VolitionRx — Shifts in US CRC screening; major catalysts in H2

The research use-only kits that Active Motif will be distributing are based on the Nu.Q immunoassay technology and can be used to investigate epigenetic modifications to cell-free nucleosomes. While VolitionRx 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. Active Motif is a US-based private company, therefore its financial details are not publicly released. However, the company specialises in supplying the research community with products for epigenetic and gene regulation research, so it appears to be a good distribution partner for VolitionRx.

Management has not yet provided guidance due to the products’ early stage of commercialisation of the products, but has indicated that end-user pricing is likely to be <$1,000 per kit. VolitionRx will receive around $150-200 of that, but will not incur any additional costs as Active Motif will manufacture and distribute the kits and manage customer service. Therefore, this will be high-margin revenue for VolitionRx. Active Motif planned to start commercialising the kits by end Q218, so Q318 will be the first full ‘in market’ period. When it comes to long-term potential, we believe this could generate a modest income for VolitionRx that would help to offset some of the operating costs; however, the clinical application of Nu.Q technology is still the ultimate goal and path to profitability. To a large extent, VolitionRx considers the sale of kits to third-party researchers as further validation of its Nucleosomics platform and of increasing awareness. A potentially lucrative opportunity could be companion diagnostics. If VolitionRx’s assays are used during drug development by a third party and pass regulatory approval, such companion diagnostics would be tied to the drug securing royalties or other licensing income for VolitionRx. Therapeutics, however, can takes years of development.

The US CRC screening market has seen several recent major developments. The American Cancer Society has lowered the recommended age to start screening for CRC from 50 to 45 years old in its updated screening guidelines released in May 2018.1 This has increased the target population for screening in the US from 93 million to 114 million people. VolitionRx’s competitor Exact Sciences’ share price, which markets Cologuard, jumped 11% after the news. Cologuard was included in the updated guidelines and is approved by the FDA for screening for the over 50s, but the company plans to expand the label for the over 45s, in line with the new guidelines. In total, 186,000 Cologuard tests were carried out in Q118, bringing in revenue of $90.3m for Exact Sciences, where the test price is $485. The company expects to reach a total of 900-920k tests for 2018. Cologuard is a stool-based DNA screening test, which is expensive and likely to still be posing compliance issues, similar to other stool-based screening methods.

Another peer close to VolitionRx is Epigenomics, which developed Epi proColon, a blood-based DNA screening test (this is likely to be more expensive than VolitionRx’s solution). Epigenomics has found itself in a less favourable situation because the new guidelines did not include its Epi proColon test as an option for screening and its share price fell c 43% on the same day. Epigenomics is securing reimbursement through a national coverage determination (NCD) and inclusion into guidelines was perceived as key stepping stone. While guidelines are subject to regular updates, this has introduced uncertainty for the company in the near term and shows the need to gain approval from clinical consensus to convince payors of reimbursement. Another potential path to achieve reimbursement coverage for CRC screening in the US has opened up via legislation. A bipartisan initiative, the Colorectal Cancer Detection Act of 2018, was introduced to the Senate in March 2018, aiming to provide coverage under the Medicare programme for FDA-approved CRC screening blood-based tests. Epi proColon was approved by the FDA in April 2016, therefore if the law is passed, Epi proColon could potentially qualify for reimbursement. The law appears to increase the likelihood of novel, FDA-approved tests achieving reimbursement, so potentially positive for VolitionRx as well.

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 39 different ELISA-based assays to characterise and quantify these nucleosome-based biomarkers in the hope of identifying signatures indicative of different cancers. The main competitive advantage of VolitionRx’s technology compared with other novel and established CRC screening methods is its simple use and minimal invasiveness (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.

VolitionRx is running a broad R&D programme to establish the feasibility of various applications for its technology (Exhibit 1). Leading programmes are in CRC, but the company has also tested the technology in lung, pancreatic and prostate cancers, and has an ongoing study examining its assays in 27 common cancers (also presented in detail in our last outlook report). The primary focus in CRC is on the triage test and frontline screening (Exhibit 2), the latter being the largest opportunity due to market size (145 million in EU28, 114 million in the US); VolitionRx is also working on the strategy in Asia. In addition, VolitionRx is exploring how to position the Nu.Q test for symptomatic CRC patients.

While the R&D programme is broad, the main value drivers for VolitionRx are the large CRC trials in Europe (with Hvidovre Hospital in Denmark) and the US (with the National Cancer Institute’s (NCI’s) Early Detection Research Network), which include retrospective or prospective training sets and a subsequent prospective validation sets, as detailed in Exhibit 1. These trials, if successful, will allow VolitionRx to seek regulatory approval and gain marketing claims in the respective geographies. The triage test, while a smaller opportunity, could potentially reach the market sooner, as VolitionRx has been developing the test for longer. Current plans include CE marking the triage test in Q418, the CRC screening test in Q119 and launch of both tests in 2019 in Europe. VolitionRx is also looking to expand in Asia and is initiating two prospective trials in Taiwan in a partnership with the National Taiwan University.

According to the most recent update, the upcoming milestones include:

Together with its Q118 results, VolitionRx described its progress with one of its internal projects, which explores Nu.Q technology’s potential in enriching nucleosomes of tumour origin for use in circulating tumour DNA (ctDNA) detection. ctDNA research has expanded substantially since the advent of cheaper next-generation sequencing techniques and now constitutes a significant research area in liquid biopsy, followed by circulating tumour-cell harvesting technologies. The main hurdle in ctDNA research is the very small amount of tumour DNA. Another layer of complexity is that there can be other types of DNA in the bloodstream, such as in post-myocardial infarction patients or pregnant women with DNA from the baby (collectively ctDNA and other types are called cell-free DNA). For these reasons the ctDNA enriching idea is intriguing, although so far VolitionRx has not released much information about how its Nucleosomics platform could achieve it.

During the Q118 results call, VolitionRx provided details on another initiative it has been exploring in animal health. The company has undertaken a pilot veterinary study, where it was able to detect nucleosomes in samples from dogs that were diagnosed with cancer using the same assays as in humans. VolitionRx does not intend to carry this programme further by itself, but is keen to establish collaborations with parties specialising in the area. If this initiative gains traction, animal health will represent a whole new area for VolitionRx; we will revisit this if there are updates in the future.

As expected, VolitionRx reported no income and an operating loss of $4.6m in Q118, compared to $3.3m a year ago. The increase mainly was due to higher R&D costs of $2.4m from $1.7m. VolitionRx had cash of $14.3m at end Q118 after it raised $8.4m gross in March. The company reiterated its guidance that cash burn is likely to stay at $3m per quarter in the near future. Adding $700k in non-dilutive financing from the Walloon regional government announced in June 2018, the guidance suggests that runway extends well into 2019 and past several R&D catalysts. VolitionRx had $1.8m in gross debt at end Q118.

Our estimate changes include a modest downward revision to our near-term operating expenses to reflect the steady guidance. In addition, we include small initial research use sales of $50k in 2018 and $100k in 2019. Notably, there is little visibility of the potential of research-use sales and we will revise our estimates once more data points are reported. As a result, our operating loss has improved to $16.9m (from $18.9m) and $17.2m (from $21.5m) in 2018 and 2019 respectively. We calculate a $9.5m funding gap in 2019 (shown as long-term debt in Exhibit 4).

Our VolitionRx valuation has increased slightly to $243m or $7.02 per share from $212m or $6.93 per share due to the inclusion of modest research use sales, reduction in near-term costs and rolling our model forward. Our assumptions for the development programmes remain almost unchanged. For now we have not increased the target screening population in the US as recommended in the screening guidelines, which were announced in May 2018. We will revisit this once the awareness spreads and data emerge to suggest CRC screening in under 50-year-olds is increasing. Near-term catalysts for the share price include: