Oncocyte Corporation

Q4 2021 Earnings Conference Call

3/10/2022

spk05: Greetings. Welcome to the OncaSite Corporation fourth quarter and full year 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. Please note, this conference is being recorded. I'll now turn the conference over to your host, Troy Williams of LifeSci Advisors. You may begin.
spk02: Thank you, Kyle. And thank you, everyone, for joining us for today's conference call to discuss Oncocite's fourth quarter and year-end 2021 financial results and recent operating highlights. If you have not seen today's financial results press releases, please visit the Investors page on the company's website. Before turning the call over to Ronnie Andrews, Oncocite'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 facts are forward-looking statements. We encourage you to review the company's SEC filings, including without limitation the company's forms 10-K and 10-Qs, which identify 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 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 technologies, or failure to maintain any laboratory accreditation or certification, and uncertainties associated with 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 four looking statements. Oncasite expressly disclaims any intent or obligation to update these forward-looking statements except as otherwise may be required under applicable law. With that, I'll turn the call over to Ronnie Andrews. Ronnie?
spk04: Hey, thanks, Troy, and welcome, everyone, to our conference call to discuss our fourth quarter 21 and year-end financial results and operating highlights. Joining me today is Mitch Levine, our Chief Financial Officer. Following our prepared remarks, as always, we'll be happy to take your questions. Today, I'm going to be sharing a few slides which we believe will be instrumental in bringing clarity to our progress against our strategic milestones, as well as provide a thorough overview of our Q4 achievements. I hope all of you were able to either join in or listen to the replay of our investor day that we had in December. But if not, I'll use a few of those slides today to review our 2022 strategy, the key milestones for this year, and provide updates on all our products during today's call. For the New Donka site, two years ago, my team and I stepped in to reposition the company for the future and laid out a compelling strategy to bring to market a portfolio of tests that would complement each other and deliver answers to critical questions physicians and patients face today that large-scale genomics continue to fail to answer. We believe two major decisions still face every physician managing a cancer patient. What's the best treatment option and is the therapy working for my patient? The advancement of targeted 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, a new treatment paradigm has emerged where understanding the tumor biology of each patient's tumor is becoming essential to answering these questions. With confidence, I can say that 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 and positioned us well to capitalize on the opportunities in this emerging paradigm. The next slide is an overview of the Determine Platform Strategy that's really been our playbook for the last few years. We came in with the ambitious goal of bringing four major products to market to complete the patient care continuum by our third anniversary as a management team. We remain on track to have Determa IO for immunotherapy optimization and Determa TX, our comprehensive molecular profiling test, join Determa Rx to complete our treatment selection menu by the end of the first half of 2022. And by this summer, we also plan on launching Determa C&I, our blood-based only monitoring test as a research only product for post-cancer treatment monitoring in various types of clinical trials. This will fulfill our commitment to concurrently bring the complete menu to market and we'll begin to initiate the reimbursement process for these exciting products in the second half of 2022. We're enthusiastic about our product offering and look forward to being the first company in our industry to offer the complete testing menu needed by physicians to manage their cancer patients throughout the journey from diagnosis all the way through to therapy monitoring. And as you've heard by now, we're not stopping there. With our acquisition of Chronix Biomedical in April of 2021, we gained a powerful test for transplant rejection monitoring called Therasure. After CMS issued a blanket coverage decision for this technology, specifically citing our papers and patents last April, we made the decision to allocate a small team to stand up a transplant monitoring business and rapidly transfer and validate the test in our Nashville CLIA lab. We remain on track to complete the work and have our lab-developed test completed for commercialization by the end of March. We continue to believe that our decision to establish a transplant monitoring business will create significant revenue opportunities for Oncocytes beginning later this year as we hopefully gain access to coverage under the blanket LCD granted to our technology. Platform partnership discussions are on schedule from there, sure, as well. And we've opened new avenues to generate non-diluted working capital for the company. In our December investor call, I shared the milestone scorecard for each product for 2022. And as you will see in the next slide, we have identified the critical success factors could currently bring our major products through the development process to commercialization. We exit at Q4 2021 with momentum to execute against our milestones, and we'll use the milestone slide throughout 2022 to ensure you, our investors, have a good understanding of how we are progressing against the major milestones. Assuming we hit each of these milestones, we will exit 2022 with all major products launched, at least two with high-value reimbursement and gaining revenue traction, and two more with reimbursement dossiers submitted awaiting CMS approval. We will have dedicated global platform partners for oncology and for transplant and be in full clinical trial mode to gain the data necessary for regulatory submission for DETERMA-IO in Europe and Therasure Transplant Monitoring here in the U.S. Bottom line is this. Our ambitious strategy of developing and launching a full continuum of treatment selection and blood-based monitoring products will be almost complete in 2022, and the subsequent revenue growth is on the horizon. Now for a short update on the progress in each progress area. For the TermaRx, Q4 of 2021 saw a return to double-digit quarter-to-quarter growth as the pandemic-affected regions opened back up and surgeries began to pick up again. Though procedures are still behind pre-pandemic levels for early stage non-small cell lung cancer surgery, this was welcome news for Oncocyte. Our commercial team delivered a strong 152% growth in revenues for Q4 of 21 compared to Q4 of 2020. Needless to say, this was a welcomed outcome given the headwinds of the pandemic, which has slowed our revenue growth from the Term Rx throughout 2021. We continue to see solid quarter-to-quarter growth in the number of sites and physicians onboarded at 16% and 17% respectively, and now have a solid onboarded base of physicians of 429 surgeons and oncologists that are trained to order and utilize our tests. I remain encouraged with the fact that we have continued to build an onboard physician base every quarter since we launched the product. And clearly, we saw the benefit of that large install base in our fourth quarter sample volumes. In Q4, our tech transfer team successfully completed the transfer of Determa RX to our Chinese partner, Burning Rock. And we're happy to report that Determa RX is officially on the market in China as of this call. As Mitch will discuss, Oncosite earned an important milestone payment as a result of this accomplishment. The enormity of the challenge of transferring a complex molecular profile and successfully validating for market readiness within 12 months should not be underestimated. The two teams work heroically through very restrictive pandemic conditions, and the successful outcome is a testimony to the incredible professionals on both sides of the Pacific. On the DETERMA-IO front... We launched the test in our early access program in November in late stage non-small cell lung cancer and early stage triple negative breast cancer. We now have our seven early adopter sites up and running. All the medical oncologists in the program to date have acknowledged a significant unmet need for precision immunotherapy biomarkers and have chosen to participate in the program because of the strength of our clinical evidence to date. During the EAP, the physicians are getting a first-hand experience of the test and are providing feedback on the real-world utility of the test in optimizing immunotherapy, which is a challenge they face every day for patients who are eligible for this treatment. There's also significant interest in this test in alternative tumor types, which suggests there's a broad demand for the test across solid tumors, so we will continue to pursue clinical studies to validate the test across many solid tumors. Key learnings from the program are this. There's significant interest in understanding the tumor-immune microenvironment across solid tumors. There's a growing body of evidence to support the tumor-immune microenvironment, or as we call it, time, as a way to assess the biology of a tumor and provide valuable information to pathologists and treating physicians. None of the currently commercialized clinical tests used for treatment decisions today assess the microenvironment of the tumor. There are now numerous papers showing that the microenvironment plays a critical role in response and resistance to immune therapy. DETERMA-IO has a growing and very impressive data set across four tumor types and continues to show the ability to effectively quantify the time and identify tumors that are poised to respond to immune checkpoint inhibitors. In Q4, we had abstracts at both CINCI and San Antonio press conferences, highlighting DETERMA-IO's precision in identifying ICI response in both TMBC and lung cancers, our two early launch indications. We now have over 1,000 patients studied and data published in abstract or paper supporting the use of DETERMA-IO. The next steps are to make our time test broadly available across additional tumor types to pathologists and to treating physicians via full market launch of our non-small cell lung cancer and triple negative breast cancer indications, as well as to apply to CMS for coverage, starting with those tumor types where we have the strongest peer-reviewed clinical evidence. Let's now turn to DETERMA-TX. Our comprehensive gene panel for answering the question, what targeted drug is my patient's tumor eligible for? In Q4, we completed the in silico design and received our first custom panel and began work on the actual development of the test. We are now in full clinical validation phase to validate performance across the various genes of known significance and to establish our test reproducibility. Just like for transplant, there's already an existing LCD in place for next-gen sequencing tests, and our validation data should enable us to get coverage for this test for patients diagnosed with advanced solid tumors. Turning now to the term of CNI, the second question I mentioned a moment ago that physicians face that remain unanswered for the majority of tumor types is this, is the therapy working? If provided early in disease cycle, this information could allow changes in therapy to be made in real time and thus potentially offer better outcomes for more patients. While there are companies beginning to offer tests that help identify minimal residual disease, or MRD, to answer whether patients were adequately treated by surgery alone, they can only serve a subset of patients whose tumors can be adequately removed or biopsied to obtain sufficient tissue samples. These tests are complicated to execute because they need to be personalized to individual patients and require genomic sequencing of the respective tumor specimen prior to the monitoring test being performed. This takes time and the extra tissue required for these tests is not always available. Moreover, the fact is that 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 the MRD test can typically not 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 prior knowledge of the tumor genome. Our therapy monitoring product, Determine C&I, was launched in the European Union in the summer of 2021 for research use, and we're on track to complete tech transfer to the U.S. in the first half of 2022. As a reminder, our test is a blood-based test and does not need resected tumor tissue, offering physicians an option for the majority of patients they serve. In fact, we not only solved the tumor tissue requirement issue, Determi-CNI also provides results on disease progression at the second cycle of treatment and is not limited to immunotherapy since we have data as well on target and chemotherapeutic options. Our ability to deliver this information at the second cycle of treatment provides important disease progression information weeks earlier than MRD or imaging to provide, thereby allowing oncologists the opportunity to start a more effective treatment regimen much earlier. It's a very exciting opportunity for Oncocyte to participate in the $4-6 billion global therapy monitoring market. With Determa I.O. now in its launch phase, our development team's efforts can now focus on getting more clinical studies for Determa C&I under our belt so we can submit for reimbursement in early 2023 and move this highly differentiated test closer to clinical market release in the U.S. When we offer the term of CNI, we will then become the only diagnostic company to offer a solution to inform treatment selection up front with a proprietary tumor immune microenvironment assay for immunotherapy optimization and a blood-only monitoring of patients on that same treatment to detect progression early. The Q4 update for DETERMA-C and I is this. We now have more than 1,200 patients under study across several tumor types. We had a major paper published in Cancer in late December showing outstanding results in ovarian cancer. This paper put our number of patients under study well over 500, with many more papers to come in 2022. 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 the physicians who treat them throughout the patient journey. The bottom line is this. While the pandemic has slowed other companies' development efforts, I'm excited to say that we've stayed focused and are now poised to deliver the full complement of tests in our current oncology portfolio to the market over the next four quarters. With these products launched, OncoSight will now enter a very large market opportunity with unique and proprietary capabilities. Based on our current momentum, within the next 12 months, all of the current tests in our portfolio will be on the market, receiving reimbursement, and driving the rapid revenue growth we envisioned when we laid out our compelling strategy a few years ago. Next, I'd like to spend a little time on transplant. Through the acquisition of Chronix Biomedical, we acquired access to the Therasure Transplant Moderate Test for early transplant solid organ rejection monitoring. This is an extremely large market of $2 billion in the U.S. alone, with an established reimbursement rate of $2,700 and $2,800 per patient, depending on the organ type. Given the repeat testing modality for monitoring for transplant rejection, this is a recurring revenue stream and represents a very large and very exciting revenue opportunity for Oncocyte. As discussed at our investor day call in December, we're on a fast track to launch an LDT in the United States by the end of Q1 2022, so we can begin our efforts to gain access to the current reimbursement that is offered by CMS. One of our key milestones for transplant is identifying and contracting with a large global digital PCR platform company. We're very close to an agreement and continue to work on non-diluted investment approaches for the development kit rights for Therassure to decentralize the technology into transplant centers in the U.S. and in Europe. We know from our extensive market research that providing transplant centers the ability to deliver same-day turnaround time on important monitoring results as well as participate in the economics from the reimbursement is a game-changer in this exciting market. We remain incredibly enthusiastic about the potential of donor-derived cell-free DNA testing to deliver cost-effective, precise surveillance of transplant recipients, which will decrease premature graft loss resulting in the need for re-transplantation. In summary, Our differentiated approach is more specific, cost-effective, and can provide same-day turn-on time of important information for patient management, as well as provide quantitative results for longitudinal follow-up for the life of the organ, attributes only Oncocytes Therasure can deliver for the foreseeable future. In summary, I'm very excited for our team and our investors who supported us through the development phase of our comprehensive offering. We're continuing to make progress on each product area and are in a good market position with solid momentum toward our goal of launching a compelling and powerful portfolio of molecular diagnostic test assets with a large combined market opportunity of well over $10 billion. And when we get the portfolio launched, we'll have proprietary positions in some of the fastest growing areas of molecular oncology and transplant. I 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 organizations respond to 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 transplant, and their unwavering commitment is evidence. Now I'd like to turn the call over to Mitch to review our financials. Mitch?
spk06: Thanks, Ronnie. Hi, everybody. Thanks for joining our call. Our consolidated revenues for the fourth quarter of 2021 were approximately $3.6 million, representing an increase of 614% year-over-year. Revenues for the full year of 2021 were $7.7 million, representing an increase of 535% year-over-year. Progress with the Terma Rx remains solid. Fourth quarter revenues associated with the Terma Rx were $821,000, an increase of 152% year-over-year and an increase of 104% from Q3. For the full year, the Terma Rx revenues were $2.5 million, an increase of 354% from the previous year. In the quarter, we processed 444 samples, an increase of 54% over the third quarter. As I have mentioned on prior calls, we track adoption growth for the TermaRx by the number of physicians we have onboarded or trained to use the test, as well as by adoption in community cancer treatment centers and hospital systems. In the fourth quarter, the pool of onboarded prescribing physicians increased by 17% from Q3 and 202% year-over-year. Similarly, ordering hospital and account sites increased 16% from Q3 and increased 184% year over year. We received $2.3 million in licensing revenues in the fourth quarter from licensing our proprietary molecular tests to third parties in Europe and China, including a milestone payment of $2 million from Burning Rock for technology transfer of the Determa Rx diagnostic test. Our pharma services business generated $493,000 in the fourth quarter, an increase of 180% year-over-year, and an increase of 75% quarter-over-quarter. As we have discussed previously, revenue in pharma services will likely fluctuate as we receive samples from biopharma clinical trials. We are encouraged by our ramping work for diagnostic companies and we expect an increasing, predictable level of pharma services revenue ahead. Cost of revenues for the fourth quarter was approximately $2.2 million, including $1.2 million from the cost of diagnostic tests and testing services we performed for our pharma customers, and $983,000 in non-cash amortization expenses related to our two acquisitions. Cost of revenues for the full year was approximately $7.5 million, including $3.4 million in non-cash amortization expenses of the acquired intangibles. It is important to note that as we ramp our testing volumes, we expect to see continued improvement in gross margins in future quarters for the DETERMAL-RX test. Research and development expense for the fourth quarter 2021 was $4.6 million as compared to $1.8 million for the same period in 2020. R&D expense for the full year was $13.6 million as compared to $9.8 million in 2020. The increase in R&D expense was related to increased headcount and investment in clinical trials as we continue to build out our pipeline of diagnostic tests. General and administrative expense for the fourth quarter was $4.1 million as compared to $3.4 million for the same period in 2020. G&A expense for the full year was approximately $22.3M, which increased versus the prior year primarily due to personnel and related expenses. During 2021, we incurred professional and legal fees, as well as other acquisition and business development related costs, which we account for as one-time items. Sales and marketing expense for the fourth quarter was $3.3 million, as compared to $1.9 million for the same period in 2020. For the full year, sales and marketing expense was approximately $11.2 million. The increase year-over-year was primarily attributable to an increase in headcount and continued ramp in sales and marketing activities to support the commercialization efforts of our diagnostic tests. Now I would like to turn to our gap and non-gap analysis. We believe that non-gaps, which are cash-based metrics, provide a more meaningful measure of our underlying operating performance. Non-gap operating loss, as adjusted for the fourth quarter, was $5.3 million, a decrease of $859,000 as compared to the same period in 2020. Gap operating loss, as reported for the fourth quarter, was $35.7 million, an increase of $29.4 million from the fourth quarter of 2020. The increase in gap loss is actually due to a piece of good news. We estimate that our forecasted revenues for DETERMA CNI is higher than our original forecast when we acquired Chronix Biomedical about a year ago. We now see greater revenue potential and lower commercialization risk for DETERMA CNI, so that increases the fair value of our acquired asset. Non-GAAP operating loss as adjusted for the full year was $33.2 million, an increase of $6.7 million as compared to the prior year. GAAP operating loss, as reported for the full year, was $74.2 million, an increase of $44.5 million from the prior year. For the fourth quarter, we reported a GAAP net loss of $35.9 million, or 39 cents a share, as compared to $6.3 million, or 9 cents a share, for the fourth quarter of 2020. For 2021, net loss was approximately $64.1 million, or 72 cents per share, as compared to $29.9 million, or 46 cents per share, during 2020. We have provided a reconciliation between these GAAP and non-GAAP operating losses in the financial table, including with our earnings release. Turning now to the balance sheet, as of December 31st, 2021, we had cash, cash equivalents, and marketable securities of $36.5 million. We are considering several non-diluted forms of financing from potential strategic partners and capital providers as we navigate our business and capital strategy. Net cash used in operations for the quarter was $7.1 million, a level which we expect to approximately maintain. That concludes my review of our financial highlights, and I'll return the call to Ronnie.
spk04: Thanks, Mitch. Operator, we can now open the call for questions.
spk05: At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star, too, if you'd 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 is from Mark Massaro with BTIG. Please proceed with your question.
spk03: Hey, guys. Congrats on the quarter. Thanks for taking my questions. I guess the first one, maybe Ronnie, can you expand on what you're seeing in the end markets? I think a lot of other companies have talked about things opening up, maybe just the hospital access and what your expectations are. And maybe if you could kind of characterize what you saw at the end of Q4 with Omicron and where you are now in March. We're almost done with Q1, but like what you saw in January and February.
spk04: Yeah, so happy to do that, Mark. You know, look, I think we all would probably hear this. I hear this from a lot of my CEO colleagues that, you know, it's just right now it's hard to predict when and where we're going to see markets open up. What we did see in fourth quarter, and we had sort of forecasted this at our third quarter earnings call in early November, but it sure played out through the quarter, is that there was a lot of pent-up demand for these early stage lung cancer surgeries. And we started seeing surgical suites open up. Obviously, the Omicron variant became, while it was certainly scary, it became more of a common cold and did not really impact a lot of the surgical suites as much as I think people thought it was going to. And clearly, what we saw was people taking advantage of their paid-up deductibles as they headed into December. and were eager to get these procedures done. Anecdotally, lots of friends that are surgeons, and they basically had not worked a lot during the summer and early fall, and so they worked through Christmas and their New Year holiday. So we anecdotally heard a lot of those stories. Our reps in certain areas were able to get in to see Docs, I will say this, Mark, we also did see and hear reports of physicians basically still having a hangover from seeing reps from the summer and still wanted to have those happen virtually. So we were able to accommodate that, of course, but we would like to see our reps, you know, there's nothing better than a face-to-face opportunity for our reps to detail our products and to close the business. But January always starts out slow in our industry. People, like I said, you spend the deductibles, and a lot of the surgeries that are picked up in Q4 get done in November, and certainly we saw a very strong December, which, to be candid, I didn't necessarily expect in my career. Typically, December, you've seen a lot of holiday lull, but we didn't see that. So January, I think, was good for us, but it certainly wasn't as strong as December. February, of course, had a fewer number of actual days for surgeries. And then March is obviously, you know, remains on track with that same pace. So it looks like we're in a position to see a very steady access to more and more physicians. But we'll know more as we get through March. Typically in our industry, and I can relate this back to my... days of anatomical pathology with Clarion all the way through to the days of selling, you know, genome equipment, genomic equipment that, you know, typically January's slow. February's a short month, but has some good weeks. But March is really where things start to happen in Q1. So jury's still out, but we certainly believe that we're on track for more and more access in 2022 than we saw in 21.
spk03: Okay, great. And then on your core DetermaRx, You grew 54% sequentially. I was modeling 11%, so that was a really big beat. Can you just speak to what you saw that drove the demand? I don't think you've increased your sales force that I'm aware of, but maybe can you just give us an update on where you are now with reps and where you think you might go over the next year or two?
spk04: Absolutely. Mark, the real... testimony to the metric we've been using really since the beginning of the launch, which was in the middle of the pandemic, was this onboarded physicians, which we knew that once surgery started back, an onboarded physician that found a patient that was early stage and performed surgery that was already trained would use the test. And we saw that in Q4. We certainly saw the benefit of of our over 400 what I call install base of physicians, we certainly saw that. And so we did not add the reps in Q4. We are in the process of adding three new reps, so we will have 13 in Q1 of this year. Actually, we've already hired them, so we have 13 right now in Q1. So we will be going forward with 13 reps for the year in the key territories. But we do believe that this onboarded physician number becomes more important as things open up in terms of this sort of the folks that are trained to use the test and as they have surgeries and are able to get their surgical suite open, they're able to run the test. So we're very hopeful and bullish on that as we head into the middle of the year and certainly through the fall.
spk03: Okay, great. I want to move to transplant. So you indicated that you're planning to launch TheraShore as an LDT later this month. You also talked about, you know, you're sort of in late stage talks with a potential partner. Can you just walk us through, you know, are you planning to hire any of your own people or should we think of this entirely through a commercial partnership? And then Second part of that, you know, you've talked about, you know, liver will be the first indication and you're sort of on track with your Medicare submission. But can you just give us a sense for when you think you can get reimbursement for liver and then when you think you can get reimbursement for kidney?
spk04: Yeah, absolutely. We are going to launch at the end of March. We will launch as the LDT and with that launch we will start the process to complete the samples that we already have in-house for a liver submission to CMS. We also have a line of sight for kidney as well. Our goal is to have both of those submitted to CMS before the end of Q2. Obviously, we have Already been in touch with CMS, but we aren't sure, you know, the timing of our submission, you know, we think will be sooner than we thought, but what we aren't sure is what will the docket look like at CMS and how quickly will they be able to review our submissions. But obviously our goal and our hope is that with a 90, you know, 100-day review that we would see reimbursement sometime in the fall.
spk03: Okay, great. I will hop back in the queue.
spk04: Yeah, and you know what, Mark? I didn't answer the platform question, so I owe you that. Let me finish that. I forgot. The platform discussions are ongoing. We are going to hire a small sales force to sell the LDT. We believe we can provide very rapid turnaround time, given our test is a digital PCR test. And so we are going to have a small sales force targeting key areas that are geographically adjacent to where our lab is, and we think that will be a nice start for us. But our long-term goal, as you know, is to have one or maybe two platform partners, depending on how the non-dilutive investment that they're willing to make plays out. But the goal is to have both of those, one or at least one of those, maybe two of those, nailed and announced in Q2.
spk10: Okay. Thanks, Ronnie. Thanks, Mark.
spk05: Our next question is from Mike Mattson with Needham & Company. Please proceed with your question.
spk07: Yeah, thanks. So I want to ask about, I guess, the term IO. So can you maybe just talk about how the early access program is going there and kind of what kind of feedback you're getting from the clinicians that are using it?
spk04: Sure. Right now, we've seen some good steady use by the EAP physicians. We are collecting feedback on things like the report layout. Do they like the report? How might we change the report? We found out very quick, Mike, that the indications that we have, which are non-small cell and triple negative breast, are not the only places people want to see, need help, if you will, in selecting patients for response. So we understand quickly that we need to think about not only determine IO as a predictor of response in non-small cell and in triple negative, but potentially also look at marketing an LDT for assessing the tumor in the microenvironment and other tumor types. We're certainly going to look at that as a way to engage more tumor types and as a way to get more facilities up and going and maybe engage with our medical affairs team so that we can begin to expand the clinical indication. So far, it's been a really positive response. It's incredibly additive to what they have today, which as you know is PD-L1. We're learning a lot about the test and we're also candidly learning a lot about the need to have pathology involvement because the medical oncologist, while incredibly capable of selecting the therapy and knowing what therapy to select, they don't always understand how these tools inform biology of the tumor. And so we are going to begin on some programs to educate and train pathology as well. So those have been the key learnings so far. And, again, we're early, but it's been a good launch, and we're excited about where we are with the term IO, at least in the two indications that we have clinically validated to date.
spk07: Okay, got it. And then on to Term Rx, did you say that you completed the tech transfer to Burning Rock? Yes. I think I heard you say that it's commercial in China now. Is that right?
spk04: It is.
spk07: I think there's another part of the milestone that you're expecting there or something, another millionaire. Is that right?
spk04: It is. So, yeah, it's a great question. It is on the market. It's launched. They are actually selling it. So, we are excited for that. That was, as I said, it's, you know, I think emotionally for us, it was a big victory because it was such a hard lift during the pandemic. But there was great energy on both sides to get it done and we were able to do it. We did successfully complete the milestone. However, there was an accommodation made to burning rock. They needed to add a synthetic control so they didn't have to create their own controls, which allows them stronger reproducibility in China. And so we, as a good colleague and good partner, we wanted to accommodate that because obviously we'd like for this not to be the only opportunity we have together as partners. And so we accommodated that. So we have recorded $2 million of the $3 million milestone in Q4, and we will deliver that synthetic control in Q1. So, hopefully, it's obviously too early, but we hope to be able to collect the cash and record that as revenue in Q1. But Q1 is not closed, and we'll have to wait until we get to the audit to make sure that's applicable.
spk07: Okay, got it. And then just one for Mitch. So, I want to clarify something that I think I heard you say. So, When you're talking about the cash flow from operations or cash, I don't know if cash consumption is the right word, but I think you said it was $7 million in operations in the fourth quarter. And did I hear you say that that was kind of the rate you expected for the rest of this year, for 2022, quarterly kind of rate or $7 million? Yeah.
spk06: Mike, it's the net cash burn, so it's inclusive of our revenue, et cetera. And so that's a level that we hope to maintain throughout the year, around 7 million net cash burn.
spk04: Mike, I can say this. We understand that the world is different today than it was six months ago, and we have a fiduciary responsibility to our shareholders as well as to our internal team to be a little more thoughtful, if you might, and pick studies that we might have to put on the back burner for a while just to make sure that we manage cash a little tighter than we have in the past because We were in a full court press, if you will, since it's March Madness season, to get all of our products to market as fast as we can. And therefore, we really loaded up on various studies in 2021. And coming into 2022, depending on how the capital markets begin to either – settle down or not, then we want to be able to manage that cash burn more appropriately. So you'll see those types of things come out of us this year. And it may mean we slow some studies here and there, but we do plan to obviously deliver. With our revenues growing, we think we can manage the cash burn more effectively in 2022, especially given that we think the revenues will be more predictable with the pandemic behind us.
spk07: Okay, got it. Thank you.
spk05: Our next question is from David Westenberg with Piper Sandler. Please proceed with your question.
spk00: Hi. Thank you for taking my question, and congrats on some good DETERMA revenue numbers here. So it's obvious to me the need to combine profiling and I.O. How much do you anticipate physicians will order both DETERMA I.O. and DETERMA TX at the same time?
spk04: Yeah, we actually think it's going to be a high percentage of folks that if they order TX, they will almost always order IO. We don't expect every IO order to come in with a TX order. And the reason being, there are folks that are using blood-based drugs. liquid biopsy comprehensive profiling that don't need to send the tumor tissue to us, but they still need to turn to IO because, as you probably know, the blood-based panels do not allow for certain things like T and B, et cetera. And so for us, You know, we are a nice adjunct, if you will, or a complement to the companies like Garden and CirculaGene who have the blood-based versions of that. But where there's tissue and it needs to be conserved, that's where we think we'll see the combination of Determa TX and Determa IO. And as you imagine, in our earth... And our earliest indicator, our earliest indications of triple negative breast cancer and most importantly, non-small cell lung cancer, as you know, biopsies are sparse in non-small cell. So, we expect that either a blood comprehensive panel plus IO will be used or they'll send it to us because, as you know, from the term of TX, we are going to have the, we believe, the lowest tissue requirement in the industry for a large comprehensive panel and IO together.
spk00: Got it. No, thank you very much. I realize it's still early, but any thoughts to order frequency of the 492 physicians that have been onboarded? Can you give us any kind of flavor for how long between onboarding and actually ordering? And then a continuation of Mark's question in terms of opening up, did you see more ordering frequency in the back quarter of the year, I mean in the back half of the quarter, and I'll stop there.
spk04: Yeah, we did see that. And we saw that primarily, I think, you know, and just anecdotally talking to folks is that they felt like that with the surgical suites opening and the scare of the Omicron variant going, getting lower, that people were more eager to use their deductibles that were already paid for to go get their surgeries. And we probably don't appreciate that as much in our industry as we should. But obviously, patients have to pay these out-of-pocket costs. And if they're already paid up, and most cancer patients have maxed their deductible by November, December, then they want to get these surgeries. So that is one of the unique phenomenons of what we do. I would say this, that I do think that the 429 base install base or onboarding base that we have, most of these are community physicians. That was our target audience when we went to market. So if you can imagine, there's about 40,000 early-stage lung cancer patients each year that are eligible for our test. Some of those get EGFR first, and if EGFR is positive, they won't get to Term Rx first. And so if you think about the total numbers that would be associated with those 400 plus physicians, you're probably looking at maybe somewhere in the neighborhood of two to four patients per quarter that they would see. And so, you know, we'll monitor that more closely now that we're getting back to pre-pandemic surgical levels. We'll have a better number for you probably at the end of Q1 or maybe Q2, but we'll monitor that very closely as well.
spk00: Actually, that was very helpful, so thank you very much. I'll hop off. Thank you.
spk05: Thanks, dude. Our next question is from Mason Carrico with Stevens. Please proceed with your question.
spk11: Hey, guys. Thanks for taking the question. Hey, Mason. Maybe just one or two quick ones from me. First, could you talk a bit about the primary ordering physicians for Determa Rx and Determa IO? Given that one of the indications for IO is lung, is there a percentage of those onboarded physicians that could also order the IO test?
spk04: Absolutely, and that was always part of our strategy was to go after lung because RX, you know, the target audience for RX is the surgeon, thoracic surgeon first and the oncologist second. And obviously, the term IO, it's the oncologist first. So we believe that it's complementary in non-small cell lung cancer. And so we think that that will be helpful for us as we go in to meet with our current physician base and looking forward to what we would call a full market launch. We're not quite ready for that. We're still at the EAP phase. But hopefully by the time we are ready for determined TX launch, We'll be ready for the full market launch of Determine.io. And then, like I said, once we get out there, we'll see how complementary it actually is. But our projections and our belief is it's going to be very complementary. Triple negative breast cancer is a different story, as you might imagine. And so since today we're calling on oncologists today, And thoracic surgeons, we aren't calling on breast surgeons, and we're not calling on medical oncologists that are specific to breast cancer unless you get into the community setting, a small community, where you have a generalist who can do both. So the TMBC type is a smaller market opportunity, and so we'll certainly go after it. But if you go to places like Florida Oncology or Dermatology, Our George oncology, you're across the hall, you're with the lung cancer doc, and across the hall is the breast cancer doc. So it's easier in those larger practices to do a same-store cell than it is if you're in a smaller community where you have to go find the breast surgeon and the breast cancer onc doctor. versus the long arm. So again, more to come. We've got small cells for us, and so our focus will be on non-small cell lung cancer. We believe that's where the biggest upside is for us from a revenue perspective long term.
spk11: Got it. That's helpful. For Determa IO and the early access program, how has the operational side of that gone? Could you remind us of your expectations for turnaround time and Have you been able to maintain that time during the early access program?
spk04: Our turnaround time is less than 10 days. We have been able to maintain that so far. Obviously, we monitor that closely. We have learned a lot, so there will be and continue to be logistical tweaks to make sure that we have better tracking of the sample once it leaves the physician site or the hospital site or lab site. into our facility because the clock for our clients starts when they put it in a package. The clock for us can't start until it enters the door because we can't run it if we don't have it. So our team has been working on ways to track that, know what's coming in, and to plan the various operational cycles to accession the sample and then put it in the queue for running. So, so far so good, but Obviously, the volumes are low right now to get our legs under us, but as we ramp up, the good news I can say, and I can say this with incredible confidence, the person we have running and the team that's running that lab are world class. They've been with me and our team for a long time. and they were the stewards of the highest volume immunohistochemistry lab, single-day volume in the country for years when we were at Clarion, and they outperformed all the competitors, including Quest and LabCorp. So we have a lot of confidence in Jaap and his team and their ability to deliver the turnaround time with the greatest amount of operational efficiency.
spk11: Got it. That's it from me. Thanks, guys. Thanks, Mitch. Take care.
spk05: Our next question is from Paul Knight with KeyBank. Please proceed with your question.
spk01: Ronny, as you look at the upcoming tests, we're going to see go commercial. What are your thoughts on pricing?
spk04: Yeah, so the term of TX is pretty well set because the current AUP or current reimbursement for those larger panels today is around $2,400, $2,500, and that's kind of what the industry is getting now with that blanket LCD. If you look at, for instance, if you look at the transplant assay, those are already set at 2,700 for kidney and 2,800 for heart, and we hope somewhere 2,800 for liver once we get liver in front of them. So those are nice AUPs and really nice gross margins for us. The one we aren't sure about is obviously the term IO. When you look at the health economics, Paul, of a test that can identify response and non-response to a drug type where only 15 to 25% of the people respond or patients respond with durable response, You can probably do calculations quickly that the health economics are strongly in the favor of DETERMA-IO. We will go with a dossier much like we did with DETERMA-RX. DETERMA-RX, as you know, is in the low 3000s. We hope to get somewhere in that range for DETERMA-IO. We've got work to do there to get that in front of CMS and document it. How about CNI? There's already a blanket LCD for CNI. For immunotherapy monitoring, there's a blanket LCD somewhere in the $2,400-$2,500 range. If you look at CNI with three assays, you can imagine You know, you can somewhere, we hope to get somewhere between the $2,500 and $4,000 per patient event in the initial phase. And then obviously each month for, depending on the organ type, it'll be seven or four times in year one and then four times in year two and four times in year three. So we calculate, Paul, for modeling, we calculate somewhere between $40,000 and $50,000 per patient over a three-year monitoring life.
spk10: Okay. Thank you. Thank you.
spk05: Our next question is from Thomas Flatton with Lake Street Capital Markets. Please proceed with your question.
spk09: Hey, thanks for taking the questions, guys. Back to the question about the installed base, Ronnie, of the 429, do you have a sense of the 40,000 early-stage lung cancer patients, what kind of coverage you have of that, and And as the new reps get out there with 13 reps, how much of that market do you think you can capture with a relatively small sales force?
spk04: Yeah, that's a great question. Right now, we're somewhere, and this is really a popular question, and she's not on the call today, so maybe we can get her to follow up with you, but somewhere under 10% of the total available or total served market is being served today with our current sales force and the surgeons that we have on board. So we've still got plenty of upside in terms of new surgeons and new docs that we can onboard. So that's the good news. So, again, we'll continue to monitor that, and we'll get a more specific answer from Padma. She can give you those data.
spk09: And then sticking with the Salesforce, and I think you mentioned in your prepared comments that you had the 13 and you would stick with them throughout the year. So is the implication there that once you launch IO and TX that that footprint of 13 will stay, or is there a simultaneous expansion that will take place in the field team to support those launches?
spk04: Yeah, Thomas, we're looking at two avenues. One is obviously to expand our own sales force, and that is an approach we can take. And certainly if the markets calm down a little bit and clear up, then we would probably forge ahead and hire our own team. If not, then we might look to some of these platform partnerships to get ahead of the platform launch to use some of their sales team as lead generators. So there's some creative things we can do to create engagement with physicians and maximize our 13 we have. But more than likely, as you know, we're going to have to – that sales force is going to have to reach somewhere between 20 and 25 reps, you know, in early next year so that we can maximize the performance of the term IO and TX as IO gets reimbursement.
spk09: And there's one final one, and I know the data is limited, but have you – from the early access program with IO – Have you gotten any feedback that treatment decisions have been changed on the basis of the IO result?
spk04: You know, since it's this early in the data, we're still in the infant stages of the data being published across multiple tumor types. What we are hearing and what they're using it for is really to look at cases where you have a PD-L1 that's indeterminate and they want to give the patient immune therapy, and we can identify that there's a high probability of response, anecdotally, the doctor's feeling much more confident in giving that immune therapy because of our result.
spk10: Got it. Appreciate it, guys. Thank you. Thanks.
spk05: As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone to indicate your line is in the question queue. Our next question is from Bruce Jackson with The Benchmark Company. Please proceed with your question.
spk08: Good afternoon, and thank you for taking my question. To round out the Therasure discussion, you've got the clinical data reimbursements in place. Can you tell us about physician adoption, and are there any clinical guidelines or educational programs that need to happen in order to get adoption?
spk04: Yeah, the good news for us is there's already two very competent competitors in the market selling a next-gen sequencing central lab product, and they've done a terrific job of getting out and beginning the education for us. We think our education is going to be centered around educating on why digital PCR is a more accurate result and why absolute quantification matters so that you can monitor small logarithmic changes as a predictor of potential organ failure. So for us, it's more taking what's already been done and really narrowing it down to the differences between our technology and our capabilities and what's already being used in the market. And as you know, the good news is that even though those two companies have done very, very well, they're still about 60% of the market that is not using molecular monitoring for donor rejection. And so we still think there's a lot of, I call, blue ocean opportunity to go and educate. So much like we did, Bruce, with oncology, with our virtual programs, we're going to do a very similar virtual program with transplant And we certainly believe that when we're able to name the platform partner, I think you'll see that the power of that partner will be to touch and reach more and more physicians as well as these transplant centers.
spk08: Okay. And then a question for Mitch on Burning Rock. After you get the last milestone payment done, what's the continuing revenue stream that's going to come from that agreement in terms of licensing, or are you going to be selling those synthetic calcium controls to them as well?
spk06: Yeah, we'll get some revenue from the materials that they'll purchase from us, and also we'll get a royalty stream, a low double-digit royalty stream from every time they sell one of the samples. They began commercializing in October last, and begin ramping up really right about now.
spk08: Okay, great. That's it for me. Thank you. Thanks, Bruce.
spk05: We have reached the end of the question and answer session, and I will now turn the call over to Ronnie Andrews for closing remarks.
spk04: Okay, well, thanks, everyone, for being patient today. Obviously lots to talk about. We appreciate your support, and I certainly want to always acknowledge the amazing effort of our employee base. So thanks, everyone. Have a great day.
spk05: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
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