OncoCyte Q2 2023 Earnings Call Transcript

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August 10, 2023

There are 4 speakers on the call.

Operator

And welcome to the OncoCyte Q2 2023 Earnings Call. All participants will be in listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Stephanie Prince from PCG Advisory. Please go ahead.

Speaker 1

Thank you, Anthony, and thank you to everyone for joining us for today's conference call To discuss OncoCyte's Q2 2023 Financial Results and Recent Operating Highlights. If you have not seen today's financial results press release, please visit the company's website on the Investors page. Before turning the call over to Josh Riggs, OncoCyte's President and Chief Executive Officer, I would like to remind you that during this conference call, the company will make 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 With that, I'll turn the call over to Josh. Josh?

Speaker 2

Thanks, Stephanie, and welcome everyone to our conference call to discuss our Q2 2023 highlights. In the first half of twenty twenty three, OncoCyte shifted to a capital light product focused commercial model, significantly reducing our cash burn and channeling our efforts for success in 2024 and beyond. We're accelerating on 10 key Dell development milestones that we'll highlight today and preparing for product launch, while maintaining tight controls on our expenses. I'll start by taking us through progress on our nearest to market products, the VitaGraft Kidney and Liver Lab Developed Test We're encouraged by the conversations we are having and the robustness of that review process, And we hope to be able to provide an update soon on status for those assays. On clinical development, we recently published a paper in Kidney International Reports that highlights Again, the strength of our technology in identifying antibody mediated rejection, a key problem in post kidney transplant patient management.

Speaker 2

This is the 2nd publication that showed the reliability of absolute quantification over time, a key advantage of the digital droplet PCR that our In Q1, we guided to a Q4 2023 early access launch of our blood based transplant monitoring assay. And I'm happy to report that the manufacturing transfer process started in Q2 and is on track to meet our goal. We will continue to update you on our progress launch and anticipated start of generating revenue from this important product beginning in the first half of twenty twenty four. In line with keeping our cost infrastructures low, We committed to partnering on our commercial channel. Those conversations with strategic platform and distribution partners continue to progress.

Speaker 2

Vitagraph Kidney and Liver have an estimated $2,000,000,000 U. S. Clinical market opportunity and potential downstream value inflection points to watch out for include Obtaining coverage for Vitagraph Kidney and Vitagraph Liver, a national or global commercial partnership for the RUO product and a manufacturing transfer completion of that same RUO product. Shifting to our oncology products, Determa I O LDT continues to build its case as best in class measure of the tumor immune microenvironment. We are making progress on the NIH funded SWOG study are being run by the Southwest Oncology Group in triple negative breast cancer.

Speaker 2

This study is expected to be completed in late 2023 or early 2024. The data is expected to support our existing application for coverage at Moldex. The review process for our foundation coverage decision is This is a reminder Determa IO has an estimated $2,000,000,000 clinical U. S. Market opportunity.

Speaker 2

And the potential value inflection points to watch out for are coverage decision for IO in non small cell lung cancer and or triple negative breast cancer and the SWOG study data publication. Determa C and I, our blood based solution for therapeutic efficacy monitoring, which we believe makes an attractive alternative for researchers that don't have access to or need to get Surprussis tissue since no upfront tumor typing is required. In Q1, together with UPenn, we presented data at the AACR or the American Association For Cancer Research Annual Meeting in pancreatic cancer That showed C and I's ability to distinguish between responders and non responders. Doctors have two options for treating late stage pancreatic cancer, Knowing if a patient is benefiting from the chosen therapy can give them an opportunity to adjust if needed. The submission for publication of this data is expected in the second half of this year.

Speaker 2

Once accepted for print, we plan to submit for coverage under Local coverage decision L38835. This is the same LCD that multiple companies have received coverage under in the past several months. Reimbursement for these types of assays has reached into the 1,000 per episode of care and timing on submission is expected to be in the first half of twenty twenty four. The term of CNI has a greater than $4,000,000,000 estimated U. S.

Speaker 2

Clinical market opportunity. And the inflection points for that assay include the completed CLIA validation in our NASHVILLE lab, the publication of pancreatic data and submission to MolDX for coverage. Now I'm going to shift over to the financials. Our consolidated revenues for the Q2 of 'twenty three were approximately 500,000 cost of revenues for the Q2 were approximately $200,000 primarily from services for our lab service customers. Consolidated research and development expense for the 2nd quarter decreased 56% year over year from $5,600,000 to $2,400,000 driven by our strategic pivot to Focus our investment on developing manufacturable versions of our assays that we believe are scalable at high contribution margins.

Speaker 2

Consolidated G and A expense for the Q2 decreased 35% year over year from $5,500,000 to $3,500,000 reflecting our successful efforts to reduce spending not directly related to product development or commercial activities. Consolidated S and M expense for the 2nd quarter 77% year over year from $3,500,000 to $800,000 We focused our sales and marketing investments on our early access programs and early market access work for our LDTs and scalable RUO products. Non GAAP operating loss as adjusted for the Q2 was $4,700,000 a decrease of $6,500,000 compared to the same period in 2022. GAAP operating loss as reported for the quarter was $8,300,000 a change $300,000 compared to the loss of $8,600,000 in Q2 of 2022. For the Q2, we reported a GAAP net loss from continuing operations of $8,300,000 or 1 point 0 $7 per share as compared to a net loss of $8,300,000 or $1.48 a share for the Q2 of 'twenty two.

Speaker 2

We have provided a reconciliation between these GAAP and non GAAP Operating losses in the financial tables included with our earnings release. As of June 30, 2023, we had cash, cash equivalents and marketable securities of 17.9 million net cash used in operating activities was $6,800,000 for Q2 2023. We anticipate continuing Improvement in quarterly operating cash burn levels into the back half of twenty twenty three and are maintaining our guidance to reach a below $5,000,000 in quarterly average burn. And just a final comment, the next steps for OncoCyte are gating reimbursement for our product portfolio, bringing our tests to market to generate revenue growth, and we believe we have optimized our product development strategies to support these steps, which we believe have a strong probability of leading to revenue generating external partnerships and licensing. Our strategy should generate much higher contribution margins that is Typically seen at publicly traded diagnostic companies.

Speaker 2

And we believe this superior commercial strategy combined with our reduced As a final note, next week, we will be presenting at the 23rd Annual Needham Virtual Conference. Thank you.

Operator

First question will come from Mike Matson with Needham and Co. You may now go ahead.

Speaker 3

Yes, thanks. So I guess just to clarify the quarter itself, you said that the revenue was really all from the kind of pharma Services part of the business, correct? You didn't really have any testing revenue in the quarter? That's correct. Okay.

Speaker 3

And then just with the right provider graph, When do you think you would what's the earliest you think you could start to generate some revenue from that from either liver or kidney?

Speaker 2

Yes, I think it all depends on sort of the timing of the coverage decision. There's usually a couple of months lag between coverage decision and sort of the final reimbursement decision. It'd have to be early it'd have to be really, really quick for us to see revenue this year. So I would say It's either extremely late this year or early next year depending on the timing of that coverage decision.

Speaker 3

Okay, got it. And then just the it's good to see the big declines in the OpEx. I mean, are you kind of Well, you're guiding to the $5,000,000 cash per quarterly cash burn or less in the second half. But the kind of are you Kind of at the run rate that you're expecting to maintain for the rest of the year for the R and D, sales and marketing and G and A? Or is that going to Ticked down a little more in the second half.

Speaker 2

Yes. I mean, I think you'll see it scale down a bit. I mean, in that 6 Plus million that we used in the quarter, I mean, there were some one time expenses. So yes, I would say the run rates are starting to look like what we expect

Operator

Our next question will come from Nathan Marico with Stephens. You may now go ahead.

Speaker 3

Hey, thanks. So for your transplant product, once it's launched, what does the initial validation work timeline look like for an academic center that Interested in product. How long does that last and how should we think about that from a volume rent perspective?

Speaker 2

Yes. No, really, really good question. I can speak to our personal experience. And so it took us about 3 months To transfer the assay from our German lab to our Nashville lab once we had sort of made the decision to bring the assay over. We have a lot of experience with the assays, so we probably are on the faster end of that spectrum.

Speaker 2

But I can't speak specifically to Sort of average timelines without sort of having already done it, but that gives you some kind of guidance.

Operator

It appears there are no further questions. This concludes our question and answer session as well as the conference.

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Earnings Conference Call
OncoCyte Q2 2023
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