OncoCyte Corporation Q1 2023 Earnings Call
Speaker 1: The.
Speaker 1: I C.
Speaker 1: This.
Speaker 2: There will be an opportunity to ask questions. To ask a question, you may press star than one or your touch tone phone. And to withdraw your question, please press star than two. Please note this event is being recorded. I would now like to turn the conference over to Ms. Stephanie Prince of PCG Advisory. Please go ahead, ma'am.
Speaker 3: Thank you, Chuck, and thank you to everyone joining us for today's conference call to discuss on-site first quarter 2023 financial results in recent operating highlights. If you have not seen today's press release, please visit the company's website on the investor page.
Speaker 3: Before turning the call over to Josh Riggs, the company's president and CEO , 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 or forward-looking statements.
Speaker 3: We encourage you to review the company's SEC filings including, without limitation, the company's forms 10-K and 10-Q, which identify the specific risk factors that may cause actual results or events to differ materially from those described in these forward-looking statements.
Speaker 3: Actual outcomes and results may differ materially from what is expressed or implied by these forward-looking statements. Oncocyte expressly disclaims any intent or obligation to update these forward-looking statements except as otherwise may be required by law.
Speaker 4: With that, I'll turn the call over to Josh Winks. Josh? Thanks, Stephanie, and welcome everyone to our conference call to discuss our first quarter 23 highlights.
Speaker 4: On today's call, we will review the progress we have made improving our cost structure and pivoting to a high margin, scalable product business.
Speaker 4: Onko-Sai has an faster path to market and lightweight infrastructure.
Speaker 4: Before we go there, I would like to try to provide a little extra context on our shift in strategy.
Speaker 4: While many other diagnostic companies are pursuing the more typical service lab business model, they have also historically generated substantially large losses and continue to consume significant capital.
Speaker 4: OncoSite's kitted product commercial model should allow us to scale our revenue with relatively little capital while we generate higher profit margins that are sustainable over the long term. As a company, we continue to face adverse market conditions.
Speaker 4: Rating in costs and focusing investment in Q1 was critical.
Speaker 4: We've consolidated our lab operations, pared down our product portfolio, and right-sized the company, eliminating over $20 million in annual operating expense.
Speaker 4: complete a $13.86 million equity raise that was at market, contained the warrant coverage and was composed of top holders and insiders.
Speaker 4: We appreciate that continued commitment to the company and meeting the needs of patients.
Speaker 4: And now onto our product portfolio.
Speaker 4: On our last call, we talked about Determina IORUO as a kitted product.
Speaker 4: in class measure of the tumor microenvironment.
Speaker 4: We believe that this is evident in the recent peer-reviewed publication of the results of a study applying Determina I.O. to samples collected from the randomized phase 2 Atizotribe clinical trial in metastatic colorectal cancer. The results were published in clinical cancer research and showed the utility of Determina I.O. and potentially identifying more responders and more people who were not able to get the results.
Speaker 4: was presented highlighting exciting study results applying the term of C&I, our blood based test, to metastatic pancreatic cancer that indicate our test can identify patients not responding to therapy.
Speaker 4: Determinacy and eye is a blood only solution for efficacy monitoring, which we believe will make it an attractive alternative for researchers that don't have access to or need to conserve precious tissue since no upfront tumor typing is required.
Speaker 4: Our vitigraphed assays for transplant management continue to work their way through CMS as we pursue reimbursement.
Speaker 4: and is on pace to enter manufacturing in the next three months.
Speaker 4: of 2024.
Speaker 4: Gaining reimbursement for our portfolio and bringing our test to market to generate revenue growth is essential.
Speaker 4: At this point, I would like to turn the call over to Anis John to review our financials.
Speaker 5: Hi everybody and thanks for joining our call.
Speaker 5: Before we begin our formal review of the financials, I'd like to start by saying that Oncocyte overall has seen a significant year-over-year operating expense decline across all categories of spend in Q1 of 2023.
Speaker 5: This largely reflects management's successful efforts to optimize the portfolio and definitively reduce our operating expenses. With that, our consolidated preliminary revenues for the first quarter of 2023 were approximately 0.7 million, representing a decrease of 50% year over year.
Speaker 5: Cost of revenues for the first quarter were approximately 0.8 million, primarily from the cost of diagnostic tests and testing services we performed for our determined RX and farmer services customers. Research and development expense decreased 45% year-over-year from 5.1 million to 2.8 million.
Speaker 5: primarily due to the decrease in CLIA laboratory expenses and focused product development spend in the three months ended March 31, 2023. General administrative expense decreased 34% year over year from $5.7 million to $3.7 million, reflecting management's efforts.
Speaker 5: to control spending not directly related to product development or commercial activities throughout 2022 and into 2023.
Speaker 5: million to 1.2 million, mainly attributable to the decrease in product development and commercialization efforts of Determiner RX and due to the sale of Razer Genomics during the first quarter of 2023.
Speaker 5: Now I'd like to turn to our GAAP and non-GAAP analysis. non-GAAP operating loss as adjusted for the first quarter was 7.8 million, a decrease of 3.5 million as compared to the same period in 2022.
Speaker 5: Gap operating income as reported for the first quarter was 2.9 million, a change of 12.8 million compared to a loss of 9.9 million for the first quarter of 2022. For the first quarter we reported a gap net income.
Speaker 5: $13 million or $11 cents per share for the first quarter of 2022.
Speaker 5: We've provided a reconciliation between these gap and non-gap operating losses in the financial tables included within our earnings release. Turning now to the balance sheet as of March 31st, 2023, we had cash, cash equivalents and marketable securities of $12.4 million.
Speaker 5: Net cash used in operating activities was $9.6 million for Q1 2023 and represents a 27% reduction versus prior year and includes non-recurring expenses related to the exit of the razor business.
Speaker 5: we anticipate continued improvement in quarterly operating cash burn levels in the back half of 2023 and are now Revising our guidance to below 5 million in quarterly average burn versus the 6 million quarterly average burn in the back half of 2023
Speaker 5: that we guided to previously.
Speaker 5: Lastly, I wanted to share that I will be resigning from my position of CFO of Ococytes, Effective June 15th of 2023. It's been a privilege to serve Ococytes during this period of significant transition, particularly over the last few quarters. From an operational finance perspective.
Speaker 5: We had taken a difficult but needed steps to successfully right-size the organization, optimize our product portfolio, and deliver on our commitment to reduce our burn rate. I'm confident that these efforts have put us in the best position to bring our key products to market on behalf of our shareholders and patients.
Speaker 5: I know we're well positioned to realize the key value milestones ahead, and I want to take a moment to thank my colleagues here at Oncocyte, our Board of Directors, and our shareholders for the privilege of serving as Oncocyte's CFO .
Speaker 2: it for your questions. We will now begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. And to withdraw your question, please press star then two. And at this time, we'll pause momentarily to assemble a roster.
Speaker 2: The first question will come from Mike Madsen with Needham. Please go ahead. Hello, everyone.
Speaker 6: Just wanted to oh sorry this is Joseph on for Mike by the way
Speaker 6: Hey, so just wanted to maybe get an update on the milestone calendar. Maybe what you guys expect to be the first shoe to drop. We're obviously expecting a reimbursement decision for the term I-O and VITA graft in the future.
Speaker 6: but you as well have the RUL product kind of lined up. So maybe if you could, you know, frame timeline a little bit, whether it be, you know, first to reimbursement decision, or maybe the first to contribute materially to revenue.
Speaker 4: Yeah, I would say the transplant products are about six months ahead of the term IO in the reimbursement process. So our expectation would be that they would be the first choose to drop. IO is a...
Speaker 4: sort of a unique product from the point of view of Moldex, so they're gonna take a little bit more time with that as they review it. So yeah, I think it's kind of one of those things that any quarter now, we're hoping that we get aligned with Moldex and we're able to announce reimbursement.
Speaker 6: Okay, great. And I guess maybe on IO and Vitagraft, I know for IO, you have an EAP ongoing at around seven sites or so, if you could confirm that. Like, you may be...
Speaker 6: You know, talk about both those programs, you know, how large is the divided graft? Um, you know, what's been the. The feedback from those and the reorder rates, but yeah, maybe just some color on both of those.
Speaker 4: Yeah, I think the early access program is a wonderful learning tool for us. And I think it allows us, you know, without the pressure of, you know, having to stick specifically to a claim, we can ask open-ended questions with our collaborative researchers at, you know, multiple.
Speaker 6: that, you know, look to use this test to combine with other diagnostic methods. Thanks.
Speaker 4: No, it's a really insightful question. I think the biomarkers that exist today have done an amazing job of tracking CDX claims and proving their utility. I don't imagine that they're ever going to go away. I think the term IO will be used in the context of that really complicated...
Speaker 7: Hey guys, maybe just could you provide some color around those early conversations or the interest from potential customers for the Determina IO product, overall demand, any incremental color you can give there.
Speaker 4: Yeah, I would say, you know, our best data is in the greater than 50% PD-L1 expressors in non-small cell lung cancer. You know, this is a population where you're trying to make a decision on, you know, do I add chemo, do I not add chemo? And I think we provide unique information. than we have a few85 lead yourself and our
Speaker 4: in that setting, alongside multiple other clinical indications that we published on. But I would say there's been a high degree of interest in non-small cell lung cancer, and then also in triple negative breast, where the SWOG study where we're going to do well over 800 patients looking at adjuvant, pembrolizumab, or Keytruda, doctors are seeing the value of having a test that they can rely on.
Speaker 4: to identify who's actually going to respond to the anti-PD-L1 therapy.
Speaker 4: who's actually going to respond to the anti-PD-L1 therapy. Got it. That's helpful. And then...
Speaker 7: Thinking about your cash runway, could, and you've provided some color on this, but could you just help us think about what are the key items that are baked into the current budget and what do you view as kind of the key risks that could arise that could potentially shorten the cash runway?
Speaker 4: You know, I think we've brought the cash runway down.
Speaker 4: primarily with the expectation that revenue wasn't going to start until the first half of next year. And so I think we see ourselves in kind of a development stage at this point. And so the cash flows or cash burn should be relatively predictable.
Speaker 4: But, you know, there, I mean, I guess there's always the unknown unknowns out there, but there's nothing that I can foresee at this point that would, sort of, lumpiness into that, Anish. Now, and I think organically, I mean, obviously we are coming off of...
Speaker 5: you know, two RIFs in, you know, in 2022, which were sort of an operationally, organically seeing, you know, savings as a result of these, a direct result of these efforts. And so, you know, I confirm what Josh is saying in terms of, you know, we're.
Speaker 2: will come from Mark Massaro with BTIG. Please go ahead.
Speaker 8: So a few other companies in our space are reporting broad-based pressures on transplant volumes across all organ types. So can you just give us a sense about how you're thinking about the space? I think liver is a relatively underpenetrated indication, but just to give you a sense of what we're doing.
Speaker 4: an R U O version of the product so that you can open up new indications for the technology and begin to grow the top line again.
Speaker 8: Okay, understood. Thanks. And then I guess on a potential kidding partnership, just how are those conversations progressing and any timing you can share on what we might expect to hear an update there. Thanks.
Speaker 4: Yeah, I mean, I'd say those conversations are ongoing. You know, we were talking to manufacturers and we're also talking to distribution partners. You know, I think the imperative for us is to have a product on market by the end of the year. And I think as we get into Q3, we'll have a lot of clarity.
on what that commercial strategy will look like. Okay, perfect. And maybe just one last one for me. On the step down in cash burn, just how you're thinking about rep expansion or other investments just to help facilitate commercialization of skidded products. Thank you.
No, good question. I think we're committed to maintaining a capital light infrastructure here at OncoSite and our primary mode of commercialization will be through partnership or distribution.
Thanks for taking the questions. The next question will come from David Westingberg with Piper. Please go ahead.
Hi everyone, this is Tyler on for David. Thank you for taking my question. So just zooming into IO, can you describe the early access customers that you've been talking to and what kind of feedback you've gotten from them, as well as if you've had any discussions for presales? Yeah, I love the question because we've got a really good mix.
in our EAP. So there's kind of the broad-based networks of oncologists that are kind of very well known in the Southeast. And then there's the academic institutions. So I think we're getting feedback from a lot of different clinical experiences and sort of the utility of the test in those environments.
And I would say, you know, generally the demand is strong for reliable tests that they can use to help manage their patients..
Okay, and what is the manufacturing ramp up in Q3 look like as far as like a volume cadence going forward into Q4 if you have any insight onto that and then
Do you expect to see any increase in sales and marketing expense considering you're going the distribution route or is that going to remain suppressed for quite some time? I would expect costs to remain suppressed but then you know as far as manufacturing ramp up I wouldn't expect anything.
significant this year, and it's really tough to project 24 at this point. You know, just ahead of us even getting into manufacturing. I think we'll be able to update what that looks like in future calls.
significant this year and it's really tough to project 24 at this point. You know, just ahead of us even getting into manufacturing. I think we'll be able to update what that looks like in future calls. Perfect, thank you guys.
project 24 at this point, just ahead of us even getting into manufacturing. I think we'll be able to update what that looks like in future calls. Perfect, thank you guys. Thank you.
Again, if you have a question, please press star, then 1. Our next question will come from Bruce Jackson with the Benchmark Company. Please go ahead.
Good morning and thank you for taking my questions. I just wanted to get a little more specificity around the timelines for the reimbursement. So would Vitagraft be roughly third quarter potentially? Yeah, I mean I don't want to put words in Moldex's mouth.
would be roughly six months after that. Again, potentially because we don't know exactly what model DX is going to do.
months after that, again potentially because we don't know exactly what Model DX is going to do. Exactly. You've got that right.
Okay, perfect. And then any update on determined CNI in terms of the development.
Only the publication that was at AACR in pancreatic cancer, where it's a unique use case for Determinacy NI, where there's really two first-line therapy decisions, and when one's not working, you flip to the other. And so having an early....
notification that the therapy is not serving the patient is potentially beneficial in management of patients. And we demonstrated that we are a good early warning system for when the therapy is not working. So I think that's for us very encouraging and a very problematic cancer.
And then we're going to do additional clinical development that we'll be able to update on later in the year.
going to do additional clinical development that we'll be able to update on later in the year. Okay, great. Thank you very much.
Thank you for attending today's presentation. You may now disconnect.
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