Oncocyte Corporation

your telephone keypad. To withdraw your question, please press star one a second time. I will now turn today's call over to Jeff Ranson, CEO of PCG Advisory. Please go ahead.

Thank you, Brianna, and thank you to everyone for joining us for today's conference call to discuss Oncocite's first quarter 2024 financial results and recent operating highlights. If you've not seen today's financial results press release, please visit the company's website on the investors page. Before turning the call over to Josh Riggs, Oncocytes President and CEO, I'd like to remind you that during this conference call, the company will make projections and forward-looking statements regarding future events. Any statements that are not historical facts are forward-looking statements. We encourage you to review the company's SEC filings, including without limitation the company's forms 10-K and 10-Q, to identify specific risk factors that may cause actual results or events to differ materially from those described in these forward-looking statements. Actual outcomes and results may differ materially from what is expressed or implied by these forward-looking statements. Oncocide expressly disclaims any intent or obligation to update these forward-looking statements, except as otherwise may be required under applicable law. I'd like to now turn it over to Josh Riggs.

Thanks, Jeff, and thank you to everyone for joining today. Building on the strong momentum in 2023, we've kicked off 2024 with impressive strides at Oncocyte. We expect the next 12 to 18 months will be unprecedented for the company as we execute on multiple milestones, driving value creation across all aspects of our business. Today, we're going to talk about the early stages of commercialization, the developing horizon in transplant management, and the potential role that Oncocyte plays, and also opportunities for growth in oncology. Our partnership with Bio-Rad Laboratories is a game changer. Bio-Rat extends our reach, allows us to introduce the Graft-Assure RUO product into prominent academic centers while supporting the development of regulated products like Biotograph Kidney IVD. As part of the agreement, Bio-Rat and Oncocyte will co-market the assay in the U.S. and Germany, with Oncocyte acting as the commercial lead there. Outside these countries, Bio-Rat has been granted the exclusive global distribution and commercial rights. We've already felt the advantage of this scale as our funnel continues to grow and more sites become early beta site adopters. At launch, we expect to ship to sites in Asia, United States, and the EU. Our value proposition in transplant monitoring is simple. We offer an easy-to-use test, a rapid turnaround time, and attractive economics for ourselves, customers, and BioRap. We continue to be pleased and encouraged by the warm welcome we are getting at transplant research centers around the world. They long have been frustrated by the limited access that they have to transplant rejection monitoring technology and their inability to answer vital additional clinical questions. That need opens up a significant market opportunity, including in the United States and Germany, where we have a long history of publishing with top research hospitals. We are excited to support these customers as they bring this technology in-house and continue to push boundaries of what is possible with this type of transplant rejection monitoring testing, which is known as donor-derived cell-free DNA testing or BDCF DNA. Our own research is breaking new ground in transplant. We see an opportunity for Oncocytes technology to improve transplant rejection management through earlier intervention. Currently, within the first five years post-transplantation, approximately 20% of kidney transplant patients will test positive for donor-specific antibodies, or DSAs, which are antibodies that are tied to their donor organ that their immune systems have created. DSA is an important biomarker used to monitor organ health in transplant patients, and those who test positive for DSA face elevated risk of rejection and potential loss of their organs. Our recent randomized interventional kidney study demonstrated that our technology can detect antibody-mediated rate ejection, or AMR, or ABMR, as a common and challenging type of organ rejection in DSA-positive patients 10 months before standard of care methods. In this study, patients were divided into two groups, one who used our test and the other who didn't, and the group that used our test had rejection detected much sooner. And while there are no currently approved therapies for AMR, That research in early detection has supported our inclusion in multiple phase two pharma studies that are seeking to address the disease. A successful pharma study would open up new use cases for our test, like therapeutic efficacy and minimal residual disease testing. Oncocyte is now in position to support both early detection and long-term management of transplant rejection risks. And we want to support this type of research across the board. I believe that as research centers validate and begin to use the Graft Assure RUO, we are going to see an explosion of research and collaboration in the space that will seek to address needs that are clearly unmet today. Things like immunosuppression tapering for liver transplant patients and the early detection of AMR. By partnering with the research community, we expect strong pull through into academic centers around the world. Our goal is to become the research tool of choice for the transplant community over the next 12 to 18 months. Working with Bio-Rad and leveraging their expertise in life sciences gives us a great head start with the research community. Building this relationship with the research community supports our plans to develop and deliver an FDA regulated kit version of our vitagraft assay to the market. To that end, we expect to make an investigational use kit available to support the development of new clinical indications in investigator and pharma-sponsored studies. This specially labeled kit makes working with the FDA much easier coming out of trials. For the past couple of quarters, we've talked about the coming transition in transplant monitoring from centralized labs to local testing. And I don't think this is a controversial point. Doctors want an answer in a day instead of a week, and cash-strapped hospitals would rather capture revenue than send it out. We've seen it happen in multiple diagnostic markets once regulated kits become available and expect that this market will be no different. Ultimately, the transplant market will be dominated by regulated kit products used locally, which is why we started down this path over a year ago. And while incumbent central labs generate hundreds of millions of dollars annually in the transplant market, the market is nowhere near oversaturated, presenting substantial opportunity for growth. Most of that revenue today is derived from the U.S.-focused central lab model. That leaves a big gap in the EU and rest of world markets. And Oncocyt is actively working to disrupt the market and step into that gap. it's worth keeping in mind that the global transplant market with over 150,000 transplants annually and a 9.1% growth rate remains largely unserved or underserved. Improving patient outcomes by increasing the number of successful transplants is an important health priority in many countries. For example, in the U.S., the Center for Medicaid and Medicaid Services, which is known as CMS, recently issued a proposed rule which would increase the incentives for hospitals to provide more kidney transplants and achieve better post-transplant outcomes. This new rule seems likely to drive further adoption of transplant monitoring diagnostic testing. For distributed regulated kits, adoption is about being easy to use, affordable, and quick to generate a result. We'll be working very closely with the clinical team at Bio-Rad to deliver a product that supports the current and emerging needs of the transplant community, one where the demand for a local testing option is growing by the day. In addition to revenue, we have two key measures of success, publications and site activation. With publications, it's how many posters, papers, and studies are being presented using our technology. These will be the leading indicator of adoption and the development of new utilities. Very little happens in the clinic that hasn't been validated many times over in the research lab. And that is why it's so important to lead with a research product and support the research community early on. We look forward to watching the body of literature expand as access to our affordable, easy-to-use test grows. Site activation is critical for long-term success and supporting the eventual transition to IVD. This is a very concentrated market. There are only a couple hundred potential transplant sites in the U.S. and EU where we plan to launch our regulated product. kidney IVD. With each one we bring up, we are picking up meaningful, long-term recurring revenue and market share. Based on population data, we would expect the average U.S. target transplant center to generate recurring kit revenues in the millions. Most markets do not quickly shift to a new product based on a single advantage unless that advantage is overwhelming. But when there are multiple substantial advantages and the switch is to something that customers normally prefer to do anyway, that switch can be quite rapid. In those cases, the inertia of habit and existing practice patterns and the influence of sales forces is neutralized. Now, when people talk about transplant monitoring, they're usually talking about single nucleotide polymorphisms or SNP-based detection where you're looking at specific gene targets in the blood. It is what the market leaders in transplant monitoring use in their tests via next-generation sequencing, and it's what we use in Droplet Digital PCR, which is a cheaper, quicker, and more widely available technology platform. We believe that SNP-based detection methods will continue to dominate mindshare in the transplant monitoring space. Competitively, it feels like we are in a great position with our turnaround time, ease of use, and affordability. and add to that differentiated clinical data and some unique technical capabilities, and we're bringing a lot to the transplant community. It's not unreasonable to imagine 30 to 50 centers or more in both the United States and EU having this as an in-house test, generating recurring revenue above $100 million annually. When we began the kit manufacturing process in 2023, with our prototype lots coming off the production line at the end of last year, with that step behind us, we expect to move rapidly through the final phases of product development, and we'll provide updates as we clear key hurdles in the path to FDA clearance. To bolster these efforts and help scale our operations, in April, BioRad joined current and new shareholders in a $15.8 million private placement valued at market. This investment solidifies Oncocytes Foundation and marks a significant endorsement of our partnership. The FDA's long-awaited final rule for the regulation of lab-developed tests finally was released in early May. We believe that most of our lab-developed tests meet the currently marketed carve-out in this final rule, but it remains to be seen how this clause will go into effect. This is something akin to, but not quite like, the concept of grandfathering. and the four-plus-year phase-in period for the final rule gives us plenty of time to adjust to any changes that might be needed. It is also unclear what legal challenges and further delays this rule may have to survive as it comes into full effect and is an area that we will be watching very closely. That said, we are already fully on the regulated kit pathway for our transplant product and do not expect these rules to meaningfully alter our approach or timelines.