Oncocyte Corporation

Good day and welcome to the OncaSite conference call to discuss the third quarter 2022 financial results. Today's call is being recorded. At this time, I would like to turn the call over to Caroline Porter, Westwick Investor Relations. Please go ahead.

Thank you, Operator, and thank you, everyone, for joining us for today's conference call to discuss OncaSite's third quarter 2022 financial results. If you have not seen today's financial results press releases, please visit the company's website on the Investors page. Joining me on today's call are Ronnie Andrews, President and Chief Executive Officer, and Anish John, Chief Financial Officer. I would like to remind you that during this conference call, the company will make projections and forward-looking statements regarding future events. Any statements that are not historical fact are forward-looking statements. We encourage you to review the company's SEC filings, including, without limitation, the company's Forms 10-K and 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 the commercialization of potential diagnostic tests, uncertainties in the results of the clinical trials or regulatory approvals, the capacity of Oncocyte's third-party supply blood sample analytics system to provide consistent and precise analytic results on a commercial scale, 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, the maintenance of IP rights, risks inherent in the 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 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. ONCA site 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.

Thanks Caroline and welcome everyone. Today I'd like to update you on the progress we've made against the strategic goals that we laid out on our last call and share some of the important milestones we have ahead. Our newly streamlined organization has maintained our momentum against our most critical milestones and we're working hard to complete our product development and gain reimbursement for our transplant and for our oncology programs. I'll start today with our transplant rejection monitoring opportunities. As you know, we have two products in this $2 billion U.S. market, Vitagraph Liver and Vitagraph Kidney. If you recall, both tests have completed analytical validation and have been submitted for reimbursement. We have active conversations with the team at Moldex ongoing, and this is very similar to what we experienced with the TermaRx a few years ago when we gained that very important reimbursement. And we expect to continue these discussions, but we do expect reimbursement for both by year end. In Q3, we began accepting clinical samples at our lab in Nashville as part of our vitagraph liver early adopter program. The goals of the liver EAP are engage key opinion leaders to refine our clinical utility and prepare the lab for full launch, which we expect to be in Q1 of 2023. We're very encouraged by the positive response to our test and the wet lab workflow that is now under 36 hours for our initial patient workup to establish the personalized baseline and only 12 hours for all the diagnostic monitoring tests thereafter. This rapid turnaround time is necessary to serve patients in a four-cause setting when their care team is seeing an increase in liver function tests. Their docs don't have time to wait on the long turnaround time for next-gen sequencing, and so we're excited to serve this unmet need in liver transplant management. In Q4, we plan to open up the kidney early adopter program and begin feasibility for the IVD versions of both assays. While we do expect that our two lab-developed tests will generate early revenues for our transplant monitoring program, As you know, our primary goal is to disrupt the transplant monitoring market by delivering kits to democratize these critical decisions that physicians have to make for their patients. Our market research and the ongoing key opinion leader interaction have provided strong indication that rapid turnaround time Absolute quantification and the ability to participate in the reimbursement economics are powerful attributes that only Vitagraph will be able to provide for the foreseeable future. We remain on track for IVD trial to begin sometime in Q1 2023. In summary for Vitagraph, the key milestones to watch over the coming months are, first, we plan to continue onboarding new key opinion leaders from the liver transplant community as we open up our early adopter program. We also anticipate the launch of our kidney test by year-end to existing and new key opinion leaders. We expect reimbursement decisions from CMS by year-end. And finally, we will begin the feasibility for the IVD kit product and site management for the important FDA clinical trial, which we expect to commence in 2023. Now let's turn to our flagship oncology product, Determa IO. To remind you, this is our 27 RNA gene expression test designed to help physicians access patients that have a tumor that and assess the tumor microenvironment and determine which patients are suitable candidates for immune oncology therapies. Our early adopter program continues to underscore to us the need for this test across a slate of cancers. And as I mentioned on our last call, we have compelling data now in early triple negative breast cancer, late stage non-small cell lung cancer, metastatic bladder cancer, metastatic colorectal cancer, and gastric cancer. DetermaIO has now been validated in over 1,200 patients in six tumor types and across all four major immunotherapies. The results to date have been outstanding, and in all studies to date have outperformed the current test for predicting response to immunotherapy. Our early adopter program continues to provide valuable use cases for CMS submission and market launch, and our volumes have continued to double each quarter during our limited launch. The early adopter clinicians are reordering the test for multiple use cases across multiple tumor types, and we remain incredibly enthusiastic about the future of DETERMA-IO. We also recently announced that DETERMA-IO is part of a large biomarker grant award for the SWOG clinical trial study group in breast cancer. These awards were given by the National Cancer Institute, and the process was highly competitive, where only a handful of clinical trial groups and National Cancer Institute sites were even allowed to apply. Even then, each trial group was only allowed to submit two to three grant applications, which is a particularly small number when you consider all the variety of cancers that these groups are investigating. All applications were reviewed by an independent committee of clinical experts. In addition to having extremely solid data, which DETERMA-IO has, the grant application needed to provide evidence that one, the test was not merely interesting scientifically, but would actually change clinical practice in a very meaningful way for patients, and two, was ready to be used immediately within the clinic. We're very excited to say that DETERMA-IO meets both of these criteria. We realize there are a lot of biomarker claims that claim to find responders of patients who benefit from immune checkpoint inhibitors. But the TERMA-IO selection by the true experts in the clinical field show that the TERMA-IO is rapidly distinguishing itself from the competitive test and is a solid validation of the progress we've made in a very short time with the TERMA-IO. As with our Vitagraph program, we're also working on a path to create a kit to make our oncology tests more accessible to physicians and to patients. The beauty of Determine.io is that it was developed from a large-scale 2000 gene panel and the 27-gene RNA algorithm can actually be performed on multiple data sources, including samples that were run with RNA-seq data, our PCR kit, or even a next-gen sequencing targeted resequencing chip. Given that there are thousands of PCR and next-gen sequencing systems in labs around the world, this allows us to be incredibly flexible and with our market access. In line with our new cash management strategies, we are planning for the regulatory process for our kitted version to start in mid 2023. As we mentioned in our last call, in order to reduce our overall burn, we've moved to a concurrent development in clinical study to a more sequential process. Determined CNI, or determined naive blood-based therapy monitoring test, continues to be in use in clinical studies in the EU, where the product has been effective in identifying disease progression across several tumor types. The results today allow a physician to identify the failure of a treatment protocol weeks in advance of the current MRD test on the market and a much lower cost. Given that a large majority of later stage patients do not get their tumor surgically removed, current MRD tests are often not an option to monitor those patients since a large amount of tumor tissue is required for the upfront genomic panel to be completed. The market feedback so far has been overwhelming. A blood-only monitoring test that can tell a physician that a drug is not working by the second cycle of treatment is game-changing for them and for their patients. According to our plan, the U.S. Clinical Validation will begin working with academic institutions and with biobanks to complete blinded retrospective studies in the first half of 2023 and hopefully submit for reimbursement under the current blanket LCD for immune therapy monitoring shortly after that. Finally, I'll turn to our progress with TermRx, our lung cancer stratification tests. Since its launch in mid-2020, Determ Rx has now touched well over 1,500 patients' lives. These patients had stage 1 tumors, and without our test information, may have gone untreated, and statistically then, half of them would not be with us right now. So I'm pleased to report that our screen line sales force in our current covered territories, which now make up about 30% of the market opportunity, delivered third quarter growth in Rx sample volumes that were above 51% above prior year. This is a really strong testimony to the sales team and their growing reliance on the tumor Rx to identify patients that are high risk for recurring tumors and in need of treatment to improve their chance of living. We're also able to expand our pool of onboarded physicians, which now numbers 596 practitioners, which is up 62% year over year. As I close out my remarks, I want to reemphasize my confidence in our ability to bring Oncocyte to this challenging macro environment and emerge leaner and stronger. In our Q2 call, we mentioned our intent to initiate several corporate development activities to evaluate the strategic alternatives we have given our broad portfolio. We have engaged Perella Weinberg Partners as an advisor to assist us in identifying and evaluating a range of these possible strategic alternatives, and we're actively engaged in several meaningful conversations. On a parallel path, we continue to explore avenues to bolster our cash runway and to reduce our spend, including the possible reevaluation of our clinical trial expenses, potential changes to our executive compensation structure, and reallocation of investments in our fixed capital and infrastructure. While we can't speak to specifics on today's call due to the sensitivity of the various discussions we have ongoing, we remain very confident that we'll be able to execute on one or more of our options to secure OncaSite's future. So please stay tuned, and I also encourage you to watch for some key milestones over the next few months, which include the reimbursement decisions for vitagraph kidney and liver, both which we expect this year, and then the subsequent planned full market launches of our LDTs and transplant. As well, we're on path to submit the term of IO for reimbursement, and we expect to do that before year end. I'm grateful for your continued support, and with that, I'll turn the call over to Aneesh Chand of UR Financials. Aneesh?

Thanks, Ronnie, and hello, everyone. Our consolidated revenues for the third quarter of 2022 were approximately $1 million, representing a slight increase as compared to the same period a year ago. Versus prior quarter, revenues were down $1.1 million without the benefit of $1 million in licensing-related revenues associated with the final Burning Rock milestone payment. Third quarter revenues associated with the Terma Rx were $1 million, up $0.1 million sequentially, and up $0.5 million year-over-year. Our Pharma Services business generated approximately $0.1 million in the third quarter, a decrease of $0.2 million both quarter-over-quarter and year-over-year. As we've discussed previously, revenues in pharma services depend on our partners' ability to enroll patients for trials, which continue to face headwinds and will likely to continue to fluctuate from quarter to quarter. We do have a pipeline of work from our diagnostic development partners, Kyogen and Thermo Fisher, which we believe will grow and be more predictable in future quarters. Cost of revenues for the third quarter were approximately $2.2 million. including $1.2 million from the cost of diagnostic tests and testing services we perform for our Determa Rx and Pharma Services customers, and $1 million in non-cash amortization expenses of Determa Rx and Pharma Services related intangibles. Research and development expense for the third quarter of 2022 was $4.4 million, an increase of approximately 1.3 million from the same period a year ago. The increase in R&D expense was related to site startup costs for our PODMA trial for DETERMA-RX and headcount as we prepare to begin the IVD development in order to kit DETERMA-IO and vitagraph liver and kidney. We also continued R&D activity to support ongoing clinical trials to gain statistical power with our current DETERMA-IO data sets as we submit to CMS for reimbursement. Additionally, as Ronnie had mentioned earlier, we have successfully initiated our Vitagraph liver early access program and are on track for a full launch of our new Vitagraph product offering in Q1 of next year. Sales and marketing expense for the third quarter of 2022 was $4 million, an increase of $1.1 million year over year. The increase is primarily attributable to the growth of our portfolio and reflects increased investments in headcount, along with sales and marketing activities to prepare for commercialization of our transplant business and support the continued commercialization efforts of Determa IO and Determa RX. General and administrative expense for the third quarter of 2022 was $5.8 million, an increase of $0.3 million for the same period in 2021. General administrative expenses were relatively flat year over year. Non-GAAP operating loss, as adjusted for the third quarter of 2022, was $9.8 million, an increase of $0.4 million as compared to the same period a year ago. GAAP operating loss, as reported for the third quarter of 2022, was $9.2 million, an increase of $0.7 million quarter over quarter, and a decrease of $4.4 million as compared to the same period a year ago. We've provided a reconciliation between these GAAP and non-GAAP operating losses in the financial tables included with our earnings release. For the third quarter of 2022, we reported a GAAP net loss of $9.3 million, or $0.08 per share, as compared to $8.3 million, or $0.07 per share, an increase of $1 million quarter over quarter, and 13.8 million, or 15 cents per share, a decrease of 4.5 million as compared to the same period a year ago. Turning now to the balance sheet, as of September 30th, 2022, we had cash, cash equivalents, restricted cash, and marketable securities of 34.2 million. Early in the year, we raised 32.8 million in net proceeds from an underwritten offering of common stock priced at market. We're currently reviewing several options for non-dilutive forms of capital, including equipment finance lease lines, and as Ronnie has stated, evaluating strategic alternatives we have against our broad portfolio offering. In addition, we continue to make progress on ways to further reduce our spend and ongoing burn rate from the beginning of the year. Our focus over the first three quarters was to reprioritize our investments in our product portfolio and institute a more sequential approach to product development and test launches. In Q2, we had announced the right sizing of our organization to match the more focused priorities and had taken the definitive step to reduce our headcount carrying costs estimated to be over $4.5 million on an annual basis. In Q3, we incurred $0.7 million in severance expenses as a result of this prior quarter action. Net cash used in operations for the quarter was $11.3 million, inclusive of $0.3 million of severance payments. Net cash used in operations decreased versus the first half 2022 quarterly average due to focused efforts to control hiring and optimize our use of cash, primarily by reducing clinical trial spend and marketing investment. In summary, management has taken numerous actions in the first three quarters of 2022 to focus investments and reduce our cash burn without impacting the long-term potential enterprise value of Oncocyte. Outside of the range of strategic alternatives under consideration, we continue to evaluate what steps we can take to further reduce spend and ongoing cash burn in the coming quarters. That concludes my remarks concerning our financial highlights. Operator, please open the call for questions.

And at this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question 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. And one moment, please, while we poll for questions. Our first question comes from the line of David Westenberg with Piper Sandler. Please proceed with your question.

Hi. Thank you for taking the question. So I want to start with a current event. Maybe you haven't seen this yet, so maybe I'm catching you off guard. CMS, I think, is meeting next week to look at reimbursement and transplant. I believe it's heart and lungs, so not really overlap with what you're doing in transplant. Do you think that there is any concern if they find anything there for lowering price, maybe that's a headwind, or maybe is this an opportunity in the sense that You know, maybe it makes what you're doing a little bit more unique.

Yeah, that's a great question. We are following this closely, obviously, and we do have some insight that has been very helpful for us. You know, one of the challenges in the current LCD is. a somewhat ambiguous number of expected tests to be monitored a year. And the companies today that are out promoting their current kidney test and heart test have a certain protocol that they believe is appropriate based on the data that they have released. I think there's some discrepancy between that and what CMS actually believes the number needs to be and how many times these need to be performed. I don't know the value of the test itself in terms of reducing the price as much as are we overusing this test? Is it necessary? for that number many times, but we're going to follow this closely. But your point about us is a good one. In liver, the utility is a real interesting question, right? Because today, for everyone's edification in liver, when you get a liver transplant, unlike kidney and heart, there is a very low-cost monitoring test called liver function test. It's a panel test, which includes liver enzymes and some other components. And that test can be run very rapidly and can be run for way less than $100. And so what we realized in our conversations with CMS and our key opinion leaders is that there's not really a need for pure monitoring in liver. And you may find that same knowledge to come out around kidney. But what there is is a real need to resolve elevated liver enzymes and to identify the patients with that that do not need a biopsy. Because right now, the reflexes from elevated liver many times just go to a biopsy. And as you know, those are painful and they're invasive. We know that our tests now, based on the results so far of our EAP, are very accurate in identifying a patient population that does not need a biopsy. And so what this does do, for instance, is it reduces the total number of monitoring tests a year, but it is a very unique indication that gives us a sort of a first mover advantage. And so what do the numbers look like? There's about 100,000 or so patients that are living with a liver. They all get tested somewhere between four, six, some centers we found are about eight times a year. And about 30% to 40% of those patients end up with an elevated liver function test that needs to be reflexed for resolution. And so if we can be that test at some, let's say, $2,500 reimbursement, our market opportunity for liver is not the size of kidney and heart, but it's still a $150 to $200 million market. We'll have a very appropriate utility data set, and we think we'll have a very good opportunity to penetrate the market. So it's a great question. We're watching it closely. I do think CMS is concerned about the amount of money that's being spent to monitor using these more expensive tests when there are cheaper enzymatic tests that can be run to monitor function of an organ.

Got it. Thank you. And apologies for the next one. I just, like, I'm trying to give it with tact, and I realize I can't. So I'll just apologize up front. Your confidence level in the Terminal Rx, that this isn't going to be slipping into another quarter, just because we really, like, want the reimbursement there. Sorry to ask it that way, but just...

You mean Determa IO or you mean Determa Rx? You mean Determa IO?

Yeah, sorry. Sorry. Yeah. Yeah, sorry.

Yeah, because the term RX, as everybody knows, is reimbursed. And right now at $3,150 by Medicare, we did get identification you saw in our press release. We did get a crosswalk to a higher AUP, which is being reviewed today by public opinion. And assuming everything goes well, the expert panel has said that they want to put that in a new category, and that would give us about a 23% increase in that AUP. So it will go from $3,150. 50 to 3873. The term I.O., we are on path to submit. Just to remind everybody, we can't submit until we have papers that are published or papers that are accepted for publication. And, David, we wanted to go with three indications, and so we have two of those papers. We're waiting on the third. That third one has been accepted. So we are expected to be on track with a submission by the end of the year, if not sooner.

Thank you. Thank you.

Our next question comes from the line of Mark Massaro with VTIG. Please proceed with your question.

Hey, guys. Thank you for taking the question. You know, I certainly appreciate the commentary about pursuing strategic alternatives. Obviously, we're living in pretty challenging times just in general. But, you know, maybe, Ronnie, can you just share? I know that you've been looking to find a kit partner for several months now. So I imagine that these two items are probably related, but is there anything you could share just about the types of things you're looking at strategically and to what extent there's overlap between the kitting partner and other strategic alternatives?

That's a great question, and I'm actually glad you asked it. Listen, I think it's very, you know, you know us, Mark, you've followed us and you've known us, our history. We, you know, we realize today that we're in unprecedented times in the marketplace. And we, you know, as an optimist and someone that was very hopeful that the markets would get better, the reality is we know now that that's probably not going to happen. And so our effort this year was to get all the products to a value inflection point that would give us optionality across the spectrum of our portfolio. And so basically where we are right now is we have basically the tissue-based therapy selection tests. We have therapy monitoring tests with determined CNI and oncology, and we have the transplant monitoring portfolio. And all three, once we submit the term IO, the tissue-based cancer platform or cancer test will reach a value inflection point because we'll be heading towards reimbursement with IO, and we already have a reimbursement for RX. So that creates a nice opportunity for partnering and licensing there. We have transplant, which you know we talked about is at CMS today, and assuming we get those reimbursements, we will have another asset that is certainly available for monetization either through partnering or licensing. The kitted partner in transplant has been a unique asset. learning experience for us. We signed an agreement in the summer with a large platform company only to find out that once we got under the hood that their product wasn't going to be ready for a clinical market for some time and would have thrown us off our track. So what we did is we went back and began to look at the other platforms again. And in doing that, we realized that We can build these kits. There's third-party kit manufacturers that will build these kits for us. And so we can, instead of sharing the economics with an instrument company, we can build the kits and sell the kits ourselves once they're approved. And then we could own all the economics in the kit cell and not have to share it. And so once we understood that, obviously we've got a lot of experience in PCR here. So we said, let's move forward with that. And so we are looking at validating the kit on a primary platform. but we are open to the flexibility of it being, especially in Europe, a kit that could be used across any digital PCR instrument. So more to come on that, but that does open up opportunities with some of the European digital PCR companies that have platforms and don't have content for them. One of those most recently said one of their biggest priorities in 2023 for growth is digital PCR menu. So, you know, the idea here is there's a lot of opportunity, we think, both for the LDT partnering in the United States, but ultimately for the KIT partnering for Europe. And so without getting any more specific, those are the things that we've said publicly. But all of those opportunities are in play today. And, you know, to be candid, we kind of narrowed the focus to a few, and we're pushing those to the goal line as we speak.

Okay, great. Thanks for that color. So, you know, the market leader in the MRD space, Natera, just got a $7,489 bundle price from Moldex for Signatera IO. I wonder if that is a potential proxy for Determa IO. It may not be, but I guess what I'm really asking, you know, I don't think Natera knows yet how many tests they can run under that bundle. But can you just give us a sense for the number of tests you think Determa IO could be done in a year and how you're thinking about the reimbursement rate of that? And then is it fair to say that that should be ordered on three clinical indications and maybe just walk through the pathway to expand that to multiple indications or pan cancer over time?

Sure, absolutely. So DETERMA-IO, we believe, given it's sort of a, it's much like the tumor mutation tests that are run by Foundation Medicine and GARDEN, et cetera, today to identify if a patient's a responder for targeted therapy. And so because the term IO is really falling in that same decision point, we think we'll fall in line with that same value. So we're modeling, those are now reimbursed under a blanket LCD of about $2,500 a panel. I would say that's a fair, we'd like, we're obviously going to go for more. We believe that we save a lot of money for selecting the appropriate patient and not over-treating with immune therapy, but we know that's an uphill battle with pharma. So the idea here is to go in and go in, much like we did with the TermaRx, and submit a dossier that shows some significant health economic savings for running our tests before you give treatment. An immune therapy. If we do that, I mean, you know, the term RX is at 3150, but the other test and therapy selection, not prognostic, are in the $2,500 range. So somewhere in that range is where I think we'll finish up. On the other side of the coin of that is the term of C&I. And as you mentioned, the, you know, Natera LCD and the increase there for the bundle, you know, we're looking at the term of C&I being run two to three times, maybe four times max. Because at the second cycle of therapy, without the big genome panel, we can give a very appropriate result looking at disease progression. And so I suspect it would be great to get the $7,000 bundle, and we'll certainly give it our best shot. But the reality is our test costs significantly less than that, and we would expect something in the neighborhood of, I don't know, maybe $3,500 or $4,000 for a bundle. And I think the private payers... that we've spoken to are much more obviously inclined to look at us as a lower cost alternative and someone that we can turn around a result in later stage patients and we don't have to have a surgical resection which also adds cost. So I think from that perspective, you know, we think we got a great play. We just hired a really, really talented lady as our market access person. I think you guys know to manage costs, we had not really gone after that level of a person until we knew we were ready to get into the private payer world. We're ready to go now. And she just started about a month ago and she's already seeing returns there. So Obviously, we're going to be working on the private pay world. We think that the large payer groups for Determa IO, if they understand that they could save hundreds of millions of dollars in a two- to three-year period on better decisions around immune therapy and then monitor it to identify if it's working in a faster way, we think it's a great health economic story. So more to come on that. We're submitting now, and we're going to be actively out knocking on doors to talk about reimbursement for Determa IO.

Okay, and then thank you for that. Last one for me, just on CNI, what other data needs to be developed? And I think I heard you say first half of 23. Was that for reimbursement or was that for when the paper could be published? And then maybe can you remind us on, you know, since CNI is a blood-only test, remind us, you know, to what extent is this pan-cancer versus, you know, certain indications? Yeah.

Great. Yeah. Yeah, let me be clear first because I want to make sure we're very clear. We had to put a prioritization in order and transplant, determine IO, and then CNI became the priorities for us in the second, third, and now fourth quarter. And we couldn't do them all sequentially or concurrently anymore, so we lined them up. Right now, the term of CNI has under study and published papers around 1,200 patients in Europe, and that is across multiple tumor types. If you look at the number of tumors that slough off or have copy number variability, it's about 35 solid tumors. About the top 16 tumors are the ones that we believe we can really effectively do. We may be able to do the rest, but we aren't going to have the money for some period of time to go chase those. So right now, we're looking at CNI to get indication in the United States to get a validation study under our belt in non-small cell lung cancer. We'd like to follow that with breast cancer, and then ultimately we'd like to follow that with colon cancer, given Determio's recently published efficacy at identifying MSI-negative patients that today have no option for immunotherapy. We assume that we're going to, you know, as we can identify a bigger population, we assume that Pharma is going to want to invest with us there. And then the second part of that would be to monitor for colon. So our CNI effort in the U.S., because it does need to be validated through U.S. clinical studies, not European, is really going to be focused on non-small cell, triple negative, and then ultimately colon, with the hope that we can prove out the thesis that it really is a pan-cancer test, given all the other data that shows that these patients This copy number instability is relevant across 35 solid tumors.

That's really helpful. Thanks so much.

Sure, Mark. Thanks.

Our next question comes from the line of Mike Madsen with Needham & Company. Please proceed with your question.

Hi, guys. This is Joseph from Mike. Hey. So I guess maybe just a handful of questions around Determa Rx. Let's try and break them up. Maybe to start off, could you maybe give some expectations around maybe volume growth or physician based growth for 2023? I guess maybe, you know, what's the strategy on here to maybe accelerate some of the volume there? But yeah, we'll start off with that.

Yeah, I mean, I think everyone knows we significantly reduced our sales force to cut back on some of the cash burn. You know, sales reps, it takes about a year for them to get to a point where the revenue they create covers their cost. And so we said we're going to take the six, you know, basically six top territories, which we now have. And we were going to keep those, and then we were going to hold off on increasing the sales force until the term of IO got its draft LCD, and then we would move forward with expanding at that point in time, which was probably sometime mid-year, third quarter next year. So given that, we have six heroes out there. I say that with a lot of confidence. These folks work hard, and you can see that they were still able to grow successfully. The number of samples at 50% year over year, even with just six people. So what we've started thinking about is mining the current territories they have and the current accounts they have. And now that obviously the pandemic's over and we can get in. and we can detail all the surgeons within an account that's onboarded, that's a better, more productive use of a sales rep's time than trying to create new accounts and onboard new people because that takes time and energy versus just continuing to do what we call, in my old world, it would be same store sales. Here it's more same doc sales or same account sales. And so with that, the goal here is to continue to grow the current territories as best we can, and then obviously if the term IO makes its way through the reimbursement paces and some of these other strategic alternatives come to fruition, we hope to have the capital to go and add a number of sales reps to really go after both IO and RX in a meaningful way.

Okay, thank you. That's helpful. So, yeah, I guess just continue on with the term Rx. Maybe on potential NCCN guideline inclusion, I know you guys had a trial going on or registry and maybe reduce some of the spend in that, if I remember correctly. Correct. Could you maybe talk about maybe timeline on there of maybe the next point where a decision can come out?

Yeah.

And in terms of maybe the increased reimbursement potential you said they're having a meeting I guess today is that something you would send out a press release for and then lastly on that on the expanded I guess coverage could you maybe talk about how that could maybe increase the potential or I guess the TAM around annual volume for Determ Rx kind of where is it at right now and Where could that grow to be expanded coverage?

Great. Great questions. I wrote them down. Let me make sure I hit them off not. Hold me accountable, my friend. Listen, the registry, we did close down the registry. And the reason we were able to do that is we have a randomized clinical trial as well going. We made the decision to run them concurrently because the randomized clinical trial in the early phases of it was very difficult to enroll. And why was it difficult to enroll? Well, not only was there a pandemic going on, But given the vast amount of data around the term Rx that has already been published in peer-reviewed journals, there's over 1600 patients in different studies that have been published patients did not want to randomize. If you knew you had a 50% chance of dying if you did not get chemo, or if you got chemo, you had a 94% chance of living for five years, and if our test is elevated, we found patients did not want to randomize. So they really didn't want to flip a coin to decide, hey, I'm not going to, I'll work and I mean, I'll take the risk of not getting chemo. And so it was very difficult in the early days. What we've done now by expanding The expanded indication allows us not to just indicate to physicians for chemotherapy use in these early stage patients, but they can also use immune therapy and a targeted therapy if it's EGFR positive. What the expanded indication and change in that did was open up the playing field for any therapeutic decision and that significantly opened our chances to get the RCT populated and hopefully report it out next year. We do have some ongoing third-party work that's going on. And we are hoping to revisit NCCN. They meet once a year and, you know, right after ASCO. So in summertime, we do hope to revisit the NCCN team. You've hit on a really important thing. I mean, right now, what are the two things that are limiting RX growth? Really, it's the size of the sales force. We need about 20 reps to really penetrate 100% of the country. And so given our cash situation, we're not going to go hire those people today. And the other thing is NCCN guidelines. And so hopefully, obviously, getting NCCN would be a powerful indicator for us, and that would drive a lot of revenue growth just because docs would be in guidelines, of course. The new price is really around the idea that we were – our test category, they cross-walked us from the original CPT code we had to a new one that's expansive for prognostics. And so that's why we are – they recommended unanimously that we move from the old one of $3,150 to the new one, which is $8,000. 3847, I believe. 3873. And so that has to go for public opinion. That is all collected, and they're meeting, as you said, now. So assuming there's no public pushback, that final pricing guidelines will go in place and be effective in January of 2023. And as we know that, we'll certainly let the world know that.

Okay. Yeah, perfect. Thank you so much for all of that.

Yeah. And our next question comes from the line of Thomas Flatton with Lake Street. Please proceed with your question.

Hey, guys. Appreciate you taking the questions. Ronnie, anything on the VA that you could share with us in terms of penetration so far? I know it's only been a couple of months, but any uptake? How are you managing that from a commercial perspective or field force perspective?

Yeah, of course, you know, that contract gives us the, it's kind of a license to sell into the VA. Our reps are actually, you know, actively targeting certain VAs that we know have a high surgical rate of long, which we know which ones those are. Thomas, I don't know, as I look at our, I'm looking on our board, as I look at the volumes for the quarter, I don't have it broken out by VA, but that's a great question and something that we can certainly start getting and and identifying for you. My experience, which, as you know, I'm old and been around a while, is the VA contracts are really, like I said, a license to sell, and they'll be one-off. But the good news is once you close one, they typically run these tests on everybody that goes through. It becomes part of their protocol. And so it is a very important contract for us and does represent a significant number of covered lives. And so that, along with some of the private pay efforts that are ongoing today, I mean, we did see it. We are continuing to see an increase in our commercial AUP for our commercial payers in RX. And, you know, we're averaging right around 2,000, I think, this last quarter. And so our ASP for the quarter was 2%. It was $3,097. So the mix is still favorable for us. Year to date, we're about $3,058. So we're getting a really nice mix of Medicare and commercial that's starting to pay. But as I said, we hired this market access hotshot. She's amazing. And we expect to see, you know, some improvement in the commercial payer world now that she's here. For RX, one of her primary goals, though, is to start paving the way for IO.

Got it. Thank you. And then how are you, you know, given that you downsized the field team to support RX, and I know you diverted some of those headcount to IO, to the transplant group. How are you thinking about timing of building up that commercial infrastructure to really support that once reimbursement is in place?

Yeah. You'd like transplant or Determa IO?

Transplant.

Yeah, well right now we've got, as you know, it's a pretty concentrated market. We know where our target centers are. We have more of a business development approach to those target centers right now with the early adopter program. We are ready to enroll the next wave of early adopters and so we're close to doing that and we'll be onboarding those accounts. We have one rep today and that rep is targeting the region of the country that we believe we have the greatest chance to exercise our rapid turnaround time and have a key attribute that we can compete with. So once we get reimbursement and we start to see revenue and that transplant revenue can support the increase It's a very profitable test, so once we start seeing revenue, that could support within that P&L the addition of more headcount, but we are going to be very deliberate about how we add headcount given how concentrated the market is, and we'll add them as we have the money to do it.

Great. And then if I might, just flipping back to the discussion of kitting the products yourselves and validating them as opposed to working with a partner, Just strategically, I'm assuming that you would have benefited greatly from tapping into the commercial infrastructure of a box partner. I'm just wondering what that would look like from a commercial perspective, and would you actually earn net income because you'd have to invest in the infrastructure to go out and sell those things yourself as opposed to piggybacking off of a partner? I'm just curious if you could help us think through that strategic decision-making.

Yeah, that's a really good question because that's where we were, right, in the summer. What we found out is there's not a lot of digital PCR equipment today in some of the centers that are running the liver function test or running the kidney function test and the immunosuppressive panels. Those are more immunochemistry and clinical chemistry tests. And so once we understood that, the companies that are out there, BioRad, Thermo now has a new one. Kyogen is the closest to being a clinical company. Really, if you look at it, BioRad, Knorr, Thermo Fisher, at least their digital PCR group, Roche digital PCR group, and then Kyogen, they all have ambition to be in the clinical digital PCR space, but none of them really have a validated, product necessarily for the digital PCR space in transplant or anything near transplant. So what we realized is all of them would be very eager for us to reagent rent a box. So we would lease it from them for the account. We would then create a reagent rental lease and and then that instrument would go into the account and be serviced by that instrument company, but we would be able to get our COGS on our kits at a much lower price by going direct to a manufacturer than working through an instrument manufacturer, and they get to mark up the kit at some level to us, and then we would... Our profitability would go down. So for us, we just made the decision that since we can run on multiple instruments, we are going to validate the IBD product, though, on a – we can't do every box, to your point, Thomas. So we have selected an instrument. We – There's another company out of Europe that's interested. So I've got to be careful. Those are the two things we're working on today and part of our strategic alternative. So I can't say a whole lot more. But there's interest in the IBD kit, and there's interest in the LDT. The LDT obviously is our shortest path to revenue and one that we're pressing hard on.

Got it. I appreciate that. Thank you. Yeah, sure.

Our next question comes from the line of Mason Carrico with Stevens, Inc. Please proceed with your question.

Hey, guys. Thanks for taking the question. Hey, Madison. How are you, man? I'm doing good. I'm doing good. Ronnie, I just wanted to circle back on some of your earlier comments just to make sure that I heard it right or I'm thinking about it correctly. For your liver test, the dynamics that you were calling out, were you saying that the use of this test would be more for cause, I would guess say, the for-cause indication where you're using it to detect an active rejection of instead of surveillance monitoring? Or would that decision largely be based on the outcome of this Moldy X meeting that's going on next week?

No, we've been ongoing discussions with MoldyX. They've been extremely helpful. Liver is an area, as you know, that no one's kind of pioneered yet. They are very interested and have been very interested in the utility. In fact, the majority of the questions that go back and forth between our team and them have been around the utility and what is the true utility. Their input, along with our, you know, we are working with the largest liver transplant center in the United States, and the key opinion leader there is world-renowned. between he and the group at CMS and certainly our team, we've really landed on a utility that is a reflex test for acute cases where liver function test panel comes back above the normal range, and they need to reconcile, do they do a biopsy for that patient or not? And we are a really nice adjunct to that, and it seems to be where we've landed with our utility for reimbursement, but also the energy and the excitement around that from the other centers we've been talking to is pretty high. Liver enzyme tests are cheap. they actually they function pretty well as a surrogate of an organ something going on with an organ you just don't know what it is and then our molecular profile can be more grant specificity as to what's actually causing the increase and so on so for us Again, listen, we went into this hoping it would be monitoring because it's a much bigger market, but the reality is I think CMS's current focus on kidney and heart with the current players led them to ask us a lot of hard questions about utility, and I'll just say this. I think it forced us to think about our opportunity, and we've really landed, I think, in a pretty good place.

Got it. That makes sense. And then I didn't hear much on Determa TX during the call. Are efforts submit that test for reimbursement still in progress? And if so, how are you thinking about the timeline for submission there?

Yeah, thanks, Mason. You know, Determa TX is a test that's very, you know, it's kind of a me-too test for everybody on the market. We developed a prototype for the test, but it was going to cost about $700,000 to validate it, and we just decided to hold off on spending that money today and put it behind transplant and wait until we got the LCD for Determa IO. And once we see the draft LCD and we know that we're going to, get reimbursement for io at that point we'll pick back up on what we do around a targeted mutation panel uh there's there's folks that we could partner with for that as well and we could save ourselves the cost of of development so we're kind of looking we're re we're rethinking the term of tx since it is a me too test and it's going to take you know a lot of money to validate it given the number of mutations that are on the panel got it okay and then last one for me here

Could you run through your thoughts on the mix of patients, Medicare versus commercial, for the initial indications for DETERMA-IO? What percentage of those patients maybe for each indication is of Medicare age?

Yeah, it's changing, Mason, rapidly. In the early days of IO, it was indicated mostly for late-stage and salvage treatment because that was the easiest place for pharma to get their indication. So back then, it was 60%, 70%, you know, Medicare, Medicare Advantage. But what's happened as they've moved from stage four, because those are typically people who are older and have later stage tumors, what we're finding now is as they're moving their studies to move these drugs into stage 2B, 3A, 3B, these patients are younger and there's a younger cohort. I only know this from my work I do with ASCO and I'm active with the team and the board at ASCO and and I know from what they're seeing that we're starting to see that mix change. I expect, I don't, I mean, if I was guessing, I would say maybe somewhere in the, you know, 55 Medicare, 45 private pay at some point. But I think the big number to know, I think I reiterate this number every time I speak publicly at conferences, right now it's estimated $125 billion will be spent on immune therapy in 2025, 70 or 80 billion of that, based on the current statistics, will have zero impact on the patient outcome. And so that's where the overuse of this therapy class is going. And I think it's only going to get worse as we move down into younger patients who will come in and try to demand that they get an immune therapy because they've seen the commercials that say I'm going to cure when we know that less than 25% of the patients actually have durable response. And so I think for us, that's why we're so excited about the private pay world because because they're the ones bearing the brunt of that. Of course, Medicare as well, but the private pay, many of those folks are publicly traded and creating a product mix for them that reduces overall drug spend and creates the efficacy of that spend to be better. I think that's a good story for us and one that we'll begin telling now that we have our market access person.

Got it. That's helpful. Thanks, guys.

And our last question comes from the line of Bruce Jackson with MedSmart Company. Please proceed with your question.

Hello, thank you for taking my question. Just a follow up on Phytographed. You've got the early access program going right now. Is the lab pretty much set for launch and are you prepared to scale for additional volume?

Great question. Right now, the lab is ready. We are accepting samples from our EAP accounts. We continue to refine our logistics and workflow and courier services and things like that. So that's why we do these EAPs. But we are ready to go full market as I speak now. We have hired the people we needed to hire. We're able to run the multiple shifts. And so we are appropriately staffed and ready to go to provide the turnaround times that I mentioned in my earlier comments. So I feel like we're good there. Nashville is not a big lab. It's a small facility. But we think that team was running a couple shifts. We think we can get that somewhere between $18 million to $20 million in revenue before we have to think about a third shift or whatever. expanding the facility. So we've got some runway ahead of us there, but obviously we hope to blow through that as quickly as we can. So we are having to look at that and think in our long-term planning about what do we do about expanding Nashville.

Okay, great. And then in terms of the other launch preparations, it's a fairly compact target market that you're going after. So You can scale the Salesforce pretty effectively. Is there anything else that needs to be put in place prior to the launch?

of transplant. The only other thing that we really probably want to add are some med ed folks, some folks that can go in and educate the accounts on the utility of our tests and how to use it. And as you know, that's not a sales rep under the current compliance world we live in. That needs to be doctor to doctor, scientist to scientist. And so we have one of those, but we will probably need to give up a few of those to be able to serve a broader market in transplants.

Okay, great. That's it for me. Thank you for taking my questions. Thanks, Bruce.

And we have reached the end of the question and answer session. I'll now turn the call back over to Ron Andrews for closing remarks.

Thanks, everyone. I appreciate your time today. We certainly appreciate your patience with these long calls, but it's really important. We have a lot going on. All these products are making their way rapidly through the process, and we're very excited about where we are in terms of the product development moving and transitioning to commercialization. So we look forward to chatting with you soon. Have a great week.

This concludes today's conference, and you may disconnect your lines at this time. Thank you