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spk01: Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Volition'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 touchtone 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 Investor Relations. Please go ahead.
spk03: 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 Art Volition Veterinary Subsidiary, and Mr. Tarek 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 10-Q, 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?
spk04: 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 Tara Hughes, our Chief Financial Officer, after which I will provide an update on all the exciting activities surrounding NewQNet, before passing the baton on to Dr. Tom Butera, our Chief Executive Officer of VolitionVet, to discuss NUQVet. Finally, I'll wrap up the call with a quick update on our most recent developments with NUQ Discover. Terry, over to you for a financial update.
spk05: 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-dilutive funding from the More Invest Capital Risk in Belgium, the Fund and Early Access Programme for Volition's NewQ 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 vet test and half from sales under our new Q discover offering. This revenue figure excludes the receipt of an upfront milestone payment of $10 million in cash from Hesker 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 hope will 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 the final payment of $5 million due upon publication of clinical use in caps. 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 NewQVet and NewQNet. And with that, to discuss these opportunities in more detail, I'll hand back over to Cameron.
spk04: Thanks, Terry. 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 NewQNet. During the second quarter, we secured a CE mark for NewQNet, for the detection and evaluation of notosis, enabling clinical use in more than 27 countries across Europe. As a reminder, notosis is a unique form of cell death that is characterized 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. NUCU-NETS 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 mitosis offers a substantial commercial opportunity, as discussed at our 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 CE marking is a critical regulatory milestone for us. NUQNET is now registered for use in Europe in both ELISA, which are the plastic plates, and automated CLEAR, which is chemiluminescent automatic assay formats. 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 UQ NETS pillar, starting with new publications. In collaboration with research at the University of Namur, QualiBlood in Belgium, we published a paper entitled Notosis and Nucleosome Biomarkers in Septic Shock and Critical COVID-19 Patients, an Observational Study. We also presented a poster entitled Evaluation and Comparison of Notosis Biomarkers in Septus and COVID-19 Patients at the International Society on Thrombosis and Haemostasis ISTH 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 Aswamy of guys at St. Thomas' Hospital titled The Promise of Neutrophil Extracellular Traps as a Biomarker Inflammatory Disease. This webinar, the second in a 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 certainly 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 U.S. 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 NUQ 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 NUQ 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, authorization, 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 Gitan Michelle for spearheading our research efforts in the US. It's fantastic to get this project underway. So, a truly exciting few months for NUQ NETS, great to achieve the EU regulatory hurdle and start our marketing access program in earnest, and equally fantastic to get our clinical and regulatory program underway in the US. And from one exciting pillar to another, NUQ VETS. I'll now pass over to Dr. Tom Butera, our chief executive officer of our veterinary subsidiary, for his update.
spk09: 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, Pesca Corporation. But let me tell you, the hard work and progress continued into the second quarter. As you can imagine, we have many work streams 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 Volition. To give you the breakdown, Volition 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 Heska will bring to the market. Every time Heska sells a test, Volition 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 QVET cancer test in Singapore. Dr. Wilson-Robles and I had the honor of presenting to a number of veterinarians via a launch webinar hosted 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 NUQ Vet cancer test. We are in advanced negotiations with other potential licensing and supply partners in our efforts to make NUQ 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, and 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. So pretty soon, we'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've 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. I look forward on future calls 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 QVET 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.
spk04: Thanks very much, Tom. 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 stream, as Tom explained, for the sale of kits and key components, not only to Heska, but also to Sage Healthcare, and hopefully, in the not too distant future, other potential partners. The final pillar I'll cover on today's call is NewQ Discover, where the team have also made some good progress. As Tereg 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 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 one and phase two 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 the 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 am 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. It was very much appreciated, 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 VolitionVet 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're in an extremely strong position to commercialize our new Q 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. Operator?
spk01: Thank you. We will now conduct a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two 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 one at this time. One moment while we pull for our first question. Our first question comes from Ross Osborne with Cantor Fitzgerald. Please proceed.
spk06: Ross Osborne Hi, congrats on the progress made during the quarter. I was just really in receiving CE marks. Thanks for taking questions. Thank you. Ross Osborne So, I guess starting with product revenue, it 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?
spk04: Sorry, it's tough to hear the question. Could you repeat that, please?
spk06: Sure. I was saying maybe we'll 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 the quarter?
spk04: Yeah. Terry, can you take that?
spk05: Yeah, sure. As you know, product revenue, as you see in the account, is a bit of a mix of VET and some of the samples that we sell through our NewQ Discover offering. So as we mentioned in the past, NewQ Discover is a bit lumpy. It's project-based, and it's very difficult to predict. So 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 Q-Discover offering.
spk04: And I think, Ross, also remember this quarter we did sign several new Q-Discover deals. I think there was just a big lump that came through. We sorted out some IP issues early in the year and what we were looking for. So there was a real rush of deals. A couple of things to remember. All the deals we've had, and there's only seven now, organizations 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 to 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.
spk06: Okay, great. Understood. And then 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?
spk04: Tom, do you want to take that?
spk06: Sure. Sure.
spk09: 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. And now based off that webinar, We are now making contact with all of 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 it. 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.
spk04: Sounds good. Sorry, the other countries? Expansion, I guess, is that Europe or Asia?
spk02: Ross? Ross, are you speaking about Asia or Europe? Specifically Asia.
spk09: 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 U.S., that's going to allow us, it's going to make it easier for us to begin to start traction in other Asian countries. and that will come over time.
spk06: Okay, great. Thanks for taking my questions, and congrats on the progress. Thank you very much.
spk01: Our next question comes from Bruce Jackson with The Benchmark Company. Please proceed.
spk08: Hi, good morning, everybody.
spk01: Morning.
spk08: Morning. Morning. For my first... 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?
spk04: Yes, thank you, Bruce. We're very, very excited as well and working with the world's best cancer organisation and I think at 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 hopefully 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 10 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 mitosis. The actual cost itself is a few hundred thousand dollars. 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 mitosis and cancer. It can take up to two years of work but we'd expect to get data unfortunately for the patients but fortunately for the trial time obviously these things tend to resolve reasonably quickly one way or the other so you get data. It's not something in a cancer trial where you often have to wait for years. Obviously if someone's in hospital with sepsis they either recover or don't in a reasonably short period of time. So it's something we could expect a reasonable amount of data throughout the process of the trial and I hope this is the first of many applications where we're looking at mitosis and mitosis and cancer with MD Anderson is a fantastic place to start. And the $1.5 million 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 notosis. So it's really kicking off, and I couldn't be happier with a start with MD Anderson.
spk08: That's great. And then can you just like discuss maybe a little bit about when we might get the first look at the interim data?
spk04: 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 CE 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 able to update better in the November call when we'd expect to see the first data. But it's something they will be getting data quite quickly when they share it with us. It will depend on, I guess, numbers. But they're very excited and so are we. So I'll be certainly trying to get it as quickly as possible.
spk08: Okay, great. And then a question for Tarek on the operating expense profile. Ticked up just slightly during the quarter period. You've got a lot going on. Should we be assuming this particular run rate for operating expenses going forward, or could it vary somewhat?
spk05: Yeah, that's a good question and a good observation, and we do expect it to tick up over the next quarter or probably more towards the end of the year, more towards Q4, because that's when we will have started and be in full swing with operating some of our projects, including the DXO work that will be done. So we would expect that to tick up, probably particularly over Q4.
spk04: And I think just a quick aside on that, Bruce, also that some people obviously ask, you know, we have a reasonable amount of cash left, why did we do a small raise? We've also got some non-diluted 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 million, the $6.4 million we got in, some non-dilutive 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 it was an important thing to do.
spk02: All right, well, that's it for me. Congratulations on all the progress. Thanks, Bruce.
spk01: Once again, ladies and gentlemen, to ask a question at this time, please press star one on your telephone keypad. Our next question comes from Nathan Weinstein with AG's Capital. Please proceed.
spk10: Good morning, Cameron and Volition team. Thank you for taking my questions. And perhaps we could just start with the HESCA question. 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?
spk09: Tom, would you like to disclose that? Sure. Yeah, I'd be happy to do that. Good morning, Nathan. How are you? Good morning, Tom. Well, thanks. The next two payments, the $13 million, are based on, first of all, the first $6.5 million will come when we actually launched 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 $6.5 million payment with reference to launch. And then also Dr. Roble 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'll 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.
spk10: 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.
spk02: Charlie, do you want to take that? What's that, Cam? I was just saying take that, Tom. Sorry, yes.
spk09: 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 U.S. 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 with reference-to-reference lab. So it gives us a lot of flexibility in terms of additional distribution, not only in the U.S., but also in other parts of the world, EU, and eventually into Asia with other potential corporate agreements. Does that help answer your question? Great. Thanks for – yeah, that's very helpful.
spk04: Thanks for the reminder there.
spk10: Thank you.
spk04: Yeah. Just one addition to that, Nathan. So the point of care, depending on the numbers, but somewhere as a rule of thumb, 15% or 20% of the market typically is point of care. So the lion's share currently, I mean, HESC is a fantastic organisation 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 HESCA'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.
spk00: 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 it's an outstanding outcome.
spk04: 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, will run the test, will run the whole process. So 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.
spk10: Great. Thank you, Cameron. Thank you, Tom. Looking forward to those updates later in the year. You're welcome, Nathan.
spk01: Thanks, Nathan.
spk04: Have a great day.
spk01: 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 Stephen Ralstein with Zax. Please proceed.
spk07: Good morning or good afternoon, wherever you may be. Good morning. Good morning. 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 by doing that, it sort of sorts the numbers. It affects working capital and shareholder equity. And some quant investors look at things like that and have stopped decisions to make. Based on you know on the quant side versus the qualitative story of aggression volition is made When do you expect to recognize this ten million dollars and make it an asset instead of a liability?
spk05: Yes, good question Terry Yeah, sure So just to be clear there is an asset. Yeah, we've received the cash which received ten million dollars in March and 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, and then it will be recognized over the future sales of the product. So as we make each sale, a portion of that $10 million will be allocated to each test that gets sold going forward.
spk07: Do you have a rule of thumb of how much you'll recognize per test sold? Will it be front-end loaded? Are you going to defer it?
spk05: 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.
spk07: Can we assume that the $6.5 million at launch will also become deferred revenue?
spk05: That's right. The $6.5 million and the other milestone payment of $6.5 for the monitoring test will be treated the same.
spk02: I see.
spk07: And you're aware that this dramatically affects your working capital number that some quants use.
spk05: So... To a certain extent, it's still cash. We receive the cash.
spk07: I know. It's a very strong asset that you have, but it's sort of being – not only is it being, quote, hidden, but it's also detrimental to some quant numbers that some people look at.
spk05: Yeah. Unfortunately, that's the way that the accounting standards work, and this is – It's 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.
spk07: And will the $6.5 million also be nonrefundable?
spk02: Yes.
spk07: Yes. Yes, Steve. Cameron, were you going to say something?
spk04: Yes, Stephen. All I was just saying, I think, yeah, obviously. The natural reaction is to try to record revenue as soon as possible.
spk00: It's in the bank. It's non-refundable.
spk04: But we are trying to be conservative. 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 advice we'd given. And as we have the money already, it's an accounting issue, which does affect us in the ways you mentioned quite well. But we just decided that was the conservative approach to take, so that's what we've done. 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.
spk07: Well, 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?
spk04: 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 inbound interests. 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.
spk07: And the work is being done at Silver One? That's correct. All right. Thank you for taking my questions. Thank you.
spk01: 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.
spk04: 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 VET 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 CAPTCHA and 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.
spk01: Thank you. Thank you. This does conclude today's teleconference. You may disconnect your lines at this time, and thank you for your participation, and have a great day.
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