Volition
lands a big deal
By Manuel Maurício
April 01, 2022
I’ve written about Volition before, and I’ve been following it closely ever since.
Today Volition is entering the Portfolio.
Volition signs its first major distribution agreement
Earlier this week the company announced a distribution deal with Heska for the Nu.Q Vet Cancer Test. With this deal the company has gone from a purely research and development business to a commercial business.
The deal is structured in two parts: 1) an exclusive distribution deal for point-of-care veterinary tests, and 2) a non-exclusive deal for reference labs.
*Reference labs are called this way because most of the tests performed are referred from veterinarians hospitals and clinics.
The point-of-care tests will be performed right in the veterinary hospital (or clinic) by using Heska’s brand new Element i+ machine.
About 70% of veterinary hospitals in the US have some sort of laboratory equipment and Heska has a market share of 15% (and growing) within those hospitals.
The interesting thing, Heska is planning on launching a lateral flow test (or SNAP test) similar to the rapid tests for Covid-19. This will increase the addressable market hugely as veterinarians won’t have to buy Heska’s machines to perform the tests.
Volition wants to get to as many dogs as possible and it will only achieve this by signing non-exclusive deals with several big players. The management mentioned that they’re in negotiations with the two largest players, (which should be Mars and Idexx) and that we should expect news on those deals soon.
The economics of the deal
Volition received from Heska an upfront payment of $10 million and is eligible to receive a further payment of $6.5 million upon the commercial launch by Heska which could come later this year.
Volition is also eligible to earn an additional $11.5 million if and when it develops tests for monitoring cancer evolution (not just diagnosis) and also expanding its use for cats. Both of these milestones should be achieved in 2023.
In total, Volition stands to receive $28 million from this deal alone plus revenue coming from the sale of tests themselves.
Volition will supply Central Lab Kits at $10 each, but the company doesn’t disclose the price of the Point-Of-Care tests – which should be lower than the kits because Heska will have to assemble them to fit into their machine.
Heska will be responsible for the marketing and distribution costs.
Heska will charge $50 for the tests. There are other tests in the market, but those can cost $400 or more. The big achievement by Volition has been making the tests affordable to everyone.
SouthEast Asia distribution deal
Prior to the Heska deal, in December, Volition had also signed a non-exclusive distribution deal for central labs with SAGE, a company from Singapore.
SAGE should be launching the Nu.Q Vet tests in Singapore in April and we should know more about it in the coming quarters.
Financials
There’s the chance that Heska launches the Nu.Q Vet test before the end of year leading to a milestone payment to Volition, but given Volition’s history, it’s better not to count on it so the revenue for the full year should be shy of $11 million.
The current burn rate is just above $2 million per month and the company should have $26 million on the balance sheet by now, so there’s enough money for 1 year. As I mentioned on my previous write-up, we should expect further dilution (issuance of shares) in the near future as the non-exclusive deals that should be coming won’t be having any upfront payments.
Final thoughts and Conclusion
So far I’ve only talked about the veterinarian opportunity, but Volition has such an amazing technology (the nucleosomes quantifier – Nu.Q) that it’s pursuing several other commercial opportunities. In future write-ups, as those opportunities start to bear fruits, I will be writing about them, but for now the veterinarian segment is enough to get me excited about the company.
You see, this is a one-of-a-kind technology that, if commercially successful, will turn Volition into a much larger company than it is today.
As Volition is just taking its first steps as a commercial company, the reasonable strategy to follow is to buy a small position now and wait for future developments before increasing my stake.
For now, Volition will be considered as a speculative play on the Portfolio but the plan is to move it to the long-term section if and when the business evolves.
I’ll be willing to build a 10% position for Volition, but as it’s too early for that, I’m going to divide it into 3 tranches of 2%, 3%, and 5% respectively. The first tranche will be bought on the coming Monday. The second tranche will be bought when Volition announces a distribution deal with one of the major vet companies (Mars or Idexx). The remaining 5% will be bought… well, let’s wait for the distribution deal to come and then lets assess what the next milestone will be.
But before I wrap up, I believe it’s important to set the expectations right now. With Volition being at such an early stage, and with its history of delaying every single milestone, we should be looking at it for the very long term. I don’t expect revenues to start increasing until 2023 for the veterinarian product and until 2024 for the rest of the segments.
Volition Rx will be entering the Portfolio on Monday with a €2.600 stake.
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