Q2 2022 VolitionRX Ltd Earnings Call

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Good morning ladies and gentlemen and thank you for standing by. Welcome to Relation's Rx Limited's second quarter 22 earnings conference call. During today's presentation all parties will be in a listen-only mode. Following the presentation the conference call will be open for questions. If you have a question please press the star key followed by the number one on your touch tone phone. If you would like to withdraw your question please press the star key followed by the number two.

If you're using speaker equipment, please lift the handset before making your selections. This conference is being recorded today, August 11, 2022. I'd now like to turn the conference over to Scott Powell, Executive Vice President of Arrested Relations. Please go ahead.

Thank you and welcome everyone to today's earnings conference call for VolitionRx Limited.

This call will cover Volition's financial and operating results for the second quarter of 2022, along with a discussion of our recent activities and key upcoming milestones.

Following our prepared remarks, we will open the conference call to a question and answer session.

Also on our call today, Mr. Cameron Reynolds, President and CEO , Dr. Tom Butera, Chief Executive Officer of our Volition Veterinary Subsidiary, and Mr. Terry Hughes, Chief Financial Officer.

Before we begin, I'd like to remind everyone that some of the information discussed on this conference call will include forward-looking statements covered under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on our beliefs as well as assumptions we have used based upon information currently available to us.

because these statements reflect our current views concerning future events. These statements involve risks, uncertainties, and assumptions. Actual future results may vary significantly based on a number of factors that may cause the actual results or events to be materially different from future results, performance, or achievements expressed or implied by these statements.

We have identified various risk factors associated with our operations in our most recent annual report on Form 10-K .

quarterly reports on Form 10Q and other filings with the Securities and Exchange Commission.

We do not undertake an obligation to update any forward-looking statements made during the course of this call.

I would now like to turn the call over to our President and Chief Executive Officer, Mr. Cameron Reynolds. Cameron? Thank you, Mr. Chairman.

Thank you, Scott, and thank you everyone for joining Volition's second quarter 2022 earnings call today.

We especially appreciate your time given this is the busy earnings call season.

We will commence the call with our financial report from Terry Hughes, our Chief Financial Officer, after which I will provide an update of all the exciting activities surrounding new QNets.

before passing the baton on to Dr Tom Butera, our Chief Executive Officer of AlitionVet, to discuss new QVet.

Finally, I'll wrap up the call with a quick update on our most recent developments with Nuke You Discover.

Terry, over to you for a financial update.

Thanks very much Cameron and thank you everyone for joining our earnings call today. I'll now provide a summary of the key financial results for the quarter ended June 30th 2022.

We ended the quarter with cash and cash equivalents of approximately $16.7 million compared with $20.6 million at the end of 2021.

Subsequent to quarter-end, we received approximately $6.4 million in cash, net of underwriters' fees and expenses, through an underwritten public offering of our common stock. Additionally, as recently announced, we secured a further $1.5 million in non-diluted funding from the More Invest Capital Risk in Belgium, to fund an early access programme for Volition's new Q product portfolio at key sites across the EU, UK and US.

which Cameron will describe in more detail later.

During the second quarter, we made no sales of our common stock under our At the Market or ATM Equity Distribution Program.

We continued to manage our expenditures carefully with net cash used in operating activities averaging approximately $2.1 million per month in the quarter.

Revenue reported in the first half of 2022 was $154,000 versus $50,000 for the first half of the prior year, with approximately half of the 2022 amount from sales of our new Q-bet test.

and half from sales under our new Qdiscover offering.

This revenue figure excludes the receipt of an upfront milestone payment of $10 million in cash from HESCA Corporation received in March. It is worth noting that whilst this payment has been fully received and is non-refundable, it has not been recognized as revenue in the period and has been accounted for as deferred revenue in accordance with the relevant accounting standards.

This was not only a milestone payment but also a company milestone.

the culmination of much work across the company and truly marked the beginning of our commercial journey. And this was just the first of what we hoped would be several milestone payments in relation to the HESCA contract.

We anticipate that the next two milestones will be achieved and payments totaling $13 million will be paid by HESCA within the next 12 months, with a final payment of $5 million due upon publication of clinical use in CAHPS.

Given our current balance sheet and funds expected in the short to mid-term, we are confident that we have the resources to deliver on our future milestones.

And to see us to the revenue ramp we expect to start after the worldwide launch of the VET products anticipated in 2023.

As we discussed on the previous call, given the product range we believe we can develop from our proprietary nucleosomics platform, we believe our addressable markets are very significant, most notably in the short term with new q-bet and new q-net.

And with that, to discuss these opportunities in more detail, I'll hand back over to Cameron.

Thanks, Tereg. I'm delighted with the progress we are making and in particular could not be prouder of the team's achievements this quarter in advancing our product pillars.

Our first pillar to discuss on this call is Nuke U Next.

During the second quarter we secured a CE mark for NUQ nets for the detection and evaluation of netosis.

enabling clinical use in more than 27 countries across Europe .

As a reminder, netosis is a unique form of cell death that is characterised by the release of neutrophil extracellular traps, or NETs, composed of decondensed chromatin that trap and kill bacteria and viral particles. Although NETs play an important role in our immune system, excessive production can lead to tissue damage and, in severe cases, sepsis, shock and death.

Through routine blood tests, Volition's simple, low cost, accessible technology can detect mitosis, predict disease severity and monitor its progression and response to treatment.

NucuNets is the first biomarker approved to measure nets for patient management.

Its broad intended use as a diagnostic tool to aid the detection and evaluation of diseases associated with Netosis offers a substantial commercial opportunity as discussed at a Capital Markets Day we held in New York in May.

We estimate that the total addressable market in Europe for sepsis alone amounts to almost $6.5 billion annually.

Achieving sea marking is a critical regulatory milestone for us.

NukeuNet is now registered for use in Europe in both ELISA, which are the plastic plates, and Automated Clear, which is chemiluminescent automatic assay format.

The commercial team have now commenced a market access program with key European opinion leaders and early adopters and expect to drive sales from the first half of next year in 2023.

Subsequent to quarter-end, momentum continued for the new Q-Nets pillar, starting with new publications.

In collaboration with research at the University of Namur, QualiBlood in Belgium, we published a paper entitled Nootosis and Nucleosome Biomarkers in Septic Shock and Critical COVID-19 Patients.

and observational study. We also presented a poster entitled, Evaluation and Comparison of Netosis Biomarkers in sepsis and COVID-19 patients.

at the International Society on Thrombosis and Hemostasis, ISDH Congress in July .

The ISTH conference was a real highlight of the year to date with many of the team in attendance to man the booth and develop a network of key opinion leaders and potential licensing and distribution partners.

We also sponsored a Genome Web webinar presented by Dr Andrew Aswami of guides in St Thomas' Hospital titled The Promise of Nutri-Fill Extracellular Traps, NETS, as a Biomarker Inflammatory Disease.

This webinar, the second in our series, was incredibly well attended with an engaged audience.

Indeed, the chair of the meeting said it was the most questions he could remember them ever receiving, so certain interest remains high in this emerging field of medicine. To watch on demand, visit the GenomeWeb website.

And last, but certainly no means least, we are delighted to announce some new clinical studies for NETs with MD Anderson and with Diagnostics Oncology CRO, or DxO for short, both in the US.

We're delighted to be working with one of the world's leading cancer research institutions, MD Anderson.

Cancer patients have a weakened immune system and shockingly have a 10 times higher likelihood of developing sepsis and are more likely to die if they develop it.

Therefore, it is critical for physicians to identify cancer patients at risk of sepsis early and initiate treatment quickly to improve patient outcomes.

Our study with MD Anderson is an important study that evaluates the potential utility of using new Q-nets in the management of cancer patients at risk of sepsis and we're delighted to collaborate on this research.

This week we appointed clinical research organization, Docro, to undertake development and clinical validation of studies for our new group product portfolio in the US.

DOCRO will conduct large-scale finding studies across multiple sites in the US using Volition's NUQ-Nets and NUQ-Cancer tests to determine clinical utility in sepsis and cancer.

We anticipate that subsequent studies will investigate the chosen intended use claims of the test with the objective to gain clearance, authorisation or approval from the United States Food and Drug Administration, or the FDA, and allow the test to be marketed in the US.

These multi-site development studies will help us demonstrate how our nucleosomic technology can directly benefit patients and support our application to the FDA's breakthrough device program by year-end and a pre-submission anticipated in 2023.

My thanks to Sharon Ballesteros and Ghatan Michelle for spearheading our research efforts in the US. It's fantastic to get this project underway.

So, a truly exciting few months for new QNETs, great to achieve the EU regulatory hurdle and start our marketing access programme in earnest and equally fantastic to get our clinical and regulatory programme underway in the US.

And from one exciting pillar to another, NukuVet.

I'll now pass over to Dr. Tom Botera, our Chief Executive Officer of our Veterinary Subsidiary for his update.

Thanks very much Cameron and hello everybody. This first quarter of 2022 really was a breakthrough time for Volition Veterinary with the execution of a global licensing and supply contract with one of the industry's leading companies, Tesco Corporation.

But let me tell you, the hard work and progress continued into the second quarter.

As you can imagine, we have many workstreams up and running from technical transfer and logistics to sales and marketing, and are making tremendous progress towards the launch which we still anticipate will be later this year or early in 2023.

This contract provides for milestone payments to the militia.

To give you the breakdown, the Lition received a $10 million upfront payment on signing the agreement.

and will receive up to $18 million based upon the achievement of near and midterm milestones.

$13 million of which, as Tarek already mentioned, we anticipate receiving in 2023.

In addition to these milestone payments,

and most likely significantly greater than these payments.

is the ongoing revenue that Volition expects to receive in relation to payment for kits.

for the reference lab market.

and for the supply of key components for the exclusive point of care product that HESCA will bring to the market.

Every time HESCA sells a test, the Commission will make money.

be that through the sale of a kit or from the sale of a key component.

And this is a long-term deal with incredible market potential where we expect millions of tests will be sold each year. So the ongoing revenue for volition could be significant.

It's a fantastic deal for both companies and we are certainly excited to get on to preparing for launch.

And talking of launches, I am delighted to say SAGE Healthcare launched the new Q Vet cancer test in Singapore.

Dr. Wilson-Robles and I had the honor of presenting to a number of veterinarians via a launch webinar posted by SAGE. And as ever there was a lot of interest and a lot of great questions.

And I know the SAGE team are now spreading the word, creating further educational awareness, and driving demand in the clinic for our new Q Vet cancer test.

We are in advanced negotiations with other potential licensing and supply partners in our efforts to make new Q Vet products as accessible as possible worldwide. And as ever, I remain optimistic in signing further deals this calendar year.

From a product perspective, I'm delighted to report we have expanded our product claims

With the presentation of new clinical data at the European Society of Veterinary Oncology Congress in May

with regards to monitoring.

and at the American College of Veterinary Internal Medicine, ACVIM, in June with regards to multi-cancer detection.

Our clinical research program led by Dr. Wilson-Robles really continues to deliver and we are excited to be expanding further.

Our clinical research laboratory at Texas A&M University has been extended. In addition to working with a number of the veterinary oncologists at TAMU, we are delighted to have appointed a veterinary emergency criticalist, who will be starting our research into non-cancer indications. For more information, visit www.tamu.edu

So pretty soon you'll start to hear me talk about next studies in dogs.

Yet another, both ends of the leash story at Volition.

Dr. Wilson-Robles has recently started a role with the United Veterinary Health Ethos Discovery Group, which in addition to her serving as president of the Veterinary Cancer Society, certainly opens up further exciting possibilities for collaborations and research programs.

Congratulations, Heather, on your additional role.

Lastly, and yes, I tried to keep it tight today, I have traveled extensively during the second quarter and have been truly delighted with the level of interest and support we are receiving for our technology in Europe by both veterinary oncologists and general practitioners. When I started it, I kind of waved so much andconf Ravner giving me real Have you ever wanted to set these down and really deliver on purpose? When like pounds of sugar, do you prefer white sugar or glowing ISIS

I look forward on future polls discussing not only our clinical research network in Europe but also our commercial rollout.

We believe that this simple, affordable, and easy to use blood test addresses a huge unmet need in the veterinary market.

As I have said on previous calls,

Cancer screening is not yet as commonplace in animal health as it is in human health.

But I firmly believe blood tests like the new cuvex cancer test

could significantly help transform how veterinarians manage cancer in companion animals.

All in all, an incredibly busy time for the whole Volition veterinary team and many of the Volition executives too.

I would like to publicly commend and thank the team for their tremendous hard work. A great job, well done.

And with that, I'll hand it back to Cameron.

Thanks very much, Don. I am delighted with the progress we have made in this key pillar of the business as we progress strongly from purely a research and development company to a commercial company with a wide range of products.

It's an exciting, fast moving part of our business with clear potential to generate significant revenue for the company in terms of both milestone payments and ongoing revenue streams as Tom explained for the sale of kits and key components, not only the HESCA but also the SAGE Healthcare and hopefully in the not too distant future other potential partners.

The final pillar I'll cover on today's call is New 2 Discover, where the team have also made some good progress.

As Terig mentioned earlier, revenue reported to date through the end of June is around $150,000. But aside from the revenue, what I'm happy to report is that both the range of customers from academia to charities to biopharm and pharmaceutical companies are down.

and the type of projects continue to expand.

We have recently signed contracts with three biopharmaceutical companies who are accessing our assay portfolio for rapid epigenetic profiling of their drugs.

These drugs are in phase 1 and phase 2 of development and so the collaborations span animal and early clinical studies.

Clearly this information is of a sensitive nature but what is promising from a NuQ Discover perspective is one drug in particular looks like it will be moving into human studies later this year with NuQ Discover as part of the program.

We're excited to be involved in a number of cutting-edge projects and hopefully in doing so we're helping them develop and release the groundbreaking therapy to benefit the patients.

It's difficult to provide exact revenue guidance in this area since we are dependent on the pace and success of another company or company's product development programs.

Suffice it to say, you could discover remains an interesting pillar, certainly one to watch as the drugs move through the development phases.

And so in conclusion, I'm delighted with the significant progress we have made so far this year. In drawing this earnings call to a close, I would like to thank you all for joining the call today. We very much appreciate it, given the busy earnings call season. I, along with the rest of the board, and indeed the whole company, very much look forward to sharing further news regarding Pollution VETs and our other subsidiaries as well as the results of our key clinical studies, publications and milestones over the coming months and quarters.

I feel very much we are in an extremely strong position to commercialise our new view platform in so many areas.

I could not be more positive about our work at the heart of epigenetics and I'm excited for the next phase of our journey. We're happy to take your questions.

work at the heart of epigenetics and I'm excited for the next phase of our journey. We're happy to take your questions. Operator?

Thank you. We will now conduct a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, that's star 1 at this time. One moment while we poll for our first question....

Our first question comes from Ross Osborn with cancer Fitzgerald. Please proceed.

Hi, congrats on the progress made here in the quarter.

in receiving CE mark. Thanks for taking questions.

for taking questions. Thank you.

So, starting with product revenue, looks like there was a decline. I know it's still in the really early stages of everything, but could you just parse out the drivers there?

Sorry, it's tough to hear the question. Could you repeat that, please?

Sure. I was saying

Maybe we start with product revenue. Looks like there was a bit of a sequential decline. I realize you're still in the early stages of everything, but could you just parse out the drivers during a quarter?

Yes, Terry, can you take that?

Yeah sure, so as you know product revenue as you see it in the account is a bit of a mix of VET and some of the samples that we sell through our NuQ Discover offering. So as we mentioned in the past NuQ Discover is a bit lumpy, it's project-based and it's very difficult to predict.

So on the on the vet side it continued in line with the prior quarter with Texas A&M churning out about the same number of tests as they had in the previous quarter. We got some revenue from SAGE.

But I think any decline you see in the product revenue there is just a function of the lumpiness of the new Qdiscover offering.

And I think Ross also remembered this quarter we did sign several new Qdiscover deals. I think there was just a big lump that came through. We sorted out some IP issues earlier in the year and what we were looking for. So there was a real rush of deals. A couple things to remember, all the deals we've had and there's those seven now, organisations we're working with, every one of those has been inbound. So we're incredibly happy with the take up on the discover side.

and the vet revenue has been very steady while waiting for the launches from HESCA, both in the lab and on the point of care, and we'd expect, as Tom said, to be signing one of the big companies as well in the lab setting sometime later this year.

Okay, great, understood. Next, could you provide more color on the scale of the Singapore launch? And then as a follow up to that, when can we expect you to expand outside of Singapore to other Asian markets?

Tom, do you want to take that?

Sure.

Hi, Russ. Good morning. With reference to any market you go into, a lot of it has to do with continued awareness and education to the doctors on how to use the test, how to position the test, when and where to use it. And we've launched in Singapore, as I mentioned in my opening comments. Dr. Robles and I did a webinar presenting the information to them. There was a significant amount of interest. Doctor Robles was asked a nine-year sentence to transition. And one said, 2,*: Oh, no, this one, that works. Oh, this one then said, 1, Loving the different cultures makes a lot of friends in healthcare, right, like health, when we're talking about kids with foods, classes, incomes, I should say. This is the first SP Jackup

And now based off that webinar, we are now making contact with all the hospitals, quite frankly, in Singapore. We have business development people on the ground. They are asking a lot more specific questions now, and we are answering a lot of them. So we are creating a significant amount of awareness on the part of the doctors there on how to use it. That takes a little bit of time to ramp up. There's over 100 hospitals in Singapore and close to 400 veterinarians.

So it's an ongoing project and we expect to receive some significant benefit from it over the coming months as they become more comfortable with the test and as they specifically know how to use it.

Sounds good.

Sorry, the other countries? So expansion, I guess is that Europe or Asia?SK

What's the use for a company that Asia or Europe ?

specifically Asia.

Yeah, we are certainly getting inquiries from a number of other countries, both in Southeast Asia as well as Asia. We obviously want to remain focused on Singapore right now because that's where our first initial launch is. And as we develop additional exposure, both in Asia as well as in Europe and as well as in the US, that's going to allow us, it's going to make it easier for us to begin to start traction in other Asian countries.

That will come over time. Okay, great. Thanks for taking my questions and congrats on the progress.

Thank you very much.

Our next question comes from Bruce Jackson with the Benchmark Company. Please proceed.

Good morning everybody.

Morning.

Good morning. Good morning. Good morning. My first question is around the NETS cancer study at MD Anderson. This is a potentially exciting application of the technology. Can you give us maybe a few more details about the size of the study, when you might have data, and when it might be presented at a major medical meeting?

Yes, thank you Bruce. We're very, very excited as well and working with the world's best cancer organisation and I think of the crossroads of the two big important things for us, mitosis and cancer, is incredibly exciting and we couldn't be happier to be underway with them and I hope that this is the first of a few things we can do with MD Anderson. So the scale of the study, so yes, it's extremely important because as I mentioned in the earnings call you're ten times more likely to get sepsis which is really shocking if you have cancer and it's often actually the final cause of death.

So anything that can give the clinician some warning on that I think will be tremendously beneficial at the crossroads of cancer and the ptosis. The actual cost itself is a few hundred thousand dollars. It's a, because they're working with them, it was actually their process and their idea on the background to this. It's something they're very passionate about and very aware of is the ptosis and cancer. It can take up to two years of work, but we'd expect to get data. So unfortunately for the patient.

and totes and cancer with MD Anderson is a fantastic place to start. and the 1.5 million dollars we got in soft funding.

We'll be funding 15 more operations like this throughout the world centered on Europe , where we're working with organizations for the same sort of standing as MD Anderson in Europe for other use cases for Natosis. So it's really kicking off, and I couldn't be happier with the start with MD Anderson.

That's great.

discuss maybe a little bit about when we might get the first look at the interim data.

That's to be determined. As I said, it can happen reasonably quickly because it's obviously they've recovered. I would expect to see data next year but I wouldn't want to publicly try and predict exactly when that is but they are starting quite quickly. Our assays are ready. It's the same assay which is C marked in Europe so it can happen quite quickly and it is the final product version of it. So I'd expect data next year but I'll perhaps be our update better in the November call when we'd expect to see the first data.

or could it vary somewhat?

Yeah, that's a good question and a good observation and we do expect it to tick up over the next quarter or rather probably more towards the end of the year, more towards Q4. Because that's when we will have started being full swing with some of our projects, including the DXO work that will be done. So we would expect that to tick up probably particularly over Q4.

And I think just a quick start on that brief, also that some people obviously ask, we have a reasonable amount of cash left, why did we do a small raise? We've also got some non-deluded funding and expecting a large amount to come in from the milestone payments. So I think to be prudent and given all the fantastic things going on and the product launches and trials, it was just wise to slightly strengthen our balance sheet between the money we had in the bank, the 16.7, the 6...

0.4 we got in, some non-diluted funding and also in total 18 million more we would expect to get from the milestone payments. But the combination I think shows our adaptability in these difficult markets and I think was an important thing to do.

That is it for me. Congratulations on all the progress.

Thanks, Bruce.

Once again, ladies and gentlemen, to ask a question at this time, please press star 1 on your telephone keypad. Our next question comes from Nathan Weinstein with AG's Capital. Please proceed. Talk to us for a little bit.

Good morning, Cameron and Volish and team. Thank you for taking my questions and perhaps we could just start with the HESCA potential payments that you expect related to near and midterm milestones. Could you give us some more color on what kind of milestones those consist of that would trigger additional payments?

Tom, would you like to disclose that? Sure, I'd be happy to do that.

Good morning, Nathan. How are you?

Yeah, good morning, Tom. Thanks. Good morning, Tom.

The next two payments, the 13 million are based on, first of all, the first six and a half million will come when we actually launch the product on POC. And we are in the final stages of validation of that and as Kevin Wilson, even on his most recent call with HESCA, said the anticipation of the launch is still late this year or early 2023. So that would be the first six and a half million dollar payment with reference to launch. And then also Dr. Robles.

is planning to submit the monitoring paper which we've been doing a lot of work on. When we talk about monitoring, we're talking about using our marker for disease progression during treatment and during remission, and we've collected all the cohort information we're planning on submitting that monitoring paper for peer review publication in the third quarter of this year, and anticipate that it'll probably be published by the first or second quarter of next year. Once that is published, we will be ready to.

pursue the second payment and we will introduce and launch the monitoring application of our platform, which will trigger the second payment of $6.5 million sometime in 2023. Those are where the $13 million is coming from, and we're confident that both of those will be forthcoming based on the information I just provided.

Oh, great. Thank you. That's very helpful. And then maybe just one follow-up question on the vet side. It seems like you still have optionality to sign other types of agreements. Can you give us a little insight into what those other types of agreements you could sign, geographies, et cetera, just so we can think about how to frame that?

John , do you want to take that?

With that bear.

So I was just saying take that pump. Sorry, yes. Yeah, I can do that. Nathan, just so you have some clarity or reiteration clarity, when we signed with HESCA, the HESCA has an exclusive agreement with us on the point of care test.

And that's something that, so any point of care test that we currently are using with reference to our current marker, UQ Cancer, they have an exclusive with us. They have a non-exclusive with us on reference lab contacts that they have, both with reference to the US as well as to international. And they have a pretty strong reference lab connection in the EU. What's that allowing us to do is with the other corporate groups and large corporate groups, we can also formulate agreements with them, which are also non-exclusive.

15 or 20% of the market typically is point of care. So the lion's share currently, I mean, Heskah's a fantastic organization and point of care is incredibly important. But if we do, and we expect to, sign with one or two more of the big companies, our coverage in the US would go to around 80 or 90% of vets upon that signing. So we're very excited. The vet team's done a lot of work getting ready for Heskah's launch.

and also potentially launching in one of the very large companies from the lab perspective as well. So I think the HESCA launch will be a very good milestone and I think also the signing and launch of the very large lab companies, which gives us massive coverage in the US. And having a company our size with as little money we've spent, being able to be ordered by 90% of vets in the US, I think is an outstanding outcome. And as Tom said so well, we get paid every single time the test is done, between $5 and $10.

and the amount of money going to the vet, the cost of the vet is only about $25. And those companies will do the marketing, we'll run the test, we'll run the whole process.

quite profitable to us and we'll be leveraging their massive infrastructure throughout the world so very exciting and all those we expect in the next few quarters

Great, thank you, Cameron, and thank you, Tom. Looking forward to those updates later in the year.

You're welcome, Ethan. Thanks Nathan. Have a great day.

Once again, ladies and gentlemen, to ask a question, please press star 1 on your telephone keypad at this time. Our next question comes from Steven Ralstein with Zacks. Please proceed.

Good morning or good afternoon.

Good afternoon, wherever you may be.

I'd like to talk about the…

payment that you received from HESCA.

It's being held on the balance sheet as deferred revenue.

And that's, by doing that it sort of distorts the numbers, it affects working capital and shareholder equity.

and some quant investors look at things like that

And

have

stop decisions to make based on the quant side versus the qualitative story of the regression volition is made.

When do you expect to recognize this 10 million dollars and make it an asset instead of a liability?

Yes, good question. Terry?

Yeah sure, so just to be clear there is an asset, we've received the cash, we've received ten million dollars in March, that's a non-refundable payment. This is really a matter of accounting standards and the bottom line is that we're not allowed to recognize this under the accounting standards until the product is launched.

then it will be recognized over the future sales of the product. So as we as we make each sale a portion of that that 10 million will be allocated to each test that gets sold going forward.

Give a rule of thumb of how much you'll recognize per test sold.

Will be front-end loaded are you going to defer it?

Yeah, I'm not providing guidance on that at this point. We'll have a better view on that when we've got a better view on the forecast for next year. So it's something that there's a model that gets updated each quarter as we go through, but we'll have a much better view probably sometime next year once we've started making the sales.

Can we assume that the $6.5 million at launch will also become deferred revenue?

That's right, the 6.5 million and the other milestone payment, 6.5, for the monitoring test will be treated the same.

I see.

And you're aware that this dramatically affects your working capital number that some quants use.

So to a certain extent, it's still cash. We receive the cash. I know it's a very strong asset that you have, but sort of being

not only is it being quote hidden but it's

Also detrimental to some quant numbers that some people look at.

Yeah, unfortunately that's the way that the accounting standards work and this is the result of the fact that this is a license and supply agreement and it's difficult to separate the two elements. Of course we've looked at various angles as to how to accelerate that and like I said we'll be able to update you better as we get into next year once the product is launched.

Obviously you can push things close to the edge if you want to, but I think we've come a long way. We've got so much good things going on, we didn't want to take any risk with the accounting. So we've taken a reasonable but conservative view. And although that is sometimes frustrating, I think we decided that that was the advice we'd given and as we have the money already, it's an accounting issue which does affect us in the way you mentioned quite well. But we just decided that was the conservative approach to take, so that's what we've done. So, thank you.

And it is a little frustrating from that point of view, but we just wanted to make sure we kept it all as clean as possible. I'll just comment that it's extremely conservative.

My second question is concerning NuQ Discover. Previously you had mentioned that you had six contracts.

You mentioned that you signed three with biopharma companies.

but also that the number is seven so can I assume that you signed one more contract in the second quarter?

Yeah, there's a couple of things going on there. Sometimes you sign a small starter agreement and then a next level for different things. So the same organisation you might end up signing a few different agreements with for different stages. So the total number, and I guess it depends on some of them, are slightly different from others, but the firm number is seven but we have a lot more in the pipeline and process for different things. But yeah, as I said, they're all been very strong in bad interest.

and we've got to work out how much more effort we want to spend on this and how much outreach we want to do. But the number again to be conservative we've said is seven.

We've got to work out how much more effort we want to spend on this and how much outreach we want to do. But the number again to be conservative we've said is seven. The work is being done at Silver One.

That's correct.

All right, thank you for taking my questions.

Thank you. Thank you. Thank you.

Thank you. There are no further questions at this time. I would like to turn the floor back over to Mr. Cameron Reynolds for closing comments.

Thank you everyone and I really appreciate your time and I think as you can tell we've used this quarter very wisely, we've strengthened the balance sheet in several important ways, we've made great progress in the TOSIS with a clear European and US strategy now, working with great institutions worldwide and of course from what Tom went through we have very much made progress in the BET space and getting closer and closer to large international launches of our products.

and a lot more other news we did not talk about today in capture in other areas, but they were strong in progress as well. So I'm extremely happy with the team and extremely happy with our progress and thank you all for taking interest in Volition at this very exciting time.

Thank you.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a great day.

and have a great day.