Oncocyte Corporation

Greetings and welcome to the Oncocyte Corporation second quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. A 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 Yetted of LifeSci Advisors. Thank you. You may begin.

Great. Thank you, Jesse, and thank you, everyone, for joining us for today's conference call to discuss AquaSight's second quarter 2021 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 investor's page. Before turning the call over to Ronnie Andrews, OncoSight's President and Chief Executive Officer, 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 fact are forward-looking statements. We encourage you to review the company's SEC filings, including without limitation the company's Forms 10-K and Forms 10-Q, which identify specific risk factors that may cause actual results or events to differ materially from those described in the forward-looking statements. These factors include, without limitation, risk inherent in development and or commercialization of potential diagnostic tests, uncertainty in the results of clinical trials and regulatory approvals, the need to obtain third-party reimbursement for patients' use of any diagnostic test the company commercializes, or need and ability to obtain future capital and maintenance of IP rights, risk inherent in strategic transactions such as failure to realize anticipated benefits, legal, regulatory, or political changes to the applicable jurisdictions, accounting and quality controls, and other and greater than estimated allocations of resources developing commercialized technology, or failure to maintain any laboratory accreditation or certification, and uncertainties associated with the COVID-19 pandemic and its possible effect on our operations. Therefore, actual outcomes and results may differ materially in what is expected or implied by these forward-looking statements. OccoCite expressly disclaims any intent or obligation to update these forward-looking statements accepted as otherwise may be acquired under law. With those prepared remarks, it's my pleasure to turn the call over to Ronnie Andrews, CEO. Ronnie?

Hey, thanks, Bob, and welcome everyone to our conference call to discuss our second quarter 2021 financial results and our operating highlights. Joining me today on today's call are Mitch Levine, our CFO, Dr. Doug Ross, our Chief Science Officer, and Padma Sundar, our Chief Commercial Officer. We'll all be available at the end for questions and answers. Today's call will review significant progress we continue to make across our initial four growth engines, which together aim to provide a single solution to answer key outstanding questions for patients and physicians regarding the treatment of solid tumors throughout the patient journey. I'll also introduce an emerging fifth potential growth engine in the transplant rejection monitoring market, which we believe has the potential to rapidly drive an unexpected additional revenue stream out of Europe. The opportunity in transplant stems from our acquisition in April of Chronix Biomedical, which was driven by the opportunity to use their technology to enter the blood-based monitoring world of oncology. But recent developments, which I'll dive into later in the call, have opened up a new market opportunity in the high-value European transplant market. Our execution through the first half of 21 continues to be solid with all major initiatives on track despite the ongoing challenges in the macro environment. I'm extremely proud of how our professional program management process and dedicated teamwork are bringing us closer to commercializing multiple innovative molecular tests that together have a total addressable market of over $10 billion. We believe we are extremely well positioned for short and long-term growth, and I'm excited to share with you our progress for the quarter. Starting off with the TermaRx, the first and only commercially available test for predicting risk of recurrence and informing the chemotherapy decision for early-stage lung cancer patients. Despite the continued challenges associated with the COVID-19 pandemic, our progress remains solid with a 23% sequential test volume growth in Q2. In the first half of 21, our test volume has already exceeded our volume for the full year of 2020. We have continued our expansion into new hospitals, with a total of 176 onboarded hospitals at the end of Q2. That represents an approximate 43% growth over what we reported for Q1. At the end of Q2, we had a total of 317 onboarded physicians, which is a 45% increase over what we reported for the first quarter. Continuing to grow our population of accounts and physicians is a good metric and gives us continued confidence that as the effects of the pandemic begins to wane, we'll see early stage surgeries for lung cancer get back to pre-pandemic levels and our volumes grow at an even faster pace. Right now, between 60 and 70% of our samples come from patients with Medicare and Medicare Advantage, which are covered by CMS and paid within a prescribed amount of time. However, private payer samples are slower to be paid, but we are making progress. These efforts combined with increased sample volumes the anticipated increase in surgeries as more people get vaccinated, and our sales force back in the field securing new accounts leave us confident that our growth with the ThermoRx will continue over the coming quarter and years. Along with this growing traction in the U.S. market, our agreement with Burning Rock to distribute the ThermoRx in China, the world's largest market for early-stage patients, is also advancing well. In fact, we recently completed the technical know-how and software transfer milestone on schedule. bringing along with it a $1 million milestone payment. This remarkable execution, taking place virtually due to COVID, is a testament to the incredible team we built here at OncaSite. We completed tech transfer. I'm sorry, our completed tech transfer remains on track for year end, which will drive further revenue from Burning Rock in 2021. This important progress is just the beginning of our entry into China and will be a solid source of both near and long-term revenue growth for Oncocyte. Let's now turn to TermaIO, our differentiated and proprietary test for immune therapy response prediction, which is the only precision diagnostic test today on the market that evaluates the entire immune microenvironment in biopsies and surgical specimens to identify patients likely to respond to immune checkpoint inhibitors. And excitingly, the opportunity with term IO goes beyond improving treatment decisions for individual patients by facilitating the development and clinical validation of next generation immune therapies by partnering with biopharma and pharmaceutical companies. It is clear there is a tremendous need and market for a better solution to immunotherapy response prediction. And we've been running full steam to advance the term IO as fast as possible in terms of data, We've had a steady cadence of data that together provides compelling evidence that DETERMA-IO has a broad potential across a range of tumor types. We are very pleased to announce that the results from the NEO-TRIP randomized clinical trial in triple negative breast cancer has been accepted for an oral presentation at the ESMO annual meeting to be held in this upcoming September. This extremely important study was a randomized clinical trial, which evaluated DETERMA-IO as a predictive biomarker for immunotherapy response when administered prior to surgery. Evidence from these randomized clinical trial studies provide firm evidence of the predictive utility of a biomarker, and we look forward to being able to publish this important trial data. This past quarter, our presentation at AACR demonstrated clinical utility in bladder cancer, in addition to our previous data, which showed utility in both non-small cell lung cancer as well as triple negative breast cancer. And our presentation at ASCO in June extended the utility of the term IO to a four-tumor type, renal cell carcinoma. As we previously reported, in addition to validation across tumor types, our studies have also demonstrated the applicability of this test across all four approved immunotherapies, Keytruda, Opdivo, Ticentric, and Infenzy. Together, these data provide a strong foundation of clinical data that support the pan-cancer and pan-immunotherapy utility of our tests. In Q2, we also announced that the solid relationship with the team in Milan for the Neotrip trial led to a new collaboration with Grupo Oncologico del Nord Ovest, or GONO for short. They are a leading clinical trials group that conducts independent, investigator-sponsored clinical trials for targeted and for immune therapies across several tumor types. Our initial work with this prestigious group is in colorectal cancer. an important solid tumor today that only has one biomarker for treatment decisions, MSI, which only identifies less than 10% of patients eligible for IO treatment. If successful, this will validate the term IO in its fifth tumor type, further strengthening the potential for pan-cancer utility. Together, this progress brings us closer to launching the only precision diagnostic that can accurately predict sustained response across five major solid tumors and build the case for DETERMA-IO as a pan-cancer predictive test in the $3 billion immune therapy patient selection market. Importantly, in addition to all our progress in the research use setting, DETERMA-IO remains on track for clinical launch this fall. Precision oncology treatment options are rapidly expanding to all solid tumors and across all stages of cancer. Our goal is to become the single and trusted diagnostic company to inform the optimal usage of these treatments for more than one million patients diagnosed with solid cancers every year in the U.S. alone. To that end, we'll be offering the most comprehensive and differentiated comprehensive molecular test on the market, DETERMA-TX. a next-gen sequencing-based comprehensive genomic profile of over 500 genes, which meets industry-leading gold standards for minimal tissue requirements and rapid turnaround time to expedite the time treatment for patients. This test, combined with both the TERMA-IO test for immunotherapy and the TERMA-RX for chemotherapy decision, provide a powerful resource to patients and physicians. Moving now to our Pharma Services Growth Engine. Our pipeline of contracted pharma services projects continues to grow, and we're excited to be a trusted partner for a growing number of top pharma and molecular diagnostic platform companies. While we've made great progress in securing projects, we remain reliant on trial enrollment for our pharma partners to generate samples to run. Because of the dependence on external project timelines and sample delivery, we often face lumpy revenue cycles. This has been exacerbated this year by COVID because enrollment in all types of trials have been impacted. But despite these headwinds, I'm still pleased to report that our pipeline remains solid. And so far in Q3, we're starting to see samples from some of our delayed projects beginning to come in to our lab in Nashville. A very noteworthy accomplishment in pharma services for the quarter was closing a master services agreement with one of the largest global molecular diagnostic platform companies, which makes our national lab a primary facility for test development and for verification and validation studies for this company's full family of PCR and next-gen sequencing instruments across several disease areas. The agreement was signed in June, and our lab has already received and installed several different molecular diagnostic platforms and work on our first statement of work under the services agreement began in early July. Gaining large, long-term agreements like this will go a long way to improve the predictability of revenue timing for our pharma and molecular diagnostic services business. And finally, in second quarter, we closed four DETERMA-IO companion diagnostic pilot projects, and samples for two of the studies have already started to come in. Obviously, gaining a companion diagnostic contract is an important milestone for Determa IO, and we look forward to sharing an update on those studies in future calls. Finally, moving to our newest growth opportunities, which come from our acquisition of Chronix Biomedical. On our last call, we provided an in-depth review of the Therasure CNI Monitor Clinical Assay, a patented blood-based assay that uses copy number instability, or CNI, for immunotherapy response monitoring in oncology. Let me highlight the important differentiators for the term CNI. First off, unlike the emerging minimal residual disease or MRD technologies, which require large amounts of tumor tissue, our CNI test is blood only. It can be run on all solid tumor cancer patients. Because of the large tissue required by MRD technologies, they remain limited to post-surgical samples only, which today is a relatively small population of late-stage patients that are eligible for immune therapy because of the vast majority of later-stage solid tumors are treated with neoadjuvant protocols, which are pre-surgery, and therefore no large amounts of tissue available. Determine CNI is the best choice for managing these presurgical patients because CNI does not require a tissue-based genome panel and thus can provide information on disease progression with blood-only sampling at the second cycle of immune therapy, weeks before the MRD methodology can even start their monitoring efforts. Plus, CNI will save payers and patients significant costs over other methods entering the market today. To accelerate CNI to market, we're currently applying the same playbook we successfully used over the last year with Determine IO. First, by rebranding the test as Determine CNI. And second, by preparing for expanded commercialization with planned validation studies and publications to support a U.S. research and pharma services launch later this year. In the near term, we've established a clinical study plan for the term of CNI and will complete tech transfer to our lab in Nashville and start marketing to pharma companies in the U.S. later this year. However, immediately upon a closing deal in April, our team began working closely with the chronic team in Germany and have already made significant progress on advancing studies across several tumor types in the EU and have well over 1,000 patients under study across several solid tumor types. The acquisition also provided us with ownership of IP that could help develop a foundation for our test for the estimated 6 billion plus recurrence monitoring market. A repeat testing opportunity that tells a patient and their oncologist that a second tumor may be forming long before it can be identified by imaging. Work on what we will brand as Determa MX is already underway, and we're actively exploring several technology platforms to help us achieve our goal of delivering a recurrence monitoring test for cancer that is extremely sensitive, cost-effective, and can be performed on digital PCR platform in the community hospital setting where patients are most likely to get monitored. The addition of these new tests bring Oncocite a distinct competitive advantage as the first and only company to offer a continuum of tests from selecting patients for immune therapy to monitoring for the effectiveness of treatment and finally for monitoring for recurrence of disease. Let's now switch gears to a new testing opportunity that we believe will become our fifth revenue growth engine. The IP we will use for DETERMA-MX was actually developed by Chronix for use in transplant rejection as the Chronix TheraSure Transplant Rejection Monitoring Test. We inherited the test already developed and in numerous studies in Europe to detect rejection reactions in organ transplant recipients. Like DETERMA-MX, the TheraSure Transplant Monitor Test uses only a simple blood draw. making it as easy to administer and potentially much more economical to perform than current tests that require a tissue biopsy. The recent CMS coverage policy for transplant rejection monitoring citing digital PCR methods for solid organ allograft rejection, as it's titled, cites three peer-reviewed publications of Chronix on the performance of our test in solid organ transplant monitoring. This is a huge validation of the Chronix technology. Prior to the acquisition, the chronic team completed several large clinical studies and published over 20 papers in peer-reviewed scientific journals, including the most recent publication in Nature that validated the test across the top three solid organs, heart, kidney, and in liver, where we have an uncontested opportunity since currently there is no test for early detection of organ rejection in liver transplants. Diving in a little deeper, the studies completed to date show that transplant rejection is associated with increased release of graft DNA, known as donor-derived DNA, into the bloodstream. The chronic data presented today shows distinctly that donor-derived DNA monitoring using digital PCR can facilitate a personalized immunosuppression treatment plan and potentially decrease premature graft loss by detecting injury before clinical manifestations. This allows treatment of acute rejection and other causes of graft injury, which have the potential to significantly improve organ transplant outcomes in patients. As we learned more about the differentiated approach and heard feedback from the market in Europe, we took a pause on our previously planned approach to sell the IP and began a deep dive into the viability of bringing the test to market under the Oncocyte banner. Our work illuminated that this is clearly an enormous revenue opportunity for Oncocyte. But to ensure we stay focused in the U.S. on a product development in oncology with numerous critical milestones for DETERMA-IO, DETERMA-TX, and DETERMA-CNI on the horizon, we will focus our launch for the Therasure assay for transplant rejection in the EU, where we already have a contract relationship with a lab partner. There are about 41,000 transplants annually in Europe with over 150,000 people on waiting lists and a rate of 48,000 new registrants added each year. Our estimates of the total available market for Europe is approximately $1 billion, and we have a head start given Chronix's European IP and work to date with key opinion leaders who are interested in working with us to bring the test to fruition across Europe. We've already begun the process of standing up a separate business unit for transplant, and given the concentrated network of transplant centers in the EU and our approach of using established molecular labs, we do not expect it to significantly increase our quarterly burn. Our strategy is simple. Bring the test up and launch as an LDT in the first half of 2022 with carefully selected partners in Europe, and concurrently expedite the process to find an instrument partner to help complete the digital PCR kitting and platform studies under the prescribed regulatory process for the EU and submit for regulatory approval in Europe by late 2022. We've covered a lot of ground today, so let me close by summarizing. I continue to be extremely enthusiastic about the continued progress we've made to date and what we expect to see over the next four quarters, including rising sample volumes and revenues for DETERMA-RX in pharma services, and at least three major product launches, DETERMA-IO, DETERMA-TX for the U.S. clinical market in early Q4, and DETERMA-CNI in the U.S. for pharma clinical trial market in Q4. In a very short time, we built a compelling and powerful portfolio of molecular diagnostic test assets with a total market opportunity of well over $10 billion. And we have proprietary positions in some of the fastest growing areas of molecular oncology and now in transplant rejection monitoring. We continue to attract the attention of leading pharmaceutical and biopharm companies and molecular diagnostic tool platform providers and look forward to important contracts on the horizon with these global partners to strengthen our market position. The progress we've made over the last 18 months, despite the headwind of a global pandemic, has been nothing short of amazing and is a testament to our dedicated and experienced team. We built a world-class organization that I'm proud of and thankful for every day as we advance our comprehensive diagnostic platform for cancer and beyond. I'd now like to turn the call over to Mitch Levine to review our Q2 financials. Mitch?