Oncocyte Corporation

Greetings and welcome to the OncoSci Corporation third 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. I would now like to turn the conference over to your host, Bob Yedid of LifeSci Advisors.

Thank you, Joe, and thank you, everyone, for joining for today's conference call to discuss OncoSight's third 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 investors page. Before turning the call over to Ronnie Andrews, OncoSight's president and chief executive officer, I would like to remind you that the 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 10-Qs, which identify the specific risk factors that may cause actual results or events to differ materially from those described in these forward-looking statements. These factors may include, without limitation, risks inherent in the development and or commercialization of potential diagnostic tests, uncertainty in the results of clinical trials or regulatory approvals, the need to obtain third-party reimbursement for patients' use of any diagnostic test the company commercializes, our need and ability to obtain future capital and maintenance of IP rights, risks inherent in strategic transactions, such as the failure to realize anticipated benefits, legal, regulatory, or political changes in the applicable jurisdictions, accounting and quality controls, greater than estimated allocations of resources to develop and commercialize technology, or the failure to maintain any laboratory accreditation or certification, and uncertainties associated with the COVID-19 pandemic and its possible effects on our operations. Therefore, actual outcomes and results may differ materially from what is expressed or implied by these forward-looking statements. OncoSight expressly disclaims any intent or obligation to update these forward-looking statements, except as otherwise may be required under applicable law. With those prepared remarks, it's my pleasure to turn the call over to Ronnie Andrews, CEO. Ronnie?

Thanks, Bob, and welcome, everyone, to our conference call to discuss our third quarter 2021 financial results and our operating highlights. Joining me today on our call is Mitch Levine, our CFO, Gisa Paulson, our new COO, Dr. Doug Ross, our CSO, Padma Sundar, our COO, and Dr. Eki Schutz, our GM of our Oncocyte Germany and head of our liquid biopsy and transplant programs. We'll all be available during the question and answer session. I received feedback from several investors during my travels over the past few months that while it's exciting to follow all the progress being made at OncaSight, they'd appreciate more context as to how all the moving parts fit into our overall strategy. So based on that welcomed, honest feedback, I want to start first with a high-level overview of how all the initiatives fit together to enable our future. For those new to OncaSight, two years ago I stepped off the board and into the CEO role to reposition the company for the future and laid out a strategy to bring a market, a portfolio of tests that would complement each other and deliver answers to critical questions physicians and patients still face today that the industry's focus on large-scale genomics has failed to answer. Two major decisions still face every physician managing a cancer patient. What is the best treatment option and is the therapy working for my patient? The advancement of targeted and immunotherapy options has happened rapidly. with a clinical trial pipeline full of promising drugs across all major solid tumors. As the options for mono or combinatorial therapy expand, understanding the tumor biology of each patient is becoming more and more important. With confidence, I can say, in two short years and in the face of a global pandemic, Team Oncocyte has made several important strategic advances that have moved us rapidly to the forefront of precision oncology diagnostics to answer these questions. On the treatment front, we are now the only company that has a menu of precision tests to answer all three questions necessary to select the best treatment protocol for cancer patients. The first question, do I give chemo, is answered by our Determa Rx product. Secondly, do I give a targeted drug? This is answered by Determa Tx, which is currently planned to launch in late Q1 of 2022. or do I give an immunotherapy, which is answered by Determa IO. These three tests complete the treatment selection menu we've been working on for the past 18 months and allow us now to enter an extremely large market for treatment decisions. To answer the do I have chemo question, Determa RX was launched last year in the middle of the pandemic, and while it has the smallest of the available markets of any of the tests in our arsenal, It's become a beacon for our mission of improving the lives of cancer patients. In a little over a year, we've touched over 1,200 patients, of which just over 500 have been found to be high risk for recurrence and thus needed chemo. And with that choice, those patients will now have an improved five-year life expectancy of 92% versus the 49% five-year expectancy they would have had without our test information. We are now bringing the second of our three treatment selection tests to clinicians with the commercial launch of DETERMA-O this quarter. Moreover, we plan on fulfilling the promise we made to investors and the customers we serve to have a complete repertoire precision treatment decision test on the market by the middle of 2022 with the launch of DETERMA-TX, our 500 gene targeted decision panel scheduled for launch in late Q1 of 2022. By mid-year next year, Oncocyte will be the only company with a full menu of tests from one lab that uses minimal tissue and provides less than 10-day turn-on time to address the estimated $5 billion cancer treatment decision diagnostic market in the US and the EU. The potential value generation from the full menu is very substantial. And after two years of integration, development, and clinical studies, We are now on the cusp of realizing our vision to go after these large markets with our proprietary offering. The second question that remains unanswered from the majority of tumors is, is the therapy working? This information, if provided early in the disease cycle, could allow changes to therapy to be made in real time and thus potentially offer better outcomes for more patients. While emerging companies are beginning to offer tests that help identify minimal residual disease, to answer whether patients were adequately treated by surgery alone. They can only serve a subset of patients whose tumors can be removed surgically. These tests are complicated to execute upon because they need to be personalized to individual patients, and they require genomic sequencing of the resected tumor specimen prior to testing, which takes time, and extra tissue is not always available. The fact is the majority of decisions in solid tumor treatment monitoring happen without a surgical resection of the tumor, meaning these patients have no option today since MRD cannot serve them. When we acquired Chronix Biomedical earlier this year, we acquired patents and proprietary methods that allow a blood-only approach to therapy monitoring. This allows immediate initiation of testing upon the start of therapy. and interpretation of test results without requiring knowledge of the tumor genome. Our therapy monitoring product, DetermineCNI, is launched in the European Union for research use, and we will be completing tech transfer to the U.S. in Q1 of 2022. Our test is a blood-based only and does not need resected tumor tissue, offering physicians an option for the majority of patients that they serve. In fact, we not only solved the tumor tissue requirement problem, determined CNI also provides results on disease progression at the second cycle of immunotherapy, target therapy, or chemotherapy weeks before MRD or imaging can provide meaningful results. This is a very exciting opportunity for Oncocyte to participate in the 4 to 6 billion global therapy monitoring market. With DETERMA-IO now in its launch phase, our development efforts can now focus on getting more clinical utility studies under our belt so we can move DETERMA-CNI closer to market in the US and in Europe. Taken as a whole, our monitoring capability rounds out a very robust offering that represents the only comprehensive set of tests to answer every question facing patients and physicians who treat them throughout that patient's journey. Bottom line is this, despite the challenges of the pandemic, I'm excited to say we've stayed focused and are now poised to deliver the full complement of tests in our current portfolio to the market over the next four quarters. With these product launches, OncoSight is now entering very large market opportunities with unique proprietary capabilities. And based on our current momentum, we believe all the current tests in our portfolio will be on the market within the next year, gaining market adoption. The most important metric we'll be watching during their launch year. Ultimately, we'll see reimbursement, which will draw out the rapid revenue growth we envisioned when we laid out our compelling strategy. While there'll be solid revenue growth along the journey for individual tests as we launch them, the full force of OncaSight's strategy is found in the comprehensive information we can deliver to treating physicians. Our go-to-market strategy is only in the beginning stages, and thus, we remain incredibly enthusiastic about the potential for long-term value creation ahead. That's the strategy. And now some updates on the product supporting our vision. Last week, we announced the clinical launch at Determa IO. Internally, we've known for some time that the proprietary technology behind Determa IO had incredible potential to change the way we selected patients for immune therapy. In less than two years, we validated the analytical reproducibility, completed CLIA validation, and completed clinical validations across four major solid tumors. We've now tested over 1,000 patients to date, and in every study, including randomized clinical evaluations, we've outperformed every other molecular diagnostic test. So today, I'm very excited to discuss the clinical launch strategy for our flagship product, Determa IO, the first and only clinical test that comprehensively assesses both the tumor and the immune microenvironment to identify patients who can benefit from immunotherapy. In clinical studies evaluating patients across multiple tumor types, including breast, lung, bladder, and renal cancers, DETERMA-IO has consistently been better at identifying immunotherapy responses than the standard of care test PD-L1-IC in head-to-head comparisons, and in some tumor types, even identified patients missed by the current test who would have benefited from immunotherapy. DetermaIO addresses a critical unmet need in the market, which is to inform the optimal use of immune therapy treatment for more than one million eligible patients annually in the U.S. alone. Over the past few quarters, we've shared updates on the incredibly strong foundation of data that we presented at various conferences, and we believe we've now built a solid clinical foundation for DetermaIO to be used by physicians as a potential pan-cancer and pan-immunotherapy test. Our strategy is to roll out the test initially as part of an early access program with sites and physicians that have successfully partnered with Oncocyte on prior tests and participated in our clinical study efforts. During the early access program, we'll optimize sample processing and logistics to ensure we deliver on a promise to provide rapid turnaround time and utilize the lowest sample requirements in the industry to inform immune status while maintaining strict HIPAA compliance. After the successful EAP launch of DETERMA-IO and our processes have been optimized, we will then roll out DETERMA-TX, our tissue-based 500-gene comprehensive genomic profiling test using next-generation sequencing on the same tumor sample that we used for DETERMA-IO. This will allow us to meet our turnaround targets of less than 10 days and conserve precious tissue while still delivering the comprehensive synoptic information of physician needs to understand the targeted and immune therapy options for their patient. Determined TX will fall under a current local coverage decision, or LCD, for Medicare. So we expect Determined TX to be revenue generating in the second half of 2022. And its launch will complete our treatment decision menu, giving us access to a large market of close to $5 billion and establish us as the most comprehensive and differentiated test provider with predictive answers for various therapy options available to physicians for their cancer patients. To complement this exciting test combination, we'll launch Determine a C&I as a research-use product in the U.S. in Q1 of 2022. Our initial efforts in the U.S. will be providing the test for pharma clinical trials and via our registry efforts to generate real-world evidence on the benefit of this test for managing patients being treated for cancer. Determinacy and I, as I said, is currently available in Europe for former research and trials and is already attracting researchers who are running immunotherapy and targeted therapy trials. We now have over 1,000 patients in various studies in the EU across several solid tumors and look forward to report outs as early as ASCO of 2022. We remain very enthusiastic about Determinacy and I and the feedback from researchers and oncologists has been solid as they appreciate the blood-only monitoring solution without the need for tissue or the need for very costly genome testing. Moving to DetermineRx, our test for early stage lung cancer patients. When we launched in the spring of 2020 at the beginning of the pandemic, we had no idea what was ahead of us. But our team forged ahead to bring this important test for early stage lung cancer patients rapidly to market. Despite the unprecedented challenges, surgeons managing these patients' cases have had getting access to surgical suites for well over a year now, I'm proud to say that we are on track to close 2021 at over 100% year-over-year growth in test volume for DETERMA-RX. Since launching DETERMA-RX just over a year ago, we've run over 1,200 samples, of which 40% or approximately 500 samples have been deemed high risk for recurrence of their lung cancer. Without action, more than 40% of these patients will lose their life within five years. Many of these high-risk patients are receiving chemo based on the results from our test, and their five-year survival rate is expected to increase well above 90%. Simply put, DetermaRx is saving lives. This is the essence of Oncocytes' mission. We continue to experience strength in key metrics we use to judge adoption in the current environment. Our growth in the number of new physicians and hospitals onboarded in Q3 was solid, and Mitch will go into more details. But this is particularly meaningful given the strong headwinds from the Delta surge, which has dramatically impacted surgeries and early stage diagnoses in a key area where we have significant adoption. In fact, one study showed a 38% reduction in diagnosed cases and early stage lung cancer surgeries through the summer of 2021. While the summer showed a slowdown in surgical cases, we were encouraged by a steady uptick in sample volume in September and had our largest volume month to date in October. which we believe is a really good sign for our year-end closing push. Our growing install base of physicians ordering the TermaRx speaks to the value our test brings to patients and has us poised to experience strong volume growth as we emerge from the Delta surge and screenings and early stage surgeries return to pre-pandemic levels. Next, I'll transition to our emerging growth opportunities, which stem from our acquisition of Chronix Biomedical. We briefly talked earlier about Determine C&I, our patented blood-based test to monitor cancer patients post-treatment. Through this acquisition, we also acquired access to the TheraSure transplant monitor test for early transplant solid organ rejection monitoring. This is a very large market of approximately $2 billion in the U.S. alone, with established reimbursement of between $2,700 and $2,800 per test per patient in the United States. Given the repeat testing modality for monitoring for transplant rejection, this is a recurring revenue stream and represents a very large revenue opportunity for Oncocyte. Recently, we received issuance of our second US patent covering the use of our digital PCR technique for molecular detection of solid organ allograft rejection. This new patent complements our first patent issued, which gave us IP around absolute quantification, a very important differentiator for our method versus the competing next generation sequencing methods. We now have both IP components needed in the U.S. to support entry into the transplant monitor market in the U.S. with our TheraSure product starting out as an LDT out of our Nashville CLIA lab. So how is TheraSure differentiated? First, our test offers the broadest application across transplanted organs. While we have indication in heart and kidney, the two largest volumes, organs transplanted, TheraSure is the only test with a current indication for monitoring liver transplants. We also offer the fastest turnaround time and greater sensitivity for early indication of rejection, which can prompt a timely and critical change in dosing of therapy to suppress the rejection. Additionally, our test offers absolute quantification, which allows for greater sensitivity to identify early onset of rejection, providing utility for longitudinal monitoring of organ health over time. Over 20 clinical studies and numerous peer-reviewed publications have validated the usefulness of our donor-derived cell-free DNA test as a non-invasive biomarker to assess rejection, cell death, and under immunosuppression. All signs that a transplant is or soon will be rejected. However, the other technologies in use differ in effectiveness, accuracy, and speed of turnaround. Data published to date identifies our digital PCR method as the fastest and most cost-effective for payers as compared to other methods that measure donor-derived cell-free DNA. These results have been published in prestigious journals, including PLOS Medicine, American Journal of Transplantation, and others. Importantly, 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 from Chronix on the performance of our tests in solid organ transplant monitoring. This is a huge validation of the Chronix technology, and we believe paves the way for commercialization and reimbursement here in the U.S. We're now on a fast track to launch an LDT in the U.S. by the end of Q1 2022, so we can begin our efforts to gain access to the current reimbursement offered by the Center of Medicare Services. Europe represents another attractive market, which is currently intact. And last quarter, we unveiled the new details about our plans for the Dershowitz Transplant Monitor Test in Europe. We're now moving rapidly to work with local governments for reimbursement ahead of our 2022 launch in Germany. We're incredibly enthusiastic about the potential of donor-derived cell-free DNA to deliver cost-effective, precise surveillance of transplant recipients to decrease premature graft loss resulting in a need for re-transplantation. In summary, our differentiated approach is more specific, quantitative for longitudinal follow-up, cost-effective, and can provide same-day turnaround time of important information for patient management. As we look forward, I'm very excited for our team, our investors who have supported us through the development phase of our comprehensive offering. We're continuing to make progress on each product area and we'll exit 2021 with solid momentum toward our goal of launching a compelling and powerful portfolio of molecular diagnostic test assets with a large combined market opportunity, well over $10 billion. And we will have proprietary positions in some of the fastest growing areas of molecular oncology. 2022 promises to be a year of rapid expansion of our markets and testing growth. In order to take full advantage of our progress, the board and senior management thought it was time to solidify the infrastructure to deliver a best-in-class customer experience. Our recent appointment of Gisa Paulson as Chief Operating Officer brings world-class talent in strategy, operations, and industry leadership to the OncoSight team. Her history with Genentech, Roche, and Exact Sciences Genomic Health or about solid experience and positioned us to enter our upcoming growth period where flawless execution will be essential. We're excited to have her on the team and look forward to her contributions as we build out the fundamentals required to deliver our menu to physicians and patients in the United States and Europe. Continue to be amazed by the dedication of our incredible team, particularly during the relentless challenges of the pandemic. And I'm incredibly proud of how our organization has responded by keeping all major programs on track. I can say with incredible conviction that Team Oncocyte believes we have the potential to transform treatment decisions in oncology and beyond, and their unwavering commitment is evidence. At this point, I'd like to turn the call over to Mitch Levine to review our financials. Mitch?

Hey, thanks, Ronnie. Hi, everybody. Our consolidated revenues for the third quarter of 2021 were approximately $1 million, representing 77% growth year over year. Combined, revenues for the first three quarters of 2021 are $4.1 million, which represents a 480% increase year over year. Progress with the TerminalRx remains solid, with 289 samples for the third quarter, an increase of 65% year over year, and a modest increase over Q2 despite the substantial slowdown in early-stage cancer surgeries caused by the Delta variant. I would like to make an important point here. We feel the best measurement of adoption growth for the TermaRx is the number of physicians being trained to use the test, which we call onboarding, as well as the adoption by community cancer treatment centers and hospital systems. When we no longer have the headwinds of COVID-19, These physicians and hospitals will be responsible for ordering DETERMA-RX for their patients. Growth in physicians trained and hospital adoption should drive test adoption and revenue growth. DETERMA-RX clinical results are attracting a rapidly growing base of prescribing physicians. In the third quarter, the pool of onboarded prescribing physicians increased by 22% from Q2 and 150% year over year to a total of 367 physicians. Similarly, onboarded hospitals and account sites increased 24% from Q2 and increased 225% year over year to a total of 218 sites. Again, our key performance metrics of onboarding of physicians as well as adding new hospitals and community treatment locations, are the best measure of DetermineRx adoption by physicians who will generate higher sample growth and lead to greater revenues. So it's worth keeping an eye on those. Third quarter revenues associated with DetermineRx were $402,000, a 93% increase year-over-year and a modest decrease from Q2, attributable to the pandemic headwinds in July and August. We saw a significant drop in early stage lung cancer surgeries and related testing, particularly in the south and southeast regions of the United States that were hard hit by COVID-19, as well as California, which was in lockdown. According to a CNN report, surgeries were down 38%. The pandemic headwind was strongest in the months of July and August, We did, however, see a solid rebound in samples ordered beginning in September, and this strengthening continued through October. We received $260,000 in licensing revenues in Q3 from licensing of our proprietary molecular tests to third parties in Europe and China. Our pharma services business also made a modest contribution of about $282,000 a decrease of 19% year over year, and an increase of 68% quarter over quarter. As we have discussed previously, revenues in pharma services are lumpy as we depend upon sample volumes from biopharma clinical trials. And because of the ongoing COVID challenges, we receive fewer samples from our pharma partners for testing. We expect a rebound in samples in Q4 as clinical trials resume. And as I mentioned in our second quarter call, We signed a major services agreement with a large molecular platform company in June and have spent the last couple of months investing in and installing instruments in our Nashville lab facility. We believe increasing our work for diagnostic companies should drive a rising and more predictable level of services revenue. Turning to the balance sheet, as of September 30, 2021, we had cash, cash equivalents, and marketable securities of $44.3 million. In July, two institutional investors increased their positions in Oncocite by acquiring 1.1 million shares via our ATM, or at the market, at an average price of $5.63 per share, providing a total of $6.2 million to Oncocite. We use the ATM strategically in response to investor demand, not to simply offer stock into the market. And this was a perfect example of the ATM in action. Additionally, we collaborated with a long-term investor to exercise for cash warrants issued in a 2016 offering. Oncocite received $1.8 million in non-dilutive capital when the legacy warrants were exercised. With that being said, we're in a solid financial position and are well-funded to fuel our engines of long-term revenue growth. Determa IO, our immune therapy response predictor, which we just launched via our early access program. Determa IO and Determa RX together will establish us as the most differentiated precision diagnostic company for cancer treatment selection. DETERMA-CNI, our blood-based treatment monitoring assay that we expect to launch research use only in the first quarter of 2022, which completes our oncology menu and offers a complete solution for treatment selection and response monitoring for patients throughout their journey. DETERMA-RX, our reimbursed lung cancer recurrence predictor, and Therasure transplant assay for the early detection of transplant rejection that we expect to launch in the first half of 2022. Cash used in operations for the quarter was $10.0 million for normal operating burn, plus approximately $1.3 million in non-recurring acquisition, legal, and business development related payments in the quarter. Excluding non-recurring items, we expect our base operating cash burn to remain stable. We will continue to invest in our diagnostic tests to create or gain market share, to solidify proof of concept through studies and registries, and to strengthen collaborations with strategic partners. Non-GAAP operating loss, as adjusted for the third quarter of 2021, was $9.3 million, an increase of $3.3 million as compared to the same period in 2020. GAAP operating loss as reported for the third quarter of 2021 was $13.6 million, an increase of $7.4 million from the third quarter of 2020. We have provided a reconciliation between GAAP and non-GAAP operating losses in the financial tables included with our earnings release, which we believe is helpful in understanding our ongoing operations. Cost of revenues for the current quarter was approximately $1.9 million, including $990,000 in non-cash amortization expenses from our Razor asset acquired in February. Cost of revenues also include testing services we perform for our pharma customers. It is important to note that as we ramp our testing volumes, we expect to see an improvement in our gross margins in future quarters for the DETERMA-RX test. Research and development expenses for the third quarter of 2021 were $3.1 million as compared to $2.6 million for the same period in 2020. General and administrative expenses for the third quarter of 2021 were $5.5 million as compared to $5 million for the same period in 2020. due primarily to an increase in personnel, insurance, and legal expenses. Sales and marketing expenses for the third quarter of 2021 were $2.9 million as compared to $1.6 million for the same period in 2020, primarily attributable to ramp up in sales and marketing activities for our continued commercialization efforts of Determa Rx and now Determa IO. For the third quarter of 2021, we reported a net loss of $13.8 million, or 15 cents per share, as compared to $6.8 million, or 10 cents per share, for the third quarter of 2020. We have a good history of making timely, thoughtful strategic investments in clinical studies and additional sales and marketing initiatives, which has helped us build commercial momentum in 2021. We aim to extend that momentum by growing the sales of DETERMA-RX. In November, we began the U.S. commercial launch of DETERMA-IO, and soon we expect to launch DETERMA-RX and DETERMA-CNI. We will also invest thoughtfully behind the planned launch of Therassure transplant tests for transplant rejection monitoring by the end of the first quarter of 2022. Thanks, everybody, for your time. That concludes my remarks concerning our financial highlights.

Ronnie? Operator, that concludes our formal remarks. If you don't mind opening up the call for questions, please.

Yes, 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, and a confirmation tone will indicate that your line is in the queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from Paul Knight with KeyBank. Please proceed.

Ronnie, how do you expect I.O. to roll out? I understand you're going to collect more data in 2022, but... When do you think the data set is complete and you're able to submit a dossier into CMS?

Yeah, great question, Paul. We believe we have the data today to go to market clinically. We've got enough in the tumors that we've validated already to go. Much like historically in our industry, whether it be genomic health, clarion, Foundation Medicine, Garden, I mean, all of these companies, these great companies, have launched their test ahead of reimbursement and have moved towards adoption. So we realize that we still have a little bit of a road ahead for reimbursement, but especially given that Determine TX, I'm sorry, Determine IO is a PCR test, we believe it's prudent to go ahead and launch it and start the clinical adoption process. The dossier, we believe, will be completed And we should be able to submit for submission by the end of the first half of 2022.

And then on the Burning Rock milestone, are we on progress there?

Mitch is really on point. As an executive team, we have an executive sponsor. I'll let Mitch answer that for us.

Yeah, we are on point with Burning Rock. and are completing the tech transfer on time and to everyone's satisfaction.

And lastly, any change in the Salesforce composition, Ronnie?

Not today. Paul, you know, we had plans to expand, and we may expand by a few heading out of this year because there are some interesting territories that we have interest for IO that are uncovered, so we may add a few. But But until we see the pandemic completely lift and reps be able to access positions for face-to-face meetings, we're a little reluctant to go full throttle and add a lot more reps. But ultimately, as we've spoken I think a few times on calls, we will be adding and expanding the sales force because as you add the term IO and TX, it adds breadth to the offering and requires more you know, these reps to spend more time in the key accounts, you know, detailing and talking to various physicians within the account. So as we began to expand the menu and launch these tests, we will more than likely at some point in 2022 add to the sales force, but not planning on significant ads today. Okay, thanks.

Our next question comes from Mark Massaro with BTIG. Please proceed. Hey guys, thanks for the questions.

I guess my first one is on transplant. Recently, the market leader received two federal investigations and one state investigation. I'm just curious if you are familiar if any of these investigations might be pertinent to the transplant industry at large, or do you think it's perhaps specific to the market leader itself? And the second part of that question is, can you clarify which organ states you will launch in initially? My understanding is kidney, but I'm not sure about that.

Yeah. Well, on the first question, to be candid, I don't know enough about the situation to be able to comment specifically. I will say, being in this space for 30 years, that it's not uncommon for labs running LDTs and submitting claims to get investigated. Unfortunately, it's somewhat the nature of our industry at times. Again, I don't want to comment on what the nature is, but I do believe that as we launch our LDT, our plan is to launch the LDT across all three donor types, kidney, heart, and of course liver, since we have a unique position with liver. But as we go to our clinical trials to start the clinical trials for putting our test into a kit, we may end up having to prioritize the organs. And when we do that, most likely we would do liver and probably kidney in that order, given that we have a proprietary position in liver.

Yep, that makes perfect sense. So just to clarify, you've talked about wanting to launch kidney, heart, and liver. You've talked about the Theratura transplant test launching as an LDT out of your natural lab in Q1-22. Are you planning to launch kidney, heart, and liver out of that lab in Q1-22? And then I know you've also talked about potentially partnering with another company. any clarity on, you know, some of your planning around a potential partnership would be helpful.

Yeah, sure, Mark. Let me give you the call on that. Our plan is to bring all three indications up as a lab-developed test and have that ready to go by Q1. We will then sit Padma on CMS and let her go after getting our reimbursement. As you know, the LCD was I did cite our publications, so we feel good that the test we're bringing up is the test they've already approved for that blanket LCD, but we still have to go through the paces of getting that. Once we get through that, then we will be going to market with the LDT across all three donor indications, all organ indications. And so the goal is to launch as an LDT We are in process of speaking with a couple of major partners, and our goal is still to have those as our long-term partner to help us with the clinical trial process and obviously ultimately turn this into a kit that can be democratized, which is really the unique opportunity that we have. And from the market research that we completed to make the decision to go into transplant, we clearly saw that the leading attribute for decisions for these centers is the ability to provide same-day turnaround time for their transplant patients. And we believe that we will be in a unique position to deliver on that promise to these centers by completing the clinical trial and democratizing on a digital PCR instrument. Therefore, we do need a partnership with a digital PCR platform company As you might imagine, there's three really good ones, and so I can't go much deeper than that, but just suffice to say we're in conversations with them all and trying to find the best one to partner with.

Okay. And then I do want to ask, I guess, about the quarter itself. So I do think it's impressive that you grew sequentially to term Rx volumes despite the headwinds in the South and Southeast and California and the decline in surgeries. I think every other Precision Oncology Lab that has reported has commented about, you know, the headwinds in Q3. I guess if you could elaborate a bit, as we think about, you know, the last couple months here in Q4 and a little bit into 2022, is it your expectation that, you know, RX can meaningfully accelerate from here, you know, quarter to quarter, and then My understanding is you had about 10 people in the field. I think you've talked about going to 20 by the end of this calendar year. Any commentary on go-to-market and sales headcount would be helpful as well.

Yeah, you know, Padma's on, and I'll let her answer that. I'll start with, though, you know, we did see a really solid October. You know, both Mitch and I said that. We wanted to be open about that. We started to see surgeries come back, and we started to see our volumes pick up. And they were meaningful. It was a meaningful increase. It wasn't just by a little bit. So that's the good news. So we'll see how the quarter plays out. As you know, the end of the year, there's always seasonality with elective surgeries because physicians nor patients want to be in the hospital over the Christmas holiday season. So yet to see. We do know there's a backlog of these types of patients. It could be that because they've been waiting for these surgeries, they do work through the holidays. So we'll have to wait and see what happens. But in terms of the Salesforce expansion and growth, Padna, why don't you handle that one?

Yeah, I just wanted to reiterate what Ronnie said. We are pleased with our 65% year-over-year growth, and I'm confident of the growth continuing into 2022. even with our existing 10 reps. So I'm very confident of continuing the growth into 2022. In terms of the sales reps, as of now, we still have the 10 reps. And as Ronnie said, we'll be very judicious about adding reps. We didn't intend to have 20 by the end of this year. We had said, you know, perhaps by the end of next year. And as Ronnie said, we'll be adding a small number of reps to support the launch of IO. which has a broader oncologist call point, and we'll be adding them in states with the largest total addressable market, as you can imagine. So that's the strategy, and it will be a phased edition, starting with a small number now and additional reps as we proceed through the year and have additional launches, including the Terma TX.

Mark, in terms of the transplant, sales approach. You can anticipate as we get to the end of Q1, depending on who our partner with, we will more than likely support that partner with what I would call medical liaisons or medical technical sales reps so that we can actually go in and help those platform companies differentiate our test and et cetera. So we'll probably add some of those reps, but more to come as we get closer to that date.

Terrific. Thanks for all the color. I'll hop back in the queue.

Thanks, Mark. Thanks, Mark.

Our next question is from Michael Mattson with Needham. Please proceed.

Hi, everyone. This is Joseph on for Mike. I guess maybe first one just around Determa IO and the launch. You know, I guess he you did say earlier that you do not expect to need another study for, for, for reimbursement, but I guess maybe I just want to see what you guys are thinking in terms of, you know, the, the next, the next couple of studies, the next study that you'll be, um, pursuing, uh, what type of cancers you guys are targeting and maybe the structure of this. And, and then I guess second part to that in terms of, um, Physician education, should we be expecting more KOLs in the future to drive awareness? Thank you.

Yeah, those are all good questions and really best answered by Padma, our Chief Commercial Officer. Let me just clarify something. We believe we have enough data today to support the launch and utility of the test, but we are still in the middle of collecting data that we expect to be published. that we can use to go for CMS. So Padma, you want to take it from there?

Yeah, in terms of usage of the test, the reason we announced the EAP is because there was interest from physicians to have access to the test clinically. So there's definitely a demand for the test and that's why we're doing the EAP program. As to reimbursement, yes, we do have data obviously for clinical launch. We are completing studies that will generate the data. These are retrospective studies that will generate the data we need to put into our dossier. Obviously, we have data in lung and triple negative breast cancer, but we do believe that this test has planned cancer utility. And so we will be making investments, and Doug chime in here, to show utility in additional tumor types. So last quarter we talked about, for example, we're part of the Atizo tribe study, in colon cancer. So there will be investments in clinical studies to demonstrate the utility of this test that will ultimately lead to a pan-cancer claim. As to KOLs, we are very lucky that because we've done studies in multiple tumor types, we already have enthusiastic KOLs, and you'll see them speaking about DETERMA-IO and upcoming conferences, namely CITC, the Society of Immuno-Oncology Conference happening in Washington, D.C. this week, And there'll be a CME at the San Antonio Breast Cancer Symposium. So we're very lucky that because of these people have participated in our studies in Europe and here, we already have enthusiastic KOL speakers. And of course, one of the goals of the EAP is that those early access sites, those doctors will automatically become additional KOLs that will kind of spread the word about the test as we go for full commission launch.

Okay, great. That makes a lot of sense. Thank you for clearing that up. And then maybe just a quick one on Determa Rx. What's the expectations, or I guess could you guys maybe clear up the timeline a little bit on potential NCCN guideline inclusion? And then it was my understanding that there would also be an additional milestone payment in coordination with guideline inclusion from Burning Rock, is that correct?

Yeah, so I'm going to let Doug comment on where we are with NCCN since he's on point for that, but let me give you just a high-level answer. There are two milestones. One milestone is the completion of the tech transfer and then Burning Rock going live, and then there's a follow-on milestone that when we do get into NCCN guidelines that there is an additional milestone. So that is correct, there are two milestones. and so that is a correct assumption. Doug, you want to talk a little bit about NCCN? I know that they've reported out on quite a few of the smaller tumors, but we still haven't seen anything on some of the larger tumors yet.

Yeah, that's correct. So, you know, their proceedings are confidential until they are released publicly, and so we really don't get any clue from them about what's going on. I have written them and asked for an update on what is usually a fall release, And they've written back and said more likely towards the end of the year. So we're in a wait and see mode, but it appears that the lung cancer guidelines are going to be released later this year than is usual. And I don't have any knowledge of why that is.

You know, just to add a little commentary from my role with ASCO, there have been a significant number of new therapies and new additions to the arsenal for non-small cell lung cancer this year. And so the feeling is there was a lot to take in and a lot to add context to for the members. And so I suspect that that's what's driving some of the delay. But clearly, we, like you guys, are very hopeful that we see those soon.

Yeah, absolutely. Well, thank you for taking our questions. Of course. Yeah, thank you.

Our next question is from Bruce Jackson with the Benchmark Company. Please proceed.

Hi, everyone. Thanks for taking my question. I wanted to talk about the pharmaceutical services business briefly. In the past, you've discussed the backlog in that business. It's been rather sizable. I wanted to know if we could get maybe a rough update on the amount. And then secondly, with the data that shows that Determine.io is predictive, have you gotten any more inbound calls from potential pharmaceutical partners.

Yeah, we'll split this amongst a team. Let me sort of start with the last question. We continue to see and get discussions opened up by some of the emerging therapy companies that have products that are either, you know, complementary to the patients who are not responding to an immune therapy and are therapy companies that are trying to enter the ICI or the immune checkpoint inhibitor world. And so those conversations are always ongoing. We continue to do some pilots for those companies. We are hopefully going to see some of the closure of some of those pilots. And those pilots, obviously, we hope will lead to a full access to a trial. So there is interest there. We continue to get inbound phone calls as well as we continue to make outbound phone calls. So we aren't short of activity with pharma, but it is mostly with the emerging therapy companies that are trying to take on the large market leaders. In terms of pharma services, we still have a solid pipeline, but it's been a little bit confounding for us, if I can just be totally transparent, which, Bruce, you always expect me to be. We have these projects and we have them, the master services agreement signed up, but the actual projects, it's kind of a start, stop, start, stop. Every time we think we're going to get started on a big project, we're told by the company that they're going to delay it for another quarter, another month, which is one of the reasons we wanted to do something a little more reproducible and predictable, which is why we started taking the bandwidth we had and going after some of the diagnostic companies that need platform validation, and obviously we're extremely good at that, both in Nashville as well as in California. And so we can offer them a clear environment by which they can do crossover studies from one version of an instrument to a new version, one version of software to a new version, and even validate new kits for them and software for their FDA submissions. And so that business does not really require you know, pharma patient samples for clinical trials, and it's more predictable. So we, as Mitch said, we did get our first big contract in. We got the instruments installed, and that first big contract is underway. So hopefully we'll be able to complete that by the end of the quarter. But we should see a lot more of those as we enter 2022, and that should help smooth out the revenues in pharma services.

Okay, great. And then one follow-up question, if I could, on Burning Rock. So you're on track this quarter for the milestone, next milestone. How does that revenue stream unfold during 2022 when they transition to actually performing a test? And do you have, like, a rough idea of how much that might add to the top line?

Hey, Bruce. Well, we're not sure how much it's going to add to the top line, but we will get paid per sample that they run. They have given indications that it's a very large market in China for early stage lung cancer surgeries. And so we are hopeful that it adds quite a bit, but it is premature for us to have a better handle on that because they haven't gone out to commercialize it as of yet.

Mitch, as soon as we complete tech transfer, though, their plan is to immediately launch in the new year. Absolutely. So, Bruce, we'll start to see. the royalty trail, and we'll kind of get an idea of how they're going to ramp in Q1. As you know, Burning Rock is an extremely capable company. They are one of the top molecular oncology companies in China, and so obviously we have high hopes for that. Royalty payment actually is a guaranteed per patient fee, which we like because that way we aren't susceptible to pricing fluctuations in various provinces and things. So we'll know more as we get into Q1, but it's something to watch, and we're obviously eager to see how they take off.

Okay, great. Thanks for taking my questions.

Yeah, Bruce, thanks. Stay warm.

Ladies and gentlemen, there are no more questions at this time. And I would like to turn the call back to Ronnie Andrews for any closing remarks.

Well, thanks, everyone. I know this was a little longer call than we probably had wanted. But the reality was getting the feedback we got in the quarter as I was out traveling around that we really wanted to share the full strategy and how each one of the components that we are bringing to market or each test that we're bringing to market mattered in the overall strategy. So hopefully that was helpful. And as always, we appreciate your support, and we just look forward to further updates as we exit the year and enter next year. Have a great day.

This concludes today's conference. You may disconnect your lines at this time. Thank you very much for your participation.