OncoCyte Corporation Q1 2023 Earnings Call

Speaker 1: The.

Speaker 2: Good day and welcome to the Onfocide first quarter 2023 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero.

Speaker 2: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your touch tone phone. And to withdraw your question, please press star then 2. 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. You may shift desired voice in, and do the radio rescue also.

Speaker 3: Thank you Chuck, and thank you to everyone joining us for today's conference call to discuss OncoSite's first quarter 2023 financial results and 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 are forward-looking statements.

Speaker 3: We encourage you to review the company's SEC filing, including without limitation, the company's forms 10K and 10Qs, 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. Ancassite expressly disclaims any intent or obligation to update these forward-looking statements except as otherwise may be required by law.

Speaker 3: With that, I'll turn the call over to Josh Riggs. Josh?

Speaker 4: Thanks, Stephanie, and welcome everyone to our conference call to discuss our first quarter 23 highlights. We'll be right back.

Speaker 4: On today's call, we will review the progress we have made in improving our cost structure and pivoting to a high margin scalable product business.

Speaker 4: OncoSite has a faster path to market and lightweight infrastructure.

Speaker 4: Before we go there, I would like 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.

Speaker 4: As a company, we continue to face adverse market conditions.

Speaker 4: Reining in costs and focusing investment in Q1 was critical. We've consolidated our lab operations, paired down our product portfolio, and right-sized the company, eliminating over $20 billion in annual operating expense.

Speaker 4: Going forward, we will continue to focus on managing spin down and driving towards a capital-efficient model.

Speaker 4: These efforts and the shift in strategy allowed us to 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: We appreciate that continued commitment to the company and meeting the needs of patients. And now onto our product portfolio.

Speaker 4: On our last call, we talked about the term IORUO as a KIDD product.

Speaker 4: continues to build its case as the best in class measure of the tumor microenvironment.

Speaker 4: The results were published in Clinical Cancer Research and showed the utility of Determina IO in potentially identifying more responders to ICI therapy than current standard of care biomarkers. The results were published in Clinical Cancer Research and showed the utility of Determina IO in potentially identifying more responders to ICI therapy.

Speaker 4: Additionally, we presented four abstracts exploring the tumor microenvironment and its potential implications for therapeutic response at the annual meeting of the American Association for Cancer Research.

Speaker 4: Also, at AACR, data was presented highlighting exciting study results applying Determinacy and Eye, 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.

Speaker 4: 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: The kitted version of the transplant test is through phase one of development and is on pace to intermanufacturing in the next three months. We are looking forward to an expected early access launch date later this year.

Speaker 4: generating external partnership and licensing opportunities, and our reduced burn ensures our current resources will carry us well into the first half of 2024.

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. This largely reflects management's successful efforts...

Speaker 5: Preliminary revenues for the first quarter of 2023 were approximately 0.7 million, representing a decrease of 50% year over year.

Speaker 5: Excluding DeterminaRx revenue, the continuing operations revenue related to pharma services was 0.3 million for the three months ended March 31st, 2023. 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 DeterminaRx and pharma services customers.

Speaker 5: 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: Sales and marketing expense decreased 63% year over year from 3.2 million to 1.2 million, mainly attributable to the decrease in product development and commercialization efforts of DeterminerRx and due to the sale of Razer Genomics during the first quarter of 2023.

Speaker 5: Now I'd like to turn to our gap and non-gap analysis.

Speaker 5: 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. GAAP operating income as reported for the first quarter was $2.9 million.

Speaker 5: a change of 12.8 million compared to a loss of 9.9 million for the first quarter of 2022.

Speaker 5: For the first quarter, we reported a gap net income.

Speaker 5: of $3 million or 2 cents a share as compared to a net loss of $10.3 million or 11 cents a share for the first quarter of 2022. We have provided a reconciliation between these GAAP and non-GAAP operating losses in the financial tables included within our earnings release. Turning now to the balance sheet, as of March 31, 2023, we have a total of $2.5 million in total.

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. Lastly, I wanted to share that I will be resigning from my position of CFO of Oncocyte effective June 15th of 2023.

Speaker 5: It's been a privilege to serve Oncocyte during this period of significant transition, particularly over the last few quarters.

Speaker 5: From an operational finance perspective, we had taken the 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 Ocacite, our Board of Directors and our shareholders for the privilege of serving as Ocacite's CFO .

Speaker 5: That concludes my review of our financial highlights and I'll return the call to the operative for your questions.

Speaker 2: We will now begin the question and answer session. To ask a question, you may press star then 1 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 2. And at this time, we'll pause momentarily to assemble our roster.

Speaker 2: And the first question will come from Mike Madsen with Needham. Please go ahead. Audio great, Thank you is red.

Speaker 6: Hey, Josh. Hey, Nish. I wanted to...

Speaker 6: Hey Josh, hey miss. Just wanted to... Oh, sorry, this is not Joseph on from 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 frame timeline a little bit, whether it be first to reimbursement decision or maybe the first to contribute materially to revenue. Yeah, I would say the transplant products are.

Speaker 4: 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 Vitagraph, 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 vitagraph EAP, you know, what's been the feedback from those and the reorder rates but yeah, maybe just some color on both of those.

Speaker 4: And they're really exploring the utility of Determina IO and its reliable nature in identifying patients that are going to respond to immunotherapy. And we find that we're able to move towards IRBs and ask new questions with the product. So I think there's been robust interest around Determina IO in that program. And the site enrollment continues to grow there. And the same with the transplant test. We talked about it on the last call that there are several unanswered questions today in transplant management. And having an early access program, giving access to these researchers the technology has opened up.

Speaker 2: The next question will come from Mason, Carrico with Stevens. Please go ahead.

Speaker 2: Hey guys, maybe just could you provide some color around those early conversations or the interest from potential customers for the Determine I.O. product, overall demand, any incremental color you can give there? Yeah. I will bring a few words. I will bring a few words.

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 to identify who's actually going to respond to the anti-PD-L1 therapy.

Speaker 7: Got it. That's helpful. And then thinking about your cash runway could mean you've provided some color on this, but could you just help us think about

Speaker 7: What are the key items that are baked into the current budget and what do you view as

Speaker 7: kind of the key risks that could arise that could potentially shorten the cash runway.

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. But you know, there's

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 throw lumpiness into that. Anish? No, and I think organically, I mean, obviously we are coming off of, you know, two rifts in...

you know, in 2022, which we're 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 starting to see or get

and operating rhythm where the expenses are very predictable at this point.

Got it. That's helpful. That's it for me, guys. Thanks. Thank you. Thank you. The next question will come from Mark Massaro with BTIG. Please go ahead.

Hey guys, this is Vivian on for Mark. Thanks for taking the question. 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 under-penetrated indication, but...

create 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.

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.

Yeah, I mean I'd say those conversations are ongoing. We're talking to manufacturers, and we're also talking to distribution partners. 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 are you thinking about rep expansion or other investments just to help facilitate commercialization of skidded products? Thanks. No, good question. I think we're committed to maintaining a capital light

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 pre-sales? Yeah, I love the question because we've had 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 does the manufacturing ramp up and Q3 look like?

as far as like a volume cadence going forward into 2.4 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 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, just ahead of us even getting into manufacturing. I think we'll be able to update what that looks like in future calls. Spool on NON- Fault images

Perfect. Thank you guys. Thank you. Again, if you have a question, please press star then one. 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, but that's in striking distance for us. We've been working with them for going on a year now. So, we're hopeful that we're at the end of the road with them, but we could have more work to do.

Okay, and then Determina.io would be roughly six months after that, again, potentially because we don't know exactly what Model DX is going to do.

Okay, and then the Determina IO would be roughly six months after that, again, potentially, because we don't know exactly what Model DX is gonna do. Exactly, you've got that right.

Okay, perfect. Any update on Determina CNI in terms of the development?

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's not working. So I think that's

That's for us very encouraging and a very problematic cancer. And then we're going to do additional clinical development that will be a blood date on later in the year. Okay, great. Thank you very much.

problematic cancer. You know, and then we're 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, Bruce. Thank you.

This concludes our question and answer session as well as our conference call for today. Thank you for attending today's presentation. You may now disconnect.

The.

And and.