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VNRX: Pathway Design Study Progressing. Expect European Launch in 2018

08/30/2017
By Brian Marckx, CFA

NASDAQ:VNRX

Q2 Results / Operational and Business Update 

VolitionRx (NASDAQ:VNRX) reported Q2 results and provided an operational update.  Relative to the financials, the $3.5M in operating expenses were inline with our $3.6M estimate.  We continue to model only incremental growth in operating expenses through the remainder of 2017, despite expectations of additional development and pre-commercialization activities including those related to the Triage reconfiguration and CE Mark updating as well as completion of the pathway design study in Denmark.  We continue to model no revenue until 2018.

Cash used in operating activities was $2.8M and $5.5M ($2.7M and $5.3M, ex-changes in working capital) in Q2 and 1H 2017, respectively.  Another $875k and $1.2M was used in investing activities - primarily for upfitting the new R&D facility, over the same periods.  Cash balance was $16.5M at quarter-end, which represents ~16 months of operating capital at the current burn rate.  VNRX will continue to look to obtain additional grant funding from the Walloon Region of Belgium.  

Relative to the operational update, the newly-announced large U.S.-based asymptomatic-sample clinical trial was the most recent major highlight, discussion surrounding which was largely covered during a July 20th conference call.  But, management did have some updates on other operational items on the Q2 call including clinical programs and related activities aimed at Europe and Asia.  The also talked about updated plans related to bringing a symptomatic CRC test to the U.S. market.              

- Europe:  management noted that the pathway design study for Triage is "progressing very well" and hope to have the data from that soon. VNRX is also in-process of replacing the Triage assay (see our Appendix for additional background), following which the CE Mark will need to be updated.  We model initial launch of Triage in Europe in 2H 2018.  VNRX also appears quite committed to bringing a frontline CRC screen to Europe (as well as to Asia) - and while we have much less clarity relative to potential development and commercialization timelines for an asymptomatic test launch, management has recently indicated that they believe that could also be a 2018 event.  

Development updates on the Europe/Asia frontline screen will be of particular interest given the relatively enormous size of asymptomatic populations, cost and risk related headwinds of colonoscopy, and dearth of cost-effective and accurate non-invasive testing options.  Timing of data read-outs may be one gating factor related to timelines of eventual commercialization.  As a reminder, VNRX has two very large CRC screening trials ongoing in collaboration with Hvidore Hospital in Denmark; a 14k sample prospective study as well as a more recently initiated 30k-subject prospective longitudinal study of individuals that tested negative for CRC in a national fecal-test screening program.  

- Asia:  VNRX's first significant discussion that Asia was a near-term target was only a few months ago.  Since then they noted that their first clinical evaluation of Triage is underway in Taiwan and the regulatory process has started in both Taiwan and Singapore - approval in Singapore would also open up sale of the test to nine other S.E. Asian countries.  VNRX also recently hired a V.P. to lead efforts in that region of the world.  The company also mentions in their Q2 10-Q that they are preparing "the submission of our tests to numerous Asian authorities" and that they "aim to announce several trials in Asia for our various potential CRC products in the coming quarters."  Clearly management's message on recent conference calls was that they believe Asia, which in aggregate has very low compliance to CRC testing, represents a highly attractive market.  Cost and risks associated with colonoscopies as well as cultural barriers to handling feces (i.e. with fecal tests) appear to be hindrances to CRC testing adherence in many Asian countries.

We ballpark the market opportunity in Taiwan and Singapore at approximately $7.2M and $1.7M, respectively – but, perhaps more important could be that these might represent just the initial foray into Asia which could be a harbinger for eventual introductions into countries with larger populations, including India and China.  

The game plan for Asia is similar to that of Europe - that is, to bring both Triage as well as a CRC screen to market.  In terms of the regulatory pathway - management noted that most Asian countries (ex-China) will register the tests using the CE Mark but may also require clinical evaluation with Asian populations to support registration.  These studies commenced in Q2.  VNRX estimates an approximate 8 - 12 month timeline from submission to obtain approval in most Asian countries.  So while VNRX hopes to have a CRC test (Triage, CRC screen or both) in Asia sometime in 2018, we think initial launch may be more likely to happen in 2019.       

China's regulatory process is more involved and will likely require a pivotal clinical trial to support a CFDA (i.e. China FDA) filing.  Management estimates approximately 30 months from clinical trial commencement to approval in China.  

Relative to the U.S…., the recently announced 13.5k-sample U.S.-based clinical trial is expected to serve as support for an eventual FDA (PMA) filing for a NuQ frontline CRC screen (see Appendix for background and discussion).  But, in the meantime, VNRX plans to pursue initial U.S. commercialization with a symptomatic CRC test.  The symptomatic-related regulatory strategy seems to be firming up, although still needs to be finalized.  Current thoughts are to pursue a 510(k) pathway.  Management believes a symptomatic study can be relatively small (600 - 700 patients, given the much higher positives CRC rates vs. asymptomatic) and ballparks cost at about $1.2M.  The U.S. symptomatic program is not expected to begin until after launch of an asymptomatic test in Europe and Asia - as such, we do not expect any related U.S. revenue until at least 2019 and quite possibly, not until 2020.       

We cover VNRX with a $7.50/share price target. See below for free access to our updated report on the company. 

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