CHAMPIONS ONCOLOGY, INC. The following discussion of our historical results of operations and our liquidity and capital resources should be read in conjunction with the condensed consolidated financial statements and related notes that appear elsewhere in this report and our most recent annual report for the year endedApril 30, 2022 , as filed on Form 10-K. Forward-Looking Statements
This Quarterly Report on Form 10-Q contains certain "forward-looking statements," which include information relating to future events, future financial performance, strategies, expectations, competitive environment, regulation, and availability of resources. These forward-looking statements include, without limitation, statements regarding: proposed new programs; expectations that regulatory developments or other matters will not have a material adverse effect on our financial position, results of operations, or liquidity; statements concerning projections, predictions, expectations, estimates, or forecasts as to our
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business, financial and operational results, and future economic performance;
and statements of management's goals and objectives and other similar
expressions concerning matters that are not historical facts. Words such as
"may," "should," "could," "would," "predicts," "potential," "continue,"
"expects," "anticipates," "future," "intends," "plans," "believes," "estimates"
and similar expressions, as well as statements in future tense, identify
forward-looking statements.
Forward-looking statements should not be read as a guarantee of future
performance or results and will not necessarily be accurate indications of the
times at, or by, which such performance or results will be achieved.
Forward-looking statements are based on information available at the time those
statements are made or management's good faith belief as of that time with
respect to future events, and are subject to risks and uncertainties that could
cause actual performance or results to differ materially from those expressed in
or suggested by the forward-looking statements.
Forward-looking statements speak only as of the date the statements are made.
Factors that could cause actual results to differ from those discussed in the
forward-looking statements include, but are not limited to, those described in
"Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the
fiscal year ended April 30, 2022 , as updated in our subsequent reports filed
with the SEC , including any updates found in Part II, Item 1A of this or other
reports on Form 10-Q, if any. You should not put undue reliance on any
forward-looking statements. We assume no obligation to update forward-looking
statements to reflect actual results, changes in assumptions, or changes in
other factors affecting forward-looking information, except to the extent
required by applicable securities laws. If we do update one or more
forward-looking statements, no inference should be drawn that we will make
additional updates with respect to those or other forward-looking statements.
Overview and Recent Developments
We are a technology-enabled research organization engaged in creating
transformative technology solutions to be utilized in drug discovery and
development. Our research center consists of a comprehensive set of
computational and experimental research platforms. Our pharmacology, biomarker,
and data platforms are designed to facilitate drug discovery and development at
lower costs and increased speeds. We perform studies which we believe may
predict the efficacy of experimental oncology drugs or approved drugs as
stand-alone therapies or in combination with other drugs and can stimulate the
results of human clinical trials. These studies include in vivo studies that
rely on implanting multiple tumors from our TumorBank in mice and testing the
therapy of interest on these tumors. Studies may also include bioinformatics
analysis that reveal the differences in the genetic signatures of the tumors
that responded to a therapy as compared to the tumors that did not respond.
Additionally, we provide computational or experimental support to identify novel
therapeutic targets, select appropriate patient populations for clinical
evaluation, identify potential therapeutic combination strategies, and develop
biomarker hypothesis of sensitivity or resistance. These studies include the use
of our in vivo, ex vivo, analytical and computational platforms.
We are engaged in the development and sale of advanced technology solutions and
products to personalize the development and use of oncology drugs through our
Translational Oncology Solutions ("TOS"). This technology ranges from
computational-based discovery platforms, unique oncology software solutions, and
innovative and proprietary experimental tools such as in vivo, ex vivo and
biomarker platforms. Utilizing our TumorGraft Technology Platform ("The
Platform"), a comprehensive Bank of unique, well characterized models, we
provide select services to pharmaceutical and biotechnology companies seeking
personalized approaches to drug development. By performing studies to predict
the efficacy of oncology drugs, our Platform facilitates drug discovery with
lower costs and increased speed of drug development as well as increased
adoption of existing drugs.
As part of our growth strategy, we launched Lumin Bioinformatics ("Lumin"), a
new oncology data-driven software program, during fiscal 2021. Our Lumin
software contains comprehensive information derived from our research services
and clinical studies. Lumin leverages our large Datacenter coupled with
analytics and artificial intelligence to provide a robust tool for computational
cancer research. It is the combination of the Datacenter and the analytics that
create a unique foundation for Lumin. Insights developed using Lumin can provide
the basis for biomarker hypotheses, reveal potential mechanisms of therapeutic
resistance, and guide the direction of additional preclinical evaluations.
Our drug discovery and development business leverages the computational and
experimental capabilities within our platforms. Our discovery strategy utilizes
our rich and unique Datacenter, coupled with artificial intelligence and other
advanced computational analytics, to identify novel therapeutic targets. We then
employ the use of our proprietary experimental platforms to rapidly validate
these targets for further drug development efforts.
We have a rich pipeline of targets at various stages of discovery and
validation, with a select group that has progressed to therapeutic development.
Our commercial strategy for the validated targets and therapeutics established
from this business is
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wide-ranging and still being developed. It will depend on many factors, and will
be specific for each target or therapeutic area identified. Any expenses
associated with this part of our business are research and development and are
expensed as incurred.
We regularly evaluate strategic options to create additional value from our drug discovery business, which may include, but are not limited to, potential spin-out transactions or capital raises.
Liquidity and Capital Resources
Our liquidity needs have typically arisen from the funding of our research and development programs and the launch of new products, working capital requirements, and other strategic initiatives. Recently, we have met these cash requirements through cash, working capital management, and sales of products and services. In the past, we have also received proceeds from certain private placements and public offerings of our securities. For the three months endedJuly 31, 2022 , the Company had a net loss of approximately$319,000 and cash used in operations of$195,000 . As ofJuly 31, 2022 , the Company had an accumulated deficit of approximately$72.3 million , working capital of$1.8 million , and cash of$8.1 million . We believe that our cash on hand, together with expected positive cash flows from operations for fiscal year 2023, are adequate to fund operations through at least 12 months from the filing of this 10-Q. However, should our revenue expectations not materialize, we believe we have cost reduction strategies that could be implemented without disrupting the business or restructuring the Company. Should the Company be required to raise additional capital, there can be no assurance that management would be successful in raising such capital on terms acceptable to us, if at all.
Operating Results
The following table summarizes our operating results for the periods presented below (dollars in thousands):
For the Three Months Ended
% of % of %
2022 Revenue 2021 Revenue Change
Oncology services revenue $ 13,745 100.0 % $ 11,253 100.0 % 22.1 %
Costs and operating expenses:
Cost of oncology services 7,052 51.3 5,396 48.0 30.7
Research and development 2,887 21.0 2,304 20.5 25.3
Sales and marketing 1,692 12.3 1,574 14.0 7.5
General and administrative 2,398 17.4 2,154 19.1 11.3
Total costs and operating expenses 14,029 102.1 11,428 101.6 22.8
Income from operations $ (284) (2.1) % $ (175) (1.6) % 62.3 %
Oncology Services Revenue
Oncology services revenue, which is primarily derived from pharmacology studies,
was $13.7 million and $11.3 million for the three months ended July 31, 2022 and
2021, respectively, an increase of $2.5 million or 22.1%. The increase in
revenue was primarily due to the expansion of our platform and offerings
creating demand for our services and leading to larger pharmacology studies in
both our in-vivo and ex-vivo platforms.
Cost of Oncology Services
Cost of oncology services for the three months endedJuly 31, 2022 and 2021 were$7.1 million and$5.4 million , respectively, an increase of$1.7 million or 30.7%. The increase in cost of oncology services was primarily from compensation, mice and supply expenses resulting from larger study sizes and compensation expense for our SaaS platform. For the three months endedJuly 31, 2022 and 2021, gross margins were 48.7% and 52.0%, respectively. The lower margin resulted from an 19 --------------------------------------------------------------------------------
increase in study related expenses in advance of the revenue recognition.
Additionally, SaaS costs were expensed during the three months ended
Research and Development
Research and development expenses for the three months endedJuly 31, 2022 and 2021 were$2.9 million and$2.3 million , respectively, an increase of approximately$583,000 or 25.3%. The increase for the three-month period was mainly due to compensation and lab supply expense related to the investment in our therapeutic drug discovery platform.
Sales and Marketing
Sales and marketing expenses for the three months endedJuly 31, 2022 and 2021 were$1.7 million and$1.6 million , respectively, an increase of$118,000 , or 7.5%. The increase was mainly due to compensation expense.
General and Administrative
General and administrative expenses for the three months endedJuly 31, 2022 and 2021 were$2.4 million and$2.2 million , an increase of$244,000 , or 11.3%. General and administrative expenses are primarily comprised of compensation, insurance, professional fees, IT, and depreciation and amortization expenses. The increase was mainly due to an increase in IT related expenses to support the overall infrastructure growth of the company.
Cash Flows
The following discussion relates to the major components of our cash flows:
Cash Flows from Operating Activities
Net cash used in operating activities was$195,000 compared to net cash provided by operations of$216,000 for the three months endedJuly 31, 2022 and 2021, respectively. The cash used in operating activities during the current period was primarily due to reduction in accounts payable and accrued liability balances.
Cash Flows from Investing Activities
Net cash used in investing activities was$754,000 and$907,000 for the three months endedJuly 31, 2022 and 2021, respectively. The cash used in investing activities was primarily for the investment in additional lab and computer equipment.
Cash Flows from Financing Activities
Net cash provided by financing activities was
Critical Accounting Estimates and Policies
The preparation of these condensed consolidated financial statements in conformity with accounting principles generally accepted inthe United States requires management to apply methodologies and make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates of the Company include, among other things, accounts receivable realization, revenue recognition (replacement of licensed tumors), valuation allowance for deferred tax assets, valuation of goodwill, and stock compensation and warrant assumptions. Actual results could differ from those estimates. The Company's critical accounting policies are summarized in the Company's Annual Report on Form 10-K, filed with theSEC onJuly 22, 2022 .
Recent Accounting Pronouncements
For detailed information regarding recently issued accounting pronouncements and
the expected impact on our condensed consolidated financial statements, see Note
2, "Significant Accounting Policies" in the accompanying Notes to Condensed
Consolidated Financial Statements included in Item 1 of this Report on Form
10-Q.
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We have no off-balance sheet debt or similar obligations. We have no transactions or obligations with related parties that are not disclosed, consolidated into or reflected in our reported results of operations or financial position. We do not guarantee any third-party debt.
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