Earnings Call Transcript - VNRX Q1 2023

Operator, Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to VolitionRx Limited's First Quarter of 2023 Earnings Conference Call. During today's presentation all parties will be in listen-only mode. Following the presentation, the conference call will be opened for questions. This conference is being recorded today May 11, 2023. I'd now like to turn the conference over to Scott Powell, Executive Vice President of Investor Relations.

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 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 are Mr. Cameron Reynolds, President and Group Chief Executive Officer; Dr. Tom Butera, Chief Executive Officer of our Volition Veterinary subsidiary; and Mr. Terig Hughes, Group 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 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?

Cameron Reynolds, President and CEO

Thanks, Scott, and thank you everyone for joining Volition's first quarter 2023 earnings call today. We really appreciate your time given this busy earnings call season. We will commence the call with the financial report from our Group Chief Financial Officer, Terig Hughes, before moving on to Dr. Tom Butera, Chief Executive Officer 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 another of our key pillars, Nu.Q NETs, along with further highlights from the first quarter. Without further ado, I'll hand it over to Terig for the financial report. Terig?

Terig Hughes, Group Chief Financial Officer

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 March 31, 2023. We ended the quarter with cash and cash equivalents of approximately $10 million compared with $10.9 million at the end of 2022. In February, we received approximately $8 million in net proceeds from a public offering of our common stock, before deducting offering expenses payable by the company. We expect to receive a further $13 million in milestone payments from Heska Corporation, along with additional funding, including non-dilutive funding from three Belgium agencies in the coming months. Net cash used in operating activities during the quarter was approximately $8.7 million, reflecting the ramp-up in our U.S. clinical trial activities. Moving on to the P&L. While we continue to manage our costs carefully, as expected, the overall level of expenditure has increased in comparison to the first quarter of 2022. Total operating expenses for the quarter were $9.2 million compared to $7.8 million for the first quarter of 2022. This increase was primarily the result of increased expenditure in the research and development function, mainly reflecting the costs of our U.S. clinical trials, which added $1.1 million to the costs in the quarter. Revenue for the Nu.Q Vet Cancer Test grew by 381% to $124,000, reflecting sales of the reference kit through our agreements with both IDEXX and Heska. Total revenue reported in the first quarter of 2023 was approximately $150,000 versus $114,000 for the first quarter of the prior year. Net loss for the quarter was $8.9 million compared to $7.7 million for the three months ended March 31, 2022. Again, this reflects the increased cost of our U.S. clinical trial activities. As we discussed on the previous call, I’m planning to cover this in detail at our capital markets event later today. Given the product range we expect to develop from our proprietary Nucleosomics platform, we believe our addressable markets are significant, most notably in the short term with Nu.Q Vet and Nu.Q NETs. We look forward to updating you on our progress in accessing these opportunities. With that, I'm delighted to hand over to Dr. Tom Butera, who will provide further detail regarding the exciting first quarter for the Volition Veterinary team. Tom?

Tom Butera, CEO of Volition Veterinary

Thanks very much, Terig, and good morning, everybody. The first quarter of 2023 has been pivotal for Volition. Our Nu.Q Vet Cancer Test is now available through IDEXX's reference lab network, a global leader in pet healthcare innovation. IDEXX launched our test in the U.S. at the world's largest veterinary conference, VMX earlier this year, and is now looking to roll it out to other countries. This is an incredible step forward for us, as we continue to commercialize our transformational Nu.Q technology within the companion animal healthcare sector. Our test is also now available as the Heska Nu.Q Canine Cancer Screen and Monitor Test to Heska's Veterinary Diagnostics Laboratory and for preorder at the Point of Care. Available in the coming months, it will be the first time that our Nu.Q technology will be used outside of centralized laboratory testing and will provide veterinarians with rapid, accurate, low-cost, and easy-to-use on-site testing in the veterinary clinic to support their clinical decision making. We are absolutely thrilled to be working with IDEXX and Heska, two global industry leaders, and I could not be happier that the Nu.Q Vet Cancer Test is now available in the mainstream mass market in the United States. There are approximately 84 million pet dogs in the United States and about 50% of U.S. households bring their dog to the vet annually for a health exam. We believe this provides a significant opportunity for us to introduce the Nu.Q Vet Cancer Test as an accessible and affordable screen for senior dogs and at-risk breeds, aiding in early detection and improving outcomes. It is a huge step forward and fantastic news for veterinarians, pet owners, and their pets. I am also happy to report that Professor Wilson-Robles' peer-reviewed paper on the use of the Nu.Q Vet Cancer Test for monitoring the disease was published yesterday. The publishing of this monitoring paper achieves another very important milestone 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 an 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 to help guide treatment decisions. You can hear more about the monitoring study and findings from Professor Wilson-Robles at our Capital Markets Day event later this afternoon. In wrapping up and looking ahead, we continue to pursue commercial deals at a global, regional, and local level to ensure global distribution of the Nu.Q Vet Cancer Test. We are also continuing to develop our feline product and extend our Nu.Q platform into emergency medicine, specifically focusing on NETosis. So, there’s another busy and exciting time ahead for sure, and I look forward to providing you with further updates throughout the year. With that, I'll pass back to Cameron Reynolds, our Group CEO. Cameron?

Cameron Reynolds, President and CEO

Thanks, Tom, and thank you, Terig, for those updates. Great progress indeed. I'm delighted with the progress we have made with Nu.Q Vet, a fundamental part of the business with clear potential to generate significant revenue for the company. Our goal is to make canine cancer screening and monitoring accessible worldwide, and I'm thrilled that we are moving ever closer to realizing this mission. I will wrap up the call today by updating you on another key product pillar, Nu.Q NETs. Our team continues to work diligently to bring Nu.Q NETs to market. We are now undertaking large-scale findings studies across multiple sites in the U.S. to determine clinical utility in sepsis and support our application to the FDA's Breakthrough Device program. We strongly believe the Nu.Q NETs test is a groundbreaking diagnostic aid that clinicians can use to detect diseases associated with NETosis. Just last week, we held a webinar led by Dr. Andy Retter, an Intensive Care Consultant with extensive experience in managing sepsis in patients. The webinar was well attended and focused on the burden of sepsis and challenges of treatment, the fundamental role NETosis plays in sepsis, and the need for a solution like Nu.Q NETs. It's available to watch now on our website. Finally, as another highlight of the quarter, last month, we also sponsored a GenomeWeb webinar titled 'The Long Journey of EZH2 Inhibitors from Imperfect Tools to Precision Medicine'. It was led by Dr. Francesco Crea, Director of Research at the Open University, and Dr. Francesca Salani, Medical Oncologist at the University of Pisa. The session focused on EZH2 inhibitors in cancer therapy and the development of non-invasive diagnostic tools. It also gave us the opportunity to show how Volition works effectively with organizations like the Open University through our innovative Nu.Q Discover program. Again, the webinar was well attended with a very engaged audience and representation across industry and academia. You can also watch it back on demand by visiting the GenomeWeb website. We've also made strong progress in both our Nu.Q Cancer and Nu.Q Capture pillars, and I'll update you on those in the coming quarters. To sum up, I am 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 groundbreaking nucleosome quantification technology, we are now commercializing 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. We also hope you will join us for our Nu.Q Capital Markets Day event later today, where we will be joined by Dr. Andrew Retter, Professor Wilson-Robles, and Dr. Sue Ettinger. As we draw this earnings call to a close, I'd like to thank you for joining us today. We very much appreciate it. We're happy to take your questions. Operator?

Operator, Operator

Thank you very much, sir. We will now be conducting a question-and-answer session. The first question comes from Bruce Jackson of the Benchmark Company.

Bruce Jackson, Analyst

Good morning and thank you for answering my questions. Regarding the veterinary side, I understand you sell the tests to veterinary labs, and then the doctors place their orders. Do you have any insight into the ordering patterns of the physicians? And do you have any indication of the repeat ordering trends?

Cameron Reynolds, President and CEO

Hi, Bruce, good morning. Thanks for the question. We don't have any formal data coming back from them, but we're in contact with all of our partners on the use of the test, and it has been uniformly positive. They're extremely excited about the reception veterinarians are giving to our tests. We're in over 45 states in the United States right now, and they’re thrilled with it. They’re continuing to collect additional data and will utilize that data for a broader launch in the second half of 2023 as well. So, we really couldn't be more excited about the positive responses they're providing when we inquire.

Bruce Jackson, Analyst

Okay, great. And then just a quick follow-up question on that, with the lab ordering trends to you, should we think about it as building in sort of a linear fashion here throughout the year, or could it potentially be a bit lumpy as the labs take in orders and then adjust according to the end user demand?

Tom Butera, CEO of Volition Veterinary

Yes. So let me take that one. It's a bit difficult to predict, but we do expect it to be a little bit lumpy at this point. We're not sure whether it will take off in a linear fashion exactly because they will roll it out to different labs at different points in time. So you could see more of a step increase as we go through the year. But yes, we don't have insight as to when those steps will occur, but we do expect it to increase slowly over the year.

Terig Hughes, Group Chief Financial Officer

And of course, Bruce, there'll also be when Heska starts sales as well that’ll pick up through the back half of the year, and we expect them both to be launching in a wide range of countries later this year as well. So, yes, absolutely a little lumpy at the start, but I think it will pick up very strongly through the end of the year and through next year.

Bruce Jackson, Analyst

Okay. That's it for me. Thank you very much.

Cameron Reynolds, President and CEO

Thank you, Bruce. Have a great day.

Operator, Operator

Thank you. The next question comes from Steven Ralston of Zacks.

Steven Ralston, Analyst

Good morning.

Cameron Reynolds, President and CEO

Good morning, Steven.

Steven Ralston, Analyst

First of all, your R&D line spiked up dramatically in the first quarter here, was up 37% year-over-year and 24% sequentially. You alluded to today was basically on this $1.1 million of increased R&D on the U.S. clinical trial activities. Could you give a little color behind that? Is that all Nu.Q NETs or are there other portions of that? And in addition to that, in the broad R&D number, could you give us an idea if there's something else that's spiking up there, that's going to give us a better idea on the progression of your other commercialization efforts?

Terig Hughes, Group Chief Financial Officer

So, the increase over last year is mainly due to the clinical trial activities in the U.S., which is focused on NETs and particularly sepsis. That's the main driver. There is a slight increase in terms of our centers of excellence that we've been rolling out in Europe, again focused on NETs, but the majority of it is driven by the increase in activity for the U.S. clinical trials. And that will continue into Q2, but we don't expect to see expenditures increasing from here. Q1 is always the biggest quarter for us both in terms of expenses and cash flow, and Q2 will be, for certain, lower than Q1, particularly on the cash flow side, where we'd expect it to be more in-line with last year, probably somewhere in the range of $2 million to $2.5 million on the cash flow rather than what we saw in Q1.

Cameron Reynolds, President and CEO

I think, Steven, it's probably important just to provide a general strategy on this as well. Obviously, we're incredibly excited about Nu.Q Vet and the launches where they're going really well for us, and it'll continue to pick up, we think. We are spending quite heavily on Nu.Q NETs. I think it's a very important product for us and having a human product in the U.S. FDA approved would also be a fantastic outcome for the company. So, we are investing in that. However, we're also spending some resources on the background of epigenetics. We want to stay on the cutting edge of this field, and I think that's exactly what we're doing. We have also been doing some background work on the Capture side in human cancer, which you'll probably hear about later this year and next year. So, I think we're keeping a strategy that focuses on revenue in Veterinary and NETs while also keeping on the cutting edge of epigenetics. It's a fantastic package and we will keep doing this.

Steven Ralston, Analyst

Thank you. I've been watching these webinars that you've been putting out. I really appreciate it. I usually don't do this, but I'm going to just comment on your Nu.Q NETs sepsis webinar. I can clearly say that within the last year, that's the best webinar I've seen. It was very informative and I appreciate that effort. Lastly, if you could talk about the last conference call for the quarter, fourth quarter, you mentioned that you would share the revenue update on the Heska pre-sales to the point of care. Are you prepared to do that now?

Cameron Reynolds, President and CEO

Sorry, a bit. I didn't quite catch the question.

Terig Hughes, Group Chief Financial Officer

The Heska pre-sales in Q1.

Cameron Reynolds, President and CEO

The Heska pre-sales. No, we're not able to provide an update at this point in time. We'll probably be able to provide it in the next quarter.

Steven Ralston, Analyst

All right. Thank you very much.

Cameron Reynolds, President and CEO

And thanks for your kind words about the webinar. I'll pass it on to our communications team. It's something we're very careful to try to do, as NETs I think is a fantastic opportunity but something which takes a little time to understand. So we will continue to put resources into communication, and it's great to hear it's being appreciated. Thank you.

Operator, Operator

Thank you. Next question comes from Ross Osborn of Cantor Fitzgerald.

Ross Osborn, Analyst

Hi, good morning, everyone. Congrats on the progress.

Cameron Reynolds, President and CEO

Thank you.

Ross Osborn, Analyst

Starting off, can we walk through the IDEXX commercialization plan, specifically outside of the United States? What countries are they targeting? And then as a follow-up, how much of a focus is Asia for you guys now for new Nu.Q Vet? I know you have the SAGE partnership there, and obviously, it's a huge market. But I think, to this point, it hasn't really contributed material revenue.

Cameron Reynolds, President and CEO

Yes, thanks for the question, Ross. They are currently gathering extensive data in preparation for launching in the second half of 2023. Their plans include expansion into Canada, the UK, the EU, and Australia. There is also some consideration for Asia for IDEXX at that time, particularly due to their strong presence in Japan. This is all part of their plans for the second half of 2023. Could you repeat your second question so I can address that for you?

Ross Osborn, Analyst

Yes. Just any update with the SAGE partnership. I know they did not think in initial rollout and maybe Singapore. I could be wrong there. But it's been commercial, I believe, for almost a year now? And just curious kind of the level of uptake there and focus for the company?

Cameron Reynolds, President and CEO

Yes. The SAGE partnership has been very good. It has allowed us to be a launching pad for our presence in Asia. We're getting a significant amount of interest and discussions right now with other reference labs in the region, both in Southeast Asia and Asia. We are actively discussing with several of them at the present time. So it's been a valuable access and exposure for us, and we're delighted with the continued inquiries and discussions we're having with other labs.

Ross Osborn, Analyst

Okay. Great. Thank you for providing that clarity. And then I realize it's a lesser focus for the company, but any update on Discover? I think revenue was down a bit in the quarter. So just curious to hear if the level of resources devoted to generating Discover contracts and servicing that business and if it makes sense to do that longer term?

Cameron Reynolds, President and CEO

Yes. It’s a very good question. To recap, Discover is about other people using our technology. There was a big surge at the start of last year when we opened it up and processed all of the inbound inquiries. So, we are incredibly happy to have had that revenue in the prior quarter, which was very significant for us and truly demonstrated the interest in our platform. However, at the moment, Discover, while it's excellent to have other people using it, we continue to work on it, and there are a few contracts in the pipeline. The real focus and what could make us very successful in the short term is revenue coming in from Nu.Q Vet and Nu.Q NETs. We are continuing work on Discover; it is not getting a lot of resources, but we will have more contracts. Given the total addressable markets for Vet and NET, those could easily dwarf anything Discover could achieve. But we have had some great partnerships, and we're very excited by the interest shown, and we will keep working on Discover.

Ross Osborn, Analyst

Okay. Makes sense. Thank you for taking my questions.

Cameron Reynolds, President and CEO

Thank you. Have a great day.

Operator, Operator

Thank you. Ladies and gentlemen, with no further questions in the question queue, we have reached the end of the question-and-answer session. I would now like to turn the conference over to Cameron Reynolds for closing remarks. Thank you.

Cameron Reynolds, President and CEO

Thank you everyone. I really appreciate you listening in. It's an incredibly exciting time for us. On the VET side, it's a real honor to be running a company that has a very wide range of products now in launch. So we'll keep you updated on all of those. A further reminder, we have a webinar this afternoon. We're all here at the New York Stock Exchange today, and we've got some great key opinion leaders who are even more excited than we are about the potential for our products. They'll be hearing from them and us on other updates. So please either listen in live or they’ll also be available after. The webinars we've talked about over the last few weeks are also available if you want to listen to them if you've missed them already. I think they’re very informative and really provide a great background into our platform and how we're launching it and how we think we're going to become successful on the commercial side this year and next. Thank you very much for your time. I really appreciate it.

Operator, Operator

Thank you, sir. Ladies and gentlemen, that concludes today's conference. Thank you for attending, and you may now disconnect your lines.