VolitionRx Limited (VNRX) Q1 2022 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to VolitionRx Limited's First Quarter 2022 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. [Operator Instructions] This conference is being recorded today, May 12, 2022. And now, I would now like to turn the conference 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 first quarter of 2022, 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; Dr. Tom Butera, Chief Executive Officer of our Volition Veterinary subsidiary; and Terig Hughes, Chief Financial Officer. Before we begin, I'd like to remind everyone that some of the information discussed on this conference call will include forward-looking statements covered under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on our beliefs as well as assumptions we have used based upon information currently available to us. Because these statements reflect our current views concerning future events, these statements involve risks, uncertainties and assumptions. Actual future results may vary significantly based on a number of factors that may cause the actual results or events to be materially different from future results, performance, or achievements expressed or implied by these statements. We have identified various risk factors associated with our operations. In our most recent Annual Report on Form 10-K, quarterly reports on Form 10-Q, and other filings with the Securities and Exchange Commission. We do not undertake an obligation to update any forward-looking statements made during the course of this call. I'd now like to turn the call over to our President and Chief Executive Officer, Mr. Cameron Reynolds. Cameron?

Thanks, Scott, and thank you everyone for joining Volition's first quarter 2022 earnings call today. We especially appreciate your time given the busy earnings call season. We will commence the call with our financial report and then given all the activities surrounding Volition debt, we are delighted to be joined by Dr. Tom Butera, Chief Executive Officer of Volition Veterinary. And then, I will wrap up with a quick update of our exciting ongoing work. But first an advertisement, just in case you missed previous announcements, we are hosting our 2022 Capital Markets day tomorrow, May 13 at 10 a.m. U.S. Eastern time. You might just be in time to register to attend in person at the NYSC or else you are very welcome to join via the webcast. Details for both can be found on our website volition.com in the Investor Relations section. Given the capital markets presentation tomorrow and indeed the fairly recent filing of the 10-K, we aim to this call quite tight, but as usual, we'll be happy to answer any questions you might have. And with that, I will hand over to Terig for our financial update.

Thanks very much, 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 March 31, 2022. We ended the quarter with cash and cash equivalents of approximately $23.7 million compared with $20.6 billion at the end of 2021. This cash position includes an upfront milestone payments of $10 million received from Heska Corporation in relation to the licensing and supply agreement executed with them on March 28, 2022. 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 2021. Total operating expenses for the quarter was $7.8 million compared to $6.1 million in the first quarter of 2021. This increase was primarily the result of increased expenditures in the sales and marketing in general and administrative functions, mainly due to higher personnel costs primarily as a result of additional headcount as well as higher stock-based compensation charges. Overall, research and development expenses were lower in the first quarter of 2022 compared to the first quarter of last year. Revenue reported in the first quarter of 2022 was $114,000 versus $25,000 for the first quarter the prior year. Year-on-year increase was primarily from initial sale of Nu.Q Discover to customers in Europe, but also included the first sale of our Nu.Q Vet tests to SAGE in Singapore as well as sale of H3.1 Q. Net loss for the quarter was $7.7 million compared to $6.1 million for the three months ended March 31, 2021. As mentioned previously, we received an upfront milestone payment of $10 million in cash from Heska Corporation. This was not only a milestone payment, but also a company milestone. The combination of much work across the Company and truly marked the beginning of our commercial journey. It is worth noting that whilst this payment has been fully received and it's non-refundable, it has not been recognized as revenue in the period and has been accounted for as deferred revenue in accordance with the relevant accounting standard ASC 606 revenue from contracts with customers. Given the complexity around ASC 606 in relation to our agreement with Heska, it is difficult to predict our revenue outlook at this point; however, we aim to update you in the near future. As we discussed on the previous call and plan to cover in some details, but our capital markets event tomorrow. Given the product range, we believe we can develop from our proprietary Nucleosomics platform. We believe our addressable markets are very significant, most notably in the short-term with Nu.Q Vet and Nu.Q NET. And we look forward to updating you in due course on our progress in accessing these opportunities. And with that, I'm delighted to hand over to Dr. Tom Butera, who will provide further details regarding not only the Heska licensing and supply agreements, but also other activities and upcoming milestones for Volition Veterinary. Tom?

Thanks very much, Terig, and hello everybody. This first quarter of 2022 really has been a breakthrough time for bullish in veterinary. I am so proud to update all of you on the call today. I honestly could not be prouder of our achievement in securing a global licensing and supply contract, with one of the industry's leading companies Heska Corporation. Heska is a leading global provider of advanced veterinary diagnostic and specialty products and is dedicated to developing the next generation of rapid, low cost, point of care diagnostics for companion animals. It has a worldwide distribution and partnering network. When we announced this deal in March, I commented about Heska very much sharing our philosophy, our work ethic and vision as to how Nu.Q Vet can really help save lives and improve outcomes for millions of pets worldwide. And I have to say that since that I believe this even more so today. We have many work streams up and running from technical transfer and logistics to sales and marketing and are making tremendous progress towards the launch. As a reminder, our executed agreement with Heska provides exclusive rights to sell Volition's Nu.Q Vet Cancer Test for companion animals at the point of care. In addition to non-exclusive rights to sell the Nu.Q Vet Cancer Test for companion animals via Heska reference laboratories. And finally looking into the future, it provides exclusive rights to canine cancer monitoring and feline lymphoma tests as well as certain rights to potentially commercialize a wider test menu for companion animals again at the point of get. This multiyear global supply and licensing agreement totals up to $28 million in milestone payments, the first of which the upfront payment of $10 million, Terig has spoken about in addition to ongoing things for kits and kits components. I understand from some of the questions we received subsequent to the last call, there was some confusion surrounding the financial elements of this deal. And so while I don't wish to repeat myself too much, I would like to hopefully provide a little more clarity. This contract with Heska provides for milestone payments to Volition. To give you the breakdown, Volition received a tender a $10 million upfront payment on signing the agreement, and will receive up to $18 million based upon the achievement of near and midterm milestones, $13 million of which we anticipate receiving in 2023. In addition to these milestone payments, and most likely significantly greater than these payments, is the ongoing revenue that Volition expects to receive in relation to payment for kits, which are used in the reference lab market and for the supply of key components for the exclusive point-of-care product that Heska will bring to the market. Every time Heska sells a test, Volition will make money, be that through the sale of a kit or from the sale of a key component. And this is a long-term deal with incredible market potential where we expect millions of tests will be sold each year. So, the ongoing revenue for Volition could be significant. It's a fantastic deal for both companies. And we are certainly excited to finish the legal work and get on to preparing for a launch possibly as early as later this year, but if not, in early 2023. And talking of launches subsequent to quarter end, I'm delighted to say SAGE Healthcare launched the Nu.Q Vet Cancer Test in Singapore. Dr. Wilson-Robles and I had the honor of presenting to the Singapore veterinarians via launch webinar, hosted by SAGE. As ever there was a lot of interest and a lot of great questions and I know the SAGE team are now spreading the word and driving them than in the clinic, I certainly expect to provide more updates in the coming quarters. With regards to our other negotiations, these remain ongoing. I am pleased to say that we are making progress and as ever, I remain optimistic in signing further deals this calendar year. We believe that, this is simple, easy to use blood tests addresses a huge unmet need in the Veterinary market. As I have said on previous calls, cancer screening is not yet as commonplace in animal health, as it is in human health. But I firmly believe, blood tests like the Nu.Q Vet Cancer Test could significantly, significantly, transform how veterinarians manage cancer in companion animals. Our clinical work didn't stop with a screening test. Dr. Wilson-Robles and team have been working on expanding the range of cancers, our test detects, and also on expanding the potential use of Nu.Q Vet for the monitoring of diseases. I discussed last time, the data Dr. Wilson-Robles presented at the Veterinary Cancer Society meeting in the fourth quarter of 2021. In relation to using the Nu.Q Vet test as a monitoring tool, and I'm delighted to say on the call today that, Dr. Wilson-Robles will be presenting further data in this regard at the European Society of Veterinary Oncology Congress later this month in Sicily. Not to get too technical here, but excitingly 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. We believe that, being able to use the Nu.Q Vet test to not only screen for cancer has per current product, helping identify disease earlier, but also to then be able to help monitor a dog's response to treatment and the disease progression as an early indication that a dog is coming out of remission will meet a real unmet need in the veterinary market. All-in-all, an incredibly busy time for the whole Volition Veterinary team and many of the volition executives as well, I would like to publicly commend and thank the team for their tremendous hard work, a great job well done. I hope many of you can join the Capital Market Day tomorrow or else view us on catch up, as we will be sure to be providing more details on the many activities we have ongoing at Volition Veterinary, but today as I was asked to keep it short. So with that, I'll hand it back to Cameron.

Thanks very much, Tom. I'd like to add that on a personal note, I could not be proud of the team's achievement in securing a global licensing and supply contract with one of the industry's leading companies, the Heska Corporation. Could deals take time and I could not be happier with the outcome and I am excited with everything the vet and commercial teams have in the pipeline. I'm also delighted with the progress we have made in this key pillar of the business as we progress strongly from a purely research and development company to a commercial company with a wide range of products. It is an exciting fast moving part of our business with clear potential to generate significant revenue for the Company in terms of both milestone payments, and ongoing revenue stream as Tom explained from the sales of kits and key components, not only to Heska, but also to SAGE Healthcare. And now on to other aspects of our businesses view and starting as ever with our people, in the first quarter of 2022, we have expanded our team and strengthen the bench with some incredibly talented recruits, especially in the veterinary team. Additionally, subsequent for quarter end, we welcome Sharon Ballesteros as Head of U.S. Quality and Development processes. Sharon has over 20 years experience within the in vitro diagnostic industry with senior program management, quality assurance, and process improvement roles at Siemens health diagnostics, Thermo Fisher, Agena Bioscience and most recently, Sharon was Director of Design, Quality and Risk at GRAIL, which lead the Company's design control and risk programs. I'm absolutely delighted to say in through Volition style, Sharon hits the ground running and will be presenting the clinical and regulatory strategy including the FDA strategy for Nu.Q NETs program tomorrow at the Capital Markets Day, great to have you on board Sharon. Our next key element of the Company is our product. We have five product pillars, one of which Tom covered earlier with regards to Nu.Q Vets. Given it has only been a few weeks since our last call, we have no significant updates regarding our Nu.Q Cancer or Nu.Q Discover programs. Further, as Jake Micallef will fully cover Nu.Q NETs in detail tomorrow at the Capital Markets Day and so not to steal his thunder, I will just provide a brief update on Nu.Q Capture today. As I've said on previous calls, we believe the Nu.Q Capture technology will be transformational as a DNA enrichment technology which could potentially aid diagnosis, treatment selection and both treatment and disease monitoring when used in combination with either sequencing mass spectrometry and/or Nu.Q essays. The Nu.Q Capture program now has several strands of technology, which either essentially remove background noise thereby amplifying signal or looks to identify the signal in a novel way. Other strands of the Nu.Q Capture technology involves isolating various parameters and fragments including nucleosomes and transcription factors from plasma for analysis by mass spectrometry and next generation DNA sequencing. We are currently actively working on four different strands in Nu.Q Capture in Belgium and in our new California lab, all of which are potentially very exciting product areas. Subsequent to year-end, we were delighted to sponsor a genome web webinar, which featured key opinion leader Professor Axel Imhoff and our very own Dr. Terry Kelly. This webinar was incredibly well received with over 300 attendees spanning industry, including many of the leading liquid biopsy companies, and academia. It included a busy question and answer session demonstrating the interest in epigenetics and the work we are undertaking. Should you be interested, the webinar is still available on demand catch-up. For more details, please contact mediarelations@volition.com. We will also be sponsoring future genome web webinars with the next one due late July focused on NETosis with leading Intensive Care Consultant, Dr. Andrew Aswani. And so in conclusion, I'm delighted with the significant progress we made in the first quarter of 2022 and momentum has carried into the second quarter. I hope to see many of you at a Capital Markets Day tomorrow. But if not in person, that you're able to join our webcast. I will be joined by many members of our executive team who share further details focus this time on Nu.Q Vet and Nu.Q NET. In drawing the earnings call to a close, I'd like to thank you all for joining this call today. We very much appreciate it given this is earnings call season. I along with the rest of the board and indeed the whole company very much look forward to sharing further news regarding Nu.Q Vet and other subsidiaries, as well as the results of our key clinical studies, publications and milestones over the coming months and quarters. I very much feel we are an extremely strong position to commercialize our Nu.Q platform in so many areas. I could not be more positive about our work at the heart of epigenetics, and I'm excited for the next phase about journey. We're now happy to take questions. Operator?

We'll now begin the question-and-answer session. [Operator Instructions] And the first question comes from Ross Osborn with Cantor Fitzgerald. Please go ahead.

Starting off, could you maybe provide a little bit more insight into your directory recognizing some of the 18 million and incremental milestone payments?

Yes. So, Terig, do you want to deal with that?

So, as we said, on the call, with respect to the first 10 million, we've treated that as deferred revenue at this point. The money is in the bank and its non-refundable, but given the complexity around the accounting for that and respect to this contract, we're going to take a bit of time to work out how exactly we're going to recognize that over the coming quarters. And similarly, with the other 18 million and so we are going to update you probably next quarter on what that's likely to look like. But at this point, it's difficult to give firm guidance on that in relation to this year.

But I think it's also very important to point out Ross and to everyone listening. The other 18 million is on three what we think are very achievable milestones. The actual just launch of the first products, which is what there, the CEO of Heska is expecting later this year, early next year, and the second product, which we would expect to be in the next kind of 12 months as well. And then an option on the fee line market, which hopefully could be next year as well. So, between the 10 and the 18, that's $28 million, which I think goes a long way to buttressing our burn over the next two years, assuming we get the others, which I think is a reasonable assumption. And so, we couldn't be happier. And then once we have achieved those milestones, that's when the revenue kicks in, we would expect from the kit sales, which we also expect to be very, very meaningful as well. So, overall I think it drastically changes our position so far as we can really start to have a lot of money coming in, which will go a long way to dealing with our burn rate. So, we're extremely happy with both the ongoing revenue and the $28 million potential milestone payments.

Okay. It sounds great. And then maybe switching over to Discover's contract, would you remind us how many you have signed now? And then, if you can provide any visibility to new contracts? And then as a follow-up, would you be able to provide a little bit more clarity on which phase each contract is in, or at least an average, so we can better understand the revenue potential there?

Terig?

Yes. So, there is not much of an update since the last call on the 10-K. We have got five signed contracts and the average is somewhere around $40,000 on average that we expect to realize this year. So, we are looking at just in terms of the signed contracts about 200,000 for this year. But then, we have also got a pipeline with a couple of other contracts that we expect to materialize this year as well. So, we're looking at somewhere between 200,000 to 400,000 for this year. And I think going forward, Ross's probably just important just to show to say where we're going to be put our emphasis. So Discover's very exciting and this is great revenue compared to 90,000 for everything last year. But, I think you'll see on the Capital Markets Day to get other advertising for that tomorrow, you'll see very much. I think the total addressable market for Vet and NETosis is about $33 billion between them. So we think, we will put some effort into Discover and it's very good, great contracts, great to get at the heart of epigenetics, but the total addressable market is a fraction of those would Discover. So given we are not a big company, I think we are going to put a lot of effort. You'll hear a lot tomorrow about the FDA strategy for NETosis from Sharon, who just directly joined us from GRAIL side on the regulatory U.S. side. So Discover is important and we're excited about it, but potentially it's not an elephant in the same way Vet and NETosis is. So, the focus tomorrow will really be on the elephant country if you will, and how we were going to get revenue and what it's going to look like going forward. So, just keep that in mind on the Discover side, it's never going to be a massive market for us, but as good as it is, it's never going to be massive.

Okay. Looking forward to tomorrow. And then maybe last one for me, you are able to control expenditures a bit better than we were forecasting. Could you maybe just help us think about the rest of the year where you are able to continue to fully understand and maybe where you'll grow little bit here?

So, yes, in terms of cash burn, it has ticked up a little bit, the first quarter was a bit heavier for us than the balance of the year, just because of the data of some of the expenditures in the first quarter. But we're underlying cash burn is somewhere little above 2 million, but not much. So it's, as you'd expect, it ticked up a little bit compared to the same period last year, but it's still well under control.

And I think that's just again, to point out something. Thank you. Yes, we are a little below where we thought we'd be. And the projections were, we're really trying to, obviously, it's difficult market conditions at the moment, we want to make sure we're spending our money very wisely. But at the same time, I think we need to get out there and start commercializing our products. I think you can see how much money can be made from the Vet's space, we're about to show how much can be made from the NET's space. So it's a balance of keeping it tight, but making sure we deliver revenue, because I think one message we've got loud and clear from everybody is fantastic platform, great team, but make some money. So, we're balancing spending money to make more money, which I think has proved very successful in the Vet space. But we will keep it very tight because I think I'm sure you're well aware of the markets a little rough out there at the moment in the overall paycheck space. So, we want to make sure every dollar is spent very wisely. You were in a better financial position than we were which was already quite okay last quarter, given the money we've come in. But we are going to keep a tight rein on things while making sure we invest in getting revenue. If that all makes sense.

We still have time for questions. [Operator Instructions]

Actually, sorry, I've just been informed as a technical issue on the phone line. Given the fact that we've got a Capital Markets Day tomorrow, we will be to answering questions. We have a two hour Capital Markets Day. And the second half is all questions. I understand this some analysts who are trying to get on but cannot, but look given its tomorrow with a much longer session anyway, we can take the rest of the calls tomorrow, and answer them perhaps more fully given the longer time we have. So I apologize for the technical issue on the phone line, but I'm very happy to take down those questions or those who are trying to get on the call today, tomorrow, given the Capital Markets Day. So to wrap up, I thank you very much. I think I couldn't be happier with where we are. I think you've heard a lot of how our team has grown stronger and deeper, how our patent portfolio was growing, how we are developing a very wide range of products. And tomorrow, I think will be a very good indication of that you'll hear from quite a few people. You perhaps have not heard from before from Volition, you're hearing about the path forward on the Vet space, and where we're going to be making revenue and also for the NETosis. So overall, I think we're in incredibly good position. I think the 12 years we've spent has really put us in a great position where we are now, and we have a great strategy now going forward to commercialize what we're doing. So, those of you who can, please attend tomorrow live or live in person. It's a great event of the New York Stock Exchange or online. Thank you very much for your time. Hope to update you a lot more next quarter. And I think there should be a lot going on. So have a great few months. And I look forward to presenting more updates to you soon. Have a great day. Thank you.

The conference is now concluded. Thank you for attending today's presentation and you may now disconnect.