhaps a little too lengthy and in-depth science to cover on the call today. So I will simply share a few highlights and try to answer any specific questions in the Q&A session later. In January at the world's largest dedicated lung cancer conference, the WCLC, an abstract was published in conjunction with the National Taiwan University team. Our clinical paper published in Nature’s Scientific Reports in March details our novel proteomics approach to epigenetic profiling of select circulating nucleosomes in the blood of cancer patients. We believe that Nu.Q Capture technology will be useful, not only in combination with mass spectrometry to discover new biomarkers, but also as a DNA enrichment technology that could aid diagnosis, treatment selection, and monitoring in combination with either sequencing and or Nu.Q assays. The Nature’s Scientific Reports clinical paper was a great first paper on our Nu.Q Capture, with further studies expected to be submitted in the coming quarters. From a Nu.Q Net point of view, a clinical paper reporting the use of Nu.Q in monitoring disease progression in COVID-19 patients was published in March. Key findings, as Jake Micallef discussed on our last earnings call, were that the nucleosomes were highly elevated in the plasma of COVID-19 patients with a severe course of the disease relative to healthy controls, and that both histone H3.1 variant and citrullinated nucleosomes increase with disease severity. In addition, data was published from an animal study of sepsis in a presentation given by Dr. Andrew Aswani, a consultant in critical care and anesthesia at one of London’s leading teaching hospitals. This small initial study used Volition's nuclear assays to monitor treatment response to a novel therapy to remove nets from circulation in a pig model of sepsis, resulting in improved physiological and biochemical well-being indicators. Most importantly, the results showed that treatment was successful and that our Nu.Q assay was the best way to measure NET response. The studies are now progressing to investigate further animal models and our first human trial is underway at a leading UK hospital, and a potential U.S. FDA 510(k) study is in preparation. So we have had a busy start to the year with publications and expect a strong pipeline in the coming quarters. Now, on to our key updates around our four key pillars. Firstly, Nu.Q Vet, we initiated a beta launch of Nu.Q Vet cancer screening test in Texas in the fourth quarter of 2020. We are very happy with how the beta launch has progressed; this test has not only provided us with our first revenue from Texas A&M University reordering on a monthly basis, but also invaluable information for our anticipated national launch. Additionally, the success of the launch has captured the interest of a wide range of industry players wanting to license or distribute our platform. This test is positioned for use in the animal health check for older dogs, those that are seven years or older, and may also be a complimentary test for younger dogs of breeds at high risk of developing cancer in their lifetimes, such as Golden Retrievers. The current test is only available at the GI lab in Texas A&M University, with our launch focusing on veterinarians across Texas. So what is a beta launch exactly? The beta launch is to facilitate real-world learning from actual customers paying for the tests to help shape the marketing mix before our national launch in the U.S., which we expect to be soon, likely in the next few months. This has also given us a chance to showcase our product to large multinational companies with which we are currently in very active discussions that could help accelerate launches and sales worldwide. Given this is our very first commercial launch, we are using Texas as a test market to make sure all aspects of our products are properly tested before we launch in the U.S. nationally and worldwide. We have gained extremely valuable feedback on key factors such as the logistics of a veterinarian taking a sample, shipping, processing, reporting and interpretation of results, levels of customer service required, pet owners feedback, and of course, optimal pricing at all levels. Our team has also done a fantastic job in educating key opinion leaders, oncology specialists, and GP veterinarians in Texas about Nucleosomics and raising awareness of the Nu.Q Vet Cancer Screening Test. In terms of the commercial opportunity, cancer in dogs is widespread, as it is a leading cause of death for dogs over the age of 10. There are over 6 million new dog cancers diagnosed in the U.S. alone each year. As cancer screening is not as commonplace in animal health as it is in human health, we believe blood tests like the new Nu.Q Vet Cancer Screening Test could help transform how veterinarians manage cancer in companion animals. Early diagnosis of cancer has the potential to improve treatment and quality of life as well as providing valuable additional information to inform clinical decision-making processes. The Nu.Q Vet Cancer Screening Test is a simple, low-cost, easy-to-use, laser-based blood test which we believe will streamline this process for up to one-third of malignancies in dogs, including common malignancies such as lymphoma and hemangiosarcoma. We recognize the desire to receive revenue guidance now that we have our first commercial product and aim to provide this later in the year when the mix of our launches and licensing of our technologies to third parties in both the vet and human spaces becomes clear. As Terig stated, we expect revenue from both the Vet test and other nuclear products to increase throughout the year. There is very strong interest in our vet products and the whole Nu.Q Vet platform from a range of small and large international companies and we are continuing significant licensing discussions with several well-known major players in the veterinary space around the world. I look forward to updating you on our progress in the coming months. The Nu.Q Vet platform presents a fantastic opportunity for the company and we are truly excited to have Dr. Tom Butera join the team to lead efforts on that front. We have a busy second quarter underway in the veterinary business with a satellite symposium featuring Dr. Sue Ettinger at the world-leading VNX conference in Florida this May and Professor Heather Wilson-Robles as an invited speaker at the ACVIM conference in June. In addition, we expect further clinical papers to be published. Lastly, we are making significant progress on the launch of Nu.Q Vet worldwide beyond the U.S. launch and also expect to provide updates in the near term. All in all, Nu.Q Vet is a hot space for us right now. So definitely watch this space for further updates in the near term. Our second pillar, Nu.Q Capture, we had an exciting new capture mass spectrometry clinical paper published in Nature’s Scientific Reports in March. We are very happy with our team’s significant progress on this front. Their work highlighted for the first time that histone H2A1R3 citrulline is upregulated in the plasma of colorectal cancer patients and could be a biomarker we target for future immunoassay development. Furthermore, it showed that the use of Nu.Q Capture may open up the possibility of using mass spectrometry not only for biomarker discovery but also as a high-throughput platform for screening and diagnostics. We expect to see further updates via clinical publications, collaboration announcements and conference presentations in the coming quarters. We aim to launch our first product with this technology in 2022. Our team could not be more energized and excited by the work being done in our third pillar, Nu.Q Net, and we believe it should be a very significant part of our future success. Given the relatively recent understanding of the prominent role of both NETs (neutrophil extracellular traps) and nucleosomes in the pathology of COVID-19, sepsis, and many other diseases, we have been and continue to research our proprietary technology in these diseases, particularly concerning NETs. NETs are a vital component of our immune system, consisting of long strings of nucleosomes with additional enzymes that damage and kill pathogens. Excessive production of NETs in response to infection can also damage the body’s cells. For example, a small proportion of COVID-19 patients experience excessive production of NETs in the lungs in response to the COVID-19 virus, which may lead to severe lung impairment or even death. As NET material consists of nucleosomes, our Nu.Q nucleosomes assay can detect NETs in minute quantities. We are researching the use of our proprietary nucleosome technology with respect to the activation of various immune cells and the release of NETs in disease. We believe the versatility of our platform and the range of applications for these assays may help increase diagnostic power and monitor disease progression and potentially treatment response across a broad range of diseases that involve the overproduction of NETs, such as COVID-19, pneumonia, influenza, and sepsis. From a sepsis product development perspective, we have conducted animal studies monitoring disease progression and treatment efficacy, demonstrating the effectiveness of monitoring with our assays. Human studies for monitoring disease progress and treatment efficacy related to sepsis are now underway at a leading UK hospital, and a potential U.S. FDA 510(k) study is in preparation. From a COVID-19 product development perspective, our studies from 2020 showed that Nu.Q NET nucleosome levels strongly correlated with disease severity and mortality. We have now conducted studies to determine the predictive value of our test with second-wave COVID-19 patients at leading UK hospitals. Exciting times, with further data due to be presented at upcoming conferences and potentially additional collaborations to be announced soon. Finally, on our fourth pillar, Nu.Q in human cancers. Unfortunately, given the pandemic, some studies have been affected. However, we have pivoted to areas where we can make progress. As previously reported, collection from the U.S. EDRN study for colorectal cancer has been paused, and collection for the blood cancer study has seen some delays. We will provide a full updated timeline in the near future. In Asia, we have reached our target patient cohorts for both colorectal cancer studies and the lung cancer study, all collected in conjunction with National Taiwan University. We are excited to be running assays and finalizing analysis. Data will be reported at future conferences. We have opened our Silver One facility which will undertake sampling processing for external parties such as pharmaceutical companies, biotech companies, and academic researchers. This service is branded Nu.Q Discover and we have generated interest. We anticipate revenue from this activity in the second quarter and growing throughout the year. We see this as a key driver of revenue. Thus far, our projects involve the use of our assays to monitor the efficacy of therapeutics in regulatory trials. If initiated and outcomes are positive, this could lead to substantial revenues. A sales manager in Europe is successfully forging these relationships. We are happy to announce that we have signed our first distribution agreement with Biomedicaa, a distributor with over 40 years of experience for our CE mark Nu.Q Kit in Central and Eastern Europe. We expect this to be the first agreement of many. We are producing recombinant nucleosomes in-house at large scale and have developed capabilities for the key steps within the production process, including the ability to freeze dry. By the end of this month, we will also be producing our antibodies in-house, a significant step forward in terms of supply chain management, reducing costs of goods and development. Additionally, we are now manufacturing our bead-based format to CE mark standards, up to 20,000 tests per batch. Thank you to my team and the Silver One team for their great efforts. To reiterate, our vision is to advance the science of epigenetics and exploit these advances in human and animal health. We believe our decade of work in epigenetics puts us in a strong position to be a significant player in this field. Overall, on many fronts, with our growing team and IP, I’m delighted with the progress we are making. I look forward to sharing our key milestones in 2021 and beyond as we continue to develop our range of products worldwide. We will focus on driving revenue in the coming quarters where possible during the pandemic in four key areas: Nu.Q Vet products, disease monitoring tests such as in COVID and sepsis, Nu.Q Discover processing samples, and licensing of our technology for others to commercialize. We aim to publish data across multiple fronts in our four pillars. I along with the rest of the board, and indeed the whole company, look forward to sharing the results of our case studies over the coming months and year. Thanks for joining the call today.

Operator, Operator

Your first question comes from the line of Kyle Mikson with Cantor Fitzgerald.

Kyle Mikson, Analyst

So I was wondering if you could talk about how the first Nu.Q products can be launched and what the go-to-market strategy is. I understand it may be from monitoring, but what specific disease? And when you say launching the product on multiple platforms, do you mean assays or beads or the actual amino assays analyzer? And on the go-to-market plan, is there going to be a beta launch in Europe and then a broader launch later?

Cameron Reynolds, President and CEO

Thank you, Kyle, and thanks for your questions. I will answer them in detail. In terms of which disease, a couple of quarters ago, we discussed perhaps targeting NETosis in influenza or COVID. However, given the fluctuations in NETosis from COVID, I believe sepsis might be the area we can gain traction in more easily, especially because it remains a very significant issue in hospitals. Regarding multiple platforms, we initially launched the vet product on plates, but we are working hard to get it on machines and larger analyzers as well. The regulatory work has taken some time, but adaptation is quite simple. We are also exploring small point-of-care lateral flow options. We aim to offer a variety of formats to add flexibility for our customers. We want to provide solutions for everyone, whether that be through plates, high throughput machines, or point of care tests. Every option should serve a purpose depending on the situation. For the go-to-market strategy, the EU should see a relatively quick CE mark process. The initial study populations have caused some delays due to finding the right cohorts. With sepsis, we can find these cohorts quickly, allowing us to expedite the process. We expect to go through the normal 510(k) and regulatory pathways in the U.S., which traditionally take more time and investment. We are currently working on several trials and expect clear paths forward in the near future. Our assays are being validated through several independent studies and we expect positive outcomes. I hope that answers your questions.

Kyle Mikson, Analyst

Thanks Cam. That was perfect. I threw a lot at you, but you did a great job answering. And I also want to commend the Nu.Q Capture publication with mass spec data. Thinking about the commercialization pathway for that product, how quickly do you anticipate regulatory approval will occur, and would it go down the PMA pathway? Longer-term, do partnerships with companies offering mass spec or next-gen sequencing instruments make sense?

Cameron Reynolds, President and CEO

Yes, absolutely. As we are not directly in the sequencing or mass spectrometry space, our intention with Nu.Q Capture is to provide a service to assist various groups. We would aim for initial offerings to occur next year, primarily as research services rather than diagnostic tests. For regulatory purposes, there are years of work involved in making tests approved for diagnostic usage. We will aim to launch our products to showcase effectiveness, and once we have strong proof of concept, we will actively pursue licensing opportunities. We view partnerships with large companies as very promising moving forward.

Kyle Mikson, Analyst

That makes sense. It doesn’t have to be an approved assay. On the NETosis studies, the collections have been limited, mostly due to COVID. Can you provide insight on potential delays for the first 510(k) submission?

Cameron Reynolds, President and CEO

Yes, that is very valid. The primary reason has been the pandemic's impact on acquisitions and collections, particularly during the last 15 months. I expect timelines will be advanced a quarter or two, but it remains speculative until we can collect further evidence. We will provide a more comprehensive update soon, hopefully by the next call.

Kyle Mikson, Analyst

Understood, thank you. I want to clarify about the biomedical distribution agreements. Are those aimed at veterinary or human testing?

Cameron Reynolds, President and CEO

This is where the Nu.Q product and our CE-marked kit are aimed primarily toward blood cancers in Europe. The goal is to see how we can gain traction in Eastern European markets. We have established this agreement as a way to enter markets where we didn’t have presence before, and it is a good opportunity to build a relationship with a well-established company.

Operator, Operator

Your next question comes from the line of Bruce Jackson with Benchmark Company.

Bruce Jackson, Analyst

I would like to inquire about the NETosis assays. You have one COVID-19 study where material samples were collected. Have you submitted that data for any conferences, and if so, which ones?

Cameron Reynolds, President and CEO

Yes, we plan to submit our findings to several conferences, including one coming up in July. Collecting serial samples is complex, and we have faced challenges due to COVID-related pressures. We have been proactive with major COVID and sepsis research efforts and are optimistic about the results coming in the year.

Bruce Jackson, Analyst

Do you also have data in-house for the sepsis applications? Has it been submitted for presentation?

Cameron Reynolds, President and CEO

Yes, we have strong data supporting our assay's performance in the sepsis market. We are finalizing analysis for several studies and the data is promising. The assays are now able to deliver results in real-time, measuring NET levels quickly. This could be significantly useful for diagnosing sepsis at hospitals. Yes, many of our ongoing collaborations with prominent healthcare institutions could lead to substantial outcomes for our assays. We are actively supporting various groups with research involving our assays.

Unidentified Analyst, Analyst

Can you provide an update on the human diagnostic platforms? The major study in blood cancer is on pause, but what about lung cancer and colorectal? Are you maintaining enrollment targets?

Cameron Reynolds, President and CEO

Yes, our human studies have faced challenges, but we are focused on finalizing the lung and colorectal tests. Collaborating with National Taiwan University has helped reach our target cohorts for these cancer studies. We anticipate running the assays and sharing results soon.

Unidentified Analyst, Analyst

Regarding histone H2A1R3, could this be added to the core colorectal cancer assay? Since the U.S. EDRN study is on pause.

Cameron Reynolds, President and CEO

Absolutely, adding the histone marker is viable for our colorectal cancer tests. The additional data we gather will enhance our existing biomarker discovery platform.

Unidentified Analyst, Analyst

After seven months into the Nu.Q Vet beta launch, could you share what has been learned so far and how that will inform the national launch?

Cameron Reynolds, President and CEO

We have gathered invaluable insights through the beta process, particularly around pricing and logistics. We plan to adapt our marketing strategy based on the feedback received, ensuring a smoother nationwide launch. We aim to maximize revenue by refining our package and customer service. The experience has proven that our product is well-positioned in the veterinary sector.

Operator, Operator

Ladies and gentlemen, we have reached the end of the question-and-answer session, I would like to turn the call back to Mr. Cameron Reynolds for closing remarks.

Cameron Reynolds, President and CEO

Thank you, everyone. I understand you are all very busy, and I really appreciate your time. Please keep an eye on us over the next few months and quarters. We have a strong team, and I believe we have the strongest balance sheet we have ever had, but we must now deliver products and revenue. Thank you.

Operator, Operator

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