VolitionRx Limited (VNRX) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Volition RX Limited’s first quarter 2022 earnings conference call. [Operator Instructions] This conference call is being recorded today, May 12th, 2022. And now I’d 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 Volition RX 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. [Operator Instructions] Also on our call today is Mr. Cameron Reynolds, president and chief executive officer, Dr. Tom Butera, Chief Executive Officer of our Volition Veterinary subsidiary and Mr. Terry 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 10K, quarterly reports on form 10Q 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’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 earning call season. We will commence the call with our financial report, and then given all the activities surrounding Volition Vets, 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 13th at 10:00 a.m. U.S. Eastern Time. You might just be in time to register to attend in person at the NYIC, 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 10K, we aim to keep 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’ll now provide a summary of the key financial results for the quarter ended March 31st, 2022. We ended the quarter with cash and cash equivalent of approximately $23.7 million compared with $20.6 million at the end of 2021. This cash position includes an upfront milestone payment of $10 million received from Heska Corporation in relation to the licensing and supply agreement executed with them on March 28th, 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 were $7.8 million compared to $6.1 million for the first quarter of 2021. This increase was primarily the result of increased expenditures in the sales and marketing and general and administrative functions, mainly due to higher personnel costs, primarily as a result of additional head counts, 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 of the prior year. The year-on-year increase was primarily from initial sales of new Q Discover the customers in Europe, but also included the first sales of our new Q Vet Test to Sage in Singapore, as well as sales of H 3.1 kit. Net loss for the quarter was $7.7 million compared to $6.1 million for the 3 months ended March 31st, 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 culmination of much work across the company, and truly marks the beginning of our commercial journey. It is worth noting that whilst this payment has been fully received and is 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 detail at 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 new Q vets and new Q nets, 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 detail regarding not only the Heska licensing and supply agreement 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 Volition veterinary, and 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’s 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 new 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 toward to launch. As a reminder, our executed agreement with Heska provides exclusive rights to sell Volition’s new Q vet cancer tests for companion animals at the point of care, in addition to non-exclusive rights to sell the new Q vet cancer test for companion animals via Heska’s reference laboratories. And finally, looking to 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 manual for companion animals, again, at the point of care. This multi-year 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 payments 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 hope it would provide a little more clarity. This contract with Heska provides for milestone payments to Volition. To give you the breakdown, Volition received 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 the 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 new Q vet cancer test in Singapore. Dr. Wilson-Robles and I have the honor of presenting to the Singapore veterinarians via a 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 [indiscernible] 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 simple, easy to use blood test 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 new 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 new 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 new Q vet test as a monitoring tool. And I am 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 new 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 new Q vet test to not only screen for cancer as per the 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. We’ll 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 Markets 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 prouder of the team’s achievement in securing a global licensing and supply contract with one of the industry’s leading companies, the Heska Corporation. Good deals take time, and I could not be happier with the outcome and am excited with everything the vets and commercial team 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 revenues for the company in terms of both milestone payments and an 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 onto other aspects of our business’ view and starting as ever with our people. In the first quarter of 2022, we have expanded our team and strengthened the bench with some incredibly talented recruits, especially in the veterinary team. Additionally, subsequent to quarter to end, we welcome Sharon Ballesteros as head of US 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 at Jena Biosciences and most recently, Sharon was director of design quality and risk at GRAIL, where she led the company’s design control and risk programs. I’m absolutely delighted to say, in true Volition style, Sharon has hit the ground running and will be presenting the clinical and regulatory strategy, including the FDA strategy for our new 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 5 product killers, one of which Tom covered earlier with regards to new Q vets. Given it has only been a few weeks since our last call, we have no significant updates regarding our new Q cancer or new Q Discover programs. Further, as Dr. Jake Micallef will fully cover new 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 new Q capture today. As I’ve said on previous calls, we believe the new 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 new Q assays. The new Q capture program now has several strands of technology, which either essentially remove background noise, thereby amplifying signal, or looks to identify this signal in a novel wave. Other strands of the new Q capture technology involve isolating various premise 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 4 different strands of nuclear 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 [email protected]. 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 the momentum has carried into the second quarter. I hope to see many of you at our 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 will share further details focused this time on new Q vets and new Q nets. In drawing this earnings call to a close, I would like to thank you all for joining this call today. We very much appreciate it given this is earning call season. I, along with the rest of the board and indeed the whole company, very much look forward to sharing further news regarding Volition Vets and our 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 in an extremely strong position to commercialize our new 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 of our journey. We are now happy to take questions. Operator?

[Operator Instructions] And the first question comes from Ross Osborn with Cantor Fitzgerald.

Congrats on the progress.

Thank you.

I guess, starting off, could you maybe provide a little bit more insight into your trajectory to recognizing some of the $18 million and incremental milestone payments?

Yes, sorry, Terig do you want to deal with that?

Yes, sure. So as, as we said on the call with respect to the first $10 million, we’ve treated that as deferred revenue at this point. The – the money’s in the bank it’s – it’s non-refundable, but given the complexity around the accounting for that, and in – in respect to this contract we’re – we’re – 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’re 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, to everyone listening, the other $18 million is on 3 what we think are very achievable milestones. The actual launch of the first products which is what the CEO of Heska is expecting later this year or 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 feline 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 2 years, assuming we get the others, which I think is a reasonable assumption, and so we couldn’t be happier. And then once we’ve 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 – 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, sounds great. And then maybe switching over to Discover contracts. Would you remind us how many you have signed now? And then if you can provide any visibility to new contracts. And then, I suppose, 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’s – there’s not much of an update since the last call on the 10K. We – we’ve got 5 signed contracts, and the average is somewhere around $40,000 on average that we expect to realize this year. So, we’re looking at – you know, just in terms of the signed contracts, about 200,000 for this year, but then we’ve 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 and 400,000 for this year.

And I think going forward – I think going forward, Ross, it’s probably just important just to show – to say where we’re going to be – put our emphasis though. 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 enough 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 for Discover. So given, you know, we’re not a big company, I think we’re 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’s side on – on the regulatory US side. So Discover’s important, and it’s – we’re excited about it, but potentially it’s – 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, right. Yes, looking forward to tomorrow. And then maybe just a last one for me. You’re able to control expenditures a whole lot better than we were forecasting. Can you maybe just help us think about the rest of the year where you’re able to meet a full-end stand and maybe where you’ll grow a little bit?

Terig?

So, yes, in terms of cash burn, it – it has ticked up a little bit. The first quarter’s always a bit heavier for us than the balance of the year. Just because of the – the nature of some of the expenditures in the first quarter. But we’re – we’re – our underlying cash burn is somewhere a little above $2 million, but not much, so it’s -- as you’d expect, it’s 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, I think, yes, we are a little below where we thought we’d be, and the projections were. We’re really trying to – you know, 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 – 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 space. And we’re about to show how much can be made from the net 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 a fantastic platform, great team, but make some money. So, we’re balancing spending money to make more money, which I think is proved very successful in the vet space. But we will keep it very tight because I think – I’m sure you’re well aware, Ross, the market’s a little rough out there at the moment in the overall biotech space. So, we want to make sure every dollar is spent very wisely. We’re in a better financial position than we were – which was – 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.

Yes, it makes sense. Congrats again on the quarter.

Thank you.

We still have times for questions. [Operator Instructions]

Actually, sorry, I’ve just been informed there’s a technical issue on the phone line. Given the fact we’ve got a Capital Markets Day tomorrow, we’ll be answering questions – we have a 2-hour Capital Markets Day, and the second half is all questions. I understand there are some analysts who were trying to get on but cannot. But look, given it’s tomorrow, it’s a much longer session anyway, we can take the rest of the calls tomorrow and answer then perhaps more fully given the longer time we have. So, I apologize for the technical issue on the phone lines. But I’m very happy to take down the analyst’s questions of those who were trying to get on the call today tomorrow, given the Capital Markets Day. So, to wrap up, thank you very much. I – I think I – I couldn’t be happier with where we are. I think you’ve heard a lot of how – how our team has grown stronger and deeper; how our patent portfolio is 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 – the path forward on the vet space and where we’re going to be making revenue and also for NETosis. So overall, I think we’re in an 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 on the New York stock exchange or online. Thank you very much for your time. I 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.