Zacks Small Cap Research – VNRX: Nu.Q Vet Test is now available in 17 countries. Cost cutting continues in a plan to be cash flow neutral in 2025. Management focused on signing licensing deals for Capture-PCR (human cancer detection method) and Nu.Q NET for sepsis. $7.0 million financing completed. – Technologist

By Steven Ralston, CFA

NYSE:VNRX

READ THE FULL VNRX RESEARCH REPORT

SIGNIFICANT OPERATIONAL UPDATES

Management is implementing a significant cost cutting program with the goal of ensuring that Volition (NYSE:VNRX) is cash flow neutral in 2025. Cost reductions taken during 1H 2024 resulted in a 15.9% decline in operating expenses. Cost reduction measures were implemented in all three areas of R&D, G&A and sales & marketing with the intent of achieving a $10 million reduction in annualized expenses. Some of the actions 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 are postponed indefinitely.

Management expects that revenue from Nu.Q Vet Canine Cancer 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 successfully transferred the processing of the Nu.Q Vet Cancer test to its proprietary Element i+ Immunodiagnostic Analyzer point-of-care diagnostic platform and announced the launch of the test in the U.S., Europe, Australia, India and Singapore at an aggressive list price of $35 to veterinarians. Fujifilm Vet Systems announced its the Nu.Q Vet Cancer test at the World Veterinary Cancer Congress held in Tokyo in March 2024 and launched the product throughout Japan on July 1, also attractively pricing the test below $40.

During the second half of 2024, management will focus on negotiating a licensing agreement in the human space. In early July, PharmaVentures Ltd was engaged to provide strategic advice and transactional support for licensing deals for Volition’s oncology and Capture PCR efforts.
On the commercialization side, to date Volition has received $23 million from signing initial agreements and milestone payments from Nu.Q Vet. In connection with the supply agreement signed with Heska, management expects to receive a $5 million milestone payment based on the development of Nu.Q Feline Cancer Test within the next year and a half. Management also expects to receive licensing milestone payments from Nu.Q NETs and Capture-PCR.

In early August, VolitionRx completed a Registered Direct Offering of 12,727,273 common shares at an offering price of $0.55 per share. Net proceeds are estimated to be approximately $6.4 million. In addition, milestone-linked warrants were issued that have the potential to provide gross proceeds of an additional $14.5 million upon the exercise of these warrants. H.C. Wainwright & Co. acted as the exclusive placement agent for the offering.

The 2-year Series A warrants are exercisable for up to 12,727,273 common shares are exercisable at $0.57 per common share with the expiration also linked upon an announcement of a significant agreement to develop and commercialize a product, technology or process in the human space with milestone payments.

The 5-year Series B warrants are exercisable at $0.57 per share for 12,727,273 common shares with the expiration also linked upon an announcement of the receipt of an FDA approval of a Nu.Q product, technology or process in the human space.

Management also expects to obtain 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.

VolitionRx provided an update on its substantial IP portfolio. Currently, the company holds 86 granted patents with a further 128 patent applications pending.

VolitionRx is creating Confidential Licensing Data Rooms, which will store clinical and scientific data from the completed and ongoing studies. Through the remainder of 2024 and onwards, a significant amount of scientific and clinical data relating to Nu.Q NETs (particularly for sepsis) and Capture-PCR (a potential breakthrough cancer detection method) will be delivered to these Data Rooms so that interested parties can review and analyze the commercial potential of Volition’s IP. These Rooms will create environments that should stimulate serious investigative discussions and promote a path toward licensing agreements.

UPDATE – Nu.Q VET CANCER TEST

Late 1Q 2024 Nu.Q Vet Developments

In March 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.

2Q 2024 Nu.Q Vet Achievements

• During 2Q 2024, Heska began offering the Nu.Q Vet Cancer Test on its Element i+ in-house diagnostic platform.

• In 2Q 2024, product revenues from sales of the Nu.Q Vet cancer screening tests and H3.1 kits increased 68.3%, primarily driven by stocking up by Heska (Antech) for the U.S. and Europe, and also by Fujifilm Vet for Japan.

• VolitionRx is making progress on the pre-analytics for the Nu.Q Vet Feline Cancer Test.

Volition Veterinary continues to expanded 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 and Heska, an Antech/Mars company in April 2024),

• 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 & Spain (DNAtech – product launch in November 2022),

• Singapore (SAGE Healthcare – product launch in November 2023),

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

• Italy, France, Spain, Germany, UK, India, Australia, Singapore, Hong Kong & New Zealand (scil animal care company GmbH, an Antech company),

• Japan (Fujifilm Vet Systems – product launch in March 2024),

• Poland and the Czech Republic (VetLab Polskie Laboratoria Weterynaryjna – July 2024)

Expected Nu.Q Vet Milestones in 2H 2024 – 2025

• Fujifilm Vet Systems Co. Ltd launched for the Nu.Q Vet Cancer Test to veterinarians in Japan on July 1, 2024.

• During 2H 2024, Heska (Antech) will begin offering the Nu.Q Vet Cancer Test in Australia, India and Singapore and possibly in other nations.

• In July 2024, VetLab (Polskie Laboratoria Weterynarjvne) announced the launch of the Nu.Q Vet Cancer Test in Poland and will also offer the test in the Czech Republic.

• In connection with the supply agreement signed with Heska, management expects to receive a $5 million milestone payment (based on feline product development) within the next year and a half.

UPDATE – SEPSIS

Late-1Q 2024 Nu.Q NETs for Sepsis Developments

• On March 26, 2024, management confirmed that Volition completed the FDA Q-Submission process, a pre-submission mechanism to ask questions and to request feedback from the FDA prior to submitting a 510(k) Premarket Notification. The FDA confirmed that Volition can continue following a Section 510(k) regulatory pathway.

2Q 2024 Nu.Q NET Sepsis Achievements

• During 2Q 2024, Volition performed an interim analysis of over 450 patients, of approximately 1,500 patients in the consortium study being led by Key Opinion Leader, Professor Djillali Annane (Dean of the Faculty of Medicine at the University of Versailles Paris Saclay and Head of the Critical Care Department at Raymond Poincaré University Hospital in Garches, Paris). This interim analysis will be presented at the company’s second Key Opinion Leader Workshop in September 2024.

• On June 3, 2024 an article entitled: “Understanding Complex Chromatin Dynamics of Primary Human Neutrophils during PMA Induced NETosis” by Atteberry et al. was posted on bioRxiv for peer review. The article finds that Volition’s Nu.Q NETs H3.1 assay enhances the understanding of NETosis, which potentially can help identify potential targets for modulating the process of inflammatory diseases, such as sepsis, systemic lupus erythematosus and rheumatoid arthritis.

• On June 10, 2024, an article entitled: “Rapid high-throughput method for investigating physiological regulation of neutrophil extracellular trap formation” was published in the Journal of Thrombosis and Haemostasis (JTH) by Zukas et al. The article describes Volition’s novel synthetic sepsis model and emphasizes the importance of investigating neutrophil physiology in order to better understand NETosis-related diseases, particularly COVID-19 and sepsis.

• During 2Q 2024, over 8,000 Nu.Q NET samples from over 2,500 patients with sepsis were run and processed from the two large retrospective sepsis studies being conducted in Europe (a Sepsis Group Study in Germany and another at the Amsterdam University Medical Center). Samples were collected throughout their length of stay (from admission to outcome) so that longitudinal data could be obtained and the trajectory of disease can be examined.

Expected Nu.Q NET Sepsis Events in 2H 2024 – 2025

▪ Clinical studies and other data on Nu.Q NETs for sepsis are being gathered into confidential Data Rooms during the summer of 2024 for the purpose of supporting discussions and negotiations with interested parties regarding a potential licensing arrangement.

• Management believes there is a realistic possibility that the company could enter into a licensing agreement related to Nu.Q NETs sepsis within the next three quarters.

▪ The data analysis of the two large European retrospective sepsis studies of over 8,000 Nu.Q NET samples from over 2,500 patients with sepsis is being finalized. The goal is to complete the study by the end of August so that the study and data can be delivered into the Data Rooms and can be shared in the Key Opinion Leader Workshop in September.

▪ In September 2024, the company’s second Key Opinion Leader Workshop, which is focused on sharing and advancing therapeutic management of sepsis, will convene in Paris. The event will be chaired again by Professor Djillali Annane. Key data and findings from the most recent studies on sepsis will be shared and discussed, including, but not limited to:

• the interim analysis of over 450 patients (of approximately 1,500 patients) in the consortium study being led by Professor Annane.

• the complete (or interim) analysis of over 8,000 Nu.Q NET samples taken from over 2,500 patients in the two large European retrospective sepsis studies.

▪ Between October 5-9 2024, VolitionRx will be sponsoring its first Satellite Symposium at the 37th Annual ESICM (European Society of Intensive Care Medicine) Conference in Barcelona. Data from interim/final results from large clinical studies as well as from upcoming scientific trials are expected to be presented:

• two large retrospective sepsis studies (n = 2,500+) that were conducted in Europe.

• SISPCT retrospective study (n = 971),

• Amsterdam UMC retrospective study (n = 1,713),

• interim analysis of RHU Records (n = ~450 out of 1,500)

▪ After the ESICM Conference, the publication of a number of clinical studies with large datasets is also anticipated. Additional papers are also expected from Volition’s Centers of Excellence in 2024.

▪ Dr. Andrew Retter is collaborating with Professor Annane and Professor Mervyn Singer on an article entitled “Neutrophil extracellular traps: a potential key component of the dysregulated host immune response in sepsis,” which will most likely first appear on bioRxiv for peer review during 2H 2024.

▪ Interim analysis of a 500-patient study opened at Guy’s and Thomas’s Hospital during 1Q 2024 may be released during 1H 2025. The study is comparing 450 patients with sepsis to 50 healthy patients undergoing cardiac surgery. The study is expected to be completed in 2025.

▪ After signing an agreement with Diagnostic Oncology CRO (DXOCRO) in August 2022 to support development and clinical validation studies in the U.S., DXOCRO conducted large-scale finding studies in order to determine clinical utility of using the Nu.Q NETs test, at first for monitoring sepsis and later for non-Hodgkin’s lymphoma. In February 2024, DXOCRO was further engaged to conduct another range finding study of Volition’s Nu.Q H3.1 in vitro diagnostic (IVD) test for use in sepsis. During 2Q 2024, the recruitment process closed. By the end of 3Q 2024, the data analysis is expected to have been completed.

UPDATE – Nu.Q CANCER

2Q 2024 Cancer Achievements

▪ A team at Hospices Civils de Lyon, one of Volition’s Centers of Excellence, completed the OncoProLung study, a retrospective analysis of 70 lung cancer patients. The study evaluated the potential clinical utility of Nu.Q assays for the diagnosis and management of lung cancer patients by studying the assay taken at diagnosis, during treatment and at relapse.

• An abstract was submitted for consideration to ESMO 2024; subsequently, the abstract was accepted.

▪ On May 5, 2024 an article entitled: “Long-read sequencing reveals aberrant fragmentation patterns and origins of circulating DNA in cancer” by Berman et al. was posted on bioRxiv for peer review. The article discovered certain fragmentation patterns can be associated with elevated cfDNA and nucleosomes levels.

▪ Also, a team at Hospices Civils de Lyon completed a study on ovarian cancer. Work continues on finalizing the manuscript.

▪ A lung cancer study conducted at the National Taiwan University was completed during 2Q 2024.

Expected Nu.Q Cancer Events in 2H 2024 – 2025

▪ Clinical studies and other data on Nu.Q Cancer are being gathered to be delivered to confidential Data Rooms during the summer of 2024 for the purpose of supporting discussions and negotiations with interested parties regarding a potential licensing arrangement.

• Management believes there is a realistic possibility that the company could enter into a licensing agreement related to Nu.Q Cancer.

• When finalized, the manuscript for the just completed study on ovarian cancer will be added to the company’s confidential Data Rooms.

▪ The lung cancer study conducted at the National Taiwan University is expected to be published on bioRxiv in the September 2024 timeframe.

▪ Between September 13-17 2024, ESMO 2024 (European Society for Medical Oncology) Congress will convene in Barcelona. An abstract on the OncoProLung study will be presented.

UPDATE – CAPTURE-PCR

Capture-PCR is a novel liquid biopsy method that permits the isolation of DNA sequences from CTCF transcription factors and extraction of cancer-associated DNA fragments from blood such that a range of solid and liquid cancers can be detected by a PCR test.

2H 2024 Capture-PCR Achievements

• During the 1H 2024, Dr. Jake Micallef, Chief Scientific Officer of VolitionRx, and his team have presented Capture-PCR, along with the associated data, at a number of cancer specific conferences in an effort to inform important key opinion leaders of this breakthrough cancer detection method.

• Dr. Micallef and his team continue to conduct research in small patient cohorts to identify other potential biomarkers and the associated PCR tests to detect cancers, including solid tumors.

Expected Capture-PCR Events in 2H 2024 – 2025

▪ Clinical studies and other data on Capture-PCR for the detection of cancer are being gathered into confidential Data Rooms during the summer of 2024 for the purpose of supporting discussions and negotiations with interested parties regarding a potential licensing arrangement.

o Management believes there is a realistic possibility that the company could enter into a licensing agreement related to Capture-PCR within the next three quarters

▪ A paper on the Capture-PCR breakthrough cancer detection method is expected to be completed during 2H 2024 for peer review.

o When finalized, the manuscript will be added to the company’s confidential Data Rooms to help support the commercial discussions with potential licensing partners.

UPDATE – LICENSING DISCUSSIONS & NEGOTIATIONS

VolitionRx has a substantial IP portfolio with 86 granted patents with a further 128 patent applications pending. Management’s goal is to enter into licensing or supply agreements, particularly in the human space for Nu.Q NETs, Nu.Q Cancer and Capture-PCR, and to begin receiving milestone payments under those agreements.

A recent key activity to achieve this goal is the creation of Confidential Licensing Data Rooms, which will store clinical and scientific data from the completed and ongoing studies. Interested parties in the realms of liquid biopsy, IVD, sepsis and/or oncology will be able to review and analyze all the supporting data in one place and in an environment that should stimulate thoughtful fact-finding discussions and promote a path toward licensing agreements.

2Q 2024 FINANCIAL RESULTS

On August 14, 2024 after the market close, VolitionRx reported financial results for the second quarter ending June 30, 2024. Total revenues increased 83.0% YOY to $395,797 compared to $216,310 in the second quarter of 2023. Service revenue (Nu.Q Discover) increased 131% to $116,090 while product revenue from sales of the Nu.Q Vet cancer screening and H3.1 kits increased 68.3% to $279,707.

Operating expenses decreased 24.4% from $9.77 million to $7.39 million. R&D expenses declined 31.8% to approximately $3.72 million. G&A expenses declined 13.6% to approximately $2.28 million due to less clinical trial activity with DXOCRO, lower personnel expenses and stock-based compensation; full-time employees (FTE) decreased from 21 to 20. Sales and marketing expenses decreased 16.9% from 1.67 million to 1.39 million due to lower personnel expenses, direct marketing & professional fees and stock-based compensation. FTE decreased from 21 to 19. Interest expense declined 98.3% due to a reduction of investable cash.

For the second quarter, VolitionRx reported a net loss of $7.06 million (or $0.08 per diluted share for stockholders) versus a net loss of approximately $9.55 million (or $0.14 per diluted share) in the comparable quarter last year.

Year-to-date, shares outstanding increased by 16,1% to 82,669,335 shares from 81,898,321 shares on December 31, 2023. As of June 30, 2024, Volition had approximately $6.0 million cash-on-hand. Subsequently in August, the cash-on-hand was bolstered by approximately $6.4 million in net proceeds from a Registered Direct Offering of 12,727,273 common shares.

INSTITUTIONAL OWNERSHIP UPDATE

During the first half of 2024, institutional ownership has increased to over 9% of the outstanding shares. Notably, since February 2024, Lagoda Investment Management, L.P. has increased its holdings of VolitionRx from 3,882,850 shares to 5,438,000 shares in August 2024.

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 0.52, the indicated value of VNRX is $3.60 per share.

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