VNRX: Initial Product Grade Assay Data is Compelling. Strategy Update On April 9th

By Brian Marckx, CFA



Q4 Results / Operational and Business Update:

VolitionRx (NYSE:VNRX) reported Q4 financial results and provided a business update. Relative to the financials, operating expenses, at $4.3M, were well below our $5.1M estimate and about 5% lower than the prior quarter. For the full year, operating expenses were $17.9M, a quarterly average of approximately $4.5M. That’s up 19% compared to the prior year – which we would characterize as a relatively benign difference given the significant operational progress that VNRX has made over that time.

As we noted in a prior update, we estimate that VolitionRx’s average cost per sample (of all ongoing trials) is approximately $100 – a small fraction of the estimated ~$3.5k per sample cost of pivotal studies of other non-invasive CRC diagnostics. And while later stage, larger, prospective registration studies may cost significantly more than $100/sample, we find it impressive how much progress has been made with relatively minimal spend to-date.

Cash used in operating activities was $3.6M and $14.7M ($3.4M and $14.8M, ex-changes in working capital) in the three and twelve months ending 12/31/18, compared to $3.9M and $12.2M ($3.3M and $11.7M, ex-changes in working capital) in the comparable prior-year periods.

Exiting 2018 with $13.4M on the balance sheet, VNRX further bolstered their cash position subsequent to year-end with warrant exercises contributing an additional $6.7M. Another ~$10M worth of warrants with $3.00/share exercise prices remain outstanding and expire in August. Non-dilutive funding has been a significant source of capital in the past and could continue to provide some incremental funding. We also think that collaborations might present opportunities for VNRX (although speculation on our part).

Relative to the operational front, there were a few surprises in the earnings release – that includes what appears to be a sooner-than-previously anticipated move towards lung cancer, new (i.e. initial) ‘proof-of-concept’ study data from the first round of ‘product grade’ assays in colorectal and lung cancers, potential firming up of a canine cancer diagnostic program (in collaboration with Texas A&M University) and Nu.Q Capture, a new project using magnetic beads to enrich nucleosomes – which is presumably aimed at optimizing the technology for use with high throughput chemiluminescence analyzers.

While all these surprises are encouraging as it relates to broadening the potential utility of VNRX’s NuQ technology, it appears that they likely come with a compromise to previously anticipated commercialization timelines – at least as it relates to the initial human cancer assays. Timelines have been regularly delayed as the clinical grade assays work their way through the ‘product grade’ validation processes and studies. We are encouraged to see the initial product grade data – while related to very small studies, it nonetheless provides initial data points and, importantly, marks a tangible starting point for us to begin to follow the process forward. But, we think it’s clear that the previously anticipated path and timelines for initial commercialization of, for example, a CRC Triage product for the European market, has been delayed. Timelines for completion of the large CRC studies have also been pushed back. The near-term focus will be on validating the product grade assays – the plan and timelines for which we may hear more about on April 9th, which is when VNRX is hosting a ‘Capital Markets Day.’

As it relates to lung cancer, VNRX announced initial proof-of-concept data from an initial Nu.Q product grade assay. In 76 subjects, the assay detected lung cancer, including stage 1 cancer, with an area under the curve (AUC) of 85% as compared to healthy tissue. The same (single) Nu.Q assay, when used in a confirmatory cohort of 152 subjects detected lung cancer with an AUC of 79%.

Up until the Q4 earnings release, lung cancer had largely been considered a back-burner project (as far as we could tell) as the focus was mostly on colorectal cancer (and other cancers including prostate). But, with initial product grade data in lung (as well as CRC) and inbound interest in a lung cancer diagnostic (particularly as it relates to Asia), we think this may now represent one of the lead programs. Again, we should know more on Capital Markets Day (we can almost smell a collaboration brewing).

As it relates to colorectal cancer, VNRX announced initial proof-of-concept data from an initial Nu.Q product grade assay. In 123 subjects a single Nu.Q assay detected CRC with an AUC of 72%. A two-assay panel, which included this initial product grade Nu.Q assay and an inflammatory biomarker test, had an AUC of 84%.

These are relatively tiny POC studies but the data is certainly encouraging. The goal will be to replicate these results with reproducible product grade assays in larger, fully powered studies.

As it relates to a canine cancer diagnostic, VNRX indicated that they think this could be a relatively fast moving program given the less-stringent U.S. regulatory pathway for animal diagnostics (via USDA versus FDA’s PMA or 510k)k)). Canine cancer also represents a sizeable market. In fact, management noted that 4.2M cases of canine cancer are diagnosed each year in the U.S., or nearly 2.5x as many human cancers. And, given a similar price point as a human Nu.Q test (~$100), the canine cancer opportunity could be in the many hundreds of millions of dollars.

VNRX is working with Texas A&M University’s College of Veterinary Medicine to conduct a study of ‘Nu.Q Vet’. Specifics in terms of the development and regulatory strategy are expected to be revealed in the near future. If all goes well, management believes they could have a Nu.Q test for the diagnosis of animal cancers (initially canines but potentially also other animals including horses) on the market by next year.

We will be eagerly awaiting updates on all of VNRX’s programs, but given the initial POC data, particularly so in their lung and colorectal cancer endeavors. Given the recent highly encouraging data in prostate cancer (and massive unmet need for a PSA replacement/adjunct), we had envisioned that a Nu.Q prostate cancer assay/panel could be a front-runner in terms of possible initial commercialization candidates. Whether that may still be in the cards, we don’t know, but will be something we hope to know more about as well. We may know a lot more on April 9th. Stay tuned.

View Exhibit I – Source: VNRX 2018 10-K

We cover VNRX with a $6.50/share price target. See link for free access to our updated report.

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