VolitionRx — Multiple partnerships enable diversification

Company description: Blood-based cancer screening

VolitionRx is developing the Nu.Q cell-free nucleosome test for the blood-based detection of a series of different cancers. The test detects the fragments of chromosomes that are released on cancer cell death and uses the modifications present on these structures to rule out other diseases. This provides a non-invasive method of detecting cancer and because the technology is based on the routine ELISA test, it can be easily integrated into existing lab protocols at low cost. VolitionRx was established in 2011 as a virtual-style diagnostics start up and has grown into a NYSE-listed company with 20,000 sq ft laboratory facilities in Belgium with more than 30 employees. The lead programmes include cancer screening in several indications in humans, more recent ventures into animal health in partnership with the Texas A&M University and nucleosome-enrichment technology, which could boost the biomarker discovery for the Nu.Q platform and open another unique commercial opportunity for ctDNA enrichment, potentially useful for DNA-sequencing players in the liquid biopsy field.

Valuation: $215m or $5.46/share

Our VolitionRx valuation is $215m or $5.46/share compared to a previous $233m or $6.60/share. This is mainly due to revised launch dates, which were partially offset by a slightly higher net cash position and rolling our model forward. In addition, the warrant exercise had some dilution effect on our value per share. The upcoming multiple data announcements from the proof-of-concept studies should provide interesting catalysts for the share price. While these will be still be small feasibility studies, all of those studies will involve the product-grade assays. The insights from these will likely influence further R&D program and focus areas for VolitionRx, which is when we will revise our valuation accordingly. For the time being we do not include Nu.Q Vet or Nu.Q Capture commercial potential in our valuation due to their early stage.

Financials: Cash reach well into 2020

As expected, VolitionRx reported no income and an operating loss of $4.0m in Q119, compared to $4.6m a year ago; this is largely in line with our expectations. VolitionRx’s cash burn is around $4m per quarter. The company had cash of $16.2m at end Q119 after it had raised $6.7m gross in March from warrant exercise. More warrants were exercised after the close of Q119, bringing in an additional $5m for the company. VolitionRx reiterated its guidance that cash burn is likely to be $4m per quarter in the near future, which suggests the cash runway extends well into 2020. According to our estimates the funding gap in 2020 is $7.5m (shown as long-term debt in Exhibit 8). The only significant change to our estimates is that we have postponed the commercial launch of products for clinical use to 2021 or 2022 (more details below).

Sensitivities: Typical diagnostics R&D hurdles

VolitionRx’s risks include demonstrating the efficacy of its Nu.Q tests in detecting cancer and communicating this to regulatory and policy-making bodies in the US, Europe and Asia. The company has been upgrading its assays, which means all prospective studies are still to be performed. However, since its establishment the company has accumulated a large blood sample bank, which means that once the assays are ready, the studies could be performed relatively quickly. Presuming successful R&D and regulatory approval, VolitionRx also faces commercial risks. Adoption in Europe depends on convincing centralised screening programmes of the importance of adopting the test and the Nu.Q tests must compete with low-cost alternatives such as the faecal immunochemical test (FIT). The mitigating factor of this is that Nu.Q technology is based on classic ELISA, which is also a low-cost and readily available procedure.

VolitionRx is a clinical-stage diagnostics company focused on the development of blood-based tests for detecting cancer. The company’s Nu.Q technology centres on the detection and characterisation of circulating nucleosomes. Nucleosomes are complexes of DNA and protein normally found in chromosomes, but in diseased cells these complexes can be released into the bloodstream. In healthy cells, nucleosomes are modified to control the expression of different genes, but in cancer they become hyper-modified as the cell loses the ability to regulate normal gene expression. VolitionRx has developed a series of different ELISA-based assays to characterise and quantify these nucleosome-based biomarkers in the hope of identifying signatures indicative of different cancers. Nu.Q assays have several potential advantages, including:

Since establishment in 2011, VolitionRx has accumulated a large blood sample bank by collaborating with various organisations in different regions. Several of the programmes are ongoing (Exhibit 1).

VolitionRx’s initial focus was CRC, but with the new proof-of-concept data, as described below, this has expanded to other cancers. One of the more notable developments over the last 12–18 months was the upgrade of the assays to product-grade level. Nu.Q assays represent a novel technology and as such, there was a need to have a reliable control to accurately interpret the measurements. Early in 2018, VolitionRx announced that its partner Active Motif developed recombinant nucleosomes, which allowed this upgrade step. This increased reliability of the measurement interpretation and the company decided to upgrade all of its assays using these recombinant nucleosomes as controls.

With this substantial improvement in technology, VolitionRx reproduced some of the previous studies. Although this caused delays to the original planned timelines for commercial products, the first proof-of-concept data in CRC and lung cancer using these product-grade assays were released in Q119 and did not disappoint; the company is planning larger trials now. We expect VolitionRx will provide more details about the upgrade process and release more proof-of-concept data in various indications over 2019, as guided by the company (Exhibit 2).

The first proof-of-concept data with the product-grade assay were released with the Q418 financial results. Two studies were done using blood samples from a lung cancer cohort and one from a CRC cohort.

We note these should be interpreted as proof-of-concept or feasibility studies that provide a rationale to conduct larger trials, rather than actual clinical validity, which is the final step in R&D. Hence, we can draw limited conclusions, that VolitionRx sees the data as sufficient to plan larger studies. One notable insight is that the assays started differentiating cancer as early as stage one. This will have to be repeated in larger trials, but early detection is the ultimate goal in diagnostics. In addition, these studies used only one or two assays, but a commercial product could include a combination of several assays. A single assay measures one epigenetic modification in nucleosomes and there are many potential modification patterns expressed in different cancers. The challenge for VolitionRx is to obtain the best-performing combination of as few of the assays as possible. More assays in the panel than necessary would inflate the cost of the diagnostic test and would increase the risk of data overfitting.

VolitionRx’s ongoing activities in (human) cancer diagnostics and near-term news flow include:

Early in 2018, VolitionRx described its progress with one of its internal R&D projects, which explores Nu.Q technology’s potential in enriching nucleosomes of tumour origin for use in ctDNA detection. During its CMD event, for the first time VolitionRx released new details and invited KOL and VolitionRx’s scientific advisory board member Professor Axel Imhof to present the progress.

The idea for Nu.Q Capture came from the collaboration of Professor Imhof and VolitionRx seeking to identify how mass spectrometry could be helpful to advance Nu.Q ELISA platform. Dr Imhof is a professor for protein analytics at the Biomedical Center of the Ludwig-Maximilians University of Munich (LMU) and the director of the Proteomics Core Facility of LMU’s Biomedical Center. His area of expertise is mass spectrometry for protein analytics, especially characterising histone modifications.

Mass spectrometry is a technique where a test object sample is bombarded with a beam of electrons so the atoms and molecules in it are ionized or become charged. Subsequently, detectors record a spectrum of these ionised particles. This information can then be used to identify the composition of the test sample. Specifically for VolitionRx, this technique could significantly speed up the discovery process of new epigenetic modifications in nucleosomes. The ELISA method allows the targeting of one specific modification at a time. Although this is sufficient for a clinical test, in the discovery of biomarkers (nucleosome epigenetic modifications in this case) mass spectrometry allows the analysis of multiple nucleosome modifications (known and undiscovered) at the same time. The reason such use of mass spectrometry has become available for VolitionRx is the rapid technological advance of the technology. As Professor Imhof explained, only 10 years ago mass spectrometers were still rather cumbersome to work with.

The first challenge was that mass spectrometry would require larger blood sample volumes per run. The solution was to move away from traditional ELISA solid-surface plates and instead use magnetic beads to precipitate nucleosomes from plasma. The first proof-of-concept tests were done using recombinant nucleosomes. These and subsequent tests with blood plasma and serum showed that nucleosome immunoprecipitation can be achieved at required levels for mass spectrometry.

VolitionRx did indicate this is still an early R&D project, but the achieved results potentially have several interesting directions.

Another notable highlight in 2018 was VolitionRx’s push into animal health, which is a new application area for Nu.Q assays. Early in 2018, the company undertook a pilot veterinary study in collaboration with experts at the Texas A&M College of Veterinary Medicine and Biomedical Sciences. The results showed that using the same assays as in humans, the researchers were able to detect nucleosomes in samples from dogs diagnosed with cancer. Animal health could potentially be a commercially lucrative area due to the combination of a large market, high unmet need and substantially lower regulatory hurdle than in humans. As a result, VolitionRx signed a memorandum of understanding with the Texas A&M University to develop a commercially feasible product. Texas A&M University was chosen for its world-leading reputation in veterinary medicine and the interest from the organisation seems strong as the university could potentially negotiate a shareholding in VolitionRx’s US subsidiary, which is being established to run the animal health programme.

The second KOL invited to the recent VolitionRx CMD was Dr Heather Wilson-Robles, who is an Associate Professor at the Texas A&M University. Dr Wilson-Robles presented an overview of the programme, commercial opportunity and the work that has been done so far (a video presentation is available on VolitionRx’s website). The key points are:

The Texas A&M University researchers have conducted a study involving blood samples from 112 dogs in three different geographical areas and the Nu.Q platform worked reliably. Another 100 samples have already been collected and will be used to finalise the Nu.Q assay panel. Dr Wilson-Robles described that the first panel can be used to develop a research-use only product. The validation set is expected to be c 200 samples (50:50 diseased and control subjects). If the data are positive, this should be sufficient for the United States Department of Agriculture (USDA) regulatory approval, which is typically less onerous than from the FDA. Detailed timelines or specific cancer indications are not known yet.

Historically, CRC was the VolitionRx’s main focus, partly due to well-defined screening programmes in many countries. CRC is one of the most common cancers, with approximately 1.36 million cases per year worldwide.1 Prognosis is highly dependent on the stage at which the cancer is detected, highlighting the need for improved CRC screening programme participation. According to the American Cancer Society the five-year survival rate for patients who have their cancer detected in the localised stage is 90%, compared to just 14% when there are distant metastases.2

Therefore, there have been significant efforts to establish screening protocols to identify the disease early. The US Preventative Services Task Force (USPSTF) provides guidance on a series of testing strategies for adults between the ages of 50 and 75:

The guidance is now under review with the main revision focus on when the screening should be initiated. The American Cancer Society has lowered the recommended age to start screening for CRC from 50 to 45 years old in its updated screening guidelines released in May 2018. In Europe there are multiple national initiatives to screen the at-risk population using similar methods as in the US, but this varies by country.

None of these tests are ideal. The compliance for faecal testing is low (13–60% depending on the study) and colonoscopy, while highly accurate, is invasive and requires sedation. Combined, the CRC screening market is approximately 235 million people in the US and Europe (US population likely to increase if new USPSTF guidelines also lower the screening age).

Common CRC screening technologies

There are a number of different technologies being used or in development for detection of CRC and they fall into three categories: invasive, faecal and blood.

The FOBT is a relatively cheap (~$5) test in which stool samples are collected and analysed for blood. A limitation of the test is that it typically involves collection of up to three different faecal samples on three different days, negatively affecting compliance. There are a variety of different versions of the test but sensitivity is 40–70% and specificity is 93–98% according to the Agency for Healthcare Research and Quality. Sensitivity for precancerous lesions was rather low, generally between 12% and 24% depending on the specific test.

The FIT was developed specifically to target human haemoglobin and not be affected by dietary sources. It is more expensive than FOBT, but at ~$23 it is still relatively inexpensive. FIT is considered more sensitive than FOBT, with a sensitivity 73.8% and specificity of 96.4%. However, it has limited ability to detect advanced precancerous lesions with a sensitivity of just 23.8%.3 Like the FOBT, the FIT involves the collection of up to three different faecal samples on three different days.

Cologuard is a test marketed by Exact Sciences that combines a molecular assay, consisting of two DNA methylation markers (NDRG4 and BMP3), seven DNA mutation markers (all related to KRAS) and a DNA normalisation marker (beta-actin), with a FIT test. Unlike the other faecal tests, it only requires one stool sample. In addition, due to the molecular assay component the test is an order of magnitude more expensive than the standard FIT test. It is also significantly more sensitive than a FIT test with 92.3% sensitivity, but is less specific with 86.6% specificity, leading to a greater number of false positives than FIT. Cologuard also has a greater ability to detect advanced precancerous lesions with a sensitivity of 42.4%.

The gold standard for CRC diagnosis is colonoscopy, as it is highly accurate with few false positives or negatives. It is an invasive procedure that requires extensive bowel preparation and anaesthesia. The adverse event rate is relatively high with a hospitalisation rate for serious complications of one in 200, usually bleeding, colonic perforation or a negative reaction to anaesthesia.4 The colonoscopy is also the most expensive screening method for CRC at a cost of $1,200 per procedure according to Centers for Medicare and Medicaid Services (CMS).

Epi proColon is the only blood test based on detecting aberrantly methylated DNA of the Septin9 gene. As the test is based on just one marker it is not very accurate, with a significant number of false positives and false negatives. In analysing its pivotal trial data, the FDA commented the test yields 37.7 false positives per every true positive compared to 5.4 false positives per every true positive for FIT.

The Nu.Q opportunity in CRC screening

VolitionRx has various clinical programmes to support the marketing and commercialisation of the frontline Nu.Q CRC test in the US, Europe and Asia. The programmes (Exhibit 1) have finished collecting blood samples, which are now part of VolitionRx’s biobank. Once VolitionRx has identified the right Nu.Q assay panel following the upgrade, it will be able to run the studies relatively quickly, as prospective collection is the time-consuming part. More precise development details are not known yet.

Besides developing a test for frontline CRC screening, VolitionRx has also explored the potential for so-called triage for colonoscopy approach using a separate Nu.Q panel. This simplified test is not designed to diagnose cancer in the frontline setting; rather, it is a follow-up diagnostic for patients who have a positive FIT test. The goal in this case would be to further discriminate if the patient should receive a colonoscopy. In theory, this protocol has the capacity to significantly decrease the number of unnecessary colonoscopies, which the company believes would be attractive to certain state-sponsored CRC screening programmes. The total addressable market for the triage test is smaller compared to the frontline test, but is still substantial if low current compliance could be increased. There are approximately 136 million patients in Europe eligible for routine CRC screening. However, a recent study of faecal testing in France found compliance rates between 47% and 54%5 over four consecutive two-year periods. A study in Spain identified an FIT positivity rate of 7.2%,6 similar to rates observed in the US (7.0%).7 This corresponds to a total market of 2.5 million individuals per year across Europe if all nations adopted FIT screening programmes, or a little over 1% of the predicted US and European frontline CRC screening market.

Earlier versions of the Nu.Q assays have been evaluated in several separate trials for CRC. As explained above, because VolitionRx has been upgrading its assays using recombinant nucleosomes as control, we believe little inference can be made from the historical results. Nevertheless, they are indicative at least to some extent of nucleosomics’ potential in CRC.

Lung cancer is one of the top indications that VolitionRx is focusing on following the recent positive proof-of-concept results with the upgraded Nu.Q assays. It is another disease that can benefit from early detection, but unlike CRC, widespread screening efforts are limited by technology. The majority of lung cancers are identified late once the cancer has metastasised (57%), when the five-year survival rate is only 4.2%.8 These survival rates are significantly higher (54.8%) if the cancer is detected when still localised.

Because of its close association with smoking, the population at risk of lung cancer is much lower than CRC. The CMS recommend screening for those aged between 55 and 74 with ≥30 pack per year smoking history and cessation fewer than 15 years ago, which results in 8.6 million people in the US (compared to the 89 million screening population for CRC). Therefore, the theoretical market size is smaller than for CRC, but the unmet need is higher as the screening options used in practice are very limited.

There are a number of possible different screening methods used in practice (Exhibit 5), but the current standard advocated by the USPSTF is a yearly low-dose CT (LDCT) scan. LDCT is an effective method of identifying lung cancer (89% sensitivity, 93% specificity) but it is associated with radiation exposure. The amount of radiation exposure is small on an individual basis (2mSv), but on the scale of the total number of screened patients, it represents a very large level of exposure with potential public health effects. So, there is still a medical need for new screening regimens.

Another indication with a desperate need for early screening capabilities is pancreatic cancer. The five-year survival rate for patients with distant metastasis is one of the worst in oncology at 2.4%, whereas it is 27.1% when localised. The deadly reputation that pancreatic cancer has earned could be significantly improved with better diagnostics. There are substantially fewer established technologies used to test for pancreatic cancer. The primary procedure used to screen patients is endoscopic ultrasound, which is a highly invasive procedure that can require sedation. The only other screening method in common use is a blood test called CA19-9. Current ASCO guidelines recommend against using CA19-9 as a screening tool for pancreatic cancer due to its inaccuracy. According to a review of CA19-9 studies, it has 79% sensitivity and 82% specificity.10 Its primary use is to assess the response to the therapy for already established pancreatic cancer patients, but it is frequently used off label for diagnosis, albeit coupled as part of a larger set of diagnostic procedures.

These limitations in screening technology and the relatively low incidence of the cancer (53k new cases per year in the US)8 are likely the reason why the International Cancer of the Pancreas Screening Consortium does not recommend screening for the general population. Currently, only those individuals with multiple first-degree relatives who have had pancreatic cancer are considered of sufficient risk to warrant screening. These features mean that although the unmet need is significant, the screening market is less well developed than CRC and lung cancer. However, the fact that CA19-9 is used in diagnostic work-up in general means that in broader terms, there is a demand for novel diagnostic, especially non-invasive methods in pancreatic cancer.

VolitionRx is yet to announce proof-of-concept data with the upgraded assays, but with the previous versions of the assays, the initial accumulated data seemed supportive. The assays were tested in two retrospective data sets. The first employed 59 samples from Lund University in Sweden and detected 92% of cancers with 100% specificity with a Nu.Q panel of four assays combined with the CA19-9 test. In a follow-up study, the company combined a similar Nu.Q panel with a carcino-embryonic antigen and identified 95% of cancers with 84% specificity out of the same 4,800-person sample from Hvidovre Hospital in Denmark used in the CRC test development.

VolitionRx has also completed blood sample collection, which is part of the 750-person study run in collaboration with the German Cancer Research Center. These samples will be used to test the product-grade Nu.Q assays.

VolitionRx’s risks include demonstrating the efficacy of its Nu.Q tests and communicating this to regulatory and policy-making bodies in the US, Europe and Asia. The company has been upgrading its assays, which means all prospective studies are still to be performed. The initial proof-of-concept results from lung cancer and CRC seem encouraging, but much larger studies will be needed to confirm the diagnostic validity. However, since its establishment VolitionRx has accumulated a large blood sample bank, which means that once the assays are ready, the studies could be performed relatively quickly. Presuming successful R&D and regulatory approval, VolitionRx also faces commercial risks. Adoption in Europe depends on convincing centralised screening programmes of the importance of adopting the test and the Nu.Q tests must compete with low-cost alternatives such as FIT. The mitigating factor in this regard is that Nu.Q technology is based on classic ELISA, which is also a low-cost and readily available procedure. Although the company is sufficiently funded for the next 12–18 months, it is likely that further funding rounds will be needed. That said, all past shares issues were carried out by VolitionRx successfully.

Our VolitionRx valuation is $215m or $5.46/share compared to previous $233m or $6.60/share. This is mainly due to revised launch dates, which was partially offset by slightly higher net cash position and rolling our model forward. In addition, the warrant exercise had some dilution effect on our valuation per share.

The main revision we have made to our R&D projects was the delay of the launch of commercial products by two years in all indications (to 2021-2022). We believe that the upgrading of the assay was a necessary step to ensure commercial viable products. Our other R&D assumptions remain unchanged as described in our previous notes.

The upcoming multiple data announcements from the proof-of-concept studies should provide interesting catalysts for the share price. While, as described above, these will be still be small feasibility studies, all of those studies will involve the product-grade assays. Of the larger programmes, VolitionRx indicated that the interim readout from the lung cancer trial in Asia is expected in Q120 (n = 600). For the time being we still do not include Nu.Q Vet or Nu.Q Capture commercial potential in our valuation due to early stage of these programmes. However, there is potential for the Nu.Q Vet programme to progress relatively fast compared to cancer diagnostics in humans due to lower R&D hurdles in animal health. Next steps in this programme are the establishment of the assay panel and a subsequent validation study. More details on timelines should be released later in 2019, we believe.

VolitionRx reported no income and an operating loss of $4.0m in Q119, compared to $4.6m a year ago, which is largely in line with our expectations. VolitionRx’s cash burn is around $4m per quarter. The company had cash of $16.2m at end-Q119 after it had raised $6.7m gross in March from the warrant exercise. More warrants were exercised after the end of Q119, bringing in an additional $5m for the company.

VolitionRx reiterated its guidance that cash burn is likely to be $4m per quarter for the near future. This suggests the cash runway extends well into 2020. VolitionRx had $1.8m in gross debt at end Q119. According to our estimates, the funding gap in 2020 is $7.5m (shown as long-term debt in Exhibit 8).

The only significant change to our estimates is that we have postponed the commercial launch of products for clinical use to 2021 or 2022, as described above. Other that we only finetuned our operating forecasts following the Q119 results. We include small initial sales of $50k in 2019 and $100k in 2020 from the research use only (RUO) Nu.Q kits that Active Motif is distributing. Notably, VolitionRx has not recorded sales yet, so there is little visibility of the commercial potential of RUO kits. As we noted before, the primary benefit of selling Nu.Q assays for research should come, in our view, from increasing awareness in the scientific community. This could mean VolitionRx’s technology is tested in more projects and ultimately lead to peer-reviewed article publications.