Oncocyte Corporation

Greetings, and welcome to the Oncocyte Corporation Fourth Quarter and Full Year 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Bob Yedin. Thank you, sir. You may begin.

Great. Thank you, Victor. And thank you, everyone, for joining us for today's conference call to discuss AquaSight's fourth quarter and full year 2020 financial results and recent operating highlights. If you've not seen today's financial results press release, please visit the company's website page on the investor section. Before turning the call over to Ronnie Andrews, Michael Seitz, President and Chief Executive Officer. I'd 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 FCC filings. Without limitation, the company's forms 10-K and 10-Qs, which identify specific risk factors that may cause actual results or events to differ materially from those described in these four looking statements. These factors may include, without limitation, risk inherent in development and or commercialization of potential diagnostic tests, uncertainty in the results of clinical trials or regulatory approvals, the capacity of on-site third-party blood sample analytics system to provide consistent and precise analytical results on a commercial scale, the need to obtain third-party reimbursement for patients' use of any diagnostic test the company commercializes, the need and ability to obtain future capital, the maintenance of IP rights, and uncertainties associated with the COVID-19 pandemic and its possible effects on our operation. Therefore, actual results and results may differ materially, from what is expressed or implied by these forward-looking statements. ONGUS site expressly disclaims any intent or obligations to update these forward-looking statements, except as otherwise may be required under applicable law. With that, I'd like to now turn the call over to CEO, Ronnie Andrews. Ronnie?

Hey, thanks, Bob, and welcome, everyone, to our conference call to discuss our fourth quarter and full year 2020 financial results and, of course, our operating highlights. Joining me today are Mitch Levine, our Chief Financial Officer, Dr. Doug Ross, our Chief Science Officer, and Padma Sundar, our Chief Commercial Officer. As always, we'll be available at the end for your questions. Over the past year, we've made great strides in advancing our mission to create a one-stop lab of comprehensive molecular diagnostic offerings that answer critical unanswered questions for physicians and patients for the management of solid tumors. We transformed from the on-site of 18 months ago, a single asset development stage company to commercial stage revenue generating business, advancing tests that optimize cancer treatment decisions to improve patient outcomes and reduce the overall cost of care. We've accomplished a great deal in the last year. strategically identifying and acquiring a portfolio of compelling tests, integrating these assets, completing clinical development, and ultimately launching two proprietary tests for critical decisions that previously lacked precision diagnostics. Through these efforts, we've emerged as leaders in early-stage lung cancer management, Efficiently growing revenues with a concentrated sales effort in key markets bolstered by virtual programs that reach healthcare providers across the U.S. despite the global pandemic. And there's more to come in 2021 with important content for treatment response and for recurrence monitoring. So together, this means we're well on our way to becoming a one-stop shop, or in our world, a one-stop lab for oncologists and surgeons treating lung cancer patients. While I'll spend most of the time talking about our progress across each of our tests, I'd like to dive a little deeper into our plan to become a single source of proprietary biomarker testing to inform patient treatment and monitor response to therapy, as well as provide related standard of care oncology testing to drive incremental revenue at very attractive margins. For those of you newer to our story, our four current products and services that make up our growth engines are, first, Determa Rx, the first and only commercially available predictive test for informing chemotherapy decisions in early-stage lung cancer and is now reimbursed by Medicare and experiencing solid quarter-over-quarter volume and revenue growth. Our second test is Determa IO, our proprietary test for predicting response and identifying incremental responders to first-generation immune checkpoint inhibitor drugs, also known as ICIs. DETERMA-IO is currently available for use in clinical research and pharma trials, and we're on track for our clinical launch in Q4 of 2021. Third, we now have TheraSure CNI monitor test for immune therapy response monitoring, which we plan to soon rebrand as DETERMA-CNI. This recent product addition represents our first move into the massive opportunity that is emerging to monitor cancer patients for treatment efficacy in real time. Finally, our pharma services offering from our CAP accredited CLIA lab in Nashville provide a comprehensive menu of test development and validation services for pharma and for diagnostic companies. Before we share the highlights from each growth engine, let me take a moment to explain why being a one-stop shop is so important. Since DETERMA-RX, DETERMA-IO, and eventually DETERMA-C&I are all proprietary tests that will only be offered by Oncocyte, we're in a very strong position to become the preferred lab for clinicians who need answers to the important treatment decisions that only Oncocyte can answer. Once a hospital is onboarded, an Oncocyte customer As an Oncocyte customer, we can then create a same-store cell opportunity and offer more traditional tests like the targeted therapy panel will ultimately brand as DETERMA-TX. For some context, physicians treating patients diagnosed with cancer need rapid biomarker testing to inform treatment selection such as targeted therapy, immune therapy, and chemotherapy. By combining a differentiated test like DETERMA-IO to inform the use of immune therapy, With standard of care genomic testing for things like EGFR ALK ROS1, we will be able to offer oncologists best-in-class testing and deliver comprehensive information to make a treatment decision. This one-stop-shop strategy offers practical advantages. One, currently the testing needs of physicians managing cancer are usually only able to be met by several specialty labs. What this means is the provider must split the sample and send it to several different labs. Not only does this consume a large amount of sparse patient biopsy sample, but it can take up to three weeks to deliver critical results that doctors need to drive important treatment decisions. By consolidating all the required tests, we facilitate more judicious use of precious patient biopsy samples and also expedite delivery of results to the ordering physician within only 10 days, a timeframe that our customer base continues to highlight as a bargain for optimizing therapy decisions. So now diving into our highlights for DETERMA-RX, the first and only predictive test for the identification of patients with stage 1 to 2A non-slamless cancer who are at high risk for recurrence following surgery. It's been a big year for Rx. We launched the test in February as an early access program with six reps and have made continued progress since. We announced the final Medicare coverage determination, which secured national Medicare payment for DetermineRx effective August 2020. This is significant as Medicare patients account for approximately 70% of eligible patients nationwide. On top of that, we received Centers for Medicare and Medicaid Services, or CMS, high-value pricing. In addition to Medicare coverage, we recently announced an agreement with Multiplan Network to expand patient access to DetermRx to approximately 60 million more covered lives at a negotiated price in line with our CMS pricing. Many of these patients have insurance with companies like UnitedHealthcare. Multiplan's role, much like lab benefit managers in pharma, is to negotiate a payment for diagnostic and other services with companies like Oncocyte. This represents our first major payer contract outside of Medicare. We've now reached over 3,000 health professionals today, and by year end, we had onboarded 87 hospitals and have broad adoption at very prestigious national comprehensive cancer centers, as well as national cancer institute hospital sites. Most recently, we added Virginia Cancer Specialists, which is part of the U.S. Oncology Network, a network of 900 physicians treating over 1 million patients annually. Virginia Cancer Specialists includes Dr. Alex Spira, a renowned medical oncologist, and Dr. Sandeep Kandar, thoracic surgeon, to our growing list of top physician users. We continue to grow test revenue and volume quarter over quarter despite a well-established seasonal pattern of fewer oncology surgeries in the fourth quarter each year. Moreover, this seasonality this year was exaggerated by the pandemic as certain oncologists chose to defer inpatient lung cancer surgeries that we need to trigger the use of DETERMA-RX. Despite all those headwinds, though, our commercial team still delivered an impressive 36% quarter-to-quarter sample volume and a 58% quarter-to-quarter revenue growth, which reflects the carryover from claims we had in Q3. We also recently completed an expansion of our sales team to a total of 10, which now gives us coverage of over 75% of the surgeons performing early-stage lung cancer surgeries. So when you add that to our improving macro environment and combine it with our continued Q4 momentum, you can understand why we have confidence in our ability to achieve our 2021 annual goals for samples and revenue for DETERMA-RX. Also in December, we were excited to announce our strategic agreement with Burning Rock to distribute DETERMA-RX in China. Our agreement with Burning Rock Biotech, a $3.5 billion market cap NASDAQ listed company, aligns Oncocyte with one of China's fastest growing molecular labs focused on cancer therapy selection and provides entry into the world's largest early stage lung cancer market that is approximately six times the size of the U.S. market doing over 250,000 surgical resections for lung cancer each year. In short, our progress with Rx over a short period of time has been tremendous. Now moving along to continued care, let's transition to DETERMA-IO, a proprietary gene expression profile test that we believe will propel us to a leadership position in the approximately $3 billion immune therapy decision market. Our test is the only precision diagnostic test on the market today that evaluates the entire immune microenvironment in biopsies or surgical specimens from cancer patients in order to identify patients likely to respond to immune checkpoint inhibitors. Our test delivers a comprehensive picture of the immune microenvironment by combining the so-called hot signal derived from inflammatory cells in the tumor and cold signal coming from the wound response along with the use of a proprietary algorithm that scores each patient result. In addition to DETERMA-IO being an excellent predictor of response to checkpoint inhibitors, we also believe that the cold signal may identify key biologic signals targeted by second-generation targeted therapeutics that are now in clinical trials. As a result, Determa IO may be an ideal biomarker to inform therapeutic strategies that combine checkpoint inhibitors with these emerging next-generation therapies. The opportunity with Determa IO is significant, with more than 750,000 patients eligible annually for mean therapy in the U.S. alone. Depending on reimbursement levels, that translates to a $2.5 to $3 billion market opportunity. In addition, worldwide, there are currently nearly 5,000 ongoing clinical trials evaluating these drugs. That represents another large opportunity to help pharma companies identify patients for their trials. And, of course, this market is expected to continue to grow substantially as the reach of immunotherapy expands to new indications in earlier stages of cancer. The term IO clinical utility stems from the following. One, the identification of additional patients who may respond to treatment, yet are missed by existing viral markers like PD-L1. We enable improved treatment options, such as second-generation therapies, for the estimated 60% to 85% of patients who currently are not helped by immunotherapy drugs. And three, we inform the use of immune checkpoint inhibitors in combination with traditional cytotoxic chemotherapy to enhance response rates. We have successfully completed our first announced immune therapy biomarker collaboration for the immune therapy Atizo. as it's commonly called, and we will be presenting these results in an upcoming scientific meeting. This collaboration was with Fondazione Michelangelo, a leading nonprofit cancer research organization headquartered in Milan, Italy. This work is for an investigator-sponsored trial that evaluated DETERMA-IO as a biomarker of neoadjuvant checkpoint inhibitor response in triple negative breast cancer. This is a very meaningful accomplishment given PD-L1 IHC failed to sufficiently identify responders in this setting. Determa-IO is as successful as a predictive biomarker for this drug. It would expand and tease those indications from late-stage treatment to neoadjuvant therapy, which would be a significant milestone for patients with this horrible disease as well as for Determa-IO's commercial development. Over the coming months, we'll present data at major scientific meetings via peer-reviewed publications that we anticipate will demonstrate the potential of Determa-IO across a very broad range of tumor types, starting with well-established clinical data across three different cancers, long breast, and now our recently announced bladder cancer data. We remain confident that the term IO will allow us to address a fundamental challenge in immune therapy, which is identifying the right patients for treatment. But that's only part of the immune therapy story, and that's where TheraSure C&I Monitor Clinical Assay comes in. With our recently announced intent to acquire Chronix Biomedical, which, by the way, is on track to close within the next 30 days, we now have proprietary access to the TheraSure CNI monitor test, a patented blood-based assay that uses copy number instability, or as we call it, CNI, for immune therapy response monitoring. So now Oncocyte is well positioned to enter the rapidly growing blood-based therapy response monitoring market. Our plan is to rebrand the test to the term of CNI and launch as a pharma service in Q2 from our new molecular center of excellence in Germany for the European market. And after tech transfer to our U.S. facilities, we plan to launch the test for pharma's use in domestic immunotherapy clinical trials in Q4 of 2021. CNI differs from other tests in that it is blood only. or tumor naive, meaning it does not require tumor tissue or extensive genomic scale sequencing prior to blood monitoring to accurately interpret tumor resistance and progression during treatment. By focusing on a test that can deliver results independent of tumor tissue genotype, We can deliver progression data before the tissue-informed technologies even have their custom assay ready for the first baseline test. As well, we can perform monitoring of cases where tissue is inadequate for testing. Tissue is extremely sparse in lung cancer, where a majority of the biopsies are fine needle aspirates rendering very little tissue for analysis. Our new test will deliver important progression data with no tissue use by the second therapy treatment cycle or within six weeks, long before imaging or competing tissue-informed technologies can deliver their results. As a reminder, response monitoring will play an important role in patient management going forward, allowing physicians to identify a tumor that is becoming resistant to treatment early in the treatment cycle. That insight can drive a change in treatment to second-generation therapy or in combination with chemotherapy before disease progression, improving the odds of long-term survival and reducing the overall cost of care. From a strategic perspective, the Therassure CNI assay monitor not only helps us expand into the projected $3 billion in growing immune therapy response monitoring market, it also allows us ownership of IP that could help us establish a foundation to build additional applications for the over $6 billion recurrence monitoring market, a repeat testing opportunity to tell a patient that a new tumor may be forming long before it can be identified in imaging. These additions further solidify our position as a one-stop lab for both immune therapy response prediction and now for monitoring. By offering both the Terma IO and therapy monitoring test, Oncocyte will be the first and only company to provide a comprehensive solution that addresses two of the biggest outstanding challenges in the field, knowing which patients to treat with immune therapy as standalone or in combination, as well as informing whether a treatment is effective through cost-effective monitoring. Needless to say, we're very excited about the Chronix acquisition and look forward to integrating their world-class team of experts in blood-based monitoring tests, as well as gaining a lab in Germany to use as a beachhead for our commercial entry into the EU with a full menu of products. And finally, touching upon our boutique pharma services business, we've made great progress on this growing source of revenue for Oncocyte, with contracts now executed for 16 clients across both pharma and diagnostic industry heavy hitters, including some companies like Berengel Ingelheim, Eastside Pharmaceuticals, Promega, QIAGEN, PlexBio, and Ono Pharmaceuticals, as well as others. We successfully engaged with these clients to provide services such as sequencing for pharmaceutical development through to validation and verification for clinical use. We see this as just the beginning of a successful business model that aims to form two partnerships to support pharma drug development with discovery stage projects and clinical trial support, all the way to regulatory and commercialization support of companion diagnostics in partnership with molecular diagnostics companies. As I mentioned before, pharma services revenue can be somewhat lumpy given our ability to recognize revenue is directly tied to completing projects for pharma or diagnostic companies before we can invoice and get paid. This means in quarters like Q4 when we face the difficulties of the pandemic surge when many potential trial patients were told to stay away from treatment centers, Our partners' access to patients to enroll in trials who subsequently would need our test to move forward is slow, which delayed our ability to close out forecasted projects and bill for them. The good news, though, is these trials continue, and as the world gets vaccinated and the pandemic subsides, we do expect our pharma services business to become more predictable. Importantly, though, we enter 2021 with a solid pipeline of contracted projects and some important developments in Q4 that give us confidence in our ability to grow this line of business. In Q4, we were audited by a top 20 pharma company and a top three genetic sequencing company and passed the flying colors and are now engaging in development and developing statements of work with both to become a lab of choice for key development projects, which we expect will strengthen our rich pipeline of work ahead. Another important event is the Q1 initiation of a project that was scheduled to begin in Q4 for a top 20 pharma company utilizing our proprietary blood-based cell cycle test for monitoring assistance in our Pharma Partners Phase III trial. This is the first major trial using this new test application, which was developed in-house by our team in Nashville specifically for this indication. As mentioned in previous calls, our Pharma Services Lab is incredibly efficient, and with our current committed projects, we're set to deliver gross margins that can drive positive cash contributions to our P&L over the course of 2021. Just like DetermineRx, our Pharma Services business provides an immediate and growing revenue engine, which will support our operations as well as our strategic development of future tasks for our sales channel. 2020 was clearly a milestone year for Oncocyte. We believe we've laid an incredibly strong foundation with a diversified portfolio of de-risk growth engines for immediate, near-term, and for long-term growth, while establishing ourselves as leaders in early-stage lung cancer. We remain confident in our momentum and look forward to sharing new, exciting data and milestones throughout 21. Before I turn the call over to Mitch for a view of our financials, I want to thank our entire OncoSight team for their continued dedication and hard work in an unprecedented environment to ensure we stay on track for each of our strategic initiatives. We've made incredible progress thanks to this team who remain committed to our goal of advancing novel tests that we believe will be transformative for patients, physicians, partners, and for payers. Now I'd like to turn the call over to Mitch to review the financials. Mitch?

Hey, thanks, Ronnie. Before I begin the review of our financials, I'm pleased to note that earlier this quarter, we substantially strengthened the company's balance sheet with two offerings. In January, we completed a $25 million registered offering led by long-term holder Pura Vida Investment without the use of an investment bank and without incurring placement fees. In February, Due to strong investor demand, we successfully completed an underwritten public offering with many leading healthcare dedicated and generalist investors, which generated net proceeds of $37.5 million at a higher offering price than the prior offering and included the full exercise of the over allotment options. Prior to these two offerings, we sold shares in January under our ATM program, which netted an additional $6.3 million. In aggregate, these offerings and sale of shares added approximately $69 million in cash, net of expenses, to our balance sheet. In February, we completed the acquisition of Razor Genomics and paid the remaining $10 million cash portion of the purchase price So we now own 100% of Razor. As of December 31st, 2020, we had cash, cash equivalents and marketable securities of $7.8 million as compared to $22.4 million at December 31st, 2019. With the continued rollout of Determa Rx, and the pharma services business from our Nashville lab, our consolidated revenues for the fourth quarter and year ended December 31st, 2020, were approximately $503,000 and $1.2 million, respectively. As a reminder, although we continue to see a quarter-over-quarter increase in testing orders for our Determ Rx test, we currently recognize revenues on an accrual basis only for Medicare-eligible tests. we will continue to recognize revenues for commercial and other payers on a cash basis until we have reimbursement contracts with those payers, at which point we will recognize all Determa RX revenues on an accrual basis. Operating loss as reported for the fourth quarter of 2020 was $6.3 million, a decrease of $1.3 million as compared to the fourth quarter of 2019. Operating loss as adjusted for the fourth quarter of 2020 was $6.2 million, a decrease of $500,000 as compared to the same period in 2019. We have provided a reconciliation between GAAP and non-GAAP operating losses in the financial tables included with our earnings relief, which we believe is helpful in understanding our ongoing operations. Cost of revenues for the three months and year-end of December 31, 2020, were approximately $716,001.9 million, respectfully. As I mentioned on our last quarterly call, we incur cost of revenues for all DETERMA Rx tests ordered, irrespective of revenues recognized. Cost of revenues also includes testing services we perform for our pharma customers. It is important to note that as we ramp up our testing volumes, we expect to see an improvement in our gross margins in future quarters of the Terma Rx test. Research and development expenses for fourth quarter were $1.8 million as compared to $2.3 million for the same period in 2019, a decrease of $500,000. General and administrative expenses for the fourth quarter of 2020 were $3.4 million as compared to $4.2 million for the same period in 2019, a decrease of $800,000. Sales and marketing expenses for the fourth quarter of 2020 were $1.9 million as compared to $1.0 million for the same period in 2019, an increase of $900,000. This increase was primarily attributable to ramp up in sales and marketing activities, including key hires for our commercialization efforts of Determa Rx. For the fourth quarter of 2020, we reported a net loss of $6.3 million or $0.09 per share as compared to $8.0 million or $0.15 per share for the fourth quarter of 2019. Cash used in operations was around $6.2 million for the fourth quarter of 2020. We expect our cash burn to increase modestly in future quarters as we continue to develop our diagnostic tests and drive for increased adoption of our Determa Rx tests and other tests we may commercialize, license, or acquire. Furthermore, the first quarter is generally our largest cash burn quarter due to annual merit and bonus payments. In summary, I am very pleased that our board moved decisively to strengthen the company's balance sheet, which we believe will allow us to fund our organic growth. That includes driving long-term growth of DETERMA-RX, which is enjoying good commercial uptake. DETERMA-IO initially has a test for research use, and the development of CNI Monitor in the large and growing blood-based monitoring market. CNI Monitor is our newest asset, which we soon expect to acquire as we complete the Chronix merger. CNI Monitor is only the latest addition to Oncocyte's menu of cancer tests. Over time, our team will continue to seek to license and acquire complementary cancer diagnostics tests to inform better patient treatment decisions. That concludes my remarks concerning our financial highlights. I'd like to turn the call back to Ronnie.

Operator, we are concluded with our prepared remarks, so if you'd like to open the call for questions, we're ready to take questions from our folks on the call.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may also press star 2 if you'd like to remove your question from the queue. One moment, please, while we now poll for questions. Our first question comes from Mike Madsen with Needham and Company. Please proceed with your question.

Hi. Thanks for taking my questions. I guess I'll start with a few on the Determa Rx. Can you talk about your plans to expand the Salesforce in 2021? I don't know if you're willing to give us any targets on that.

Sure. I mean, Padma's on, she can add her commentary. But right now, high level, we have 10 that we had planned to expand to already hired. As we bring out the Terma IO and the Terma TX and potentially CNI, we will actually at that point in time evaluate our need to add further representation just given the importance of detailing not only thoracic surgeons, but now a larger cadre of medical oncologists. So the plan is to hold tight for until probably third quarter and then evaluate where we are in terms of the need to add more reps for the launch of IO.

Okay. And then you got the multi-plan coverage of DetermaRx. You know, do you have what you need to continue to chip away and get additional commercial payer coverage there.

Yeah, Padma's on point for that. So let's let Padma give you all the color count. So much energy around that, but we want to be artful in how we do it so that we negotiate good prices, which we've been able to do so far. Padma, you want to add some color commentary to that?

Yeah, so obviously we're doing it two ways. One is we are fighting for payment for every claim with a very aggressive appeal strategy. And then in addition to multi-plan, we have several conversations going with other networks where our value proposition and publication-based evidence is strong. So we are going to continue to chip away, and we hope to get additional contracts this year. And of course, once they're in NCCN guidelines, that's when we'll get, we believe we'll get 90% of the payers to pay for the test and we'll be in good shape at that point. But even between now and then, we are, we do have several additional payers that they're engaged in discussions with in addition to Multi-Plan, and those announcements should be coming out during the course of the year.

Okay, thanks. Very helpful. And then just finally on, can you talk about the turnaround time you're expecting with DETERMA CNI and DETERMA MX?

Yeah, in terms of the actual patient turnaround time, are you talking about the getting the product to market?

Oh, sorry. I think that the patient turnaround time. So like, once you get me to the test, like how long does it take to get the results?

Yeah, so it's interesting that today our goal will be to deliver, determine IO, tell the physician that the patient's eligible for an immune therapy. The patient will go on immune therapy and will immediately at that point in time draw blood for our initial baseline. It will take us about seven days or less to turn around that test. And then every other week or every third week, we haven't established that timeline yet, but that will be part of our work we'll do this quarter and into second quarter as we prepare for the fourth quarter pharma launch. And what we'll do is see how often we have to run it. But our turnaround time for CNI will be less than ten days, we think somewhere around seven days. MX is a whole different approach. And the reason we split these two is that today, while we're big fans of MRD and we've been in this space a long time and we've used MRD for various applications, Dr. Ross can comment, but these two questions, is the therapy working? And now you've basically seen disease-free survival. And for the next months and years to come, we're going to monitor to see if the patient has a potential for recurring tumor. Those are two different questions. And using one test to answer those is not adequate, especially when you think about MX. We believe MX and monitoring is best suited for democratization, and I always say that because I spent the majority part of my early career in infectious disease, and when we moved HIV viral load testing closer to the patient, compliance to monitoring doubled for the patients with that disease, and so we expect that creating a kitted product that can go into an install base of a digital PCR or a PCR platform will allow us to create an ability to democratize this test and bring it closer to the patient. Dr. Ross is raising his hand. Dr. Ross, you have some color commentary for that. It's important to discuss it, I think.

Yeah, I think, Ronnie, you're hitting the major points. But, you know, really what we want to make clear is that we're distinguishing technically, you know, the requirements of this monitoring test, the thing that tells you whether or not when you put a patient on a drug, whether or not it's working or not. The distinguishing features of the term a CNI is that it does not require information from the genome sequencing of the tumor, and therefore we can turn it around like any laboratory test in a few days and repeat it two weeks later and two weeks later again. So it's a very different approach than the complexity of sequencing a tumor first and preparing a customized assay for that. and then having to come back with that information when that test is ready. For the MX test, because it's a very different both clinical and technical requirement, we're focusing on something that's less complex, again, something that is democratizable, as Ronnie said, that focuses on the ability to detect the tumor very sensitively to know very early if it's coming back. And that's a program that's in development.

Okay, great. Thanks.

Thank you. Our next question comes from Mark Massar of VTIG. Please proceed with your question.

Hey, guys. Thanks for taking the questions, and congrats on a good quarter. Thanks, Mark. Yeah, I guess my first one is on RX. You know, relative to where you were on the Q3 call, do you have any greater visibility as to the probability of maybe getting into NCCN guidelines this year as opposed to sometime in 2022.

Mark, I can never do this topic justice because the two folks that are on the front line for it are Padma and Dr. Ross, and they've made tremendous progress. So Padma, you want to start?

Yeah, so our goal is to submit the application certainly this year. One of the things is although the NSLC or lung cancer guidelines are updated quite frequently, the updates that they do with respect to biomarkers typically happen only once a year. So even though we are ready to submit the application this year for the summer meeting in July, the public information on the decision will perhaps not be known until the end of the year in November. So that's the strategy. We submit the application this year. We should find out publicly by the end of this year, and so it should, it's favorable, it should start impacting our, we'll make it public later this year, and it should start impacting our volumes the following year in 2022. So that's the strategy. And I will say that Because the Rx test is so widely available, a lot of the committee members have become aware of the test and the data associated with it, and they've gotten some positive feedback that they like. They understand the unmet medical need. They know there's nothing else out there that serves their medical needs, so they have been quite positive in their reaction to the data that they've seen so far. Doug, you want to add something?

No, I mean, I think you hit most of the points. I mean, candidly, I'm cautious and don't want to speak for the committee for reasons that it's an independent committee and so we don't want to project and they formally can't give us feedback until they give us feedback. But the conversations that we are continuing and we are aggressive about making sure that everybody knows about it and understands it and those conversations have been very receptive and positive. So it's not really new news, but it's It's an ongoing process that we're enthusiastic and optimistic about.

Hey, Mark, let me refresh for everyone's edification the important fact that we reclassified 48% of the NCCN negatives in our prospective trial. And what that meant is that their standard of care today called 48% of those patients low risk, which we flipped to high risk, meaning that about 50% of those patients are only going to have a five-year survival rate of 49%. The rest, you know, without treatment are not going to make it. And so the reality is that, you know, we offer, you know, I think a substantial opportunity to improve the current standard of care, and that has been what we've received very positive feedback on.

Great. And then on Determa IO, I know you've referenced the study in in Italy, and it appears that you have some data at AACR. But can you just kind of – and then, of course, ASCO is coming up. Can you just maybe help us think about the most influential data readouts that we might see over the course of the next couple of quarters, and how do you expect that to influence your business?

Yeah, Doug's on point. Doug, you want to just walk everyone through the different papers. We have so many. You're better at this, so.

Yeah, so we recently released the press release on the bladder cancer data that we're going to be showing at AACR. There's actually two things being shown there. One is sort of our coming out, if you will, of our approach to looking in a pan-cancer way. So we believe that this – We believe that this test is applicable across all different solid tumor types. We've established that through looking at different tumor types and the classification function. We did get a symposium podium presentation for the bladder cancer data, and this is the retrospective analysis. of an ATISO clinical study in bladder cancer, and we're excited that that data is going to become public. And there's obviously a lot more than what's in our press release or the abstract, so we're excited for that. As we progress to ASCO, you know, we haven't obviously guided much on what's going to come down the line, but, you know, I would say that this year is about exposing data in more and different tumor types. and so that's what I would expect across the year. We have talked publicly about the Italian data, the NeoTrip data. Once again, this is a Roche Genentech clinical study that's ongoing, and we've, you know, completed analysis of the clinical part of that study and are excited to be presenting that likely at ESMO later in the year, but that's to be determined. And, of course, all of this data is being put into peer-reviewed publications, including the data that we've shown at previous meetings, and we'd like to have all of that published by the end of the year. But of course, for instance, the Italian study is in the hands of our academic collaborators who are great partners in this, but we're also subject to the whims of the journal. So that's the plan.

Mark, let me just add this. We have, as you know already, but for everyone's edification, we have to be guarded in how much data we give out. These data sets are not ours. They're our investigators. They're embargoed at times because they're waiting to be published. And the last thing we want to do is... is get ahead of them because then we run the risk of not having it published because it's already news in the public. But I do think we've got a rich opportunity this year to deliver some pretty exciting data, and we look forward to each one of these meetings so that we can get more and more data out there proving the utility across pan cancer.

Okay, and then last question first. As well as peer-reviewed publications that will be available this year, which is kind of the isometric, yeah.

Exactly, yeah.

Thanks. And just my last question is really on the Determa MX strategy, which I guess, Ronnie, could you clarify? I think that's your recurrence detection or MRD strategy. You know, today on the call you talked about the importance of democratization and kitting. Can you give us a sense for when you think we might have an update on this strategy and how should we think about that opportunity?

Yeah, and as I said, Mark, just to reiterate and be clear, we have Determa CNI, which is a product that's already developed and just needs to go through its paces of clinical validation, much like where we were a year ago with Determa IO. So this year is all about running that same playbook and getting Determa CNI into trials and start getting it closer to reimbursement and market. Determ AMX is a development project. We have, without, I have to be careful, we have opportunities with certain partners that we have worked with through our years that have IP around ways to make PCR more sensitive and to allow us to use surrogate markers in blood that would identify a recurring tumor. And so while it's a little different than MRD, just looking for minimal residual disease, this opportunity, we believe, will look for sets of markers that will identify activity that will probably more than likely require a reflex test to a much larger blood-based tumor genetic panel to actually identify what's going on and what treatment to use. And this is right out of the playbook from monitoring across every other disease. Most recently, obviously, across infectious disease, much like HIV, where we monitor HIV viral load. If viral load changes, we reflex to a genotype. and the genotype is what we press against the database, the treatment protocols, to know what patients are going to respond or what this patient will now respond to based on the failure of the current regimen. And so our approach is very similar to that approach, and we suspect that by this time next year we'll have data. We'll be able to talk a lot more about the data, and hopefully we'll be in the same position next year with papers being published or preparing published papers and abstracts so that we can speak more clearly to it. You know, at this point in time, given the partnerships we're working with and the companies that we're working with to develop this, we have to be a little bit guarded, because obviously some of this will require patenting, and we don't want to obviously tip our hand until those patents are filed.

Thanks, guys. I'll hop back in the queue. Thanks, Mark.

Thank you. Next question comes from Steven Ma with Piper Sandler. Please proceed with your question.

Okay, great. Thanks, and thanks for taking the questions. Hi, Steve. Hey, yeah, just have a few on Determa Rx. Yeah. So can you give us a sense on the reorder rate of current Determa Rx physicians, you know, and maybe give us some additional color, if you can, on utilization in the 87 hospitals that you're onboarded in?

Yeah, sure. You know, at the end of the year, we took a look back, and we were able to look at how many of our, you know, what percentage of our physician base ordered multiple times, and that remains over 60%, so we're very excited about that. I mean, that's corollary. Again, we keep referring to them, but it's the only sort of comparable we have. Oncotype DX from Genomic Health had about a 30% to 35% reward rate in its first two years. We are excited about that, and we can thank them. They paved the way a lot for this understanding of these gene expression signatures do help provide, you know, data on what patients need certain treatments to forego recurrence. And so, we do believe that we've been able to benefit from the knowledge of the industry that these things work. So, we have about a 60, a little over 60%, you know, rate of reorder for the whole year. Padma, you want to talk a little bit about sort of the different systems that we're seeing and the adoption. We've got a great anecdotal stories there. A little bit about the folks that have put it in standard of care where every time a patient pops up, it comes up and some things like that. I think that'll give Steve a chance to see how the momentum is building. Steve, let me just say this. It's hard for any of us to sit here today in March and look at the last 12 months and not reflect on the challenges that the pandemic caused in lung cancer. I scratch my head every day. How can a patient with lung cancer that, you know, data shows every month that they don't get surgical resection, they got a 10% greater chance of recurrence. to forego it, but a lot of it was because hospitals didn't have capacity. A lot of it was because patients were afraid to go get treatment. We do hope, and we saw this in fourth quarter as well, that's why I like to think that our work to get 36% quarter-to-quarter volume growth in Q4 was heroic in a lot of ways given how hard the surge was. We really haven't seen physicians face-to-face now. probably in almost close to a year, except in certain parts of the country. So that being said, we've still got some great anecdotal stories about adoption. Padma, real quick, because I know that we're running a little long, but can you go ahead and answer, because I think it's important for these guys to have some understanding of that.

Yeah, so I think, yeah, I am very proud of our team that, you know, with virtual connections alone, we've exceeded sort of the But, you know, I would say this proudly that Oncotype DH did this in their year one in a relatively small market. So this year, as the vaccinations pick up, I think what I'm hearing anecdotally is as more and more of our reps get vaccinated, they'll be able access some of these doctors face-to-face. And our strategy will be to move from, you know, from some of these smaller hospitals where the surgeons do about, let's say, one to two surgeries per month to some of the larger volume centers where the surgeons are actually doing three to four surgeries per month. So that will help drive volume. The second thing will be to, as Rani said, to make this more and more part of the EHR so that Doctors automatically order it. We announced Florida Cancer Specialists last year. We are close to becoming standard of care and part of the ordering menu and a few other health systems that do have, you know, about five to six surgeons. So I think the strategy this year will be to identify those health systems that have at least five to six surgeons doing at least three to four surgeries a year, and it's automatically included in that EHR. And those types of accounts will be the drivers of volume. and fully expect, given that vaccination is going at a rapid clip, at least the second half of the year, I mean, people will be able to have these face-to-face meetings and do this multidisciplinary conversion that's needed for this step, meaning start with the surgeon, get the oncologist onboarded, and get the pathologist signed. So, that's the goal for this year, and we look forward to the growth.

Steve, one important note I think will be helpful for modeling is this, We did see, we heard, and we validated that across certain regions of the country, early stage patients were given radiation instead of surgery to prolong their need to come in for surgery until they got vaccinated. I had a couple of anecdotal discussions with surgeons where, you know, a guy that normally would do ten of these a month actually did three last month. And so we – no, not last month, but in December. So I think you'll see as we emerge out of this, we do expect to see that our current install base should pick up, you know, utility. More importantly, we want to keep onboarding new accounts.

Yep. Okay, yeah, thanks for that color. Yeah, maybe just to continue on that line, so it sounds like there's maybe a backlog of people that postponed their surgeries, but let's talk about the finalized U.S. Preventative Services Task Force Lung Cancer Screening Guideline change. So that's final now, so it lowered the age of lung cancer screening to 50. Does that guideline change change your total addressable market assumptions for Determ Rx?

You know what? When we look at that market, when we model this before the acquisition of Razor Genomics, we believe there should be somewhere between 70,000 to 75,000 patients eligible for our test every year if we had robust screening programs in the United States. like they do in China, for instance. But we don't have those, so we are very, we were very excited to see that, and we, you know, the impact is yet to be seen, but assuming those get implemented, I do believe that will be a good, very nice upside for our business. Okay, great.

And let me just sneak in one final one on TX, the targeted gene therapy, targeted therapy panel. Have you yet decided what off-the-shelf test you're going to onboard and how should we think about the margins on that test since you're getting it off-the-shelf?

You know what? It's a great question that we're right in the middle of. You know, I think it was Yogi Berra said, when you're at a fork in the road, take it. We're kind of at that point to figure one out. We've been doing a lot of analysis on this. We have multiple options. And I would say that when we launch our test internally, that we will launch a test that gives us margins that are commensurate with the other tests we have, unless unless we choose to go a route today that we're not planning on going maybe, but that could accelerate TX. So we're really discussing that right now. I think a lot of it comes to the timing. Needless to say, fourth quarter this year, we're committed to launch a one-stop shop for both IO and Target therapy panels. And so I just ask you to be patient with us. We'll give you as much granularity on that as we can when we get to the end of the first quarter call, because that decision is in process now and needs to be made so we can be prepared to bring it up in September. Our development team and our lab team are saying we've got to have them that information, you know, by the middle of April. So we're working on that now.

Okay, great. Thank you so much.

Thank you. Our next question comes from Thomas Flatton with Lake Street Capital Markets. Please proceed with your question.

Thanks. Thanks, guys, for taking the questions. Just reflecting back on CNI and this idea that you might be doing these evaluations, these patients weekly or every three weeks or whatever you guys come up with, can you help us think through what pricing for a product that's going to be used that frequently would look like?

We can. I think we're looking at, if you look at, we've done exhaustive market research on what the pricing sort of tolerance would be for payers to actually be inclined to pay it. If you look at other models of this, and you obviously look at what some of the other companies with MRD are now talking about, we're thinking that the total process has to stay within between $3,000 and $4,000 across two to three cycles. And so if we can, you know, we're thinking about $1,000 per cycle for us, and that would mean by the end of the second cycle, that's where our almost 100% data is on predicting progression so far in the early data from CNI, and the papers have been published. So that's our goal is to try to deliver it for around $3,000 with all three results. You know, yet to be determined how close we come to that once we get through all the data, but 3,000 seems to be the ceiling. And if we can get that, that would be at the, you know, similar gross margins we've been talking about for other next-gen sequencing tests that we deliver.

Great. And then with respect to services, you know, as you guys noted in your press release, the revenues were down in the fourth quarter primarily because of COVID.

Yes.

Could you give us a sense of what the value is of what you guys have in the pipeline there or what you're working on just to give us a better sense for what 2021 might look like?

Sure. You know what? I'm glad you asked that because I asked our pharma team to deliver all this to me so I'd have it. I can't give you a specificity around who's doing what, but... For instance, we had a large study that we were in the middle of that is for our proprietary test that I mentioned. It's a proprietary cell cycle assay that we developed specifically for a pharmaceutical company. We were expecting a large bolus of samples in late Q3, early Q4 that would allow us to complete those studies. We didn't get those done. That's about a thousand, close to a thousand samples that we received this week as an anecdote. So if you think about those types of studies that we'll be running, somewhere right now we typically run, and I'm looking at the pipeline now, we have a pipeline right now of somewhere around $2.5 to $3 million in active contracted work. As we talked before, that expands across multiple years at times. As we've talked, any given quarter, we think somewhere between 10 and 15 percent of that, we should be able to recognize as revenue. It is a little lumpy. Some quarters we'll get a lot more samples, some we won't. In the prepared remarks, we talked about two very important audits we had in Q4. One was an audit for a very large pharmaceutical company. The other was for one of the top sequencing companies in the industry that we have now become a captive testing site for their CDX program with their pharma partners. Those SOWs are in place. Right now, we're very bullish on our ability to continue to see project growth in pharma. Depending on samples, the question will become, you know, COVID and stuff, how quickly can we get enough samples so that we can close out the project and recognize revenue? And Doug's raising his hand on Zoom. Doug, you've got a question. Go ahead.

I just want to clarify, so everybody may not understand what we mean by lumpy. And that is, you know, many of these pharma deals, although we're doing many samples over time, they only pay out when we're done with everything. So it comes in as a lump sum. And so, you know, whether that's this quarter or next quarter, you know, is kind of stochastic. It kind of varies. And so that creates the lumpiness. It's not like clinical service where you, you know, have a regular rhythm of samples coming in. If we do a bunch of samples, we only get paid when we're done. So that's what we mean by lumpy.

Thomas, I think your point's a good one, and I think the important thing for you guys to think about is we need to – right now, it looks like we've got, I don't know, somewhere about 30 to 35 projects. We probably need 50 to 60 projects with two or three very large projects. you know, captive trials to start to smooth this out. So we're not there yet, and, you know, we'll see. But Q1, you know, we hope Q1 obviously gives us a little more predictability, but certainly after everybody gets vaccinated and all these clinical trials ramp back up, we'll start to predict better.

Excellent. Thanks, guys. I appreciate it. Congrats on the quarter.

Yeah, thanks, Thomas.

Thank you. Our next question comes from Bruce Jackson with Benchmark Company. Please proceed with your question.

Hi, thanks for taking my question. Hey, looking at the Burning Rock Agreement, the tech transfer was supposed to start during Q1 and be completed by Q3. Are you still on track for that? And then once the tech transfer is complete, when do you think the test is going to be available on the market?

Yeah, so we are. I'm very blessed to be surrounded by some of the best program and project managers in our industry. And we are on track for that delivery of tech transfer. The first pass at tech transfer will be in the summer with the final technical transfer validation and go to market in September. That's the schedule we have today. We expect them to be launching in October and taking the product to market then.

And then I don't actually disclose this or not. It's a royalty agreement. What's the rate? Is it like a single-digit rate, double-digit rate?

Yeah, it's around an average. Well, a lot of it depends on the price, obviously, that they get from the public payers. Right now, the private pay is about a 10% royalty.

Okay. Thank you very much. That's it for me.

But, hey, Bruce, I want to make sure I'm clear. It is a fixed amount for the private pay group that we've agreed to at $100 per test. And keep in mind, we front-ended that with the $4 million up front plus the $2 million for NCCI and guideline test. And so, as we've said before, doing business in China is unique. And obviously, Burning Rock being a NASDAQ company is helpful, but we front-end loaded some of that royalty so that we could de-risk the potential for a competing product in that environment in the future years.

Okay, got it. Thank you.

Thank you. Our next question comes from Paul Knight with KeyBank. Please proceed with your question.

Hey, Ronnie, congrats on the quarter. And on the acquisitions, you know, there's been a lot of acquisition activity in the industry in the last, let's call it two months. Based on your long experience in the industry, I mean, we should say both of ours, but, you know, you have an insight into the sector from your work at Bethesda and experience. Are you seeing an aging or... of the companies in the private sector, meaning it takes years to really get your data put together on a particular test. Are you seeing a different environment with firms that have a more mature program that you see out there that are making your M&A discussions more interesting, meaning better targets?

Yeah, wow, what a great question. A couple things. There are a number of products that have taken. DetermineRx obviously took from 2012 when Doug and I first got involved with the physicians at UCSF to really a year ago, it got traction. As you know, our methodology was to bring a lot of that knowledge with us to OncoSight and to go and engage these companies that are down the road either on technology platform development and or content development. And so the answer to that is, yes, we have a very active – business development, you know, portfolio of companies and technologies we're looking at. Obviously, though, I think for today we believe we have everything that we need with the Chronix acquisition to deliver on the lung cancer continuum. So that's the beautiful part of this. Anything we add on top of that will be a new test for our sales force to add to their bag and to create more same-store sales or more same-rep sales for them. I will say this. One of the interesting things that I've seen and you've seen is this interesting combination of content companies and platform companies. And just so, you know, to be honest, I am really – I'm surprised it took this long because as you move down market and try to democratize molecular platforms, many of these companies like Illumina, like Thermo, I could just go down the list, they have not been interested in developing content and they just believe that they can keep driving LDT usage. But the reality is the majority of the world needs to have these decisions, these tests, you know, in their hands, these results, within a five- to seven-day period to make good treatment decisions. And so I believe moves like Bonnie made at Verisight with Nana Strings. I believe you saw Roche with Genmark yesterday. I think you're going to see more of those combination of content companies moving with platform companies. Platform companies tend to spend all their money on this amazing engineering thinking if we build it, they'll come. The problem with the clinical IBD market is you've got to go validate content or that instrument's worthless. And so I do think, and certainly you'll see, we have a number of partnership discussions going on where our content could fit on platform companies. So more to come on that, but it's a very intuitive question, and I do think it's a great way to go because it is the next step in our industry to democratize a lot of this complex molecular testing. Thank you.

Thank you. Our next question comes from Mark Massaro with BTIG. Please proceed with your questions.

Hey, guys, just a quick clarifying question about the cadence of revenue for 2021. So obviously, most investors are thinking about your long-term growth opportunities, call it a $30 billion total addressable market. But just for housekeeping for Q4, revenue did come in a little below consensus. Looks like the pharma piece a little bit lighter, primarily due to COVID. But can you give us a sense for how 2021 might come together? And then You know, related to that, there is, you know, call it $8 million revenue number out there for consensus in 2021. So how should we think about our models as we go to update our models?

Yeah, it's a great question. And, Mark, we are not prepared to give – we wanted to give guidance. I think the uncertainty of the vaccination world and all that is just making us a little leery to be too bold about that. But I think the consensus is a very good number and one that we believe that we have confidence in. So I'd like to not say more about that until the next earnings call, which is only a couple of months away when we have greater vision into what the year is going to be like. But right now, knowing what I know and seeing what's already happening in RX and obviously with the pharma services world carrying over and things like that, I think that's a good number to shoot for.

Thank you. Yeah, no further questions at this time. I'd like to turn the floor back over to management for any closing remarks.

Yeah, thank you. And, guys, thanks for staying with us on a long call. We have a lot going on, as you guys know, and it's important, as we always committed when I got here, we'd be transparent about all this and make sure you guys always had what you needed to think through your investment. So we appreciate you joining the call. 2020 was an amazing year. It was fascinating in many ways, but it turned out to be an incredible year for us as we weathered the pandemic storm. We look forward to what's to come, and we're confident that our momentum is strong, and we look forward to giving you guys some updates as we go through the year. So stay safe, and we'll look forward to our Q1 call in just a couple months.

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