OncoCyte Corporation (NASDAQ:OCX) Q3 2023 Earnings Call Transcript November 9, 2023
OncoCyte Corporation beats earnings expectations. Reported EPS is $-0.81, expectations were $-1.52.
Operator: Thank you for standing by. My name is Tamika and I will be your conference operator today. At this time, I would like to welcome everyone to the OncoCyte Third Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. I would now hand today’s call over to Stephanie Prince of PCG Advisory. Please go ahead.
Stephanie Prince: Thank you, Tamika, and thank you to everyone joining us for today’s conference call to discuss OncoCyte’s third quarter 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 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-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.
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 under applicable law. With that, I will turn the call over to Josh. Josh?
Josh Riggs: Thanks, Stephanie, and welcome, everyone. In the quarter, we achieved a positive coverage decision from CMS for our proprietary transplant assay, saw significant new data release, and made progress on key manufacturing milestones. We continued to manage our spend down and reach our lowest cash net burn net of financing in four years. We believe our path to revenue is clear with multiple products launching in the first half of 2024 and our plans to layer high margin products on top of a capital light infrastructure will set OncoCyte up for rapid value creation. Innovation usually happens in a centralized way like what we do with our labs in Nashville and Germany. These central labs let us explore our technology, find do clinical indications, and create new markets in a very controlled way.
But what is great for innovation doesn’t necessarily serve broad market adoption or meet the needs of clinicians managing patients locally. As clinical markets begin to mature, there is a natural pull to bring testing closer to the patient and the decisions that are being made in the clinic. We can see this starting in transplant. The demand for local testing options is growing by the date. We expect that billions of annual margin opportunity are going to shift over the next few years to meet this growing demand. Companies that do a good job of making testing accessible and easy to use are going to be the natural financial beneficiaries of this change. We believe that our universal PCR-based workflow is quicker and easier to use than anything built on the back of a next-generation sequencing system.
This shifting demand is why we pivoted our commercial approach from one that is a central lab driven one to one that is built on scalable kitted products. By 2026, if we’ve hit all our development milestones, we believe that rapid local testing for transplant recipients will be the norm, and patient compliance and access to this organ saving technology will be at an all-time high. For early adopters, we are planning to launch a research use only or RUO version of our technology that we expect will be available in the first half of 2024. This is expected to be followed by a regulated version in second half of 2025, and both of these products are based on our proprietary technology backed by 10 years of research and development. Going from a lab developed test to a regulated product is not easy.
And the fact that we were able to convert our lab developed test or LDT workflow into a globally distributable product speaks to the robustness of the assay and the underlying technology. While we are building out the manufactured product, we plan to continue to create clinical value through our innovation centers in Nashville and Germany. Recent data from a randomized interventional kidney study shows that our technology can pick up ABMR, a common and dangerous type of organ rejection, in DSA positive patients, 10 months ahead of standard care. DSA is a biomarker that is used in monitoring for organ health in transplant patients. Those that become DSA positive are at higher risk for rejection. This study put DSA positive patients into two arms, one, used our tests and another that didn’t.
A doctor presenting a new diagnostic test to a patient in an exam room.
And what we found is that those that used our tests were able to capture rejection much sooner than those that didn’t. And this is big. I mean, there’s no other company that has reported anything like this level of validation. Approximately 20% of kidney patients will test positive for DSA within the first five years of kidney transplant. Many of them will go on to have rejection and potentially lose their organ. The data shows using our technology gives an opportunity for earlier intervention. When this data publishes, we anticipate submitting for an expanded claim for routine monitoring of these at-risk patients. If approved, this opens up a significant recurring revenue opportunity. Based on the data and the study design, we will recommend six tests within the first year of a patient testing positive for DSA.
As I mentioned earlier, we believe easy to use regulated product is the future of the market is pushing us towards. Our first step is to submit both of our kidney claims to the FDA under its single site program, bringing us in line with recent guidance. Single site is a process available to labs like ours to gain clearance for their products and usually has the advantage of bringing all your clinical data with it instead of needing to rerun a bunch of studies. Our kitted product will follow a parallel path known as 510(k) that will be able to tap into the great clinical work we are doing in the lab. The ability to combine clinical innovation from our lab with our easy to use product is what will set OncoCyte up to be the market leader in global transplant patient management.
As of today, our progress continues to support and draw interest from strategic partners that would like to see this testing in their channel. We are pleased with the progress we are making in these discussions and expect to be able to update the market as more information becomes available in the near-term. Our oncology products DetermaIO and DetermaCNI continue to progress through their development stages. We anticipate that both will largely follow the same path that our transplant test is charting to market. You can expect strong clinical validation followed by rapid kit development and deployment. From the IO product specifically progress continues on the 800 plus patient SWOG study in triple-negative breast cancer and assuming a positive outcome there, we expect that there will be significant strategic interest in the assay.
For CNI, we’re still waiting on the publication of the pancreatic data presented at AACR earlier in the year. Once it publishes, we’ll be submitting to MolDX under LCD 38835. This is the same LCD that multiple companies have received coverage under in the past several months. Reimbursement for these types of assays is reached into the thousands per episode of care. The timing of submission is expected to be in the first half of 2024. We’ll move over to the financials. Q3 saw much of the benefit of the cost reductions we did in the first half of the year. Cash burn was $3.6 million in the quarter, leaving $14.2 million of cash, cash equivalents and marketable securities on the balance sheet. This is a 72% improvement in cash burn year-over-year.
Our consolidated revenues for the third quarter were approximately $400,000 and cost of revenues for the third quarter were approximately $200,000, primarily from services customers. Research and development expense for the third quarter increased 48% year-over-year from $1.5 million to $2.2 million, driven by our strategic pivot to focus on investment in developing manufactural versions of our assays. General and administrative expense for the third quarter decreased 56% year-over-year from $5.7 million to $2.5 million, reflecting our successful efforts to reduce spending. Sales and marketing expense for the third quarter increased 76% year-over-year from $400,000 to $700,000 and we focused our sales and marketing investments on our early access program and early market access work.
GAAP net loss from continuing operations of $6.5 million, or $0.79 per share as compared to a net loss of $1.8 million, or $0.31 per share for the third quarter of 2022. We have provided a reconciliation between these GAAP and non-GAAP operating losses in the financial tables included with our earnings release. Non-GAAP operating losses adjusted for the third quarter was $4.1 million, an increase of $1.9 million compared to the same period in 2022. A quantitative reconciliation to GAAP net loss from continuing operations can be found in our earnings release, which is available at our website. We have reflected the operations of Razor as disc ops for all periods presented in our financial statements and we are maintaining guidance of sub $5 million in quarterly average burn for the foreseeable future.
Thank you.
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