Good day and welcome to the OncoCyte conference call to discuss fourth quarter and full year 2018 financial results and operating highlights. Today's call is being recorded. At this time, I would like to turn the call over to Bob Yedid of LifeSci Advisors. Please go ahead.

Thank you, operator and thank you everyone for joining us for this afternoon's conference call to discuss OncoCyte's fourth quarter and annual 2018 financial results and recent operating highlights. If you have not seen today's financial results press releases, please visit OncoCyte's website at www.oncocyte.com. Before turning the call over to William Annett, 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 fact, including, but not limited to statements that contain words such as will, believes, plans, expects, estimates and other similar expressions are forward-looking statements. We encourage you to review the company's SEC filings without limitation the company's forms 10-K and 10-Q, 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, uncertainty in the results of clinical trials or regulatory approvals, the capacity of OncoCyte's third party supply blood sample analytical 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 IP rights. Therefore, our 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, it's my pleasure to turn the call over to Bill Annett. Bill?

Thanks Bob and welcome everyone to our conference call to discuss our fourth quarter and annual 2018 financial results and operating highlights. Joining me on today's call are Al Parker, our Chief Operating Officer; Mitch Levine, Chief Financial Officer; and Lyndal Hesterberg, Senior VP of Research and Development. We will all be available during the question-and-answer session. It's been an exciting and productive couple of months for OncoCyte. Many of you listened to our Investor call on January 29, in which we announced the game changing results from the blinded R&D validation study of our DetermaVu liquid biopsy lung cancer diagnostic test. We followed this announcement with a successful equity raise of $40.25 million in mid-February. These funds strengthened our balance sheet and leave us well-positioned to advance DetermaVu, while in parallel supporting a robust research and development program evaluating the utility of our immune system interrogation approach in other cancer indications. These events represent a major inflection point for our company. Today, I want to recap these exciting developments as well to talk about our progress towards making DetermaVu commercially available in the multibillion-dollar lung cancer diagnostic market. We are still on track for achieving commercial availability around mid-year, subject to the successful completion of the development studies. We will also review our financial results for 2018. Over the past year, we have made remarkable progress in the development of DetermaVu. We have demonstrated that DetermaVu is a best-in-class commercially viable test with the potential to fundamentally change the way that lung cancer is diagnosed. And our scientific results have shown that DetermaVu's unique approach, which harnesses the immune system's exquisite sensitivity to the presence of cancer has potential broad applicability across other solid tumor types for early cancer diagnosis. We are pleased to announce today that an abstract…

Thanks Bill. Good afternoon everyone. At December 31, 2018, we had $8 million of cash and cash equivalents and marketable securities valued at $428,000 for a total of $8.4 million of liquid assets. As Bill indicated earlier, subsequent to the announcement of our very positive R&D validation study results, we raised gross proceeds of $40.25 million through an underwritten offering of common stock, which resulted in $37.4 million of net proceeds. A good mix of new and existing investors participated in the offering, which provides us with the resources to execute our development and commercialization plans. For the fourth quarter of 2018, OncoCyte reported a net loss of $4.5 million or $0.11 per share, compared to a net loss of $4 million or $0.13 per share for the fourth quarter of 2017. For the full year 2018, we had a net loss of $15.8 million or $0.42 per share, compared to a net loss of $19.4 million or $0.64 per share in 2017. Operating expenses for the fourth quarter of 2018 were $4 million as reported and $3.5 million on an as adjusted basis, which excludes certain non-cash operating expenses. For the full year 2018, operating expenses were $15.2 million as reported and $12.5 million on an as adjusted basis. We have provided a reconciliation between GAAP and non-GAAP operating expenses in the financial tables included with our earnings release, which we believe is helpful in understanding our ongoing operating expenses. Cash used in operations was $2.5 million for the fourth quarter of 2018 or approximately $800,000 per month, which compares to cash used in operations of $3.3 million during the fourth quarter of 2017. Research and development expenses for the fourth quarter of 2018 were $1.2 million compared to $1.5 million for the same period in 2017. For the full year 2018, R&D expenses were $6.5 million compared to $7.2 million in 2017. General and administrative expenses for the fourth quarter were $2.6 million, compared to $1.8 million for the same period in 2017. For the full year 2018, G&A expenses were $7 million, as compared to $9.2 million in 2017. Sales and marketing expenses for the fourth quarter were $300,000 compared to $600,000 for the comparable period in 2017, while for the full year 2018 they were $1.7 million, as compared to $2.4 million in 2017. That concludes my remarks concerning our financial results and now we will open the call to your questions.

[Operator Instructions]. Our first question comes from Bill Quirk, Piper Jaffray. Please proceed with your question.

Great. Thanks. Good afternoon everyone.

Hi Bill.

Hi Bill.

So first question, I guess, if we think about preparing the commercial launch, can you just remind us kind of where you are in terms CLIA certification? And I am thinking specifically around the states of California and New York, whether or not you are certified there already in the process or you will be starting that process soon?

Right. So we do have CLIA certification in the state of California and given reciprocity from other states as well as some states which we have applied for and received, we have certification in 49 states. State of New York is still outstanding, and we will begin the process of applying for certification in New York probably once we make DetermaVu commercially available.

Okay. Got it. And then maybe a couple for Mitch. Thanks, obviously, for the details of the 2018 P&L. Given the comments with respect to that Bill made regarding adding some staff on the sales side as well as in R&D, how should we think about OpEx trending here in 2019? And then also what should we be thinking about in terms of cash usage? Thank you.

Thanks Bill. We haven't publicly disclosed our anticipated cost, but we have developed an efficient and focused commercialization plan. So we are going to grow modestly as we get to milestones with regard to peer-reviewed papers, et cetera. Probably put in place a handful of people on the commercial side early on. So I would anticipate a modest ramp in our burn, but not dramatically.

Okay. Perfect. And then with respect to the late-breaking abstract that was accepted relative to the R&D validation study, anything new in there that we should be looking beyond what you released earlier this year?

Yes. Lyndal, can you address that?

Sure. I would be glad to. There is a new piece of information that's there to look specifically within 0.8 to three centimeter nodules which are considered LungRADS 4. Compare the performance of DetermaVu product to the most widely available clinical models and this is a male model that simply uses clinical facts to help the physicians assess the risk that the person [indiscernible] who has cancer. And the area under the curve or the DetermaVu was significantly higher statistically than that for the clinical model itself. So we are very pleased that this confirms the value to biology risk assessment that we are providing.

Got it. Okay. Thank you much guys.

Thanks Bill.

Thanks Bill.

Our next question comes from Paul Knight, Janney Montgomery Scott. Please proceed with your question.

Hi Bill. Hi Mitch. Hi Lyndal.

Hi Paul.

Very good. Thanks Paul.

Could you talk, you said what, you were in discussions with 11 commercial reimbursement organizations and what's been the feedback?

Yes. We have talked with the medical directors in those groups. And I think they covered something like 77 million lives in the U.S., so pretty good chunk of the U.S. population. And we basically spent an hour or so with each medical director, took them through DetermaVu results so far, the clinical protocols that we are following and so on and got their view about things. And I think that there was unanimity among them that first off that there is a major issue that they see in terms of the unnecessary biopsies and the complications and deaths and cost coming out of them. They all see the same thing which we do. They also believe that DetermaVu could be, if our upcoming studies bear out and give the kind of results that we have seen to-date, they all agreed that DetermaVu could be an important part of the solution to that problem. And then finally, when we asked them about reimbursement, they said, well, you know, you have to go through the process, of course, as everybody does, but that if we do get the kinds of results that we have seen to-date and using the clinical protocols that we talked about that certainly they would consider our applications favorably.

Do you think they are looking at LungRADS 4 market or do you think they are thinking earlier? I guess the question is, are these biopsies occurring at LungRADS 3 often enough or even earlier that they have in mind something besides LungRADS 4? Or is it a LungRADS 4, in their view?

I think there is a mixed view on that. LungRADS 4, of course, is the eight to 30 millimeter nodules. I think that's the first indication, the low-hanging fruit because today, of course most, if not all of the nodules in that size are going for biopsy. So clearly there is a clear need in LungRADS 4. LungRADS 3, which is the five to eight millimeter nodules today, well guidelines indicate watch and wait, do more frequent low-dose CT scan every three to six months. According to papers that we have seen, probably 20% to 25% of LungRADS 3 nodules are getting biopsy today. So as a result, there is clearly some need today and I think that the payors would want to see for LungRADS 3, they would want to see the results of the clinical utility study which we plan on doing after launch to show kind of the long-term economic benefit. So I would say, sort of high level summary, I would say LungRADS 4 has lot of interest, clearly needed there, LungRADS 3 is to be determined based on what clinical utility study says.

And I guess lastly, Bill, would you say that physician practice is your biggest obstacle or commercial reimbursement?

I don't think physician practice is a major barrier. We have talked with over 200 chest physicians and key opinion leaders and so on. They are all very aware of this diagnostic dilemma of knowing that the vast majority of biopsies will end up benign and therefore not necessary, but not knowing which is which. So the physicians are aware of the problem. They are very concerned about it. And I think that's one of the reasons why we were included as a late-breaking presentation, poster presentation at ATS, as it is an area of a lot of discussion. So we do believe there will be a lot of interest from physicians. Reimbursement, like every other diagnostic company, it does take time. We will work with the Medicare, CMS to get reimbursement from the public payors as well as the various private payors as well. And so, like everyone else in the diagnostic industry, that can take some time.

Okay. And then can you just lastly talk to CMS process that you plan on?

Right. Well, again the CMS, the payors from Medicare and Medicaid have an established process, which is well laid out and basically what you have to do is put together a dossier of information, including your results, the clinical protocols, the clinical results and you have to have at least one published paper in a peer-reviewed journal and we are planning on applying to peer-review journal with the results coming out of the R&D validation study and the clinical validation study. So once we get that journal article published, we will submit the dossier to Medicare and Medicare then goes through a standard process and it takes, we are told, on average these days six to nine months, sometimes more for them to come to their conclusions in a favorable positively. They give, what's called a local coverage decision, which means that Medicare patients throughout the country can be covered at the price which Medicare determines. So that's at a very high level, the process that one goes through to get the Medicare coverage. Private payor coverage, of course, is done on an individual basis. Each different private organization has their own standards and their own time line.

Thank you.

Thanks Paul.

Our next question comes from Bruce Jackson, The Benchmark Company. Please proceed with your question.

Hi. Thank you. So when you do get down to the clinical validation study, how fast you think you are going to be able to accrue the samples? You have already been working with a he number of institutions, I think. So if you could just tell us how many site you have got set up and how fast you think you can get that particular study completed?

Yes. So we have all of the samples that are needed now for both CLIA validation and clinical validation. They are all in the freezer at the moment. And in total, we collected samples from about 66 sites across the U.S. And so as a result, we have got everything that we need in terms of samples.

Okay. And then with the burn rate and the operating expense profile, so you are going to probably be hiring a few people this year. Should we expect some kind of a ramp up in the operating expenses?

Sure. Bruce, I think it will be a very modest ramp from what we have shown in the past. As I said, we are going to bring in a handful, a small handful, three to five commercial salespeople, a couple medical science liaisons. And over time, as we get closer to reimbursement and once we have reimbursement, you know there is only maybe 6,000 pulmonologists in the United States. So even at full ramp, we expect to have maybe 40 outside salespeople as opposed to a great some of the companies out there might have 400 or 500 outside salespeople because they are calling on primary care physicians. Our market is much, much smaller with only about 6,000 pulmonologists. So I would expect a very modest ramp.

Okay. That's great. Thanks very much.

Thanks Bruce.

[Operator Instructions]. Our next question comes from Bill Quirk, Piper Jaffray. Please proceed with your question.

Hi. Just a follow-up. So looking at the abstract a little closer, maybe you can kind of delve into the fact that in the original R&D validation study, which is lesions five to 30 millimeters, the AUC was 0.89. And then when we shift that into a study of high-risk population, meaning that eight to 30, the AUC actually went down a couple of points to 0.87. So I am just trying to, maybe you can help sort that through with us a little bit. Obviously it implies very good things for the data in the LungRADS 3 population. But I am just curious why this signal would drop off a little bit in a higher risk population? Thanks.

Lyndal, can you address that?

Sure. I would be glad to. So first, the small drop-off of two percentage points is statistically insignificant given the number of samples that we are working with. It falls well within the plus or minus 8% error mark. So the biostatisticians tell us the numbers are statistically indistinguishable. To answer your question, that's just due to the fact of the specific number of samples that happen to fall within this range of the LungRADS 4, which are the clinically very challenging samples for physicians to diagnose.

Got it. Thank you very much.

Our next question comes from Keay Nakae, Chardan Capital Markets. Please proceed with your question.

Hi. Yes. Thanks. Bill, a question about potential reimbursement while you are connecting the clinical utility program. There is something available for that under, like the Palmetto CDD program?

Yes. There is. They changed the name again. They don't call it CDD anymore. It used to be known as coverage with data development. In essence, as we understand it, the same program is in place, although they don't call it that. When Paul Knight asked the question about the CMS reimbursement process, that process is going on in parallel to our clinical utility study. To just give you a sense of the timing there, we will start clinical utility probably around the same time that we submit the Medicare dossier. And the reason for that is, we don't want to start clinical utility until you have a paper or papers published in peer-reviewed journals because you want something to be able to show the doctors that say, look, here is independent confirmation. And so as a reminder, the clinical utility study is a real-world evidence study. That means it's following real patients, real doctors. We are using the test in the world. It will be a double-armed study. The patients in both arms will have our test, DetermaVu. The doctors in one arm will be blinded to the results and the doctors and the other arm will see the results of the test. And then at the end of one to two years, you compare the two arms and see what are the clinical outcomes, are there fewer biopsies, fewer complications and so on and what are the healthcare economic benefits, is one arm less expensive than the other. And you compare those and you make that information available to Medicare, the private payors and so on. So that clinical utility study, as I said, will take a year or two to complete after enrollment. But in parallel, the CMS reimbursement process which I outlined previously is going on and we should get, again if the timeline and the steps are the same for us as has been characteristic of the companies in the past, we should get CMS coverage well before of clinical utility is completed. So that's kind of how the two interface.

Okay. Well, thanks.

We have reached the end of the question-and-answer session. I will now turn the call over to William Annett for closing remarks.

Well, thanks everyone again for joining our call this afternoon. We do hope that you are as excited as we are about OncoCyte's progress and our upcoming milestones. We are well-funded. We have an exciting potential pipeline of liquid biopsy tests. And of course, we are moving forward with significant momentum in the development of DetermaVu and in a few months plan to have it commercially available in a potentially multibillion-dollar lung cancer diagnostic test market. We are looking forward to providing you with further updates in the coming months. Thank you.

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