VOLITIONRX LTD 10-Q

ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Cautionary Note Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021, or this Report, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which statements are subject to considerable risks and uncertainties. These forward-looking statements are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact included in this Report or incorporated by reference into this Report are forward-looking statements. Throughout this Report, we have attempted to identify forward-looking statements by using words such as “may,” “believe,” “will,” “could,” “project,” “anticipate,” “expect,” “estimate,” “should,” “continue,” “potential,” “plans,” “forecasts,” “goal,” “aim,” “seek,” “intend,” other forms of these words or similar words or expressions or the negative thereof (although not all forward-looking statements contain these words). In particular, forward-looking statements contained in this Report relate to, among other things, any predictions of earnings, revenues, expenses or other financial items; plans or expectations with respect to our development activities or business strategy, including commercialization and market acceptance; statements concerning clinical studies and results; statements concerning industry trends and industry size; statements regarding anticipated demand for our products and market opportunity, or the products of our competitors, statements relating to manufacturing forecasts, and the potential impact of our relationship with contract manufacturers and original equipment manufacturers on our business; assumptions regarding the future cost and potential benefits of our research and development efforts; forecasts of our liquidity position or available cash resources; statements regarding the anticipated impact of the COVID-19 pandemic and statements relating to the assumptions underlying any of the foregoing. We have based our forward-looking statements on our current expectations and projections about trends affecting our business and industry and other future events. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. Forward-looking statements are subject to substantial risks and uncertainties that could cause our future business, financial condition, results of operations or performance, to differ materially from our historical results or those expressed or implied in any forward-looking statement contained in this Report. For instance, if we fail to develop and commercialize diagnostic products, we may be unable to execute our plan of operations. Other risks and uncertainties include those associated with the COVID-19 pandemic; our failure to obtain necessary regulatory clearances or approvals to distribute and market future products in the clinical in-vitro diagnostics, or IVD, or veterinary markets; a failure by the marketplace to accept the products in our development pipeline or any other diagnostic products we might develop; our failure to secure adequate intellectual property protection; we will face fierce competition and our intended products may become obsolete due to the highly competitive nature of the diagnostics market and its rapid technological change; and other risks identified elsewhere in this Report, as well as in our other filings with the Securities and Exchange Commission, or the SEC. In addition, actual results may differ as a result of additional risks and uncertainties of which we are currently unaware or which we do not currently view as material to our business. For these reasons, readers are cautioned not to place undue reliance on any forward-looking statements. You should read this Report in its entirety, together with our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 , as filed with the SEC on March 22, 2021 , or our Annual Report, the documents that we file as exhibits to this Report and the documents that we incorporate by reference into this Report, with the understanding that our future results may be materially different from what we currently expect. The forward-looking statements we make speak only as of the date on which they are made. We expressly disclaim any intent or obligation to update any forward-looking statements after the date hereof to conform such statements to actual results or to changes in our opinions or expectations. If we do update or correct any forward-looking statements, readers should not conclude that we will make additional updates or corrections. 24 Overview The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the interim consolidated financial statements and related condensed notes thereto, which are included in Part I of this Report. VolitionRx is a multi-national epigenetics company that applies its Nucleosomics TM platform through its subsidiaries to develop simple, easy to use, cost-effective blood tests to help diagnose a range of cancers and some other diseases, including sepsis and COVID-19, that are associated with the presence in the blood of networks of fibers released from activated neutrophils, a phenomenon known as NETosis. We hope that through earlier diagnosis we can help save and improve the quality of human and animals’ lives throughout the world. Our assays are based on the science of Nucleosomics TM , which is the practice of identifying and measuring nucleosomes in the bloodstream or other bodily fluid, since changes in these parameters are an indication that disease is present. Volition’s approach is to investigate the epigenetic structure of chromatin and nucleosomes rather than investigating only the DNA sequence. We are continuously developing new technologies including: · A suite of low cost Nu.Q ® immunoassays that can accurately measure nucleosomes containing numerous epigenetic signals or structures, now being developed on a range of different enzyme-linked immunosorbent assay, or ELISA, platforms. · Nu.Q ® Capture technology to isolate or enrich nucleosomes containing particular epigenetic signals or structures for a wide range of potential scientific and medical applications. For example, the enrichment of nucleosomes of tumor origin in blood samples taken from cancer patients. · The production of synthetic (recombinant) nucleosomes, containing exact defined epigenetic signals and structures, is now in-house. These nucleosomes are used to ensure maximal accuracy of Nu.Q ® immunoassay tests but also have many other applications including Research Use Only, or RUO, kits and as tools in epigenetic drug development. Volition has also developed the use of the Nu.Q ® technology in veterinary applications and launched its first product, the Nu.Q ® Vet Cancer Screening Test, in the fourth quarter of 2020. We are in the process of developing additional veterinary products, including a treatment monitoring test, a disease recurrence test and a point-of-care platform. Our extensive intellectual property portfolio includes the coverage of veterinary applications. Commercialization Strategy Volition believes that given the global prevalence of cancer and diseases associated with NETosis, and the low-cost, accessible and routine nature of our tests, Nu.Q ® could potentially be used throughout the world. We plan to work with partners to commercialize Nu.Q ® worldwide. Commercialization will take multiple forms in various markets and opportunities including, but not limited to: · Direct sales of the Nu.Q ® Vet Cancer Screening Test. · Sales of veterinary clinical products utilizing Nu.Q ® Vet assays and/or Nu.Q ® Capture reagents through distributor networks. · Licensing of intellectual property, or IP, for clinical products utilizing Nu.Q ® assays and/or Nu.Q ® Capture reagents. · Sales of clinical products utilizing Nu.Q ® assays and/or Nu.Q ® Capture reagents through distributor networks. · Licensing of IP for RUO kit sales of Nu.Q ® assays and/or Nu.Q ® Capture reagents. · Licensing of IP for laboratory developed patient testing services utilizing Nu.Q ® assays and/or Nu.Q ® Capture reagents. · Provision of direct research services in the processing of samples using Nu.Q ® RUO assays and/or Nu.Q ® Capture. Developments - COVID-19 Pandemic On March 11, 2020, the World Health Organization designated the outbreak of the novel strain of coronavirus known as COVID-19 as a global pandemic. Governments and businesses around the world have taken unprecedented actions to mitigate the spread of COVID-19, including, but not limited to, implementing shelter-in-place orders and significant restrictions on travel, as well as restrictions and guidelines that prohibit many employees from going to work. Uncertainty with respect to the economic effects of the pandemic has introduced significant volatility in the financial markets. 25 During the year ended December 31, 2020 and through the first quarter of 2021, we have implemented contingency planning to protect the health and well-being of our employees, with the majority of our employees working remotely where possible. We have implemented travel restrictions as well as protocols limiting visitor access to our facilities, and we are following social distancing practices. As a result of the COVID-19 pandemic, we have experienced and may continue to experience disruptions that could impact our clinical trials, including: · delays in enrolling patients in clinical trials; · delays in sample collection; and · diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as clinical trial sites and hospital staff supporting the conduct of our clinical trials. Plan of Operations We have identified the main processes and resources required to achieve the near and medium-term objectives of our business plan, including personnel, facilities, equipment, research and testing materials including antibodies and clinical samples, and the protection of intellectual property. To date, operations have proceeded satisfactorily in relation to our business plan, which we continue to evolve. However, it is possible that some resources will not readily become available in a suitable form or on a timely basis or at an acceptable cost. It is also possible that the results of some processes may not be as expected, and that modifications of procedures and materials may be required. Such events could result in delays to the achievement of the near and medium-term objectives of our business plan, in particular the progression of clinical validation studies and regulatory approval processes for the purpose of bringing products to the IVD and veterinary markets. Our future as an operating business will depend on our ability to obtain sufficient capital contributions, financing and/or generate revenues as may be required to sustain our operations. Management plans to address the above as needed by: (a) securing additional grant funds; (b) obtaining additional equity or debt financing; (c) granting licenses to third parties in exchange for specified up-front and/or back end payments; and (d) developing and commercializing our products on an accelerated timeline. Management continues to exercise tight cost controls to conserve cash. Our ability to continue as a going concern is dependent upon our accomplishment of the plans described in the preceding paragraph and eventually to attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern. If we are unable to obtain adequate capital, we could be forced to cease operations. Liquidity and Capital Resources We have financed our operations since inception primarily through private placements and public offerings of our common stock. As of March 31, 2021, we had cash and cash equivalents of approximately $33.1 million. Net cash used in operating activities was $6.2 million and $4.8 million for the three months ended March 31, 2021 and March 31, 2020, respectively. The increase in cash used in operating activities for the period ended March 31, 2021 when compared to same period in 2020 was primarily due to higher payroll costs, an increase in prepaid expenditures due to higher director and officer insurance and higher amounts paid to suppliers during the period. Net cash used in investing activities was $0.5 million and $0.3 million for the three months ended March 31, 2021 and March 31, 2020, respectively. The increase was primarily due to additional purchases of laboratory equipment for our manufacturing facility in Belgium. Net cash provided by financing activities was $20.2 million for the three months ended March 31, 2021 and net cash used by financing activities was $0.2 million for the comparable period ended March 31, 2020. The increase in cash provided by financing activities for the period ended March 31, 2021 when compared to same period in 2020 was primarily due to $18.9 million in net cash received from the issuance of shares of common stock in a registered public offering in February 2021 and $1.5 million in net cash received from the issuance of shares of common stock under our ATM facility. 26 The following table summarizes our approximate contractual payments due by year as of March 31, 2021. Approximate Payments (Including Interest) Due by Year Total 2021 (Remaining) 2022 - 2025 2026 + Description $ $ $ $ Finance Lease Obligations 711,655 54,872 254,131 402,652 Operating Lease Obligations 341,102 161,855 178,521 726 Grants Repayable 315,788 66,475 149,837 99,476 Long-Term Debt 3,644,038 754,622 2,111,668 777,748 Collaborative Agreements Obligations 1,097,387 982,387 115,000 - Total 6,109,970 2,020,211 2,809,157 1,280,602 We intend to use our cash reserves to fund further research and development activities and launch new products. We do not currently have significant revenues and expect to rely on additional future financing, through the sale of equity or debt securities, or the sale of licensing rights, to provide sufficient funding to execute our strategic plan. There is no assurance that we will be successful in raising further funds. In the event that additional financing is delayed, we will prioritize the maintenance of our research and development personnel and facilities, primarily in Belgium, and the maintenance of our patent rights. In such instance, the completion of clinical validation studies and regulatory approval processes for the purpose of bringing products to the IVD markets would be delayed. In the event of an ongoing lack of financing, it may be necessary to discontinue operations, which will adversely affect the value of our common stock. We have not attained profitable operations and are dependent upon obtaining financing to pursue any extensive activities. For these reasons, our auditors stated in their report on our audited financial statements for the fiscal year ended December 31, 2020 an explanatory paragraph regarding factors that raise substantial doubt that we will be able to continue as a going concern. 27 Results of Operations Comparison of the Three Months Ended March 31, 2021 and March 31, 2020 . The following table sets forth our results of operations for the three months ended on March 31, 2021, and March 31, 2020, respectively. Three Months Ended March 31, Increase Increase 2021 2020 (Decrease) (Decrease) $ $ $ % Royalty - 240 (240) (100%) Product 25,530 304 25,226 >100% Total Revenues 25,530 544 24,986 >100% Research and development 3,873,079 3,894,966 (21,887) (1%) General and administrative 1,810,160 1,703,522 106,638 6% Sales and marketing 427,401 273,954 153,447 56% Total Operating Expenses 6,110,640 5,872,442 238,198 4% Grant income - 7,924 (7,924) (100%) Interest income 1,721 38,414 (36,693) (96%) Interest expense (42,181) (33,779) 8,402 25% Total Other Income (Expenses) (40,460) 12,559 (53,019) (>100%) Net Loss (6,125,570) (5,859,339) 266,231 5% Revenues Our operations are still predominantly in the research and development stage and we had limited revenues during the three months ended March 31, 2021 and March 31, 2020, respectively. The main source of revenues during the three months ended March 31, 2021 was direct sales of the Nu.Q ® Vet Cancer Screening Test via the Gastrointestinal Laboratory at Texas A&M University. Operating Expenses Total operating expenses increased to $6.1 million for the three months ended March 31, 2021 from $5.9 million for the three months ended March 31, 2020, as a result of the factors described below. 28 Research and Development Expenses Research and development expenses were flat at $3.9 million for the three months ended March 31, 2021 and $3.9 million for the three months ended March 31, 2020. Increased personnel expenses, laboratory expenses, and research and collaboration costs were offset by lower antibody costs and lower costs related to the purchase of Octamer (Volition Germany) in the prior year comparative period. Three Months Ended March 31, 2021 2020 Change $ $ $ Personnel expenses 1,492,440 1,265,472 226,968 Stock-based compensation 90,127 62,417 27,710 Direct research and development expenses 1,578,660 1,428,438 150,222 Other research and development 465,980 952,351 (486,371) Depreciation and amortization 245,872 186,288 59,584 Total research and development expenses 3,873,079 3,894,966 (21,887) General and Administrative Expenses General and administrative expenses increased to $1.8 million for the three months ended March 31, 2021, from $1.7 million for the three months ended March 31, 2020. This increase in overall general and administrative expenditures was primarily due to increased personnel costs, stock-based compensation costs and legal expenses from capital raises during the period, partly offset by lower foreign exchange differences. Three Months Ended March 31, 2021 2020 Change $ $ $ Personnel expenses 617,071 529,179 87,892 Stock-based compensation 333,866 107,265 226,601 Legal and professional fees 564,658 419,857 144,801 Other general and administrative 263,047 590,295 (327,248) Depreciation and amortization 31,518 56,926 (25,408) Total general and administrative expenses 1,810,160 1,703,522 106,638 Sales and Marketing Expenses Sales and marketing expenses increased to $0.4 million for the three months ended March 31, 2021, from $0.3 million for the three months ended March 31, 2020. The increase in costs was primarily due to higher personnel costs and stock-based compensation costs as a result of hiring additional employees. Three Months Ended March 31, 2021 2020 Change $ $ $ Personnel expenses 184,137 150,945 33,192 Stock-based compensation 131,349 22,985 108,364 Direct marketing and professional fees 111,915 100,024 11,891 Total sales and marketing expenses 427,401 273,954 153,447 29 Other Income (Expenses) For the three months ended March 31, 2021, the Company’s other expenses were $40,460 compared to other income of $12,559 for the three months ended March 31, 2020. This decrease in other income was primarily related to the decrease in interest earned during the period. Net Loss For the three months ended March 31, 2021, the Company’s net loss was $6.1 million, an increase of approximately $0.2 million in comparison to a net loss of $5.9 million for the three months ended March 31, 2020. The change was a result of the factors described above. Going Concern We have not attained profitable operations and are dependent upon obtaining external financing to continue to pursue our operational and strategic plans. For these reasons, management has determined that there is substantial doubt that the business will be able to continue as a going concern without further financing. Off-Balance Sheet Arrangements We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders. Future Financings We may seek to obtain additional capital through the sale of debt or equity securities, if we deem it desirable or necessary. These sales may include the sale of equity securities from time to time through our “at the market offering program” with Cantor Fitzgerald & Co. and Oppenheimer & Co. Inc. under the Equity Distribution Agreement dated November 10, 2020 (see Note 6 of the notes to the condensed consolidated financial statements). However, we may be unable to obtain such additional capital when needed, or on terms favorable to us or our stockholders, if at all. If we raise additional funds by issuing equity securities, the percentage ownership of our stockholders will be reduced, stockholders may experience additional dilution, or such equity securities may provide for rights, preferences or privileges senior to those of the holders of our common stock. If additional funds are raised through the issuance of debt securities, the terms of such securities may place restrictions on our ability to operate our business. Critical Accounting Policies Our interim consolidated financial statements and related condensed notes have been prepared in accordance with United States generally accepted accounting principles, or U.S. GAAP, applied on a consistent basis. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. A summary of these policies is included in the notes to our financial statements. In general, management's estimates are based on current facts, historical experiences, information from third party professionals and various other factors that it believes to be reasonable under the circumstances. Actual results could differ materially and adversely from those estimates made by management. To the extent there are material differences between the estimates and the actual results, future results of operations could be affected. Recently Issued Accounting Pronouncements The Company has implemented all applicable new accounting pronouncements that are in effect. The Company does not believe that there are any other applicable new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations. 30 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are a smaller reporting company and are not required to disclose this information.