Greetings, and welcome to the OncoCyte Corporation Second Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow for the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Glenn Garmont with LifeSci Advisors. Please go ahead.

Thank you, Stacy. And thank you, everyone, for joining us for this afternoon's conference call to discuss OncoCyte's second quarter 2019 financial results and recent operating highlights. If you've not seen today's financial results press release, please visit OncoCyte's website at www.oncocyte.com. Before turning the call over to Ronnie Andrews, OncoCyte's President and Chief Executive Officer, I'd like to remind you that during today's 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, anticipates, expects, estimates and similar expressions 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, 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 commercialization of potential diagnostic tests, uncertainty in the results of clinical trials or regulatory approvals, the capacity of OncoCyte third-party supply blood sample analytic system to provide consistent and precise analytic results on a commercial scale, the need to obtain third-party reimbursement for patient's use of any diagnostic test of the company commercializes, the company's need and ability to obtain future capital and the maintenance of IP rights. Therefore, 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, I'll turn the call over to Ronnie Andrews. Ronnie?

Thanks, Bob, and welcome, everyone, to our conference call to discuss our second quarter 2019 financial results and operating highlights. Joining me today on the call are Al Parker, our Chief Operating Officer; Mitch Levine, our Chief Financial Officer; Tony Kalajian, our Chief Accounting Officer; and Lyndal Hesterberg, Chief Scientific Officer. We will all be available during the question-and-answer session at the end. I'd like to start off today's call by taking a moment to express how truly excited I am to be here. As many of you may know, I've spent majority of my long career leading molecular diagnostic companies across all stages of development, from R&D to test commercialization for both in vitro diagnostic and lab-developed test products. These experiences over the last 30-plus years have led me to recognize the incredible opportunity of OncoCyte, first, as a board member and now as the CEO. I believe we're poised to make a tremendous impact in the continuum of care for oncology patients with DetermaVu and other complementary high-value tests. DetermaVu is an entirely new approach to cancer detection and diagnosis. The test uses our proprietary immune system interrogation method that provides relevant biological information by detecting gene expression changes in the immune system in response to cancer. We believe DetermaVu will be a powerful clinical decision-making tool, which could help patients avoid risky lung biopsies and their associated complication and costs. The unmet medical need and value proposition are clear. I'm convinced this is a truly unique approach with the potential for enormous commercial success in a very large and growing U.S. and global market. So where do we stand in our development of DetermaVu? In late June, we provided an update that our time line for the DetermaVu CLIA Validation study had shifted from our original estimates.…

Yes, thanks, Ronnie. First, I'd like to introduce a new member of the finance team, Tony Kalajian, who joins us as Chief Accounting Officer. Tony has consulted for OncoCyte for many years and brings over 20 years of experience in domestic and international financial reporting, auditing and accounting. Welcome, Tony. Now to our results. At June 30, 2019, we had cash, cash equivalents and marketable securities of $36.3 million as compared to $8.4 million at December 31, 2018. Through the second quarter ended June 30, 2019, we incurred a net loss of $5.4 million or $0.10 a share as compared to $4.5 million or $0.12 per share for the 3 months ended June 30, 2018. Our operating expenses for the 3 months ended June 30, 2019, were $5.5 million and $4.3 million on an as-adjusted basis as compared to $4.2 million or $3 million on an as-adjusted basis for the same period in 2018. We have provided a reconciliation between GAAP and non-GAAP operating expenses in the financial tables, including with our earnings release, which we believe is helpful in understanding our ongoing operating expenses. Research and development expenses for the current quarter were $1.5 million as compared to $2.3 million for the same period in 2018, a decrease of about $800,000. This decrease was primarily due to amortization expense of intangible assets reflecting a noncash impairment charge we recorded as of June 30, 2018. These related to intangible assets for therapeutic uses that we no longer plan to develop or commercialize. There was no amortization expense for intangible assets recorded during the current quarter. General and administrative expenses for the second quarter of 2019 were $3.6 million as compared to $1.3 million for the same period in 2018, an increase of $2.3 million. This increase is primarily attributable to investment banking-related expenses, personnel and related expenses, including management transition costs accrued as of June 30, 2019; legal, recruiting, accounting, auditing and tax services expenses; and stock-based compensation expense due to additional equity grants, including new hires. Sales and marketing expenses for the 3 months ended June 30, 2019, were $300,000 as compared to $600,000 for the same period in 2018. As Ronnie mentioned earlier, in late May, we made a key hire in marketing, and we expect that our sales and marketing expenses will increase modestly as we continue to build the sales and marketing team at the appropriate time for our planned commercialization. Cash used in operations was $2.8 million for this quarter as compared to the approximately $4 million during the second quarter of 2018, in line with our expectation for the current quarter's cash burn of around $1 million a month. That concludes my remarks concerning our financial highlights. Operator, we are now ready to open the call for Q&A.

Thank you. [Operator Instructions] Our first question comes from Paul Knight with Janney Montgomery Scott. Please go ahead.

Good morning. Ronnie, you've said 6 to 9 months additional on the time line. Is this all linked to the CLIA validation process? Or are you adding in additional time for paper publishing, et cetera?

No, the 6 to 9 months is really focused on the CLIA validation process. Obviously, we want to get this right and we don't want to short-change it. And there's really 6 major buckets of effort there. One is we want to validate RNA extraction components that we talked about and our ability to do RNA cleanup, then the library prep and then obviously the sequencing test performance once it's in the instrument. And then we have the whole software component, a variant call [ph] and then ultimately, we want to validate the actual algorithm for final results reporting. And so we've established that time frame. We do believe that the CLIA validation process, if we get the right -- if we get lucky and we get the right opportunity with the instruments and potentially the ability to bring in a few extra instruments from Thermo, that we might be able to compress that. But right now, we're still sticking with the 6 to 9 month until we can see those efforts that we're working on to expedite it and move up.

And well, you - we had the next question regarding your $1 million per month burn. Is that for this year? Is it for the next 12 months? Where are you at in terms of ramp? And I guess, following on to that would be, I guess we should now expect early commercialization sales somewhere in, what, Q4 next year?

Yes, I think we will know more as we get into Q3 and we get through the CLIA validation to report that back to you. Our plan, obviously, is to work diligently and try to do -- be as effective and efficient as we can once we get the CLIA validation to begin to prepare these other components that have to be in place for CMS submission. And I think that's a good target for us. I think we've said, at least, I know I mentioned I have talked to Tony about it, I think we said externally that our ramp-up of our commercialization is going to be very methodical. I think the beauty of the learnings that have come from the team that we're bringing in, the years of experience that they've had, is really it's a more targeted approach to commercialization. We have 10 states that make up close to 50% of the patient population that we need to go after. And so obviously, we will use overwhelming force in those states to begin to generate revenues. Some of those states have private payers who have shown more aggressive approach to funding these types of tests. As well as in those states, the private -- the self-employed or self-insured companies, where we can go in and work with the larger patient populations and show healthy economic benefit. Those are the things we'll do to try to accelerate the revenues, but certainly, it will allow us to work methodically at building a sales force on the revenues that we generate from this targeted approach.

Thank you.

Our next question comes from Thomas Flaten with Lake Street Capital Markets. Please go ahead.

Afternoon, guys. Just a follow-up on the timing question. So what would be a reasonable expectation for a CMS dossier submission? I know we had talked about kind of mid-2020. What would you say that current guidance would be?

I'd say right now I don't want to speculate. I think if I look back at the last 7, 8 months, the thing that got us where we are today is we anticipated the best possible timeline. And I think right now, while next summer is plausible, I don't think I'm in a position to really commit with a lot of confidence as to what that -- that we could make that date. I think we will know more as we get into October and November as we get the CLIA validation and we get teed up to go to clinical validation.

Great. And then with respect to the strategic initiatives that you will be, I guess, announcing in more detail come the fall, with the current cash position that you have, is that sufficient to fund some of those initiatives? Or will you need to -- or are those of the size that we should anticipate some, I guess, different level of funding required to undertake those initiatives?

Yes - the - right now, the strategic team has looked at a number of opportunities. Some are small tuck-ins that are incremental to what we're doing that don't require a lot of cash. There are some bigger aspirations long term, but I think right now, our focus is to get DetermaVu back on track. And if a couple of these smaller opportunities come along, we might take those shots on goal. But right now, the goal is to use the capital we have to get us to where we need to be.

Great. Thank you.

Our next question comes from Bruce Jackson with The Benchmark Company. Please go ahead.

Hi, good afternoon. Thanks for taking my questions. So if we can take a look at the 6 buckets of -- looking at the workflow on the validation and just specifically look at the RNA extraction, are you still considering automating that process? And are there any great [ph] limiting factors in fully addressing that process? So for example, the ability to order and get the equipment in a timely fashion?

Great question, Bruce. We sat back and really took a long, hard look at this as while we pause, should we go ahead and try institute automation? And the team, after thinking about it, we clearly realized that the best thing we can do right now is to get the manual process stabilized and ready for market. It's much easier to automate a stable process than it would be to try to add one more variable. So while we will be focused -- we have our tiger team focused on getting the current manual extraction process validated, we obviously will have concurrent opportunities to look at some of this automation and begin to see its impact, both on our operational efficiency, but certainly on performance. But we do not plan to do the CLIA validation with the automation at this time. But we will obviously layer in that automation once we're CLIA validated and we're on the market. We'll begin to come back. And then as we ramp up and scale our volumes, we'll add in the automation. My experience has been that automating a process that's not reproducible doesn't help the reproducibility necessarily, although we do know that automating RNA extraction will improve the yield and more than likely will improve the reproducibility because that system will have reagents manufactured under good manufacturing practices versus RUO reagents. So there will be well-established outgoing QC parameters that we will get along with the reagent shipments. But for now, we're going to stick with the workflow we got. We're going to stick with the manual process. We believe we've got it nailed down now, and we don't want to be changing that midstream.

Okay. Okay. And then just broadly, it is interesting you discussed that you took a look at the entire workflow. So taking just broadly -- with the clinical path in getting to 6 to 9 months, is most of the activity focused on the extraction side of it? Or are there any other areas we should be paying attention to? What's the biggest swing factor in terms of the timing?

Yes, right now it's to take the lots of the extraction reagent that we've vetted and we believe will work well for us and to rapidly put those through their paces as we bring up each component of the workflow and make sure that we eliminate any other variables. We've got those samples. If we keep our heads down and stay focused, that's probably a 2 to 3 week process. And then once we get to that point, we should be able to enter the CLIA validation phase with some confidence and the lots that we have and the ability to move forward. Once we do that, obviously we have developed already our own incoming QC protocols to once we find the perfect lot for us, that will be the composition that we're going to ask the manufacturer to either sequester for us or to continue to make to that specification. So they have been helpful, and we are working with them, and we do believe we'll have a viable process going forward to ensure consistent supply of that product.

Okay, great. Sounds a good plan, Thank you very much.

Yeah. Thanks, Bruce.

[Operator Instructions] Our next question comes from Keay Nakae with Chardan Capital Markets. Please go ahead.

Yes. Thanks. My question is focused really on working with the supplier of the RUO. So it sounds like, and correct me if I'm wrong, you have enough product maybe from different lots that's consistent enough to go ahead and complete the CLIA validation, but there's still then some work to do with the vendor in order for them to provide you the preferred formula in a consistent manner?

Yes, Keay, thanks. Great question. I'm glad you asked that because I probably wasn't as clear as I needed to be. We already have the lots and the composition of those lots. We've already looked at a number of lots that we know work. And so what we want to do now is to look at the best of those and get those lined up for future use. Once we get going on that, we'll then obviously work with them and make sure they know that, that is the performance expectations that we have going forward. We would -- more than likely, we'll sequester a very large amount of that, which we hope will lasts us a 1 year, 1.5 years, it has a very long shelf life. And so the goal would be to, once we get that, to sequester that lot, we don't think that will impair our P&L at all because typically, these companies will sequester the lot and hold it for you, and yet you'll only be charged for it as they ship it to you and invoice you for it. So we are, again, working with them, and they've been -- all of our vendors have been very helpful in this process with us and we're appreciative of that.

And again, assuming you have the preferred version of the reagent, what's the risk of the timing involved for the supplier to be able to do what they need to do on their end to be able to provide you that on a consistent lot-to-lot basis?

Yes, Keay, they -- like I said, we will, in the next few weeks, hopefully pick one that we like the best, and we will sequester hopefully 18 months of that now. And so it will be manufactured in bulk and we'll be able to -- they will be able to kit it and send it to us as we need it. So our goal is to pick one and move forward with that one and eliminate the risk of this happening in the future.

Okay. And then just on the Clinical Validation study, within the time frame you gave us, are you also expanding the time to complete that? And if so, why, given that you have the necessary samples to do that study?

Yes, we're not expanding the time frame for the Clinical Validation study. We have those samples. The limitation to speed is the single sequencer we have today. And by the time we get there, we will have added multiple instruments to our workflow so that we will have multiple workflow lines that will be available so that we can increase our turnaround time capacity. So we do believe that once we get through CLIA validation, that the time frame we had originally allowed for Clinical Validation will still be the appropriate time frame.

Okay. And then just -- thanks for that answer, but I guess in saying you'll have multiple systems, is there then some additional work required -- granted they all should work the same, but do you need to guarantee that that's the case?

Yes, that's a great question. So Keay, what we'll end up doing is -- the latest works in our world is we'll have a team that will be focused on the actual clinical workflow that's live and validated, and we'll have another work line or work flow or 2 with these instruments. And we will be validating these instruments alongside the one that's clinically active, and that's how we'll bring these up concurrently to make sure that they all are correlated. One thing I note from my years on the manufacturing side of these systems is that they do, they are very, very consistent across the systems when you know the targets you're looking for. The challenges that next-gen sequencing and next-gen sequencers have is when you don't know what you're looking for. If you're doing a full exome, the whole genome, transcriptome, sometimes you get variability between these instruments. But when we're using a custom ample seek [ph] kit with known targets that we're amplifying, the chip is extremely accurate and reproducible.

Okay, very good. Thank you.

There are no further questions. I would like to turn the call over to Ronnie Andrews for closing comments.

Thank you all again for joining our call. I know it was a little long, but I hoped the details we shared today hit the mark in the transparency we committed to bring to you guys. We believe we've made great progress in ensuring that DetermaVu is going to meet our high-quality clinical standards. And I can promise you we're going to continue to drive each other here to ensure that we do everything in our power to deliver the assay for the patients we aim to serve and for the shareholders who put their trust in us. So in closing, I'd like to make it clear that we're committed to providing as much information as possible to keep you fully informed of our progress and plans, and I look forward to future updates. Thanks, everyone.

This concludes today's conference. Thank you for your participation.