Q4 2022 OncoCyte Corp Earnings Call
Good day and welcome to the Argos eight conference call to discuss the fourth quarter and year end 2022 financial results. Today's call is being recorded at this time I'd like to turn the call over to Caroline corner Westwick Investor Relations. Please go ahead.
Yeah.
Thank you everyone for joining us for today's conference call to discuss fourth quarter and year end 2022 financial results and recent operating highlights.
Not seen today's financial results press release, please visit the investors page on the company's website.
Before turning the call over to Joshua went back to them cause Vice President and Chief Executive 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 facts are forward looking statements. We encourage you to review the company's SEC filings, including without limitation, the Companys form 10.
K and 10-Q, which identify specific risk factors that may cause actual results or events to differ materially from those described in the forward looking statements.
These factors may include without limitation risks inherent in the development <unk> commercialization of potential diagnostic tests uncertainty in the results of clinical trials or regulatory approvals that need to obtain third party reimbursement for patients use of any diagnostic test the company commercializing, our need and ability to obtain future capital and maintenance of IP.
Right risks inherent in our strategic transactions, such as failure to realize the anticipated benefits legal regulatory or political changes and the applicable jurisdictions accounting of quality control greater than estimated allocations of resources to develop and commercialize technology failure to maintain any laboratory accreditation for certification.
The uncertainties associated with COVID-19, pandemic and its possible effect on our operations. Therefore actual outcomes and results may differ materially from what is expressed or implied by these forward looking statements are.
Expressly disclaims any intent or obligation to update these forward looking statements, except as otherwise may be required under applicable law.
I'll now turn the call over to Josh Josh.
Yeah.
Hello, Thanks, Caroline and welcome everyone to our conference call to discuss our fourth quarter 2022, and year end financial results and operating highlights joining me today is the niche John our chief commercial Chief Financial Officer. Following our prepared remarks as always we'll be happy to take your questions.
I would like to start the call by expressing my gratitude to the August eight team our investors.
And those in the clinical community, who continue to support us in our mission and serving patients and groundbreaking science.
On March 2nd we announced my appointment as President and CEO as well as a director of Funko site.
I am honored to serve the team as we go into the next phase of development and commercialization we.
We are positioning the company for success in a challenging market environment by focusing on our core products and operational and commercial efficiency.
On December 16th we announced our entry into a stock purchase agreement to transfer <unk>, 70% of our ownership of razor genomics and all of the assets and liabilities related to determine our ex this.
This transaction, which closed in February 2023 eliminated in an estimated 8 million of annual operating expense and $13 billion of future milestone and development liabilities.
While allowing the razor genomics to maintain continuity of service for determine Rx patients and clinicians.
At the same time, we announced a significant reduction in head count further reducing our operating expenses.
Today, we announced the pricing of a stock offering offering of up to $13 $86 million from our long term investors led by broad with partners and with significant participation from our chairman and other of our top five holders. This vote of confidence comes at a critical time Drunker site.
In a challenging market macro market environment. This deal was completed at market with no warrant coverage and allows us to retire a significant portion of our preferred.
The term of Io determined C&I and by the graph represent the future of Unco site's product offering.
Each have multibillion dollar market opportunities and differentiated differentiation from competitive products, along with a growing body of literature in demand in the research market deter.
The term of Io invited grafts are being developed commercial eat through our early access program to drive market development and initial utilization development of these products will be continued throughout 2023 with the term of C&I development to follow in 2024 to.
To be clear all other development projects have been paused or canceled.
To date uncle studies, it's been primarily focused on a service lab model to deliver clinical and shareholder value.
Going forward, we are going to open up access to our breakthrough technology and distributed research use only or are you owe product format. This provides a scalable high margin commercial channel for us whether it be on our own through commercial partners or distribution relationships.
Our service lab in Nashville will continue to engage the clinical community pursue reimbursement and support care decisions, while our already low product will enable researchers around the world to innovate publish and explore new questions.
The term of Io continues to build its case is the best in class tool for assessing the tumor micro environment as it relates to immune therapy use and optimization as an update data in colon cancer has been accepted for publication and will join the previous data from non small cell lung cancer and triple negative breast cancer among others.
Research and oncology is pushing us towards a real choice in first line therapy, something beyond just anti PDL, one <unk> chemo.
Researchers working in this space need a better tool to assess the state of the tumor microenvironment.
We need that and are you old product version of the technology behind during the term of I O can meet.
Leveraging our continuous variable reporting researchers can determine the appropriate cutoff value for their application.
Key 2023 milestones will be coverage for our L. D. T. The completion of our Swags study in triple negative breast cancer and completed feasibility for or are you old product.
[noise] via the graph our transplant product is best in class turnaround time and ease of use leveraging the natural advantages of digital PCR over in Ngls workflow.
We continue to have active dialogue with <unk> to support a coverage decision for both kidney and liver.
Engaging with the transplant community as a partner has shown us that there are many questions left unanswered by the service labs, delivering DTC DNA testing today ours included.
Eloping and delivering in our U O version of our product opens the door to researchers at pharma academic centers in biotech to use donor derived cell free DNA to answer many unsolved problems like long term patient management and the value of absolute quantification we are.
We're pleased to announce today that we have completed feasibility and are in the pre manufacturing optimization phase for or are you a product.
Key 2023 milestones will be coverage for our L. D T strategic or distribution partner announced and are you a product launch.
We believe that this approach focusing on scalable high margin products and rapid development.
<unk>, our time to market and revenue growth, we expect that our differentiated IP will drive commercial opportunities well reduce costs in a shorter path to revenue will benefit <unk> shareholders.
By the grasp the term of I O and determines CNI all have significant upside in our our U S strategy will allow us to scale quickly, while maintaining high product margins that positively impact the company's bottom line and put us on a path to financial sustainability.
We are grateful for your continued support and I would like to now turn the call over to a niche Johns to review our financials and east.
Thank you, Josh Hi, everybody and thanks for joining our call today, our consolidated preliminary revenues for the fourth quarter of 2022 were approximately $1 1 million, representing a decrease of 69% year over year.
Revenues for the full year of 2022 were $5 6 million, representing a decrease of 27% year over year the.
The decrease in revenues from prior year is primarily due to $3 million of milestone payments recognized in 2021 compared to $1 million of milestone payments recognized during 2022 related to the burning rock sub licensing agreement.
Fourth quarter revenues associated with the term of Rx was 0.8 million an increase of 3% year over year.
For the full year determine Rx revenues were $3 6 million, an increase of 47% from the previous year.
Our pharma services business generated zero point $3 million in the fourth quarter, a decrease of 44% year over year.
As we've discussed previously revenues in pharma services depend on our partner's ability to enroll patients for trials, which will likely to continue to fluctuate from quarter to quarter.
Cost of revenues for the fourth quarter were approximately $2 4 million, including $1 6 million from the cost of diagnostic test and testing services, we performed for our determine Rx and pharma services customers and 0.8 million and noncash amortization expenses related to determine Rx and pharma services related into.
Tangible.
Cost of revenues for the full year was approximately $8 9 million, including $3 7 million in noncash amortization expenses of the acquired intangibles.
Research and development expense for the fourth quarter of 2022 was $4 3 million as compared to $4 6 million for the same period in 2021.
R&D expense for the full year was $19 4 million as compared to $13 6 million in 2021.
The increase in R&D expense was related to investment in the build out of our pipeline of diagnostic tests.
General and administrative expense for the fourth quarter was $5 5 million as compared to $4 1 million for the same period in 2021 G&A expense for the full year was approximately $22 5 million, which was relatively flat versus the prior year, reflecting management's efforts to control spending not.
Directly related to product development or commercial activities throughout 2022.
Sales and marketing expense for the fourth quarter was $2 8 million as compared to $3 3 million for the same period in 2021 for.
For the full year sales and marketing expense was approximately $13 6 million, representing an increase of 22% year over year.
The increase was primarily attributable to the growth of our portfolio and reflects investments in sales and marketing activities to prepare for commercialization of our transplant business and support the continued commercial commercialization efforts of determined I O.
Now I'd like to turn to our GAAP and non-GAAP analysis non-GAAP operating loss as adjusted for the fourth quarter was $8 4 million, an increase of $1 million as compared to the same period in 2021 GAAP operating loss as reported for the fourth quarter was $44 7 million, an increase of $9 million from the <unk>.
Fourth quarter of 2021, non-GAAP operating loss as adjusted for the full year was $40 7 million, an increase of $7 5 million as compared to the prior year.
GAAP operating loss as reported for the full year was $72 3 million a decrease of $1 9 million from the prior year.
For the fourth quarter, we reported a GAAP net loss of $45 3 million or <unk> 41, a share as compared to $35 9 million or <unk> 40, a share for the fourth quarter of 2021.
For 2022 net loss was approximately $73 4 million or <unk> 66 per share as compared to $64 1 million or <unk> 72 per share. During 2021, we've provided a reconciliation between these GAAP and non-GAAP operating losses in the financial tables included with our earnings release.
Turning now to the balance sheet as of December 31, 2022, we had cash cash equivalents and marketable securities of $21 9 million.
Net cash used in operating activities was $45 6 million for 2022.
Our focus over the last half of 'twenty two was to re prioritize our investments and our product portfolio and Institute a more sequential approach to product development and test launches.
First half quarterly average of $12 3 million decreased to a quarterly average of $10 5 million or a 15% reduction.
Net cash used in operating activities was $9 $7 million in the fourth quarter of 2022. If you recall. This was ahead of guidance provided in our mid year 2022 earnings call, where we stated our goal of entering the first half of 2023 with a quarterly cash burn rate below $10 million.
In December we announced a reduction of over 40% of our workforce along with the exit of our determine Rx business. While these were difficult choices. These represent definitive steps to further reduce our cash burn from 2022 levels.
As we invest in our focused strategy and product pipeline and.
In 2023, we anticipate continued improvement in quarterly operating cash burn levels.
With our current plan, we expect that continued cash management efforts will get us below $6 million in quarterly average burn for the second half of 2023.
That concludes my review of our financial highlights and I'll return the call to the operator for your questions. Thank you.
Thank you if you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question. Kim You May press star two if you'd like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
In the interest of time, we ask that you each keep to one question and one follow up thank you.
Yeah.
Our first question comes from the line of David Westenburg with Piper Sandler. Please proceed with your question.
Hello. This is Tyler Anderson on for David Westenburg I was wondering what's the timeline for your or you go launch and what is the cadence for that look like as far as growth and do you have any preorders for that product and I got a follow up after if nobody else is on the call for a question.
No no.
Thanks, Tyler so the timing for US is the next milestone Youll see is that we'll start manufacturing them and that'll be sort of late second half early early first sorry late first half early Q3, when you'll get that milestone.
With an on market products towards the end of the year.
The revenue piece on that is just because of the sales cycle for for platform placements is likely first half when we will start to see revenue.
Come in for that all of this can shift depending on the nature of a partnering relationship at that comes in.
Okay. Thank you I'm going to hop back in the queue.
Yeah.
Thank you. Our next question comes from the line of Mark Massaro with BTG. Please proceed with your question.
Hey, guys good morning, and thanks for taking my questions.
So certainly I recognize that the term of I O C. N I invite a grass are now sort of the future of the company.
I was curious if you could just maybe zoom in a little bit.
On the timing of Palmetto mold X coverage for Vida graphs. I also wanted to confirm that you are planning to launch by.
By the grafts kidney and liver and could you just give us a sense for for when you think palmetto mold X coverage can come in and when do you think those kidney and liver tests can rollout.
Fantastic. So we have kidney and liver are both active in our early access program right. Now. So we are getting samples flowing to our lab in Nashville, but those are all unbilled at this time as we're just kind of just in that early access phase.
We submitted back in the summer of last year. These conversations can take anywhere from nine to 12 months.
It's been an active conversation with them.
To say that I can predict what will the government agency is going to do but that's a it's proven to be a bit challenging, but I would say that we were hopeful that were at the end of the road.
Those guys here relatively soon.
Okay that makes sense you know there were some changes recently to a Medicare with respect to Oregon transplant.
Which notably where sort of made visible to the share price is kirti Axa I guess have you had a chance to sort of digest. Some of the changes that were made to that coverage determination and does it impact at all how you view the opportunity for kidney transplant tests.
Yes.
It does you know we saw the release and the clarification from <unk> and you know I think it does take some of the top off the market.
You know, maybe 15%, 20% off of the end of the $2 billion clinical market there.
But I think what are you owe product does is it opens up a whole lot of questions that arent answered today.
If you look at the clarification that <unk> put out it was really specific to him for cause testing and sort of that was the only thing that's really been proven to date, you know by by putting other people in the business of answering questions. We believe that that market can be expanded for long term patient management.
The ability to look at all of alcoholic recidivism and xenograft Theres, a whole bunch of questions that arent answered by <unk> today.
So I see that some element of the clinical piece has been shrunk, but I think it's just because they haven't had the chance to do the research to validate that routine monitoring is useful and the political environment.
Okay, Yeah that makes sense and then just a couple of clarifying questions on when do you think you might be able to get a palmetto <unk> coverage for determine of I O and then I know you determined C&I seems to be more of a 'twenty 'twenty four development initiative.
When do you think that C&I might commercially launch.
You know the best I can say on C&I right. Now is as you know sometime in 'twenty for if things line up you know there is a blanket LCD out there that we believe covers the approach the C&I it takes the patient management.
But that's it's just it's a little bit far out for US right now as we kind of brought our cost structure down significantly to really put everything we can behind the term of I O and in transplant this year.
As far as I O. We submitted that back in December and you know again, that's kind of a we expect a nine to 12 month process on that you know it is a de novo submission for <unk>. So this is a <unk>.
I will test for them to take a look at those can have longer timelines.
I'd say the earliest we could possibly see that would be probably Q4 mm.
But we may get surprised.
Okay, and then maybe one for a niche.
I think I heard that the planned cash burn in the second half of the year will be sub 6 million is it fair to think that the cash burn in the first half of this year will be a little bit higher than 6 million. Just curious if you could clarify that and and what some of the factors are that that might be you know puts and takes to that number.
<unk>.
Yeah, No. That's a great question I mean, I think we had previously guided to.
Sub 10 in the first half of 2003, and obviously you know with the net cash used in operating activities in the fourth quarter being up 22 being $9 70, we were ahead of that.
There are a couple of things that we need to see the full effect of you know with respect to the two major pieces one was the over 40% reduction in our staff, which.
Occurred in was announced in December right, So you're going to start seeing the impact of that as well as you know.
Part of that the divestiture of our Rx business. So I mean, I think you know.
The sub 10 burn is.
Clearly something that's very achievable, we do think that our guiding to the second half at this point, we're really safe.
Six I think is a is a reasonable.
Estimate at this point.
Alright, excellent I will hop back in the queue.
Thank you Mark.
Thank you. Our next question comes from the line of Mike Matson with Needham <unk> Company. Please proceed with your question.
Hi, guys. This is Joseph on for Mike.
Thanks for taking our questions.
I guess maybe to start off can you maybe discuss the early adopter program a little bit provide a graph.
I guess, maybe how many physicians are our sites are involved in this I think he gave maybe some metrics on that in the past, but if you could talk about some of the metrics around like reordering or maybe some of the feedback from physicians, especially if they've potentially used you know a competitor tests and the differences between them.
And then I guess, maybe the same or similar question for determine of I O that are too early adopter program if possible.
And then if I could just add something on there for clarification in terms of.
Chairman I O submission.
Submission to Mol Dx was that for triple negative breast cancer as well as a lung cancer I believe those are the two year, we're talking about in the past.
Okay.
Yes, I can confirm for the determine Io that we did submit for both non small cell lung cancer and for triple negative breast cancer.
The EAP.
IAP success has been really good for us so I won't get into kind of like the specific sites and numbers, but reorder rate has been fantastic and I think the biggest sign of success for us as you know.
When the researchers get access to the technology and they're able to kind of use it to ask these questions. They get excited and then they want a set of IRB and they want a set of studies and that's that's the momentum that we felt over the past three months.
Is that.
Theres a general level of excitement around you know determine <unk> ability to really assess the tumor micro environment and then when we get to by the graft is yep.
I think the use of absolute quantification is intuitive.
For docs, who are used to seeing them sort of absolute values on their test reports, we don't have the clinical data today to say that that can supplant the way, it's being done with no fractional measurement, but it's something that's generated a lot of interest from from the community it's testing incredibly well.
Across the EAP and across our advisory boards.
Okay, Great. Yeah. That's that's very helpful. And then maybe one more and I'll hop back in the queue, maybe I'm understanding this wrong, but E R.
Are you a product it is this the like the kitted version.
Hum.
Correct.
Okay. Okay, perfect just wanted to make sure. Thank you very much.
Mhm sure. Thank you.
Thank you. Our next question comes from the line of Mason with Stephens Inc. Please proceed with your question.
Hey, guys, maybe just a couple of quick ones on the liver test.
In terms of once you get you receive coverage there how are you thinking about the initial revenue revenue ramp in and how should we think about the build out of the us.
Maybe a more targeted or smaller commercial team once that coverage is established.
No. Thank you for the question.
We are very firmly pivoting towards a product approach as a company just because of the cost of building out.
Large sales and marketing team isn't something that we can we can support at this time and so I would expect that any sales and marketing effort around here with liver and kidney.
In the transplant space is going to be very small very targeted focusing on deep relationships more than sort of broad market adoption and then we're going to rely on our distribution partners or platform partners to help us really penetrate the market as a research level. So I would say very low millions.
At maturity and whenever we get coverage reimbursement is about three months post that for revenue start.
Got it and then maybe one more how are how should we think about the pricing or economics that those product base kits.
Without getting into speculation.
You know other tests comparable tests have been reimbursed.
28, 50, and $27 50 ish, we are hoping that we will be crosswalk to that pricing, but can't guarantee it.
Got it okay. Thanks, guys.
Okay.
Thank you. Our next question comes from the line of Bruce Jackson with the Benchmark Company. Please proceed with your question.
Hi, Thanks for taking my question, so with determine I owe you submitted for non small cell lung cancer and triple negative breast cancer and then you mentioned that you've got the new data for a column.
That was just published do you plan to add that to the application at some point.
We're going to take that to our our Science Committee, we haven't made.
A determination on that I think it's just a matter of resources at this point, but.
We believe our best data right now is in non small cell and triple negative.
Okay, great. Thank you that's it for me.
Mhm.
Thank you, ladies and gentlemen, as reminder, if you'd like to join the question queue. Please press star one on your telephone keypad. Our next question comes from the line of David Westenburg with Piper Sandler. Please proceed with your question.
Hi, guys. Once again, just a quick housekeeping question, So where does this newest cash ingestion injection take you as far as timeline and this is result of growth or is this more of like a sustaining cash cost line that we're getting and then do.
Do we expect this again in 2024 or is this more like a 25 and six and on question I'm, just asking because we had asked in Q1.
And 'twenty, one or 'twenty two thank you.
Yeah. Thanks for the question Yeah, I think the way we ought to think about it is just for continuing and growth. It's really it's more of a combination of the two.
You know, we should expect based on our current cash burn levels that this wood.
Help us.
Through I think with the cash runway through well into the first half.
24, and that's how you ought to think about it.
Perfect. Thank you.
Thank you.
Thank you. Our next question comes from the line of Mike Matson with Needham and company. Please proceed with your question.
Okay.
Hey, just one more from me.
When you guys had announced I'm selling a majority stake deter him Rx I believe the press release mentioned.
Some potential for upside I guess.
Good.
Sales ramp.
Would it be possible to maybe size that you know the sample volume needed to see some of those benefits are the likelihood from some upside I guess, maybe not quantitatively, but you know quantitative qualitatively you know how much how much I guess a success would.
Razor genomics need to for you guys to see some type of benefit from that.
No. It's a good question.
We've got a 30% ownership of the of the remaining business. So it's not a it's not a royalty payment back to us.
So what we would expect is that you know while they continue to develop the product and mature.
They get out of the randomized clinical trial and published that data that you know the the product will become sort of a higher revenue producing more attractive and that eventually there would lead to an acquisition. That's at the point when we would expect sort of a windfall payment to come our direction.
Okay, Yes that makes perfect sense.
Well, thank you very much for taking our questions.
For sure.
Thank you ladies and gentlemen, this concludes our Q&A session and thus concludes our call today. We thank you for your interest and participation you may now disconnect your lines.
Okay.
Yeah.