Greetings, and welcome to Oncocyte Corporation Second Quarter 2020 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It’s now my pleasure to introduce your host, Bob Yedid, Managing Director of LifeSci Advisors. Thank you. You may begin.

Thank you, Doug, and thank you everyone, for joining us for today's conference call to discuss OncoCyte's Second Quarter 2020 Financial Results and Recent Operating Highlights. If you have not seen today's financial result press release, please visit company’s website and look at investors page. Before turning the call over to Ronnie Andrews, OncoCyte'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 Form 10-K and Form 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 test, uncertainty in the results of clinical trials or regulatory approvals, the capacity of OncoCyte's third-party blood sample analytic 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 and maintenance of intellectual property rights and uncertainties associated with COVID-19 pandemic and its possible effects on our operation. Therefore, actual results, actual outcomes and results may differ materially from what is expressed or implied by these forward-looking statements. Oncocyte expressly disclaims any intent or obligation to update these forward-looking statements except as otherwise may be required under applicable law. With that said it's my pleasure to turn the call over to Ronnie Andrews, CEO. Ronnie?

Thanks Bob. And welcome everyone to our conference call to discuss our second quarter 2020 financial results and operating highlights. Joining me today on the call are Mitch Levine, Chief Financial Officer; Al Parker, Chief Operating Officer; Dr. Doug Ross, our Chief Medical Officer and Padma Sundar, our SVP of Commercial, we all be available during the question-and-answer session. The second quarter of 2020 has been an important chapter in the evolution of Oncocyte. My goal for the call today is to do a brief high-level review of the DetermaDx, technical overview performed since our call in June and spend the majority of our time sharing the tremendous progress we've experienced on our two commercially available high impact tests that are both at revenue generation phase and have significant revenue upside given the large and untapped markets they will serve and to provide additional clarity around DetermaIO and its value to OncoCyte today. When I agreed to step into the CEO role a year ago, the mission was to diversify Oncocyte by adding high value cancer tests who were at commercial onstage to build multiple revenue streams and mitigate the clinical development risk and the program to develop the test we then called Determavu. As a veteran of molecular diagnostics industry, I've had a lot of experience with biomarker research, it's challenging, it's expensive and unfortunately early science does not always translate into final products. And this is exactly what we encountered with DetermaDx. The strategy we embarked on last year was to build a company with test that answer critical unanswered questions for physicians managing lung cancer, a cancer does not seen much improvement in outcomes over the last 50 years. Instead of investing more in discovery and research to find such test, we made the conscious decision to…

Hey, thanks, Ronnie. Hi, everybody. For the second quarter, we strengthened our balance sheet with a completion of a $10.7 million registered offering of common shares priced at market and without paying any commissions or placement fees. As of June 30, 2020, we had cash, cash equivalents and marketable securities of $17.1 million. We expect annualized savings of approximately $3 million from the discontinuation of the DetermaDx program and are now expecting a quarterly cash burn of $4.7 million to $7 million. Cash used in operations was $7.0 million for the second quarter of 2020. This cash spend includes about $1 million of non-recurring expenses, including transactional costs, acquisition-related costs and legal and business development costs. I'd like to remind investors about our revenue recognition policies around DetermaRx in light of the recent CMS and Noridian final LCD decision, which became effective June 14, 2020. As a reminder, prior to January 1, 2020, we did not have any revenues or cost of revenues in our results because we did not have any commercialized products. Under U.S. accounting principles, we will be able to recognize revenues on an accrual basis for DetermaRx once we have contracts or reimbursement from third-party payers or a history of experience of cash collections for the tests we perform or both. Until that time, we expect to recognize revenue on a cash basis. Accordingly, we will incur and accrue cost of revenues and other operating expenses related to DetermaRx, which may not necessarily have corresponding revenues. The final CMS approval decision makes our DetermaRx test eligible for Medicare reimbursement. After a final Medicare coverage price has been established, we expect to recognize revenue when the DetermaRx tests are performed for Medicare patients rather than on a cash basis. For private payers such as insurance companies, we…

Operator, we can now open the call for questions.

Thank you. [Operator Instructions] Our first question comes from the line of Thomas Flaten with Lake Street Capital Markets. Please proceed with your question.

Hey, guys. Thanks for taking the questions.

Hi, Thomas.

Hey, guys. Can you talk a little bit about your plans for expanding the sales force? I know COVID remains a bit of a challenge, but as you have seen and commented previously, there has been some increase in face-to-face interactions. And I was just curious if you could comment a little bit on how you're thinking about that for the balance of the year.

Yes, Thomas. We were, actually before the recent spike, we were actually thinking about adding a few sales reps in September time frame. I think given where we are now, we will continue the virtual effort that we're on, and we're seeing great progress there. And we are going to begin the interview process. We do think there are three really important regions of the country that we have been able to touch virtually that we probably need to drop reps in because when face-to-face – when we can get back face-to-face, it's going to be important that we're there. I mean, what we are seeing is people coming on board, and then we get the follow-up MedEd meetings, but it's going to be really important that our reps continue to meet with the teams in these early adopter sites so that we get the full pull from each account. So right now, the plan is to hold off on those hires until we see how the spike comes down and to see when accounts open up. But we are planning on adding three probably before the end of the year.

And of course, our virtual programs are so successful. We are continuing to add to that program. So as Ronnie said, the first CME that was conducted, we had about – we had 1,800 surgeons and medical oncologists. We are working with that same organization. They're going to launch another program, which will be more interactive where doctors will be allowed to log into a portal and engage with people like Dr. David Gandara and Dr. Johannes Kratz. The outreach for that is 13,000 physicians. So we're continuing to – continue with the virtual engagement. And then in a timely manner, we'll add kind of boots on the ground.

Got it. And then I don't know if you can comment with some specificity around what you've seen in July. I know you hit the 100 tests sometime in the second quarter. What have you seen so far? And has the more recent spike in COVID cases, particularly in the Southern states, had an impact? Or are you still seeing pretty rapid growth?

It’s interesting that I just saw a paper from ASCO showing about a 40% reduction in patients that have cancer seeing their physicians, which is – makes us all in this industry nervous. However, we have continued to see month-over-month growth in our sample volumes. And so while we obviously are watching these spikes very carefully, one – I think the one good thing to note is while we are seeing a rapid rise in infections of COVID 2, not all the countries are seeing that turn into ICU beds and actual hospitalizations to the point where surgeries cannot continue. So we'll watch it closely. But so far, we are seeing continued month-over-month growth.

I’ll just add some commentary. Some of the states where we've seen an unfortunate increase in the number of cases, if we look at our July dashboard, actually a lot of the cases are indeed coming from Florida, which is pleasantly surprising, including from Florida Cancer Specialists. They're already integrated in the test ordering menu as well as from California. So yes, we are seeing those cases come in, in July in these two cases where the COVID-19 cases are spiking. So seems like although the surgeries may not be back at 100% of pre-COVID levels, they are happening.

Yes. And Thomas, one thing that we're watching very closely as well and this is just through my network at ASCO is because of COVID; people are getting chest X-rays and the incidental findings of earlier-stage tumors are definitely increasing. We have no idea how many yet, but we – but at the last meeting I was at with my ASCO colleagues, that was part of the discussion. So we'll monitor that and see it. And we hope to continue our month-over-month growth rate despite the spike.

And so just a final question. Are you willing at this point to provide some guidance on testing volumes for the balance of the year, how you think it's going to evolve from where you are today?

Yes. Let me say this. Here's what I'd say. In the first year of their existence, Genomic Health had 20 reps and did 500 cases in the first year with no COVID and at 3 times the market size. And we, right now, while we don't think we can achieve that number given the COVID headwind, the progress we're going to make is going to be fairly significant given six reps and the headwind we have. And so to believe that we could get to half of their volume in the six months and have COVID with six reps, something like that would be, I think, a pretty impressive ramp up given what we're all going through. But certainly, we believe that, that number is reachable, and we'll know more. It's not that we're trying to hedge our bets. We just – we need to get through the spike and see like you're seeing are we going to continue to see the ability for these people to get surgeries or not. That's the real challenge to give a final number for the year. But we are on a very close track to at least deliver half of what Genomic Health did in a full year with 20 reps, no COVID. We'll deliver at least half of that and about three quarters of the year with six reps in COVID. So it's an impressive ramp right now.

Great. Thanks so much for taking the question. I appreciate it.

No Thomas. Yes, of course.

Our next question comes from the line of Steve Unger with Needham. Please proceed with your question.

Hi, thanks.

Hi, Steve.

Ronnie, you kind of – how you doing? You said in the comment regarding the DetermaIO on the clinical trial for triple-negative breast. And I was just wondering if you could provide more color for us?

Yes. We right now, we – one of the things you guys will see us be challenged with as we enter these trials with these big pharmas, especially if it's a failed trial, and we are really precluded contractually from sharing the names of the companies and the actual specifics of the trial because obviously, it's already a failed trial. And we want to make sure that if we resuscitate it that would be a pretty phenomenal achievement for the pharma company. And so unfortunately, I'm not able to say anything more than we are actively receiving samples, and we hope to be able to at least see results from that within 90 days.

Is that revenue generating? Or is that more of what I would call pilot?

Yes. In phase, you hit the nail in the head. I think we will be very clear about this and transparent. When we're getting involved this early with our test, we will run in kind the samples for these companies in sort of the resuscitation mode or we will get their silico data. We'll get the data from RNA-seq in some cases, and we'll be able to run our algorithm against that. And so those are the two avenues we'll approach for these sort of early – these failed trials, where we want to take a quick early shot to see if we can resuscitate it. Once that happens, we will be billing for the samples.

The one thing I wanted to add is since this is a very high-profile therapeutic, right, and being tested in the neoadjuvant setting, one – once that data – one way to think about it is it's directly revenue generating. But the other way to think about it is, once the data is available and it's presented at a medical meeting, it creates an excitement around the platform itself to attract other interest from other pharma, more strategic.

Yes, that's great. Great. In terms of DetermaRx, do you know your Medicare price yet?

We do not. And I'm going to give you some high-level thoughts. Padma's right across from me, I'll let her add color. We have given everything we needed to give to them to render us a price. The Noridian blessing was very important because now that's our local MAC, and that put a firm date on when we have to have a price. So we know those two things. We do know that there is a new – it was a fairly new methodology that they were trying to use, and we are waiting to see all this. All the companies, I've talked to several CEOs in my space who are also waiting on pricing. And we're all under the impression that there's an evaluation right now of what's the appropriate method to price these panels.

Yes. I'll reiterate the – because the Noridian is effective August 20th, they have to pay us for claims after that. You're right. Ronnie's right in that the exact pricing has not been determined. And the reason for that is the management change at Palmetto, and they are sort of trying to introduce a new algorithm for pricing. And what we've heard is there is a dilemma as to whether that new algorithm should be adopted, whether they should be pricing using the old algorithm. And those are the discussions we are involved in, and that's the reason it's got delayed. So – but whatever the issue, they have to pay us for claims after August 20th because it's effective on that date.

And we've already been – we've been submitting claims since we got the approval. So we're obviously going to adjudicate all the older claims once we know the price.

Yes. That was my last question. I just wanted to – of the 100-patient samples that you've tested, how many of those are eligible for reimbursement either by private payers or Medicare?

So those are the sample volume, it's closely tracking to actually the market number. So about 70% of those patients are Medicare or Medicare Advantage, and 30% have commercial insurance, which we are billing and getting paid some of the time. We will – we are already – we've submitted the past claims to Noridian. And we will be making an appeal to get those claims paid because if you remember, the evidence between the draft LCD and the final LCD was unchanged. They didn't change anything. So we've made the case with the medical directors at Noridian that we should be paid for those past claims, and we'll keep you updated as we progress through those negotiations.

Good. Okay. So then worst-case scenario is you start getting paid after August 20th, for example after August 29th?

Yes.

Right, worst case. So we will have revenue in Q3 for Rx. I think as Mitch has described in terms of our revenue recognition, it's going to be on a cash only basis in Q3 and Q4, most likely. And then as we get more and more traction and more and more history, we'll be able to move to an accrual methodology. But for now, it'd be cash only so we'll continue to provide volume growth and then revenues at the coming quarterly conference calls.

Perfect. Great. Thank you. Appreciate it.

Sure.

Our next question comes from the line of Steven Mah with Piper Sandler. Please proceed with your question.

Hey, thanks for taking the questions and congrats on the early DetermaRx traction.

Yes. Thanks, Steve.

Yes. I'm looking forward to the KOL call tomorrow as well.

It's going to be a good one. You're going to hear some really fascinating really good case studies from Dr. Gandara.

Okay, that’s great. So my questions are more just follow-up questions from prior people. But can you give us a sense for the number of physicians ordering? It looks like you're at 100 tests right now with 47 available hospitals. And then of those numbers of physicians, you guys mentioned 60% reorder rate. But could you give us a sense for how many surgeries are done per physician, maybe like in a per month or per quarter time frame?

Yes. So Padma, you just correct me if I get out of line here. But Steve, the way to think about it is our early path was to look at community – try to get into these community centers, BARDA cancer specialists, things like that and also go after the key opinion leaders. As you might imagine, those larger accounts are harder to penetrate and hard to bring up on board. So the early returns for us have been in these smaller community centers, and we now have 47 on-boarded and about 60%. When you onboard an account, you have to get them up and on board, and then you have to do the MedEd for the docs. So we're onboarding accounts every week. So there's a trail of who orders versus the number of accounts we have. And so Padma, I don't know if you have the latest.

Yes, I think – so it's important to highlight that yes, the first step is you onboard an account. And roughly, it can be anywhere from two to five doctors ordering per account. But then the hope is if you use Florida Cancer Specialists, as an example, you start with those two docs ordering today, and then you do a MedEd program, which we are doing next week with Florida Cancer specialists, so then you can grow that number from two to 10 and 25 and hopefully get to at least like 30%, 40% of the doctors. So that's how it will go, and that's the pattern.

Yes.

So roughly, in the beginning, the first month, I would say, the range can be anywhere from two to five and then you expand within those larger accounts.

Okay. Alright. That’s helpful. And then my next question is on the DetermaRx billing, my understanding is there's going to be a look back period that Noridian will allow. How far back does that look back go?

Theoretically goes back to the original LCD. And so – which we got from Palmetto, which was in April, I believe. So it's about – should be about, I don't know, 70% to 80% of the volume should be eligible based on that LCD. But we're going to pursue all the way back to when we launched it, but those will be the hardest one to adjudicate.

We have submitted the claims all the way back to when we first launched. So the submission is there on hold with them. Like I said, it's not a guarantee, but we are in active discussions with them that the coverage policy did not change from draft LCD, which was last year, to final LCD. And therefore, in a sense, it was covered. So if it's a negotiation and the best case scenario is we get paid, and the worst case scenario's we don't get paid.

Okay. Yes, that makes sense. And then let me sneak in one last one. On ProGenetics, is it going to be similar to core Dx versus just sample logistics? Or is it going to be a tech transfer?

Yes. Go ahead Padma.

It's exactly the same, which is pretty nice actually because the price per test is quite attractive. We haven't disclosed that yet. Yes. So they generate volume through their oncology channel, they send the sample and we send the test report back and the pay us per test report.

Ultimately, Steve, once we get these all established, the goal is going to be to transfer of the network to some of these countries' laboratories, and we'll just get an algorithm fee, which will be the exact same price we get today, but they'll take on the wet work. And so as you might imagine, in the early days of these types of launches, it's really important for us to maintain the consistency of the testing. We want to make sure that we own the workflow. But ultimately, we'll be able to reproduce this via a more kit-like approach, and we'll be able to then charge for the algorithm and let them do the wet work locally, which will improve their turnaround time significantly.

Okay. Great. Thank you so much.

Thanks Steve.

Our next question comes from the line of Bruce Jackson with The Benchmark Company. Please proceed with your question.

Hi, good afternoon. Thank you for taking my questions. So I wanted to just talk about DetermaIO for a second and about the road to clinical use. So if you could just give us a little bit more information about – yes, I know you have to do much studies, but how big do those studies have to be? How long do you think it's going to take you to some of the data? And then what year do you think that you might have the test actually available for clinical use, and what indication do you think it's going to be for?

Let me do this. Let me start, and I'm going to pitch it to Dr. Ross who's here, and then I'll pick up the end because you asked kind of a few questions within one. To-date, we have 71 lung patients. We have 55 breast, triple-negative breast. Doug, and you guys met with CMS and indicated that we probably need about 200, 250 more patients, something like that. And at that point, we would be able to submit our dossier. So Doug, do you want to just give an update on what you think the type of trials we might get to do that?

Yes. So there's really two different paths to get the product to market. One is working directly with a pharma company with specific drugs where we would be developing it as either complementary or companion diagnostic. And Ronnie's talked elegantly about the path towards that with a checkpoint inhibitor or this emerging class of therapeutics that are designed to stimulate the immune system for those tumors that are cold, but not poised, if you will, that need some boost to their immune response to get them over the hump. And so we're trying to work with both the checkpoint inhibitor candidates as well as this new class of candidates. In terms of the conversations with CMS, we understand and they understand that the current biomarkers, predominantly PD-L1 but also tumor mutation burden and MSI in some tumors, are not performing up to the standards or the desires that either oncologists or patients hope for. And so there's plenty of room improvement. And the discussion centered around providing incremental value to PD-L1 and tumor mutation burden. And in the case of PD-L1 right now, at least in non-small cell lung cancer, pretty much all patients are getting access to the drug either a single agent when they express it strongly or as combination therapy when they express it weakly. But the response rates are really not very discerning in terms of picking responders. So there's plenty of room to demonstrate incremental improvement, and Ronnie suggested that 200 to 300 patients in that sort of indication is the target, and that's about right. There's other tumor types where the drugs have not penetrated as much. And so in that setting, we would be looking towards a complementary diagnostic, something diagnostic, something that's not on the label of the drug but instructs the use of the drug. And so those would be sort of de novo applications. And so that's the other route to market. I don't think we've guided in terms of date or year of launch. So I'll defer that back to Ronnie.

I'll pick that back up. So Bruce, to answer your question, we are actively pursuing data sets where samples have already been run using RNA-seq. We developed our test in RNA-seq. And therefore, even though now it's a 27-gene PCR panel, we can use our algorithm against RNA-seq, and we could rapidly, once we gained access to one of those data sets, we could rapidly produce the data that we could then take to publication. Once it's accepted for publication, we would have enough samples that would meet the CMS requirements. So we are actively pursuing. You're going to hear in my highlights to look for in the second half is we want to obtain access to one or more of those types of data sets so that we could indeed be prepared for a publication and then submission to CMS hopefully in early 2021. And then it will be up to Gabe and team to figure out how far we can progress with that data set.

In terms of your question on the indications, obviously, Ronnie and Doug have talked about non-small cell lung cancer, where we already have data and triple-negative breast cancer. So those are the indications that we are pursuing. But one thing I want to highlight, and I'm sure everyone is familiar with the MSI story is in order for them to go from colorectal to a pan-cancer claim, they had a – correct me if my numbers are wrong, about 70, 80 samples in colorectal cancer. But then for them to add on the pan-cancer claims, they had five other cancers where there are samples in the 10s, and that allowed them to then submit a pan-cancer package to CMS. So one could envision a two-phase where first you go lung and triple-negative breast cancer, and then you could run RNA-seq data on several other cancers and therefore, show kind of utility potentially for a pan-cancer client. So that's the strategy.

So Bruce, the plan is to aggressively go after these data sets and do the best we can to have a dossier in CMS next year.

Okay. That's great. The – I guess, the follow-up question that was we've got some meetings coming up in the tail end of this year. Any new publications lined up for either DetermaRx or DetermaIO that we should be looking forward to?

One of the other key milestones – great news, Bruce, you're making the foresale my milestones into this part versus the – my closing. But yes, so the other milestone is we have – as you might imagine, we have a pervasive commercial effort, and we have quite a few, what I would call, key opinion leaders and academics that are interested in supporting us with papers. And so we are working to pursue those types of abstracts and papers. And as you know, there are several meetings this fall. And we are eager, especially around our IO panel, to complete the patent filing. And then from there, we'll be able to think about releasing a lot more information around it, including some manuscripts at future meetings.

And we are targeting in terms of submissions, the North American lung cancer meeting, there'll be a little bit of a teaser on that tomorrow, not more as the KOLs have told me. And then there's the World Lung, and then there's AASCO[ph] also coming up. So we're looking at all of those meeting opportunities.

Yes. So Bruce, just stay tuned on that. And as you know, we have to be careful what we say because a lot of these studies are embargoed. But yes, I think that we are – I think you know me well enough. We will have a very assertive publication strategy from here forward.

Okay. That’s great. That’s it from me. Thank you very much.

Thanks, Bruce.

There are no further questions in the queue. I'd like to hand it back to Ronnie Andrews for closing remarks.

Well, thanks, everyone. I know the call went a little long today, but I think its important information that we wanted to share with you guys. I want to close by giving the key highlights, some of which Bruce got us to elucidate already. But for DetermaRx, we want to – you'll see continued sample volume and revenue growth over the second half, consistent onboarding of new hospital systems, including some of the larger academic partners that we're targeting as well as global expansion via some additional partnerships. For DetermaIO, it's going to be continued access to clinical trials so we can get the data we need, as I mentioned, to get us prepared for CMS dossier for a commercial launch in clinical markets, also publications of additional data in multiple cancers. And then ultimately, we want to continue to grow our pharma services business, which we believe is a really, really good opportunity for us in the short term to drive revenue growth as well as help us with that revenue to reduce the overall burn of the company. So again, we appreciate the support of our investors. We appreciate especially the support of the team here. It's been an intense year since I got here, and I'm just really excited and proud of the team, where we are. And we have a really bright future for the company and excited to continue to update you guys in future quarters. So thanks for taking the time today, and we look forward to further opportunities.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.