VolitionRx Ltd. (NYSEMKT:VNRX) is a $63 million company currently performing clinical trials in the cancer screening market. While it seems like the number of companies targeting the cancer screening space grows by the day, VNRX caught my attention as the company is taking a unique approach to a very complex process. VNRX is in the process of running several large studies that should give investors an idea behind the potential of the technology. The following analysis will offer up my thoughts on the prospects of the company.
Cancer Screening and the Liquid Biopsy
The term liquid biopsy is the latest buzz word in cancer screening and has even been called the holy grail of cancer screening by various groups. The term liquid biopsy is an overall term for using the contents of a blood draw, saliva, urine, stool or some other body fluid as a representation of a cancer/pre-cancer cell make up. As cancer cells die, the fragments of a cell end up in the blood stream, saliva, urine or stool and analysis of the specimen can offer a representation of the tumor tissue. The problem in the past has been having instrumentation sensitive enough to detect such low levels of DNA in the liquid biopsy specimen. We are reaching a turning point in the technology that the instrumentation and techniques exist where the idea is becoming reality. The question is not if anymore, it is more a question of when. In my mind, liquid biopsy has two immediate uses in oncology testing, interrogation of a known existing tumor and screening a presumably healthy population for unknown cancer.
The first market is using the liquid biopsy to monitor or screen a known tumor for mutations. This is the market currently available liquid biopsy tests are targeting. For example, an individual has a brain tumor and the oncologist wants to monitor the genetic heterogeneity of the tumor throughout treatment. Another applicable example would be when the tumor is in a difficult location to obtain a tissue biopsy, making the liquid biopsy the only way to acquire a sample of the tumor. Tumor monitoring is critical to ensure efficacy of treatment and previous methods involved repeated invasive biopsy procedures. As the tumor genetic makeup is constantly changing, which can accelerate with chemotherapy, real time monitoring is important. A previous analysis on Seeking Alpha goes into this idea in a little more depth. The targeted interrogation and monitoring market is a large market in its own right, however, this market is outside of the target of VNRX.
The second market for the liquid biopsy is related to screening a potential healthy population for cancer using only a liquid biopsy. The company garnering a lot of attention of late in this space is Exact Sciences (NASDAQ:EXAS) with their FDA approved test, Cologuard. EXAS uses a stool based test to screen for colorectal cancer ((NYSEMKT:CRC)-) and has shown the market has an appetite for this type of testing. EXAS offers a screening test seen as an alternative to the dreaded colonoscopy; the test has impressive detection levels for a screening test and offers a significant price difference when compared to the colonoscopy. While the company's stool based testing is an improvement over previous testing options, there is still an appetite for additional alternatives due to reduced compliance as a result of the stool specimen needed for testing. If a patient could just have their blood drawn at their physician appointments compliance rates would improve significantly. For example, compliance in a similar blood based screening assay, PSA, which targets Prostate cancer, compliance with that blood based test exceeds 85%. If a company can produce a blood based screening assay for CRC, one would anticipate compliance rates would be similar to PSA. This is where VNRX comes in.
VNRX currently has clinical trials in progress targeting the cancer screening market for CRC. The company's test would compete directly with Exact Sciences Cologuard and the traditional colonoscopy. Several other technologies exist, however, Cologuard and the colonoscopies are really the only competition in my mind as once a reliable blood based screening test comes to market, the FOBT and FIT tests will become obsolete based on specificity and sensitivity. In a recent investor presentation, VNRX compared their detection rates in CRC screening to what is currently available on the market. One could also make a solid argument that Exact Sciences Cologuard acceptance would diminish significantly due to the patient needing to handle a stool specimen.
Source: VolitionRx presentations website
VolitionRx's data is based on a 4,800 subject group that all underwent colonoscopies. The company is also currently running a 14,000 subject group as a population based screening trial, with expectations for the data being available the second half of 2016. In addition to the large sample data sets, the company presented recent data looking at 121 samples, showing sensitivity of 91% and specificity of 90%. Even though it is a small data set with only 121 total samples, VNRX's assay still detected 21 or 23 cancers with only two false positives, which is improved specificity and sensitivity over the initial data. One point worth mentioning is that VolitionRx's assay detects pre-cancerous polyps at a much higher frequency than any of the competition short of the Colonoscopy. VolitionRx's assay was able to detect all stages of cancer with similar accuracy. Detecting the pre-cancerous polyps as well as early stage cancer is critical as these are the stages where the cancer is most treatable.
How it Works
The part that really intrigues me about VolitionRx's technology is that the company is taking a little different approach when compared to the majority of the other companies pursuing liquid biopsy. The competition is primarily targeting mutations in cell free circulating tumor DNA looking for known cancer alterations to screen for unknown cancers in healthy patients. This comes with its own set of difficulties, but also comes with a high cost associated with the labor intensive process and expensive equipment. VNRX's technology uses ELISA to detect certain markers present on nucleosomes. As the company mentions in the aforementioned presentation, ELISA technology is a well known technology and just about any lab will have the instrumentation needed to perform testing. The specimen processing is also many times simpler when compared to the competing technologies processes.
Source: VolitionRx presentations website
The basics of ELISA involve creating an antibody that binds to a substrate, in this case a nucleosome, and a reporting mechanism produces a readable signal which is read by an instrument. Based on the amount of signal, one can tell the amount of substrate in the solution. Through a calculation based on a given signal for each reaction, a positive/negative result is generated. Reagents needed for ELISA testing are pennies on the dollar when compared to the competitors' technologies.
Availability of Testing
VNRX is pursuing CE-Mark for CRC testing in Europe based on the ELISA assay. The company feels this offers the quickest route to market, feeling the second half of 2016 is a realistic expectation to have the test available in Europe for the initial four-six panel assay which has already received CE-Mark on the first assay. The company will continue improving the technology in the future by optimizing the assay panel to improve sensitivity and specificity of the test. In addition to the CE-Mark in Europe, VNRX is interested in pursuing 510k clearance in the United States, targeting 2017 for 510k clearance.
Based on communications with VNRX investor relations, the CRC screening test has reagent costs around $10/sample. Based on the reagent costs that low, one could expect the final testing cost to the patient would be around $100/sample. This puts this test in the same ballpark as PSA for Prostate screening, which ranges between $60 and $80 per test. In addition to the low cost, VNRX's assay requires a small amount of blood in a standard tube. The minimal amount of blood will make adding VNRX's assay on to annual blood work a breeze for a physician, which will improve compliance. VNRX's test will also be a significant discount to Cologuard, which besides the colonoscopy is the only other real competitor based on sensitivity and specificity.
While this analysis focuses strictly on the CRC screening market, VNRX is actively exploring several other opportunities. The company is actively investigating blood based tests for Prostate Cancer Screening, Lung Cancer screening, Pancreatic Cancer screening and Endometriosis screening. The various investigations are in different phases of development and could offer significant revenue streams if the technology proves successful. One can anticipate if the technology works for CRC, then screening for other cancers in the body is just a matter of identifying the markers and working through the algorithm to determine the positive/negative cutoff. Eventually, a goal of screening for cancer throughout the body with a single test could be on the horizon using this technology.
Should I Invest in VNRX?
At first glance VNRX's technology appears to offer a promising technology. Based on the initial numbers, the technology appears to be detecting CRC at a higher rate than competing blood technologies with rates comparable to Exact Sciences Cologuard. Based on the limited number of sample results the company is still a little bit of a roll of the dice as right now the main question that still needs to be answered is how the technology performs in a large screening study, with data expected later in 2016 according to the company. If the company is able to at least maintain their specificity and sensitivity across the 14,000 patient study, the valuation is extremely low. If the data is strong, this company should be valued similarly as Exact Sciences, which as of the writing of this analysis is just north of $600 million, 10x that of the current valuation of VNRX. An argument could even be made for a valuation higher than that of EXAS as the market adoption of a blood based test is significantly higher than a stool based test as previously discussed.
One final area I always investigate with biotech stocks is the balance sheet. On March 18, 2016, VNRX announced plans to sell additional shares to raise $12.25 million. This money will solidify the balance sheet and provide the necessary funds to continue moving forward with company initiatives. Based on past cash burn, this should provide the company with funding for at least the next 2 years, giving them plenty of time to reach market with their technology.
My thoughts are that if the technology maintains, or improves, sensitivity and specificity across the 14,000 subject study, VolitionRx would end up being acquired by a larger player in the clinical testing market. If the technology does not continue to perform at the level it has shown in the past, the stock is basically worth nothing, however, I personally feel this outcome is highly unlikely with the already released data. So the main question one needs to answer before investing in VNRX is, am I comfortable risking the full investment for the potential 1000% gain? This is a high risk/high reward stock at the current time.
Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in VNRX over the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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