VolitionRx — Platform upgrades and busy 2019

VolitionRx (NYSE: VNRX)

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Research: Healthcare

VolitionRx — Platform upgrades and busy 2019

VolitionRx’s latest Q318 results announcement provided an update on the progress across its established R&D projects and added more detail to several newer initiatives. Management explained that the delays in some of the ongoing trials were due to the identified need to upgrade the Nu.Q platform assays to clinical grade. As a result, readouts from the lead trials are now expected throughout 2019 (previously end-2018/ealy-2019). According to management, upgrade work is underway and a number of R&D milestones are reachable within the next 12 months. Our valuation post share issue is $233m or $6.60/share.

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Healthcare

VolitionRx

Platform upgrades and busy 2019

Q318 company results

Healthcare equipment & services

29 November 2018

Price

US$2.22

Market cap

US$78m

Net cash ($m) at end Q318 + $717k from warrant exercise after period close

17.1

Shares in issue

35.0

Free float

70%

Code

VNRX

Primary exchange

NYSE American

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(11.6)

11.6

(31.3)

Rel (local)

(14.3)

17.8

(34.2)

52-week high/low

US$4.0

US$1.6

Business description

VolitionRx is a life sciences company developing novel, simple-to-use, blood-based tests to diagnose a broad range of cancers and other conditions by identifying and measuring nucleosomes in the blood stream. The primary focus is to develop the Nu.Q family of blood-based diagnostics tests for colorectal cancer.

Next events

Triage test finalised

2019

Triage test CE mark

2019

4,300-sample training study results

2019

12,000+ sample blinded study initiation

2019

Analysts

Jonas Peciulis

+44 (0)20 3077 5728

Alice Nettleton

+44 (0)20 3077 5700

VolitionRx is a research client of Edison Investment Research Limited

VolitionRx’s latest Q318 results announcement provided an update on the progress across its established R&D projects and added more detail to several newer initiatives. Management explained that the delays in some of the ongoing trials were due to the identified need to upgrade the Nu.Q platform assays to clinical grade. As a result, readouts from the lead trials are now expected throughout 2019 (previously end-2018/early-2019). According to management, upgrade work is underway and a number of R&D milestones are reachable within the next 12 months. Our valuation post share issue is $233m or $6.60/share.

Year end

Revenue ($m)

PBT*
($m)

EPS*
($)

DPS
($)

P/E
(x)

Yield
(%)

12/16

0.0

(12.5)

(0.54)

0.0

N/A

N/A

12/17

0.0

(15.1)

(0.57)

0.0

N/A

N/A

12/18e

0.1

(17.8)

(0.48)

0.0

N/A

N/A

12/19e

1.4

(16.9)

(0.44)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Financials: Successful share issue

As expected, Volition reported no income and an operating loss of $4.5m in Q318, compared to $3.9m a year ago. The increase was due to higher R&D costs of $2.7m vs $2.1m. Volition had cash of $16.4m at end Q318 after it raised $9.0m gross in August 2018, and an additional $717k was received in October 2018 from the warrant exercise, which means cash reach to around end-2019. Notably, warrants that expire within the next 12 months could bring in another $18.7m if exercised (the strike price range is $2.00–3.00/share).

Approaching R&D milestones and new initiatives

Volition expects to deliver on several R&D milestones over the next 12 months. Key readouts include results of the updated Nu.Q colorectal cancer (CRC) triage test and CE marking, and the final panel for the Nu.Q CRC frontline screening test based on 4,300 samples, which will be validated in a 12,000+ sample study and a CE mark obtained. Newer application areas in the R&D pipeline include prostate cancer, with positive first data published in August 2018, and a follow-up trial is planned for 2019. First results from the endometriosis trial are also due in the coming months after the blood sample collection was completed in August 2018. Endometriosis is a slowly progressing, difficult to diagnose and potentially serious condition in women, where a non-invasive test could be an advantage presuming sufficient accuracy. It is also the first non-oncological application area that Volition is exploring.

Valuation: Revised to $233m or $6.60/share

An improved cash position and rolling our model forward have increased our absolute valuation from $227m to $233m ($267m on a fully diluted basis). Our valuation per share is revised from $7.57 to $6.60 ($5.85) after the share issue. Our assumptions for the development programmes remain unchanged, while several key R&D events are reachable with the existing cash position.

R&D progress: Lead trial readouts in 2019; adding new application areas

As we detailed in our last outlook report, VolitionRx’s Nu.Q technology centres on the detection and characterisation of circulating nucleosomes. The company has developed a series of 48 different ELISA-based assays to characterise and quantify these nucleosome-based biomarkers in the hope of identifying signatures indicative of different cancers. CRC is the main indication in focus and the competitive advantage of Volition’s technology compared with other novel or established CRC screening methods is that it is easy to use and minimally invasive (a blood sample is obtained via a regular blood draw). This could lead to increased compliance in CRC screening. In addition, the tests are based on ELISA, which makes them inexpensive and widely available in laboratories.

During the latest Q318 results call, VolitionRx provided an update on its broad R&D programme (Exhibit 1). Earlier this year, the company announced that it had identified the need to upgrade its Nu.Q platform to clinical-grade assays. While this caused delays across the pipeline, according to the latest update, this work is now underway and management believes that the lead trials (detailed below) could be completed throughout 2019, ie a delay of several months compared to the timelines expected previously.

Volition’s lead programmes are in CRC (a frontline screening test and triage for colonoscopy after positive FIT test), while the company has also obtained exploratory data in lung, pancreatic and most recently prostate cancers. VolitionRx is also working on the strategy in Asia.

Exhibit 1: VolitionRx clinical programmes

Indication

Sponsor

Patients

Notes

Colorectal cancer

NCI Early Detection Research Network

13,500

Registration trial in the US. 4,600 retrospective samples, up to 9,000 prospective; ongoing to 2020.

Colorectal cancer

VolitionRx, Hvidovre Hospital (Denmark)

14,000+

Basis for frontline screening in CRC and CE mark in Europe. 4,300 sample prospective training set; 12,000+ prospective validation set. Results expected in 2019.

Colorectal cancer

Hvidovre Hospital (Denmark)

30,000

Longitudinal study, each person to provide three samples totaling 90,000 samples. Ongoing to 2022.

Colorectal cancer

National Taiwan University

5,000

Frontline screening. Collection ongoing.

Colorectal cancer

National Taiwan University

2,000

Diagnostic test in symptomatic patients. Collection ongoing.

27 most prevalent cancers

Bonn University Hospital (Germany)

4,500

Broad, prospective screen of 27 most prevalent cancers to identify differences in nucleosome modification; results expected in 2019.

Pancreatic cancer

German Cancer Research Center (DKFZ)

750

Retrospective study to detect of pancreatic cancer; results expected 2019.

Source: VolitionRx

Frontline CRC screening in Europe and the US. In Europe the plan is to complete the 4,300-sample prospective training study in CRC screening. VolitionRx expects this will allow identification of the final set of assays to be used in the test, which will be locked and validated in the 12,000+ prospective sample set. This should form the basis for the frontline CRC screening test and CE mark in Europe. In the US, the collection of samples is ongoing with a total of 4,600 retrospective samples and up to 9,000 prospective samples to be collected by 2020.

Triage test. Volition is updating the original version of its first product – a triage test for patients who had a positive FIT test to reduce unnecessary colonoscopies (as explained in our outlook report published on 28 November 2017). Management expects to announce the results from the follow-up study with the updated Nu.Q CRC triage test in 2019.

Study in the 27 most prevalent cancers. This co-operation with Bonn University Hospital began in 2015. This will be a discovery study and will analyse cell-free nucleosome modification across the 27 most prevalent cancers. Therefore, this is the first time the study will establish the breadth of the platform technology at this level. Results are expected in 2019.

Progress with Asian initiatives. Volition is conducting two clinical trials in Taiwan. The first study will involve 5,000 asymptomatic colorectal cancer screening subjects and the second study will include up to 2,000 symptomatic colorectal cancer patients with blood sample collection ongoing. The estimated cost is $2.55m. Volition believes that both the CE mark (to be obtained in Europe based on the CRC studies) and the results from these local trials will be accepted by Asian country regulatory authorities and form a sufficient base for marketing claims.

Most recently, Volition conducted a discovery study in prostate cancer and findings were released in August 2018. In this trial 84 men were referred for prostate biopsy. Biopsy findings (low- or high-grade cancer according to the Gleason Score) were correlated with Volition’s panel of five assays (including PSA, two inflammatory biomarkers and two Nu.Q assays). Results showed that at 88% specificity, the panel identified 94% of high-grade prostate cancer that required treatment. For comparison, the PSA test alone identified 33% of the high-grade cancer cases. This was a proof-of-concept study and the company plans to conduct a follow-up trial in 2019.

In August 2018, Volition announced that a three-year blood sample collection has been completed in the prospective study that involved women with endometriosis conducted in collaboration with the University of Oxford. Using these samples, Volition is now testing its assays to see whether it is feasible to design a Nu.Q panel that would allow an accurate blood-based test. Data are expected to be reported in the coming months. Endometriosis is a unique condition in women when the endometrium (tissue that lines the womb) is found outside the womb, for example in the ovaries or small pelvis. This condition can progress slowly, may cause pain or lead to infertility and can be difficult to diagnose, often requiring a highly interventional diagnostic laparoscopy. A non-invasive test would have a clear advantage in this setting as long as sufficient accuracy can be demonstrated.

Push into the veterinary field

One of the notable highlights this year was Volition’s push into animal health, which is a new application area for Nu.Q assays. Earlier in 2018, the company undertook a pilot veterinary study, where it was able to detect nucleosomes in samples from dogs diagnosed with cancer using the same assays as in humans. In October 2018, the results were presented at the Belgian Technology Mission at Texas A&M University. Animal health could potentially be a commercially lucrative area due to the combination of a large market and substantially lower regulatory hurdle than in humans. However, Volition indicated that its priority is clinical R&D, and it therefore aims to conduct development in animal health via partnerships. The first planned step is to conduct larger trials in the most prevalent forms of canine malignancies in collaboration with experts at the Texas A&M College of Veterinary Medicine & Biomedical Sciences.

Active Motif deal marks the start of commercial phase

Active Motif started distributing research use-only kits with the Nu.Q assay in summer 2018. These kits can be used by researchers to investigate epigenetic modifications to cell-free nucleosomes. While Volition focuses on cancer, the Nu.Q assays can potentially be used in a variety of conditions beyond cancer, such as inflammatory and infectious diseases in preclinical or clinical studies. Therefore, in our view, the main benefit of selling research use-only Nu.Q kits will come in the form of Nu.Q being used in a variety of applications that have so far been untested, growing awareness of the technology among researchers and, likely, published peer-reviewed articles. From a financial perspective, the revenue stream will likely be modest and clinical applications of Nu.Q technology are still Volition’s primary are of focus. One specific attractive opportunity could be companion diagnostics. If Volition’s assays are used during drug development by a third party and pass regulatory approval, these companion diagnostics would be tied to the drug, securing royalties or other licensing income for Volition. Active Motif started commercialising the kits in August 2018, so Q418 will be the first full ‘in-market’ quarter.

Financials and valuation

As expected, Volition reported no income and an operating loss of $4.5m in Q318, compared to $3.9m a year ago. The increase was due to higher R&D costs of $2.7m vs $2.1m. Volition had cash of $16.4m at end Q318 after it raised $9.0m gross in August 2018. This excludes $717k received in October 2018 from the exercise of certain warrants. In addition, warrants that expire within the next 12 months could bring in another $18.7m if exercised (the strike price range is $2.00–3.00/share). The new funds mean that the cash runway extends to around end-2019. Volition had $2.2m in gross debt at end Q318.

Following the Q318 results, we slightly increased our R&D, but decreased SG&A estimates for 2018 with a minimal net negative effect on FY18 operating loss, which now is $17.7m (vs $16.9m previously). An improved cash position and rolling our model forward have increased our absolute valuation from $227m to $233m ($267m on a fully diluted basis). Our valuation per share is revised from $7.57 to $6.60 ($5.85) after the share issue. Our assumptions for the development programmes remain unchanged, as explained in our previous notes. Near-term catalysts for the share price include:

Results of the updated Nu.Q CRC triage test and CE marking in 2019.

Follow-up trial and results in prostate cancer in 2019.

Results from the discovery trial in endometriosis

Progress of Active Motif’s launch of a range of research-use kits.

Results and final panel for the Nu.Q CRC frontline screening test based on 4,300 samples in H218; validation of the panel in a 12,000+ sample study and CE mark in 2019.

Preliminary data from study in 27 cancers due in 2019.

Exhibit 2: Valuation of Volition

Product

Main indication

Status

Probability of success

Launch year

Peak sales ($m)

Patent protection

Economics

rNPV ($m)

NuQ

Colorectal

Development

30%

2019

$404

2034

56% peak margin

$161

 

Colorectal triage

Development

40%

2019

$42

2034

50% peak margin

$16

 

Lung

Development

20%

2020

$132

2034

61% peak margin

$31

Pancreatic

Development

20%

2020

$42

2034

58% peak margin

$8

Total

 

 

 

 

 

 

 

216

Cash (Q318 + $717k from warrant exercise) ($m)

17.1

Total firm value ($m)

233

Total basic shares (m)

35.3

Value per basic share ($)

6.60

Warrants and options (m)

10.3

Weighted average exercise price ($)

3.26

Cash on exercise ($m)

33.5

Total firm value ($m)

267

Total diluted number of shares (m)

45.6

Diluted value per share ($)

5.85

Source: Edison Investment Research, Volition reports

Exhibit 3: Financial summary

$'000s

2016

2017

2018e

2019e

Year end 31 December

US GAAP

US GAAP

US GAAP

US GAAP

PROFIT & LOSS

Revenue

 

 

0

0

50

1,429

Cost of Sales

0

0

(14)

(170)

Gross Profit

0

0

36

1,260

Research & Development

(7,905)

(8,906)

(10,242)

(9,856)

Sales, General & Administrative

(4,525)

(6,140)

(7,526)

(8,256)

EBITDA

 

 

(12,430)

(15,046)

(17,732)

(16,853)

Operating profit (before amort. and except.)

(12,430)

(15,046)

(17,732)

(16,853)

Intangible Amortisation

0

0

0

0

Other

0

0

0

0

Exceptionals

0

0

0

0

Operating Profit

(12,430)

(15,046)

(17,732)

(16,853)

Net Interest

(20)

(73)

(90)

(71)

Other

436

414

0

0

Profit Before Tax (norm)

 

 

(12,450)

(15,119)

(17,822)

(16,923)

Profit Before Tax (FRS 3)

 

 

(12,014)

(14,705)

(17,822)

(16,923)

Tax

0

0

0

0

Deferred tax

(0)

(0)

(0)

(0)

Profit After Tax (norm)

(12,450)

(15,119)

(17,822)

(16,923)

Profit After Tax (FRS 3)

(12,014)

(14,705)

(17,822)

(16,923)

Average Number of Shares Outstanding (m)

23.0

26.4

36.7

38.2

EPS - normalised ($)

 

 

(0.54)

(0.57)

(0.48)

(0.44)

EPS - FRS 3 ($)

 

 

(0.52)

(0.56)

(0.48)

(0.44)

Dividend per share ($)

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

2,721

4,057

3,222

2,601

Intangible Assets

602

576

576

576

Tangible Assets

2,119

3,481

2,646

2,025

Other

(0)

(0)

(0)

(0)

Current Assets

 

 

21,846

10,319

14,209

389

Stocks

0

0

1

8

Debtors

0

0

9

155

Cash

21,679

10,116

13,997

24

Other

167

202

202

202

Current Liabilities

 

 

(2,033)

(2,290)

(3,120)

(3,167)

Creditors

(2,003)

(1,847)

(2,676)

(2,723)

Short term borrowings

(31)

(444)

(444)

(444)

Long Term Liabilities

 

 

(1,524)

(2,376)

(2,376)

(2,376)

Long term borrowings

(432)

(1,313)

(1,313)

(1,313)

Other long term liabilities

(1,092)

(1,063)

(1,063)

(1,063)

Net Assets

 

 

21,009

9,709

11,935

(2,553)

CASH FLOW

Operating Cash Flow

 

 

(8,865)

(12,193)

(13,732)

(13,959)

Net Interest

0

0

0

0

Tax

0

0

0

0

Capex

(415)

(1,425)

(1)

(14)

Acquisitions/disposals

0

0

0

0

Financing

25,302

998

17,613

0

Dividends

0

0

0

0

Other

(553)

(136)

0

0

Net Cash Flow

15,470

(12,756)

3,881

(13,973)

Opening net debt/(cash)

 

 

(5,916)

(21,216)

(8,360)

(12,240)

HP finance leases initiated

0

0

0

0

Exchange rate movements

146

(89)

0

0

Other

(316)

(12)

0

0

Closing net debt/(cash)

 

 

(21,216)

(8,360)

(12,240)

1,733

Source: Company data, Edison Investment Research

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This report has been commissioned by VolitionRx and prepared and issued by Edison, in consideration of a fee payable by VolitionRx. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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This report has been commissioned by VolitionRx and prepared and issued by Edison, in consideration of a fee payable by VolitionRx. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

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Frankfurt +49 (0)69 78 8076 960

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Germany

London +44 (0)20 3077 5700

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United Kingdom

New York +1 646 653 7026

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10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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