Q2 2022 OncoCyte Corp Earnings Call
Good day and welcome to the Umpqua such conference call to discuss the second quarter 2022 financial yourself.
Today's call is being recorded.
This time I would like to turn the call over to.
Carillon corn that we seek to.
The relations. Please go ahead.
Thank you operator, and thank you everyone for joining us on today's conference call to discuss <unk> second quarter 2022 financials litho.
Not seen today's financial results press release, please visit the company's website on the Investor page.
Joining me on today's call are Ronnie Andrews, <unk>, President and Chief Executive Officer, and then ask John Chief Financial Officer, I would like to remind you that during this conference call. The company will make projections and forward looking statements regarding future events any statements that are not historical fact are forward looking statements. We encourage you to review the company's SEC filings, including.
<unk> without limitation, the company's Form 10-K, and 10, Qs, which identify the specific risk factors that may cause actual results or events to differ materially from those described in these forward looking statements.
These factors may include without limitation risks inherent in the development <unk> commercialization of potential diagnostic tests on.
Certainly on the results of clinical trials or regulatory approvals.
Possibly ivanka sites third party supply blood sample analytic system to provide consistent and precise analytic results on a commercial scale the need to obtain third party reimbursement for patients use of any.
Any diagnostic test the company commercializing, our need and ability to obtain future capital and maintenance of IP rights.
Risks inherent in the strategic transactions, such as failure to realize the anticipated benefits legal regulatory or political changes and the applicable jurisdictions accounting and quality control greater than estimated allocations of resources to develop and commercialize technologies or failure to maintain any laboratory accreditation or certification and uncertainties.
With the COVID-19, pandemic and its possible effects on our operations. Therefore actual outcomes and results may differ materially from what is expressed or implied by these forward looking statements all cause I expressly disclaims any intent or obligation to update these forward looking statements, except as otherwise may be required under applicable law.
With that I'll turn the call over to Ronnie.
Thanks, Caroline and welcome everyone. Today I'll begin by reviewing recent decisions and actions, we're taking to reduce our operating expenses and cash burn, enabling us to weather the current market conditions, while still delivering on important product launches that will deliver significant shareholder value beginning in Q1.
Our leadership team began working on a re prioritization of our product investments to identify ways to reduce our cash burn while preserving the important short term value creating programs.
That re prioritization was completed in Q2 and allowed us to rightsize, our resources required to deliver on the new priorities as we enter the second half of 'twenty 'twenty to <unk>.
The resulting savings are expected to reduce our head count carrying cost by more than $4 $5 million when annualized.
When combined with the operating savings from the re prioritization process reduced head count any imminent monetization of some of our assets through licensing and strategic activities, we anticipate being able to reduce our annual operating costs by over $12 million over the next year and have improved line of sight to how our cash will last.
In 2024, but still allowing us to deliver on vida graph to term of Io and determined C&I product launches.
In order to allow us to divide and conquer with a lean organization I'm happy to announce that geezer Paulson has been promoted to president and COO and in East John has been promoted to the role of CFO from his previous role as interim.
These moves will allow me to focus on corporate business development Investor Relations, while they operate the company day to day, both promotions are well deserved and I look forward to working with this core team to deliver acre site.
Current market storm and emerge as a leaner focused company delivering products that fulfill our mission.
Like to start today's progress update discussing our compelling revenue opportunity and transplant rejection monitoring.
For those who've been following the story since our acquisition of products Biomedical you'll also notice that we've rebranded the test from <unk> to buy the graft branding. We believe is more reflective of the intended use in transplant.
As you likely recall last fall, we set out to complete the technical transfer to test from our German R&D team into our CLIA lab in Nashville, and then validate our laboratory tests for liver patients with an ambitious goal for the end of first half of 'twenty two.
I am very proud of the focused effort of our CLIA lab team and the transplant R&D team in Germany for the combined effort to deliver on this important milestone ahead of schedule in early April . This expedited effort also allowed us to complete the clinical validation required to submit our dossier to CMS for liver reimbursement, which we.
<unk> in late April .
We then followed that submission with our kidney dossier in late June .
With our liver test now clinically validated we have entered our early adopter program phase of launch and have already signed on one of the largest liver transplant centers in the U S who will begin sending our first samples later this month.
The responses from key opinion leaders have been resoundingly positive since today. There is no routine molecular monitoring test in used to monitor for rejection of transplanted liver. We're encouraged by the interest and believe our tests will become very important to the liver transplant community.
Our vast experience in preliminary chain reaction or PCR has allowed us to develop a streamlined workflow delivering an incredibly efficient digital PCR application that allows us to consistently process and report patient monitoring results within one to two days when we launched the product.
We have now confirm with numerous kols in liver that our turnaround times, indeed expected to deliver the fastest donor derived cell free DNA monitoring results in the industry.
This of course is something we set as a goal on our test workflow redesign and a product attributes that we believe will differentiate oncotype from the competition.
We've also made progress on the IBD process for creating a kit to democratize the transplant market and will soon begin development of a kitted version of the monitoring tests across liver kidney and ultimately part.
We're fortunate to have several instrument systems at work with our assay and are working with the best platforms through feasibility to ensure we have the best results and cost position for our democratization efforts for strategic reasons, we will not be speaking specifically about our potential instrument partners platform performance until we're ready to publish it announced today.
But we are on track for completion of feasibility and trial initiation by early 2023 <unk>.
There are several milestones to watch for our liver program coming in the next few months as we commercialize our Biograph products first we will continue to onboard kols from the liver transplant community as part of our early adopter program second we expect reimbursement decision from CMS. This fall third we.
Specced initiate a full market launch of Biograph liver and kidney in Q4, once reimbursed and finally fourth we plan to complete platform feasibility for the IBD kit product by end of year and site enrollment for the clinical trial. So that we can commence that trial in early 2023.
Now, let's turn next to our flagship oncology program determine Io to remind you. This is our gene expression test to help physicians assess tumor microenvironment to determine which patients are suitable candidates for immuno oncology therapies.
Our early adopter program continues to underscore to us the need for this test across a slate of cancers previously we share the valuable insights as to the importance of the term of Io test in early stage triple negative breast cancer in late stage non small cell lung cancer.
We now have solid data from various meetings, including results from the Neo trip randomized trial in <unk> that was presented at ESMO last fall then.
Then in second quarter at the ACR meeting, we presented data supporting its use in metastatic bladder cancer, our third tumor type and now have had our peer review paper accepted for publication, we see this as a major milestone and feel well positioned as we prepare to term Io for CMS submission for <unk>.
<unk> this fall.
Adding to our growing datasets in June at the American Society of clinical oncology or Astro meeting, we release results from the <unk> clinical trials group, where the term of Io was tested as a biomarker on the TSA will drive study as a reminder, a teaser tribe has a randomized clinical trial in metastatic.
At at colorectal cancer, where patients received placebo or the standard of care plus the Roche drug or tease out.
If you hadn't had a chance to review the data and the subsequent comments the <unk> principal investigator I encourage you to do so the key takeaway is that determine <unk> found a new patient population in metastatic colorectal cancer that no. Other biomarker found and today. These patients are not eligible for <unk>.
<unk> therapy.
<unk> is expected to expand the market for ICI use in metastatic colorectal cancer and may allow for enrollment of a whole new population of patients into a life saving treatment protocol.
Also at <unk>, we really stayed on the trauma Io in metastatic triple negative breast cancer or <unk>.
Using the Merck drug Keytruda the data presented at Astro confirmed all the previous data set findings. The term Io has demonstrated superior accuracy to predict response to immune checkpoint inhibitor therapy and is agnostic to which branded immune checkpoint inhibitor a physician users.
Finally at <unk>, we released new data in gastric cancer, the third leading cause of cancer deaths outside of the U S.
We feel that this indication is important now that we have solidified our platform and channel partner for rest of world markets and are already working on the kitted version of the term of Io.
<unk> has now been validated and over 100 patients in six tumor types and across all four major immune therapies. Our early adopter program continues to provide valuable use cases for CMS submission and market launch and our volumes have continued to double each quarter during our limited launch.
Clinicians are reordering test for multiple use cases across multiple tumor types and we remain incredibly enthusiastic about the future of determine io.
In Q2, we also began refining the priorities for our kids strategy with our platform partners. We made a decision to focus these relationships on short term ROI projects that require less investment, but still have significant market impact.
The two product efforts, we've settled on our a kitted version of the term of Io for submission for regulatory approval in the EU and ultimately here in the U S and our <unk> digital PCR transplant monitoring tests for liver and kidney for U S. FDA submission we've.
We have already initiated the work to move both projects forward to keep us on track to meet the aggressive timelines, we have set for IBD development team.
We look forward to updating you on our progress in this incredibly important strategic effort as we join you in future calls.
Despite the ongoing macro environment challenges in the second quarter, we continue to make solid commercial progress with the term Rx our lung cancer stratification test.
Since its launch in mid 2020, so <unk> is now touch well over 100 patients lives. These patients had stage one tumors without our test information may have gone untreated and statistically half of them may not be with us now.
Recently, we were introduced to one of the first patients to utilize the test when it was first developed and used prior to our acquisition.
Jamie was only 34 years old when diagnosed with early stage non small cell lung cancer, Jamie told us our greatest fear at the time was not being able to be there for our kids not being able to be there for their milestones and seen them grow up and not being able to grow all of their husbands and see our grandkids someday.
Our surge in Rand terms <unk> high risk for recurring tumor when it came back positive. She said she didnt hesitate to offer the single round chemo.
Jeremy remains cancer free after 10, plus years enjoying life for their family celebrating anniversaries and graduations as a fantastic advocate for the term of Rx. She believes every early stage lung cancer patient deserves to know if there are high risk for recurring metastatic disease.
It's stories like hers that inspires our team to continue on our mission I encourage you to watch Jamie story on our website.
<unk> is now the standard of care in large lung cancer surgical programs like Florida, oncology and others and continues to gain momentum in its usage.
I am pleased to report that in second quarter. The terminal Rx sample volumes were 66% above prior year driving us towards our stated goal of doubling 2021 volumes and revenues here in 2022.
We're also able to expand our pool of onboard of positions, which now stands at 549 practitioners, which is up 16% year over year.
In sum, we're really pleased with the traction our small but extremely effective sales team a secured and of course, we are thrilled that <unk> positively impacting treatment plans and outcomes for lung cancer patients in closing I want to reemphasize when you combine the cost reduction activities I mentioned earlier with the anticipated.
Attractive gross margins of Biograph and determine Io revenue streams. In 2023, you can start to understand our confidence in our ability to bring anchor site through the challenging market environment leaner and stronger.
Some key revenue based milestone to keep an eye on for the next six months include the anticipated receipt of reimbursement for <unk> and the subsequent full market launch of our test expected submission to determine Io and TX for reimbursement and planned monetization of assets through strategic licensing of our tissue based assays.
I'm grateful for your support as we advance our products through the various development cycles to deliver on our mission at this point I'd like to turn the call over in these John to review, our financials and east.
Thanks, Ron and Hello, everyone.
Our consolidated revenues for the second quarter of 2022 were approximately $2 1 million.
0.7 million quarter over quarter, and a slight increase as compared to the same period a year ago.
Second quarter revenues associated with the term of Rx were zero point $8 million down <unk> 2 million sequentially and up <unk> 2 million year over year.
We received $1 million in licensing related revenues in the second quarter from the final burning rock milestone payments.
Our pharma services business generated <unk> 2 million in the second quarter, a decrease of 0.1 million quarter over quarter, and an increase of 0.1 million year over year as.
As we have discussed previously revenues in pharma services depend on our partner's ability to enroll patients for trials, which continue to face headwinds and will likely continue to fluctuate from quarter to quarter.
We do have a pipeline of work from our diagnostic development partners, Qiagen and Thermo Fisher, which we believe will grow and be more predictable in future quarters.
Cost of revenues for the second quarter were approximately $2 4 million, including $1 4 million from the cost of diagnostic tests and testing services, we perform for our determined Rx and pharma services customers, providing revenue deliverables under our license agreements and $1 million in.
Noncash amortization expenses of the terminal <unk> and pharma services related intangibles.
Research and development expense for the second quarter of 2022 was $5 6 million an increase of approximately $3 million from the same period a year ago.
The increase in R&D expense was related to site startup costs for our <unk> trial for determine Rx and head count as we prepare to begin the IBD development in order to keep the term of Io and buy the glass liver and kidney to fulfill our platform partnerships.
We also continued R&D activity to support ongoing clinical trials to gain statistical power to our current the term of Io data sets to ensure success as we submit to CMS for reimbursement.
Additionally, we completed the CLIA validation for our new vital growth product offering in preparation for the Q3 launch of our new transplant business.
Sales and marketing expense for the first quarter of 2022 was $3 5 million an increase of <unk> 9 million year over year, primarily attributable to an increase in head count and continued ramp in sales and marketing activities to prepare for commercialization of our transplant business as well as some.
Poor the commercialization efforts of determine Io and determined Rx.
General and administrative expense for the second quarter of 2022 was $5 5 million a decrease of $2 4 million for the same period in 2021, primarily due to onetime acquisition related costs of chronic biomedical.
In the same period of the prior year.
Excluding this one time prior year costs general and administrative expenses were maintained year over year inclusive of increases in stock based and cash compensation for new hires and our standard cost of living increase for many employees non.
non-GAAP operating loss as adjusted for the second quarter of 2022 was $11 2 million, an increase of $3 4 million as compared to the same period a year ago.
GAAP operating loss as reported for the second quarter of 2022 was $8 6 million a decrease of $1 3 million quarter over quarter, and a decrease of $5 million as compared to the same period a year ago.
We have provided a reconciliation between these GAAP and non-GAAP operating losses in the financial tables included with our earnings release.
For second quarter of 2022, we reported a GAAP net loss of $8 3 million or <unk> <unk> per share as compared to $10 3 million or <unk> 11 per share a decrease of $2 million quarter over quarter.
And $10 5 million, an increase of $2 2 million as compared to the same period a year ago.
Turning now to the balance sheet as of June 30, we had cash cash equivalents restricted cash and marketable securities of $47 1 million.
Early in the second quarter, we raised $32 8 million in net proceeds from an underwritten offering of common stock priced at market.
We received the first of two $5 million conscious of preferred stock offering proceeds in the second quarter with the final tranche expected in the fourth quarter of this year.
<unk>, we are constantly reviewing several options for non dilutive forms of capital, including capital lease lines and licensing plus an ex U S markets as well as commercial partnerships and the monetization of certain assets, we feel confident that our current balance sheet combined with these non dilutive.
Opportunities provide us with sufficient cash to take the company into 2024.
Over the first half of 2022, we have proactively prepared for continued market headwinds and we prioritized our investments in our product portfolio by focusing on shorter term revenue opportunities and instituting a more sequential approach to product development and test launches.
Specifically, we plan to reduce the number of clinical trials, we invest in over the next 18 to 24 months and rely on the data collected to date to support the submission for reimbursement and any subsequent product launches.
We also plan to reevaluate timing of several capital intensive investments, including the planned sales force expansion launch determined TX and determine IL.
The expense reductions combined with the anticipated revenue growth once our test received reimbursement is expected to have an immediate impact on reducing our cash burn since.
Since the end of the first quarter, we have right sized our organization to match the more focused priorities and have taken definitive steps to reduce our head count planning cost by over $4 $5 million on an annualized basis.
In Q3, we expect to incur a severance charge of approximately $2 million as a result of these actions.
Net cash used in operations for the quarter was $11 3 million net cash used in operations decreased sequentially due to focused efforts to control hiring and optimize our use of cash primarily by reducing clinical trial spend and marketing investment beyond the $1 million milestone payment from the burning lock licensed.
<unk> agreement and.
Summary management has taken numerous actions in the first half of 2022 to focus investments and reduce our cash burn without impacting the long term potential enterprise value of Oncotype.
In future quarters, we expect to benefit from the anticipated wind down of several studies and trials the right sizing of the organization to better match, the new prioritization and revenue growth from our high margin major product launches planned for the coming quarters.
We remain confident that the combination of these activities will allow us to enter the first half of 2023 with our quarterly cash burn rate below $10 million and we expect the burn to decline.
Below $8 million by the second half of 2023.
We are committed to weathering the current market headwinds with a well constructed plan that we believe will position us to deliver on critical product launches over the next six to eight quarters.
That concludes my remarks concerning our financial highlights.
Operator, please open the call for questions.
Thank you.
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One moment please.
<unk>.
Our first question is from David Kristin Peck of Piper Sandler. Please go ahead.
Hi, Thank you for taking the questions here.
I really like all of the color here on the transplant.
Incremental to that.
Yes.
All the way to commercialization.
So can you just give me some color on what are maybe rank order, what's under your control versus kind of what's out of your control.
I'm just trying to think about what could go wrong in terms of the things that are outside of your control and then.
Sticking with that liver and kidney thing.
You submitted it to different timeframe do you expect to receive.
Reimbursement at the same time or is that going to be ladder. The way you.
So.
David Great question and thanks for those let me let me start with the last one first I think it will be easier.
We knew that liver today does not have any test covered to date and even though the LCD was written as us.
Somewhat of a blanket LCD for kidney and heart and those are established pricing at around 27% to $2800. We knew that liver did not had not been through that process and so we wanted to bring liver through early so that we could submit lever and go ahead and get the first round of questions, which we have already received have already begun.
Response to so we received those questions last week, we were hour answering those questions. This week and we expect to have the return of those questions back to CMS next week, we expect kidney.
We get some questions. So we expect kidney as well we will have some follow up questions, but we don't expect them to be as intense intensely centered around clinical utility, which is where the labor questions were mostly centered and so it's important that we have our kols who've been very kind and gracious and very excited about what we're doing in liver.
Part of our response on that utility, but we don't expect kidney to have as many of those types of questions and so we submitted them.
Deliver first in the kidney, hoping that we end up somewhere in the September October timeframe getting getting responses for both but but you asked what's in and out of our control what's in our control right now is we've redone the workflow.
As I've been doing TCR.
A long time, since we incubated and water baths, and really excited about our team and what they've put together. This is a really really solid workflow are.
Our CLIA lab workflow in the lab as well less than a day and so it's the logistical parts around that that pushed it over a day.
We're excited we can control that what we can control is the outreach we've had to decline high value targeted liver centers, which has been response has been very solid there.
Can control, obviously ourselves launch built in how we how we actually execute on the test performance, while we can't control as you've already mentioned is the timing for CMS.
And under the blanket LCD as you guys are well aware of this but just for everyone on the call under a blanket LCD typically there is a timeframe of 60 to 90 days when you give them. The review you get your questions and you get an answer.
But given how backed up Palmetto is in just given the current environment.
We did see those questions for liver come in within the timeframe that committed so we're hoping that we're on those timeframes, but we can't obviously, we can't predict those timeframe. So.
So hopefully that's a good thorough answer Delaware statute.
One is execution and we just hope that.
When CMS can respond as soon as they claim they want to sell.
And then maybe let's go back to to deliver because it.
In that answers implied it's on different timelines.
So after submission I mean, it's not the 60 to 90 days.
Hi.
Uh huh.
[laughter].
No.
So palmetto.
Okay.
Yes, I think halftime 60 days, yes.
Basically answered you with for the first round in 60 days and you have a chance to respond and then they have another 60 days from that point and so we got the answers. We're very we're very happy to take out and to us that the timing may differ liver. We are answering all questions. This week, they will get them back next week and so almost 60 days for <unk>.
Next week, we hope to hear back from them.
A lot sooner.
Got it okay I appreciate it and then.
You touched on some changing of roles here.
I believe you said at your everyday youre going to be kind of backing away from everyday operations. Just wanted to confirm that I heard that correctly and can you maybe maybe take a layer another layer back yet.
Yes in terms of what that means.
Other than just got in Investor Relations and Biz Dev kind of outlook could you kind of a little bit more about your day to day.
Absolutely David.
I don't want anyone to get the impression I am not going to be very active I'm very active but.
We're at a point, where we have an incredible operating professional and deeper halston.
She came with all the experience you had from a Roche Genentech and exact sciences years ad.
It just really is.
He has been here since the fall and we're at a point where from project management property management internal operation Lab oversight and all that she can take on a lot of what I was doing that frees me too to do more corporate development work more time with investors and certainly more time.
With strategy and some things that are important and that gives me more time to be in the field I'm personally going to oversee the transplant launch and program since I have so much product launch experiences all that I've been doing this a long time I've lost a lot of products in the PCR world. So I'm going to be very active with that and so having diesel step in to sort of manage the.
She was already do most of the operations, but she'll take on a little bit more now and then I'll get to go do more focus on on growth of the company and revenue revenue.
Execution around revenue generating opportunities.
Obviously, we're very excited.
He stepped into this interim role for for a couple of months and he knew.
He was doing and we love having him. So he is now going to step in to be full time, CFO , which we're all very grateful for his incredible background and an operating finance, which is what we need as a company right now.
Got it alright I appreciate it.
I'm given that I'm first I don't want to take any other questions. I think my next one is going be really really short because it's probably just missing something I.
Did I hear on it on the term.
It's a little bit delayed because you need a power you need more patients.
I don't know if I heard that correctly.
<unk> prepared remarks, or not maybe I misheard that can you just clarify that.
Yes, let me clarify that determine Io is on track to submit this fall. We are we have powered and we believe in three tumor types.
We're going to we are waiting on the acceptance of these these data in a peer reviewed publication Thats. The last criteria that we have to check the box you have to check before we can submit those those manuscripts are out we've actually had one accepted and so on.
We are hoping to see Diablo III or non small cell lung and for triple negative I get accepted as well and once those are all three bladder CNBC and long accepted we'll go so we don't need any more statistical power necessarily wall, because they want more but we are ready for that but we are not.
Do I think the message that we set last quarter and David just so you guys. As you think about modeling we're going to go to market with those three indications. We did have a really superior output of colon at <unk> with <unk>.
Following up with lots of different opportunities there, but we will need to get more data on the call and before we can submit a paper and then add that to the list.
Got it I appreciate it. Thank you very much I'll hop out of queue. Thanks, David I appreciate it.
Our next question is from Mike Matson of Needham and company. Please go ahead.
Yeah, Thanks for taking my questions.
I got a few on <unk> I guess so.
In terms of when you actually launch it I guess first it's going to be kind of a clear test that youre doing in your own lab.
And then you will eventually have a kitted version so.
Do you think theres going to be kind of a difference in terms of.
How the sales or the <unk>.
Rate at which they ramp.
For the clear offering versus the kitted offering and is there going to be kind of limited in the early days when you're when you're doing your solve for.
It really take off with the kit or do you think you could take off pretty strongly just with.
The initial launch.
Yes, the feedback we've gotten from the market as there is no one using liver.
Two a couple of the pioneering companies that have sort of created the market in kidney and heart.
We benefit from the kind of the.
Over quality will of people knowing how to use these types of tests now in liver and so when we did our outreach we got some very positive feedback from some very high profile centers and so our goal in the early right.
Right now the early adopter phase by is to get as many of those sites on board as we can to really play to our logistics, our turnaround time, our lab and we'd also like to get it to within a day or within 24 hours, but thats going to acquire overnight shifts and logistics that today are we're putting in place, but we havent tested yet and so.
Ultimately, we think that once we're ready to go for market hopefully by October November when we get reimbursement or the idea would be that we would open it up to all centers in liver.
And assuming we get kidney obviously, that's a very competitive market. We will do our best to go after the kidney market I think the real opportunity for us though honestly.
It will create a nice business as a lab developed test product, but the participation in economics.
That are afforded by the modernization to the transplant centers themselves and to pathology labs, serving transplant centers are significant.
And the turnaround time, plus those new economics that they don't proceed today, because as a central lab, we get those economics sharing those economics, we do expect that and that all our market research says that we'll be sort of a catalytic event or for market growth.
For our kits and so we'll see how that goes but we are planning on we're planning on going full bore with liver and now we do expect a rapid revenue ramp in 'twenty three 'twenty four on liver before we get to a kitted product.
Okay got it.
And then.
In terms of the I just had a.
Question on something that initiative.
On the cash burn so I think he said it would be under $10 million in the quarter, and then and then fall to under $8 million a quarter, but I didn't get the.
The timing on all of that.
The reasoning that it is going to kind of decline is that because you're going to start to have more revenue.
I apologize.
Alex It's fine, it's a combination and I'll, let <unk> give the color commentary, it's actually a combination of reductions in head count that we've made.
Recently.
We prioritization of projects and we funded some things that we were funding we're winding down some clinical studies now so that we can.
I think you guys know this and I've had conversations with most of that most of our analysts you follow US you don't just go Unplug. These studies because these are very high profile accounts very high profile key opinion leaders, who want to complete the study and then publish and the last thing we want to do is we have a very very solid brand of <unk>.
High science with amongst the oncology community today and the last thing we want to do is ruling out. So we are going to continue the current trials that we have going in studies those will bleed off over time as you head into next year. So the combination of that with the reduction in head count with some parties with decisions. We've made will reduce it to about.
$12 million operating expense reduction and then from there you add revenue on top of that and that revenue even nominal revenue that we've modeled <unk> under $8 million in bolt on as you enter the second half of 2023.
Comments on that and just to confirm the timing also the under $10 million burn rate per quarter is really in the first half of 2023, So that's clear too.
Sure.
Yes got it okay.
Alright.
I mean, Mike I mean, we're not sure I mean, we're really trying to give you guys incredible transparency visibility now I think it's important given the market environment. We went from 13, 3% to $11 3 million operating bond Q1 to Q2, so that was a nice reduction for us based on a lot of stuff we've done internally.
Can't do 15% every quarter getting to Tim because we do have a severance charge from the reduction in head count this quarter as well as we need to bleed off some of these studies, but but we're committed to this we do believe that we've got a line of sight and modest revenue gets us really significant impact on burn next year once the <unk>.
Restructure costs as we established with the new sort of new levels.
Okay, and then just one on pharma services I mean is that.
It's running I guess, it was like 300000 or something against that.
Yes.
Is that a focus for the company I mean is that something that can grow into something more material or is it just more you have some truck companies approaching you wanted to use our test.
We're kind of playing along with that but you're not really out there actively trying to fill that business.
As part of a reduction in expenses, we did sort of pullback on the commercial those are expensive head count on the commercial effort. There. However, we have long term relationships most of us with certain.
Areas within pharma and we do have two arrangements one with Qiagen along with thermo that are long term contracts to do validation verification will be called DMD as well as some development work for them those projects will continue.
And the good news for US is we don't really have a dedicated pharma services lab team. This is the lab team that is in R&D in Nashville in R&D here doing things around either Io or doing things around C&I and transplant in Nashville, and so what we do though is when we get a project those forward.
<unk> can flex and perform the formal project when they need to and what they have time from their activities.
Working on every day of course pharma turnaround time is not as essential as a transplant patient turnaround time, so because we have flexibility there we're able to get pharma work done with the head count we already have and it doesn't it really doesn't mean, we have to increase our head count to grow our pharma business. We do have a nice pipeline of over $2 million of pharma.
Service contracts, our biggest problem is pharma isn't enrolling patients as fast as we need them to so that we can complete our study you can get and we can bill for it that's the Big Challenge, we're having right now.
Okay got it thank you.
Our next question is from Thomas Flaten with Lake Street Capital markets. Please go ahead.
Apologies.
Our next question is actually from Mason can we kind of Stephens. Please go ahead.
Hey, guys just wanted to ask a couple on.
The term of Rx here.
Great to see the volume growth year over year, but it seems like ASP may have declined sequentially. So I was just hoping to get some color. There in terms of what drove the decline and then what your expectations are from an ASP standpoint.
Going forward throughout 2022, and then maybe as we start to get closer to 2023.
Yes.
Thanks for asking that because when you just take the raw numbers and divide it by the revenue it doesn't show the average AEP because we actually do it by building class and so in some of those samples are unbelievable. So let me give everyone the breakdown.
In the quarter about 90% of our volume that was billable was Medicare and Medicare advantage, Medicare and Medicare advantage at 90% rendered strong we're around a $3000.
And about 10% of our samples were commercial samples, meaning that we're not Medicare which means when you blend that <unk> at a much lower A&P, which is somewhere in that $800 range you end up with a $20 2900 $72 per case Rev.
<unk> collectible revenue from <unk> that is a very solid number for us we have been tracking that number over time, it's come up from a high 800 ish end to the low twos and now over to Bob amounts to two mines. So we do see that we're getting at our challenges we have we have one.
Billing backlog as you might imagine because it takes us a little while to get some of the commercial payers to pay us and that building backlog has has.
Priest as we've increased our sample volumes and so that doesn't show up.
Does it show up because the revenue doesn't match the same period as the samples come in so hopefully that gives you some clarity about the AEP are our Medicare Medicare advantage samples are consistently coming in around $3000 and so that is the majority of our revenue push and so as you think about.
<unk> modeling, obviously, you need a model the commercial payers as well, which is much less but it's not a high percentage. So the product mix of the payer mix right now is really advantageous for us given we're getting such high AEP for Medicare and Medicare advantage.
Got it Okay, and then maybe just on the large transplant centers that you talked about signing on.
Sorry, if I missed some of this commentary, but any incremental detail you can give around that.
The level of volumes, they're doing in terms of liver transplants, and if theres any stipulation about the number of patients that that youre going to be able to capture it.
Qualitative or quantitative color you can give there would be helpful.
Yes.
Kal probably does somewhere between three and 500 livers a year.
And I'm not trying to at least I'm not trying to be coy, it's a hyper competitive environment and we'd like to keep these kols.
The wraps for a while just because they've been so gracious to help us out so much and we have a number of fees that are that are interested in joining the early adopter program being part of the program.
So if you think about liver the utility is going to be different liver and kidney Youre look and you can say about if you say they have five 300, a year, let's say in 300 a year.
Ladies probably 500 total transplants are 300 of those are I'm, sorry, 500 Liberal cases about 300 of our total transplants 300 of those a year. If you get two samples to test for every lower patient. That's about 600 tests a year you can start thinking about $2000 per.
We're reimbursed test that's what the kidney and hardware 27 28, you can start to build a case for Theres about 70 of these types of centers in the United States.
And so you start to think about.
Liver at I think around 8500, liver cases, a year somewhere in that neighborhood and so.
So you've got you've got a nice market for liver, but.
Kidney becomes very important to us as well as heart, but obviously, we have a nice competitive advantage in liver since were.
The first out and we have very rapid turnaround time.
Got it thanks, Ryan that's helpful.
Thanks, Mike.
Yeah.
Ladies and gentlemen, just a final reminder, if anyone else with laptops question Youre welcome to play Star then one.
First amendment has any further questions.
Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to Ron entries closing remarks. Please go ahead Sir.
Thanks, everyone and we appreciate your time today, we certainly appreciate the questions and we're eager to obviously to see many of these milestones unfold over the fall and we look forward to.
Speaking at numerous conferences through the fall and updating you guys on our progress. So thanks for your time today.
This concludes today's conference. Thank you for joining US you may now disconnect your lines.
Thank you operator.
Okay.
Yes.
Okay.
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Yeah.