VolitionRx (OTC:VNRX) is a life sciences company focused on developing blood-based diagnostic tests for different types of cancer which is likely under the radar for many investors, with a market cap of $22m and an average trading volume of only 2,000 shares a day ($4,000 notional). Nevertheless, I think the company warrants a closer look as it has an interesting catalyst pathway, reasonable financial profile (i.e. cash burn), and potentially unique technology that could unlock shareholder value over time.
The stock has been covered rather thinly on these boards, with positive bias focusing on the scientific merits of its initial clinical trials. I have referred back to the initial article which delves somewhat into the data, namely that preliminary results from a 105 patient trial showed that the company's NuQ™ cancer tests were able to detect between 76%-100% of cancers with a high degree of specificity ranging between 79%-90%. As the author noted, the company is now prepping a 10k+ pt trial with its NuQ colon cancer test which should read out by 1H/14 on the first cohort (2k patients) and pave the way for a European launch in 2014.
While the data itself, although preliminary, was impressive on both the sensitivity and specificity, what attracted me to this company as the potential investment was the efficient cash burn structure and financing outlook. For many small cap biotech/diagnostic companies, financing is frequent and cash consumption is heavy. VNRX set up its studies in a manner that it did not have to pay for the cohort, but merely the cost of collection (in Denmark, where the screening market is the biggest in Europe). Couple that with a grant award from the EU for $1m (under the EUREKA scheme) where the reimbursement is 80% of its costs of $560k over the next 2 years, and you have essentially a self funded "pivotal" trial. At the current cash position ($1m) and cash burn ($750k a quarter), this allows the company to get cash runway through the results before approaching another fundraising event.
Assuming the trial reads out similarly to the preliminary results, VNRX can optimize its screening panel in 2Q/14 and then apply for the CE mark by 1H/14, with FDA applications by year end 2014. Within the CRC market, PSA is a $3b per year market in the US (within the larger $10b colonoscopy market). While meaningful penetration numbers are likely fanciful for a company of this size, a kit that would be competitively priced at <$1,000 for colonoscopies would likely be well received. There are 20mm PSAs done per year in the US; with VNRX pricing at $20-40 even a revenue run rate of $50mm would barely scratch the surface of the clinical lab IVD cancer market which is $300m in Europe and $460m in the US. For this analysis, I assume that the addressable PSA market is $400mm on the low end, and that VNRX can, over time, capture ~10% of this market annually based on the predicate examples in other diagnostic launches with limited sales forces but superior data.
On this basis, applying a "mature" MedTech multiple of 4x sales (which is likely low, should be closer to 8x), would yield a market cap of $200m vs. the $20m today. Higher growth MedTech can command >10x sales on a run rate basis and with inferior cost structures to VNRX.
As such, I view the upside as 10x; the downside is likely 50%, given the still weak cash position ($1m in cash vs. 11mm shares outstanding) and likely dilution if the trial fails and VNRX has to re-trench on its other programs. However, given its recent EU grant awards and interim data, coupled with imminent catalysts and data read outs, it warrants a closer look.
VolitionRX Limited, a development stage life sciences company, focuses on the development and commercialization of cancer detection blood tests for the clinical in-vitro diagnostics and the research use only markets. The company develops a blood test in the NuQ-X family to detect the presence of cancer by detecting nucleosomes containing specific nucleotides, four blood tests in the NuQ-V family to detect cancer and nucleosomes containing specific histone variants, and a blood test in the NuQ-M family to detect cancer by detecting nucleosomes containing modified histones, the proteins that package, and order DNA into nucleosomes. It also develops HyperGenomics tissue and blood-based tests to determine the specific subtype of disease and to help decide on the therapy, and NuQ Endo endometriosis test. In addition, the company also focuses on the sale of manual and/or semi-automated 96 well enzyme-linked immunosorbent assay plates for use in centralized laboratories, provision of point-of-care devices and disposable home use and doctors office test systems. VolitionRX Limited is based in Singapore.