Zacks Small Cap Research – VNRX: Cost cutting being implemented in a plan to be cash flow neutral in 2025. Distribution of Nu.Q Vet Test Expected to Expand During 2H 2024; 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

READ THE FULL VNRX RESEARCH REPORT

SIGNIFICANT OPERATIONAL UPDATES & 1Q 2024 FINANCIAL RESULTS

Management has undertaken a significant cost cutting program with the goal of ensuring that Volition (NYSE:VNRX) is cash flow neutral in 2025. In addition to the cost reductions taken in 1Q 2024 resulting in a 6.9% reduction in operating expenses, additional actions were taken in order to reduce expenditures and cash burn. Cost reduction measures were implemented in the areas of R&D and sales & marketing with the intent of achieving a $10 million reduction in annualized expenses. Some of the actions announced include that the Directors intend to take 50% of their fees in equity for a least six (6) months, that senior management intends to take a percentage of their salaries (between from 10% to 50%) in equity for a least six (6) months ranging from 10% to 50% and that the payments of any cash bonuses have been postponed indefinitely.

Management expects that revenues from Nu.Q Vet will accelerate during 2H 2024 driven by the product launches by two large distributors, Antech Diagnostics (part of the Mars Pet Care Group) and Fujifilm Vet Systems. Antech has successfully transferred the processing of the Nu.Q Vet Cancer test to its proprietary Element i+ Immunodiagnostic Analyzer point-of-care diagnostic platform and has announced the launch of the test in the U.S. and Europe at an aggressive list price of $35 to veterinarians. Fujifilm Vet Systems launched the Nu.Q Vet Cancer test at the World Veterinary Cancer Congress held in Tokyo in March 2024 and is also attractively pricing the test at below $40.

On the commercialization side, Volition has already received $23 million from signing initial agreements and milestone payments from Nu.Q Vet. Management expects to receive a $5 million milestone payment based on feline product development within the next year and a half. Management also expects to receive licensing milestone payments from Nu.Q NET and Capture-PCR.

Management also expects to receive further meaningful government non-dilutive funding. The company has either applied or is in the process of applying for $25 million in non-dilutive grants from funding bodies in the U.S. and $18 million within Europe.

Around mid-year 2024, a substantial amount of clinical data is expected to be received for both Nu.Q NETs (particularly for sepsis) and Capture-PCR (a potential breakthrough cancer detection method). The data should provide scientific and clinical evidence to support these potentially breakthrough technologies.

▪ The results of two large retrospective sepsis studies are expected to be presented at ESICM (European Society of Intensive Care) in Barcelona in October 2024.

▪ A paper on the Capture-PCR breakthrough method is expected to be completed by mid-2024 for peer review.

▪ Several abstracts on Capture-PCR and Nu.Q technology for lung cancer have been submitted for consideration to ESMO 2024 to be held in Barcelona in mid-September 2024.

First Quarter 2024 Financial Results

On May 13, 2024, VolitionRx reported financial results for the first quarter ending March 31, 2024. Total revenues increased 14.5% YOY to $171,535 compared to $149,808 in the first quarter of 2023. Service revenue (Nu.Q Discover) increased 643% to $39,776 while product revenue from sales of the Nu.Q Vet cancer screening and H3.1 kits declined 8.8% to $131,759.

Operating expenses decreased 6.9% from $9.19 million to $8.56 million. R&D expenses declined 7.3% to approximately $3.59 million. G&A expenses declined 5.6% to approximately $4.63 million due to lower personnel expenses, legal expenses and stock-based compensation; full-time employees (FTE) decreased from 21 to 20. Sales and marketing expenses decreased 2.0% from 1.71 million to 1.67 million due primarily stock-based compensation declining 52.8% to $116,414, which was partially offset by an increase in personnel expenses as FTE increased from 18 to 22.

For the first quarter, VolitionRx reported a net loss of $8.47 million (or $0.10 per diluted share) versus a net loss of approximately $8.87 million (or $0.15 per diluted share) in the comparable quarter last year.

Shares outstanding increased by 0.3% to 82,108,972 shares from 81,898,321 shares on December 31, 2023. As of March 31, 2024, Volition had $11.8 million cash-on-hand.

COMMERCIALIZATION OF Nu.Q VET CONTINUES

Volition Veterinary continues 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).

• Japan (Fujifilm Vet Systems – product launch 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 half of 2024 as two distributors (Antech and Fujifilm Vet Systems) come online. Both are aggressively coming to market with a price under $40 to veterinarians.

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

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

• 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 (based on feline product development), which management expects to receive within the next year and a half.

CAPTURE-PCR – BREAKTHROUGH CANCER DETECTION METHOD

Expected Capture-PCR Milestones in 2024

• A paper on the Capture-PCR breakthrough method is expected to be completed by mid-2024 for peer review.

• Several abstracts on Capture-PCR and Nu.Q technology for lung cancer have been submitted for consideration to ESMO 2024

Nu.Q NET – POTENTIAL FOR THE DIAGNOSIS & MONITORING OF SEPSIS

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 Barcelona 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 from Volition’s Centers of Excellence in 2024.

▪ A 500-patient study has been opened at Guy’s and 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.

INSTITUTIONAL OWNERSHIP UPDATE

Over the last few months, institutional ownership has increased to over 9% of the outstanding shares.

VALUATION

Utilizing a financial model based on DCF methodology, which forecasts out to 2031, and uses a 10% discount rate (based on CAPM), a 2% terminal growth rate and a terminal P/S multiple of 0.49, the indicated value of VNRX is $3.85 per share.

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