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?