OncoCyte Q1 2023 Earnings Call Transcript

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Provided by Quartr
May 11, 2023

There are 9 speakers on the call.

Operator

Good day, and welcome to the OncoCyte First Quarter 2023 Earnings Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Ms.

Operator

Stephanie Prince of PCG Advisory. Please go ahead, ma'am.

Speaker 1

Thank you, Chuck, and thank you to everyone joining us for today's conference call to discuss OncoCyte's Q1 2023 Financial results and recent operating highlights. If you have not seen today's press release financial results press release, Please visit the company's website on the Investor page. 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 facts are forward looking statements. We encourage you to review the company's SEC filings, including without limitation the company's forms 10 ks 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.

Speaker 1

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

Speaker 2

Thanks, Stephanie, and welcome everyone to our conference call to Our Q1 'twenty three highlights. 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. OncoCyte has a faster path to market and lightweight infrastructure. Before we go there, I would like to provide a little extra context on our shift in strategy. 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 OncoCyte'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 2

As a company, we continue to face adverse market conditions. Reining in costs and focusing investment in Q1 was critical. We consolidated our lab operations, pared down our product portfolio and right size the company, eliminating over $20,000,000 in annual operating expense. Going forward, we will continue to focus on managing spend down and driving towards a capital efficient model. These efforts in the shift in strategy allowed us to complete a 13.8 $1,000,000 equity raise that was at market, contained no warrant coverage and was composed of top holders and insiders.

Speaker 2

We appreciate that continued commitment to the company and meeting the needs of patients. Now onto our product portfolio. On our last call, we talked about Determa I O RUO as a kitted product. We are happy to announce that we are complete with the first phase of development and are now optimizing the assay to prepare for manufacturing. Determa I O continues to build its case as the best in class measure of the tumor microenvironment.

Speaker 2

We believe that this is evident in the recent peer reviewed publication of the results of a study applying Determa I O to samples collected from the randomized Phase 2 atezotribe The results were published in Clinical Cancer Research and showed the utility of and potentially identifying more responders to ICI therapy than current standard of care biomarkers. Additionally, we presented 4 abstracts exploring the tumor microenvironment and its potential implications for therapeutic response at the Annual Meeting of the American Association For Cancer Research. Also at AACR, data was presented highlighting exciting study results applying Determa CNI, our blood based test to metastatic pancreatic cancer that indicate our test can identify patients not responding to therapy. Determa C and I 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. Our Vitagraph assays for transplant management continue to work their way through CMS as we pursue reimbursement.

Speaker 2

The kitted version of the transplant test is through Phase 1 of development and is on pace to enter manufacturing in the next 3 months. We are looking forward to an expected early access launch date later this year, making our technology available to research labs here in in the U. S. And abroad. Revenue is expected to begin in the first half of twenty twenty four.

Speaker 2

Gaining reimbursement for our portfolio and bringing our test to market To generate revenue growth is essential. We believe our optimized product strategy will attract revenue generating external partnership and licensing opportunities and our reduced burn ensures our current resources will carry us well into the first half of twenty twenty four. At this point, I would like to I'll turn the call over to Anish Jahn to review our financials.

Speaker 3

Hi, everybody, and thanks for joining our call. Before we begin our formal review of the financials, I'd like to start by saying that OncoCyte overall has I've 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 to optimize the portfolio and definitively reduce our operating expenses. With that, our consolidated preliminary revenues for the Q1 of 2023 were approximately 700,000 representing a decrease of 50% year over year. Excluding DetermaRx revenue, the continuing operations revenue Related to pharma services was $300,000 for the 3 months ended March 31, 2023.

Speaker 3

Cost of revenues for the Q1 We're approximately $800,000 primarily from the cost of diagnostic tests and testing services we performed for our Determa Rx and Pharma Services customers. Research and development expense decreased 45% year over year from $5,100,000 to $2,800,000 primarily due to the decrease in CLIA laboratory expenses and focused product development spend in the 3 months ended March 31, 2023. General and administrative expense decreased 34 Spending not directly related to product development or commercial activities throughout 2022 and into 2023. Sales and marketing expense decreased 63% year over year from $3,200,000 to 1,200,000 mainly attributable to the decrease in product development and commercialization efforts of Determa Rx and due to the sale of Razer Genomics during the Q1 of 2023. Now I'd like to turn to our GAAP and non GAAP analysis.

Speaker 3

Non GAAP operating loss as adjusted For the Q1 was $7,800,000 a decrease of $3,500,000 as compared to the same period in 2022. GAAP operating income as reported for the Q1 was $2,900,000 a change of $12,800,000 compared to a loss of $9,900,000 for the Q1 of 2022. For the Q1, we reported a GAAP net income of $3,000,000 or $0.02 a share as compared to a net loss of $10,300,000 or $0.11 per share for the Q1 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.

Speaker 3

As of March 31, 2023, we had cash, cash equivalents and marketable securities of 12,400,000 Net cash used in operating activities was $9,600,000 for Q1 2023 and represents a 27% reduction versus prior year and includes non recurring expenses related to the exit of the razor business. We anticipate continued improvement in quarterly operating cash burn levels in the back half of twenty twenty three and are now revising our guidance to below $5,000,000 in quarterly average burn versus the $6,000,000 quarterly average burn in the back half of 2023 that we guided to previously. Lastly, I wanted to share that I will be resigning from my position of CFO of OncoCyte effective June 15 of 2023. It's been a privilege to serve OncoCyte during this period of significant transition, particularly over the last few quarters. 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.

Speaker 3

I'm confident that these efforts have I know we are 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. That concludes my review of our financial highlights, and I'll return the call to the operator for your questions.

Operator

We will now begin the question and answer session. And the first question will come from Mike Matson with Needham. Please go ahead.

Speaker 4

Hey, Josh. Hey, Nish. Just wanted to sorry, this is Joseph on for Mike, by the way.

Speaker 5

Hey, Joe.

Speaker 4

Hey. So just wanted to maybe get an update on the milestone calendar, Maybe what you guys expect to be like the first shoe to drop. We're obviously expecting a reimbursement decision for And Vitagraph in the future, but you as well have the RUO product kind of lined up. So maybe if you could Frame the timeline a little bit, whether it be first to reimbursement decision or maybe the first to

Speaker 2

Yes, I would say the transplant products Are about 6 months ahead of Determa IO in the reimbursement process. So our expectation would be that they would be the 1st choose to drop. IO is a sort of a unique product from the point of view of Moltex. So they're going to take a little bit more time with that as they review it. So yes, I think it's kind of one of those things that any quarter now, we're hoping that we get aligned with MolDX and we're able to announce reimbursement.

Speaker 4

Okay, great. And then I guess maybe on IO and Vitagraph. I know for IO, you have an EAP ongoing at around 7 sites or so, if you could But could you maybe talk about both those programs? How large is the Vitagraph EAP, what's been the feedback from those and the reorder rates? But yes, maybe just some color on both of those.

Speaker 2

Yes, I think the early access program is a wonderful learning tool for us. And I think we it allows us Without the pressure of having to stick specifically to a claim, we can ask open ended questions with our collaborative researchers at multiple Academic institutions and sort of large oncology networks. And they're really exploring the utility of Determa IO and its sort of reliable nature And identifying patients that are going to respond to immunotherapy and we find that we'll be able to move towards IRBs and ask new questions with the product. So I think There's been robust interest around Determa IO in that program. And the site enrollment continues to grow there.

Speaker 2

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 to the technology has opened up A lot of interest in the community to ask new questions alongside the ones that they need to answer for day to day patient management.

Speaker 4

Okay. Okay, great. Thank you very much. Maybe just one more Determa. Io, so I assume it's 6 months or so away from any potential reimbursement decision.

Speaker 4

Maybe as we get closer to that and maybe what you've been talking about in the EAP program, While the test seems to outperform traditional methods, PD-one or TMB, we've obviously seen that the It's improved with combining those assays. So, we expect to or you're currently kind of marketing the test in that way in the sense that look that use this test to combine with other diagnostic methods. Thanks.

Speaker 2

No, it's a really insightful question. I think The biomarkers that exist today have done an amazing job of attracting CDx claims and approving 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 clinical decision point in clinical environment.

Speaker 4

Okay, great. Thank you very much.

Operator

The next question will come from Mason Carrico with Stephens. Please go ahead.

Speaker 6

Hey, guys. Maybe just could you provide some color around those early conversations or the interest from potential customers for The Determa IO product, overall demand, any incremental color you can give there?

Speaker 2

Yes, I would say our best data is in the greater than 50% PD L1 expressors in non small cell lung cancer. This is a population where you're trying to make a decision on do I add chemo, do I not add chemo. And I think we provide unique information in that setting alongside multiple other clinical indications that we published 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, it's 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 6

Got it. That's helpful. And then thinking about your cash runway, could and you've provided some color on this, 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 2

Yes, I think we've brought the cash runway down primarily with the expectation that revenue wasn't going to Start until the first half of next year. And so I think we see as we are seeing ourselves in kind of a development stage at this point. And so the cash flows or cash burn should be relatively predictable. But 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, throw lumpiness into that. Anish?

Speaker 3

No. And I think organically, obviously, we are coming off of 2 rifts In 2022, which we're sort of and operationally organically seeing Savings as a result of these direct result of these efforts. And so I'd confirm what Josh is saying in terms of We're starting to see or get an operating rhythm where the expenses are very predictable at this point.

Speaker 7

Got it. That's helpful. That's it for me guys. Thanks.

Speaker 5

Thank you. Thank you.

Operator

The next question will come from Mark Massaro with BTIG, please go ahead.

Speaker 8

Hey, guys. This is Vivien 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?

Speaker 8

I think liver is a relatively underpenetrated indication, but Just wanted to get your updated views there of what you're seeing. Thanks.

Speaker 2

Yes, I think the recent CMS clarification on what's billable, what's Not billable, probably clipped the top line in the industry, but I also think it speaks for the reason on why you want to create An RUO 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 kitting partnership, just how are this conversation progressing? And any timing you can share on when we might expect to hear an update there? Thanks.

Speaker 2

Yes. I mean, I'd say those conversations are ongoing. We were 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 will have a lot of clarity on what that commercial strategy will look like.

Speaker 8

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 heated products? Thanks.

Speaker 2

No, good question. I think we're committed to maintaining a capital light infrastructure here at Onco's site and our primary mode of commercialization will be through partnership or distribution.

Speaker 8

Okay, awesome. That's it for me. Thanks for taking the questions.

Speaker 5

Thanks, Vian.

Operator

The next question

Speaker 7

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 back you've gotten from them as well as if you've had any discussions for presales?

Speaker 2

Yes. 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 is 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.

Speaker 2

And I would say, Generally, the demand is strong for reliable tests that they can use to help manage the patients.

Speaker 7

Okay. And what is the manufacturing ramp up in Q3 look like as far as like a volume cadence going forward into 2, 4, if you have any insight on to 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?

Speaker 2

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.

Speaker 7

Perfect. Thank you, guys.

Speaker 5

Thank you.

Operator

Our next question will come from Bruce Jackson with The Benchmark Company. Please go ahead.

Speaker 5

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 with Vitagraph be roughly Q3 potentially?

Speaker 2

Yes, I mean, I don't want to put words in Moldex's mouth, but we would that's in striking distance For us, we've been working with them for going on a year now. And so we're hopeful that we're at the end of the road with them, but we We could have more work to do.

Speaker 5

Okay. And then Determa IO would be roughly 6 months after that, again, potentially because we don't know exactly what Model DX is Can I do?

Speaker 2

Exactly. You've got that right.

Speaker 5

Okay, perfect. And then any update on Determa C and I In terms of the development?

Speaker 2

Only the publication that was at AACR in pancreatic cancer, where It's a unique use case for Determa C and I where there's really 2 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 in a very problematic cancer.

Speaker 2

And then we're going to do additional clinical development that we'll be able to update on later in the year.

Speaker 5

Okay, great. Thank you very much. Thank you, Bruce. Thank you.

Operator

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.

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OncoCyte Q1 2023
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