Early Cancer Detection Headwinds Will Persist Yet Long-Term Liquid Biopsy Potential Remains

Catalysts

About VolitionRx

VolitionRx develops and commercializes blood based Nu.Q assays that use nucleosome and chromatin biology to detect and monitor cancer and NETosis related diseases in humans and animals.

What are the underlying business or industry changes driving this perspective?

• Although the Nu.Q NETs assay is the only approved test to measure neutrophil extracellular traps and early APS data with Werfen is encouraging, execution risk around completing clinical utility studies and converting Werfen’s option into a full commercial license could delay meaningful uptake and defer associated royalty revenue.
• While global emphasis on earlier cancer detection and the emergence of multi omics liquid biopsy approaches strongly favor the Capture Seq platform, the need for larger validation cohorts, regulatory clarity and integration into existing oncology workflows could slow broad adoption and push out any material impact on top line growth and earnings.
• Although partnerships with multibillion dollar diagnostics players such as Hologic and Werfen extend VolitionRx’s commercial reach into pharma services and autoimmune testing, project based demand, lengthy sales cycles and potential partner reprioritization may limit near term scale, constraining visibility and leverage on operating margins.
• While Nu.Q Vet has secured distribution with leading veterinary reference labs and is progressing toward centralized automation that could unlock high volume wellness panel testing, dependence on partners to adopt and promote the test, as well as slower than expected panel inclusion, may keep veterinary revenues below the levels needed to improve overall cash generation.
• Although ongoing cost reductions have materially lowered operating expenses and improved net loss, management’s plan to reach cash neutrality still relies on multiple significant human diagnostics licensing agreements and milestone receipts whose timing remains uncertain, preserving downside risk to cash flow and dilution if deals slip.

Assumptions

This narrative explores a more pessimistic perspective on VolitionRx compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming VolitionRx's revenue will grow by 79.8% annually over the next 3 years.
• The bearish analysts are not forecasting that VolitionRx will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate VolitionRx's profit margin will increase from -1554.3% to the average US Medical Equipment industry of 13.4% in 3 years.
• If VolitionRx's profit margin were to converge on the industry average, you could expect earnings to reach $1.1 million (and earnings per share of $0.01) by about December 2028, up from $-22.9 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $190.1 million in earnings, and the most bearish expecting $-37.6 million.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 167.4x on those 2028 earnings, up from -1.5x today. This future PE is greater than the current PE for the US Medical Equipment industry at 28.4x.
• The bearish analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.4%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Commercialization is still at an early and unpredictable stage, with management explicitly declining to provide revenue guidance and describing Nu.Q Discover and Nu.Q Vet revenues as lumpy and project-based. This suggests that slower than expected adoption of Nu.Q NETs, Capture Seq and veterinary tests could limit long term revenue growth and delay operating leverage on net margins and earnings.
• The core strategy depends heavily on executing multiple significant licensing deals and milestone payments in both human and veterinary markets. Management concedes that the timing of these agreements is difficult to control and that milestone triggers such as peer reviewed publications and product launches are taking longer than anticipated, which could constrain cash inflows and pressure net margins and earnings if equity dilution or further cost cuts are required.
• Although Nu.Q platforms target large secular opportunities in liquid biopsy, oncology and NETosis related diseases, these are also intensely competitive areas dominated by well capitalized players. VolitionRx is positioning itself primarily as a component and royalty supplier rather than building its own broad commercial infrastructure, which may cap pricing power and long run revenue scale even if the science is validated, thereby limiting margin expansion and earnings growth.
• The company has made substantial progress on cost reductions, but management acknowledges that future value creation must come from deal execution rather than further cuts. At the same time, the broader capital markets environment remains challenging, creating a structural risk that prolonged cash burn and slower than expected top line growth force additional dilutive financings that weigh on per share earnings and dampen share price appreciation even if absolute revenue rises.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for VolitionRx is $1.0, which represents up to two standard deviations below the consensus price target of $2.5. This valuation is based on what can be assumed as the expectations of VolitionRx's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $5.0, and the most bearish reporting a price target of just $1.0.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2028, revenues will be $8.6 million, earnings will come to $1.1 million, and it would be trading on a PE ratio of 167.4x, assuming you use a discount rate of 8.4%.
  
• Given the current share price of $0.28, the analyst price target of $1.0 is 71.6% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.