Zacks Small Cap Research – VNRX: VolitionRx Reports 2023 Results; Distribution of Nu.Q Vet Test Expanding; Nu.Q Discover Growing; Two Key R&D Efforts in 2024/25: 1) Breakthrough Cancer Detection Method (Capture -PCR) 2) Nu.Q NET for Sepsis – Technologist

By Steven Ralston, CFA

NYSE:VNRX

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OPERATIONAL UPDATES & 2023 FINANCIAL RESULTS

Commercialization of Nu.Q Vet Continues

During 2023, Volition Veterinary (NYSE:VNRX) continued to expand its distribution network through new supply agreements.

The Nu.Q Vet Cancer Test is currently available in

• the U.S. (initial product launch in November 2020 through direct sales being processed at the GI Lab at Texas A&M University followed by IDEXX in January 2023),

• the U.K. & Ireland (launched in the U.K. and Ireland through the Veterinary Pathology Group, and in the U.K. through Nationwide Laboratories, both November 2023),

• Portugal (DNAtech – product launch in November 2022),

• Singapore (SAGE Healthcare),

• Taiwan (Vita Genomics – product launch in November 2023) and

• Italy (scil animal care company GmbH, an Antech company).

A recent incremental supply agreement for Japan (Fujifilm Vet Systems) was just signed in March 2024.

During 2023, Nu.Q Vet Cancer Screening Tests generated revenues of approximately $475,000 on the sales of over 58,000 tests. In 2024, Nu.Q Vet revenues are expected to ramp up, beginning in the second quarter, as two distributors (Antech and Fujifilm Vet Systems) come online. Both are expected to aggressively market and price (under $40) the Nu.Q Canine Cancer test in their product launches.

In late-March 2023, VolitionRx received a $10 million up-front payment from Heska on the signing of a licensing agreement that grants exclusive rights to commercialize Nu.Q Vet for canine cancer screening and monitoring at the point of care. Also, Heska was granted non-exclusive rights to sell the Nu.Q Vet test kits through its reference laboratory network. The payment for the kits and key components will be at pre-agreed prices, which should provide another revenue stream for VolitionRx.

In December 2023, Volition received the $13 million milestone payment from Heska (an Antech company, which is part of Mars Petcare), upon completing the technology transfer onto Heska’s proprietary Element i+ Immunodiagnostic Analyzer point-of-care diagnostic platform, which was launched in 2020.

On March 20, 2024, Volition announced the signing of a supply agreement with Fujifilm Vet Systems Co. Ltd. for the Nu.Q Vet Cancer Test to veterinarians in Japan. The agreement allows Fujifilm Vet Systems to sell and perform canine cancer screening services with the Nu.Q Vet Cancer Test throughout its diagnostic network of 10 central reference laboratories that serve over 90% of the 12,000 veterinary clinics and hospitals in Japan.

Between March 21-24, 2024, Fujifilm Vet Systems introduced the Nu.Q Vet Cancer Test at its booth at the World Veterinary Cancer Congress in Tokyo. At the Congress, Dr. Heather Wilson-Robles presented a poster about the Nu.Q Vet Cancer Test.

Expected Nu.Q Vet Milestones in 2024/2025

o During mid-2024, Heska will begin offering the Nu.Q Vet Cancer Test on its Element I+ in-house diagnostic platform.

o Fujifilm Vet Systems Co. Ltd. is expected to launch for the Nu.Q Vet Cancer Test to veterinarians in Japan during 2024. The supply agreement includes a $5 million milestone payment, which management expects to receive within the next year and a half.

Nu.Q Discover – Growing Revenue Base

VolitionRx offers laboratory services and contract research for external parties under the Nu.Q Discover moniker. These external parties include pharmaceutical companies, biotechnology companies and academic researchers, among others. Under Nu.Q Discover, Volition offers products (such as recombinant nucleosomes, antibodies, reagents, supply kits etc.) and processing services in order to provide epigenetic profiling in disease models, pre-clinical testing and clinical trials.

The first Nu.Q Discover agreement was signed in the fourth quarter of 2021. In early 2022, the aggregate annual worth of the company’s Nu.Q Discover contracts were roughly $200,000. Since then, the worth of contracts being pursued and signed has ramped up. During 2023, Nu.Q Discover generated $300,000 in revenues, and the pipeline of Nu.Q Discover opportunities is valued at over $1 million.

Due to the project-based nature of Nu.Q Discover contracts, the revenue stream tends to be lumpy quarter-to-quarter.

Breakthrough Cancer Detection Method – now dubbed Capture-PCR

Volition announced a breakthrough cancer detection method at ESMO 2023 (European Society for Medical Oncology), which was followed up by an informative webinar with an informative slide deck. This novel method for detecting cancer through a blood test (liquid biopsy) is a step change advancement and was discovered through Volition’s research focus on fragments of chromosomes that circulate in the bloodstream. Volition recognized that particular combinations of DNA sequences that bind onto CTCF transcription factors only when cancer is present and devised a technique

1) to physically isolate these cancer-associated DNA fragments from blood plasma and

2) to detect these particular DNA sequences with a simple, low cost blood test (PCR liquid biopsy)

Volition is focusing on detecting circulating tumor DNA (ctDNA), which is difficult since ctDNA comprises roughly only 0.01% of the circulating cell-free DNA. Volition has developed a novel method of physically isolating tumor-derived DNA fragments from blood/plasma and removing all normal background DNA. The sample is then sequenced using a PCR test.

Thus far, the new Capture-PCR technique has been tested only in a small, preliminary proof of concept study, initially developed on a leukemia model. However, most of the ten biomarkers effectively identified a variety of common solid cancers. A panel of two PCR tests that detected 77% of colorectal cancer (CRC) cases with 92% specificity.

Notably, during this preliminary proof of concept work, another panel of two PCR tests detected multiple cancers, namely colorectal, breast, prostate and liver cancers. In the study, n=20 for each cancer type except n=13 for CRC.

Notably, 75% of Stage IV cancers were detected, but remarkably, 44% of Stage I were detected and 33% of Stage II cancers were detected. This aligns with one of Volition’s key goals: the identification of diseases with a simple, easy to use, low cost diagnostic test at the earliest stage possible in order to improve outcomes.

Expected Upcoming Events- Capture-PCR:

Capture-PCR has been presented a number of cancer specific conferences, including one for prostate cancer, liver cancer and lung cancer. During the second quarter of 2024, Capture-PCR is scheduled to present conferences for breast cancer and CRC. Additional cancer specific abstracts and posters are also expected to be presented at conferences in the second half of 2024.

The Capture-PCR team is in the process of optimizing the chemistry, along with identifying and developing specific biomarkers and panels for breast, prostate, lung, colorectal and liver cancers. These proof of concept studies for each type of cancer are expected to have sample sizes between 50 and 200.

A paper on the Capture-PCR method of isolating DNA sequences from CTCF transcription factors and testing for ctDNA cancer-associated DNA fragments is being prepared for peer review and publication.

Volition’s commercial strategy for Capture-PCR continues to be to enter into technology licensing contracts (which include up-front & milestone payments and/or royalties) and then to secure arrangements for the sales of key components. The company is already in discussions with interested parties, and a number of meetings are scheduled for further discussions.

Nu.Q NET – Potential for the Diagnosis and Monitoring of Sepsis

Sepsis is one of the leading of causes of death worldwide. Roughly 50 million cases are reported annually; these cases lead to approximately 11 million deaths. In addition, 40% of sepsis survivors have long term impairments, such as the loss of digits (fingers & toes) and/or cognitive deterioration (diminished memory and concentration).

Notably, in 2016, research work refined the definition of sepsis. The updated definition is a dysregulated host immune response to infection whereby the body’s normal localized immune response that progresses through a dysregulated systemic response to a life-threatening organ dysfunction. Prior to 2016, sepsis was considered a clinical condition marked by the presence of both an infection and a systemic inflammatory response. It is now believed that sepsis shock strongly relates to a loss of localized control of a body’s excessive immune response due to endothelium damage, which allow a leak of proteins into the blood that ultimately leads to organ failure.

The keys to successfully treating sepsis are early identification and prompt appropriate therapeutic treatment because for every hour an appropriate antibiotic therapy is delayed, the risk of death increases by 7.6%. Notably, sepsis presents a spectrum of symptoms/characteristics, which evolve over time as a patient oscillates between a hyperinflammatory phase and an immune-suppressive phase. By being able to identify an approaching inflammatory phase, therapeutic treatments can be modified, allowing for personalized care and an improvement in patient outcomes.

Volition is conducting and sponsoring research to determine that its H3.1 biomarker test has the potential to 1) identify the waning and waxing of the inflammatory response and 2) determine therapeutic strategies for the sickest sepsis patients and those who are most likely to deteriorate. Volition’s research has shown that the H3.1 biomarker correlates well with the activation of neutrophil extracellular traps. So we have now got a clear scientific data showing that H3.1 directly links to niche for the activation.

Recent Events – Nu.Q NET Sepsis

In September 2023, Volition hosted a key opinion leader roundtable event (under the Volition’s Center of Excellence program) in Athens, Greece. The sessions were very productive and thought-provoking, which led to many research initiatives. Another Center of Excellence roundtable event is planned for the Fall of 2024.

Just before the European Society of Intensive Care Medicine Conference (ESICM) on October 17, 2023, “Association of pronounced elevation of NET formation and nucleosome biomarkers with mortality in patients with septic shock” was published in Ann Intensive Care by Volition’s clinical excellence group headed by Professor Gila Monterrey. The paper indicated that there is a significantly positive correlation between the level of nucleosomes measured by Nu.Q NET level and sepsis, particularly above 3.1 and organ failure, severity scores and mortality. In addition, the sickest patients with the highest nuclear levels were more likely to die. The paper at ESICM on October 24th.

Also on October 24, 2023, a paper entitled “Therapeutic Removal of cfDNA/NETs using NucleoCapture Apheresis in a Porcine Intensive Care Sepsis Model: A blinded randomized controlled trial” was presented at ESICM. In this study, NucleoCapture safely and effectively removed cfDNA/NETs from the circulation of septic pigs, which resulted in improved organ function and survival.

On December 13, 2023, a paper entitled “Novel rapid high-throughput method of NETosis Induction and Inhibition with physiological triggers and inhibitors” was posted on bioRxiv.

On the March 26, 2024, management confirmed that Volition completed the FDA Q-Submission process, and the FDA has confirmed that Volition can continue following a traditional 510-K pathway.

Expected Nu.Q NET Sepsis Milestones in 2024/2025

▪ Two large retrospective sepsis studies are being conducted in Europe (a Sepsis Group Study in Germany and another at the Amsterdam University Medical Center). The outcome and trajectory of over 2,500 patients with sepsis will be examined (over 8,000 Nu.Q NET samples). The results are expected to be presented at ESICM (European Society of Intensive Care) in October 2024.

▪ In late 2024, Dr. Andrew Retter, recently appointed CMO, is expected to submit an article on Nu.Q NET’s potential for the diagnosis and monitoring of sepsis for peer review and publication.

▪ Additional papers are expected Volition’s Centers of Excellence in 2024.

▪ A 500-patient study has been opened at Thomas’s Hospital that will compare 450 patients with sepsis to 50 healthy patients undergoing cardiac surgery. The study is expected to be completed in 2025, though interim analysis may be released during 2024

The recent acceleration of Volition’s progress in commercializing Nu.Q Vet and Nu.Q Discover, along with the R&D initiatives for Nu.Q NET and Nu.Q Cancer, portend the nadir of the company’s stock.

Full Year 2023 Financial Results

On March 25, 2024, after the market close, VolitionRx reported financial results for the fourth quarter and full year ending December 31, 2023. Total revenues for 2023 increased 153% to $775,302, driven by sales of the Nu.Q Vet Cancer Screening Tests and revenues generated under Nu.Q Discover, which contributed approximately $475,000 (+194%) and $300,000 (+107%), respectively.

Total operating expenses increased only 14.6% from $32.1 million to $36.8 million since a $2 million cost cutting program was implemented during the fourth quarter. R&D expenses increased 34.2% to approximately $19.6 million, primarily due to higher personnel expenses and clinical research costs, particularly in the U.S., which added $3.1 million in R&D costs. The number of Full Time Equivalent (FTE) personnel increased 4.8% from 63 to 66. G&A expenses decreased 5.2% to $10.4 million, also driven by personnel expenses, along with increased legal and professional fees. Sales and marketing expenses only increased 4.1%, driven by higher personnel, which was offset by lower stock-based compensation. In this division, the number of FTE personnel increased by 16% from 19 to 22.

For 2023, VolitionRx reported a net loss of $35.3 million (or $0.50 per diluted share) versus a net loss of approximately $30.3 million (or $0.55 per diluted share) in 2022.

The monthly cash burn in 2023 was approximately $1.51 million. Management expects a lower cash burn in 2024, primarily due to the cost-saving actions in the second half of 2023, which should reduce costs by slightly over $2 million over 2024.

During 2023, Volition received net proceeds of $28.4 million through the issuance of shares and was loaned $1.6 million from the Walloon Region through Wallonie Entreprendre S.A.

During 2023, shares outstanding increased by 28.7% to 71,234,565 shares from 55,350,401 shares on December 31, 2022.

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