Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. CHAMPIONS ONCOLOGY, INC. (771856) 10-Q published on Sep 14, 2020 at 4:45 pm
Reporting Period: Jul 30, 2020
Champions Oncology, Inc. (the “Company”) is engaged in an end-to-end range of research and development technology solutions and services to improve the development and use of oncology drugs. The Company’s TumorGraft Technology Platform is a novel approach to personalizing cancer care based upon the implantation of human tumors in immune-deficient mice. The Company provides a technology platform to pharmaceutical and biotechnology companies using proprietary TumorGraft studies, which the Company believes may be predictive of how drugs may perform in clinical settings. Utilizing the TumorGraft Technology Platform (the "Platform"), a comprehensive Bank of unique, well characterized "Patient Derived XenoGrafts" (PDX) models, the Company offers multiple 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.
In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2019-12, Simplifying the Accounting for Income Taxes. The ASU enhances and simplifies various aspects of the income tax accounting guidance in ASC Topic 740 and removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. This ASU is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years with early adoption permitted. We are currently assessing the impact of this update on our consolidated financial statements.
On November 11, 2019, the FASB issued ASU 2019-08 which clarifies the accounting for share-based payments issued as consideration payable to a customer in accordance with ASC 606. Under the ASU, entities apply the guidance in ASC 718 to measure and classify share-based payments issued to a customer that are not in exchange for a distinct good or service (i.e., share-based sales incentives). The ASU was effective for the Company on May 1, 2020 and the adoption had no material impact on our consolidated financial statements.
Cost of oncology services for the three months ended July 31, 2020 and 2019 were $5.3 million and $3.8 million, respectively, an increase of $1.6 million or 42.2%. For the three months ended July 31, 2020 and 2019, gross margins were 44.1% and 44.3%, respectively. The increase in cost of oncology services for the three-month period was mainly due to an increase in compensation and outsourced lab service expenses. With the exception of outsourced lab services, the overall expense increase is generally in line with the expected contribution based on the growth in revenue, study volume, and expansion into new services. Gross margin varies based on timing differences between expense and revenue recognition and was impacted by the increase in costs on growing study volume in advance of revenue recognition. The cost of outsourced lab services contributed to this effect.
Research and development expenses for the three months ended July 31, 2020 and 2019 were $1.6 million and $1.3 million, respectively, an increase of approximately $300,000 or 22.6%. The increase for the three month period is mainly due to increased compensation and lab supply expense as we continued to develop new service capabilities and endpoint testing analysis, and sequencing costs as we continued to characterize our TumorBank.
Net cash used in operating activities was $715,000 for the three months ended July 31, 2020 compared to net cash used in operating activities of $279,000 for the three months ended July 31, 2019, respectively. The decrease in cash from operating activities during the current period was primarily due to changes in current balance sheet accounts in the ordinary course of business, including an increase in net accounts receivable of $263,000 and a reduction in accounts payable and accrued expenses of approximately $813,000.