Greetings, and welcome to the OncoCyte Corporation Third 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, Bob Yedid of LifeSci Advisors. Thank you , Mr. Yedid. You may begin.

Thank you, Waxcy [ph]. And thank you, everyone, for joining today’s conference call to discuss OncoCyte's third 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 Intellectual Property 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 those prepared remarks, it’s my pleasure to turn the call over to Ronnie Andrews, CEO. Ronnie?

Thanks, Bob, and welcome, everyone, to our conference call today to discuss our third quarter 2019 financial results. Joining me today are Al Parker, our Chief Operating Officer; Mitch Levine, our Chief Financial Officer; Padma Sundar, our Senior Vice President of Marketing and Market Access and Tony Kalajian, our Chief Accounting Officer. In July, I stepped into the CEO’s role at OncoCyte with a vision to provide actionable answers to the many critical and underserves decision point faced by clinicians and patients across the lung cancer cure continuum. Everyday we are motivated by the fact that lung cancer remains the leading cause of cancer death in the U.S. even despite advances in screening and new treatments. The team and I recognize that there are a number of underserved decision points that prevent patients from getting the care they need at the earlier stage when it maybe most beneficial. And I’m pleased to say this quarter we made significant progress in providing new solutions for patients and doctors and realizing our vision for OncoCyte. I’d like to start off by recapping an exciting accomplishment for the quarter. Our transaction with Razor Genomics and acquiring the commercial rights to their Lung Cancer Treatment Stratification Test. Let me share with you why we are so excited about this. Today, there are over 40,000 patients that will be diagonised with early stage non-small cell lung cancer in the U.S. this year, meaning they will receive a stage-1 or 2 diagnosis. We expect this number will increase in the coming years due to the ongoing improvements in screening programs. Treatment for these patients generally consists of complete surgical resection and patients are often considered cured without additional treatment such as chemotherapy. However, there’s a huge problem with today’s approach to managing these patients. Despite being…

Thanks, Ronnie. As of September 30, 2019, we had cash, cash equivalents and marketable securities of $19.8 million as compared to $8.4 million at December 31, 2018. Tuesday evening, we strengthened our balance sheet with an additional $8.6 million equity raised priced at market with strategic long term investors led by Pura Vida Investments, a fundamentally driven, healthcare focused registered investment advisor and included participation from our largest investor Broadwood Partners. Last month, we refinanced our existing loan with Silicon Valley Bank receiving $2.5 million in net proceeds while paying off our principal balance of the prior loan and extending the maturity date of the new loans to 2022. Plus, we may qualify for an additional $2 million on our Silicon Valley Bank facility if we meet certain conditions with the bank at margin rates. For the third quarter in September 30, 2019 we incurred a net loss of $5.2 million or $0.10 per share, as compared to $3.0 million or $0.07 per share for the three months ended September 30, 2018. Our operating expenses for the three months ended September 30, 2019 was $5.3 million as reported, and $4.4 million on an as adjusted basis as compared to $3.0 million, as reported or $2.6 million on an as adjusted basis for the same period in 2018. We had 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. Research and Development expenses for the current quarter were $1.6 million as compared to $1.5 million for the same period in 2018, relatively unchanged. General and administrative expenses for the third quarter of 2019 were $3.0 million as compared to $1.3 million for the same period in 2018, an increase of $1.7…

Thank you. We'd like to now open up the call for questions. So operator if you can tee those up, and we’re ready to answer those.

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

Hi, Ronnie. On -- you’re CLIA expecting the CLIA Validation, basically in the Q1 clinical validation studies thereafter. And you think what -- whenever you need to be published, do you not for CMS evaluation as well, and when do you expect that publication mid-year 2020?

Yes, so that's a great question, Paul. I want to make sure this is really an important thing to clarify for shareholders. CLIA Val and CLIN Val will begin, we will try to expedite that. As I mentioned, as soon as we have the CLIN Val data unblinded in our data scientists work through it, and we have the final performance characteristics. We already have the manuscript prepared, we will plug in those data and then from there, we will begin to recruit various journals peer-reviewed journals for publication. Partners here, probably, probably we like to add [Indiscernible] to what typically happens in the timing of that. We're shooting for the summer of 2020.

Yes, that's exactly right. So we are already working with a key opinion leaders and have a draft manuscript prepared. And we've already identified a certain kind of peer reviewed publications that have a fast review time. So as soon as we have the final numbers, it's a question of plugging those in and getting those accepted in the next three to six months following that data becoming available.

And so Paul, the next question is, when do you go to CMS? And we would go CMS as soon as we know we have a publication accepted by journal, we will go ahead and schedule for review with CMS, correct?

That's correct. So we CMS, as you know, gives you an opportunity to have a pre submission meeting. So the plan is, we already obviously have a good relationship with them because of the Razor Genomic’s test, so we have access to them. And the idea is, as soon as we have the specifications defined, we would go to CMS have a piece of meeting and we'd have a clear kind of path defined for CMS coverage. So that's the plan for interacting with them.

Right. So Paul for communications, obviously, to get the clear bow, we'll have a call right after that. I think that'll be the end of the call. And then, that should be about the same time. And then, we'll continue to try to refine our timelines as we get along. But I think the good news today is that we remain on track for the timeline that we committed to in August.

Meaning you would then hope for CMS approval, second half of 2020 and commercialization really could happen second half as well?

Actually, what we would hope to do. I mean the earliest we could get a meeting with CMS would be in the fall 2020. And then they would typically have about a 90 day review period, we would hear on our coverage decision near the holidays. And then from there, we would begin to ramp up our commercial activities for Q1 or Q2 of 2021. Assuming we get the positive cover, I'm looking at Padma, she's nodding, okay.

We feel confident, because as you know, that's kind of the path that similar liquid biopsy companies in this space have demonstrated, so we feel confident about the timeline in the path.

Right.

And what, what terms in terms of headcount on your commercial sales force? Where are we now and where do you want to be at the end of let’s say mid-year 2020?

Yes, so Padma had some further commentary to this. But the goal right now, Paul, is we've identified that the regions that we believe are the highest sort of our lowest bar for entry and highest potential for return on that invested capital of a sales rep. We're going to – we’re in a process. We actually have commitment from a sales leader already. And so we're moving forward with that. And then we have a, we already have a collection of potential sales rep resumes, we've already reached out to a number of those. We're in the process of starting those interviews, Padma. And what do you think will be early Q1, will some have them hired and…..

at least the first batch in the -- in the top priority safety hired by Q1.

So Paul, our goal is to obviously to time, and it's impossible to time CMS’s final pricing. But we expect that we’ll get final pricing on the Razor Genomics test, sometime in that timeframe. And so our reps will be coming in, in early January be trained, and be ready to if not already out promoting the test in these key targeted areas. And we'll go ahead and begin to bill for these test once we get the final covers decision. And we'll have the right to approve those billings and then go back and submit them once we get the final covers [ph] decision. We won’t be able to recognize any of that revenue, I’m looking at Tony here, he’s looking at me. We won’t be able to recognize that revenue, to recollect the cash for it. But we will begin the sales process as soon as these folks are hired, and we get a final covers decision.

Okay, thank you.

Yes, sure. Thank you.

Thank you. Your next question comes from Bill Quirk with Piper Jaffray. Please go ahead.

Great. Thanks. And good afternoon, everyone. A couple of questions on the Razor transaction, I guess first-off, what should we be thinking about in terms of the run rate to the associated spend with that? And ultimately, what I'm trying to get to here guys, is how should we think about the presumably initial kind of net loss I'm assuming [Indiscernible] that with the equity method and that probably should be tucked in below the line, correct?

I'm going to let Tony to latch on that’s a moment accounting question, and I'll be way over my ski, so Tony?

Yes, so I think you asked about the equity method accounting. We will record the 25% of our losses or earnings of Razor into our income statement below the line, you're actually right. It's even below other operating expenses. And with regard to run rate, Razor has to spend $4 million of the clinical trial expenses, before office site will kick in a dime for it. And we don't expect that to be until at least after 12 months.

Okay, perfect.

So the operating impact, Bill, because we wrote the contract that way, so that they would be incentive to come alongside us and work equally as hard on the trial, the randomized trial, so those expenses that we believe the first 12 months or maybe even a little longer depending on how fast they recruit, that those expenses will be covered by their side, so we will only have to incur the commercial expenses, and then the subsequent milestone accruals.

Right. Okay. And I guess that's where I was going was largely thinking about the commercial side of the expenditures, versus the our [Indiscernible]?

Yes, sure. So the commercial side, we will be, if you want to look as Razor as a standalone P&L, which we will always try to do because we believe in as Tony and I know, I like to track return invested capital. So we make an acquisition, we want to look at the three and five year returns as we look back and make sure we're meeting the goals and what we perform it out. But the idea here is to our six reps, we will then in a lot of the you know, we have Padma on board now, we have a Director of Marketing Board. We have Director of Medical Affairs on board, so we're prepared to do the medical education and the marketing will be a lien mean marketing team for quite a while. So the real ads will be on the sales side. And those ads will be, as I said, about six people plus a leader. So if you can model that out, we'll have about seven pure commercial, sales in play beginning by the beginning of February. And we don't expect to add any more until we reach and I think you and I chat about this. But just for everyone's implication [ph], the idea is that my previous role at Clariant, we had a very efficient way of building our salesforce. We would build an overwhelming force or region, we would get to $2 million to $3 million in run rate, and then from that point, we would hire an adjacent sales rep to that region. And there's a lot of reasons for that, but I'm happy to go into if you're interested. But just from experience, that creates the regional momentum that we need. A lot of these tests are by mouth references by physicians in the community. And so we want to build up specific high-ends incidence rate communities, and then from there, expand around that. And so we will begin to hire the second level of reps when we see the revenue support that.

Okay, understood. And then just one last one for me, and it's a bit of a nuanced question. You talked about 10 territories, initially, just remind us, Ronnie, kind of what percent of the market opportunity is that? I think you talked in on the deal call about 11 states, representing about 50% of the opportunity. So maybe you could just kind of parse that down for us? Thanks.

Yes, we've refined it even further. And so we have about 10 geographic areas that represent well over 50% of the lung cancer rates in the United States. And that's the areas that we're going to launch our dedicated sales team in to begin with. And we believe that six reps we can, you know, some of these are like in Florida, you have some intensity around the Miami area as well as Orlando, Tampa, so you can with one rep you can cover a couple of those geographic areas that are high incident rates. And so the idea is to get six and try to cover those 10 areas with six people out of the gate. And then as I said, as we ramp those revenues up, we’ll begin to come alongside them in split those territories.

Perfect. Thanks, guys. Appreciate it.

Thanks, Bill.

Thank you. Your next question comes from Thomas Flaten with Lake Street Capital Markets. Please go ahead.

Good afternoon guys. Thanks, Jeff.

Hey, Tom how are you?

I'm doing well. Thanks. Just to follow up on some of the prior questions. Could you give us a sense for revenue expectations for 2020 from the Razor test?

Right now, we -- what we want to do is, we want to obviously, quickly get out and see what are our CMS values going to be. It’s hard to give you reagent or I'm sorry, revenue until we know what our reimbursement is going to be, but in terms of market uptake, we have conservatively just for planning purposes, adopted a market uptake in each individual market. So that each rep, if you imagine each rep in at full -- I'd say at full capacity for our territories, be somewhere between $3.5 million to $4 million per rep, we believe it takes about 18 months for rep to get to that full critical mass, if you will, a full ramp. So if you can imagine the first, 60 to 90 days we’re trying to figure out where everybody is. And then then the rest of it, you start to see momentum build. That's how we’ve ramped it. So, we don't, we're not going to publish that, we'll get we'll definitely report on it as it starts to happen and unfold. But that's how we saw it in my Clariant years. It took about 18 months for rep to get to 100% of that number. And so they were not quite 50% of that number by nine months in, it took, it ramped heavily in the second half of that 18 months. So I don't know if that helps at all, but that's how we're looking at it. And as soon as we have a final coverage decision and the pricing, we’ll be able to give you a little better guidance, and I'm sure that we'll probably think about some revenue guidance for next year for the -- for the year, once we know those numbers.

Got it. Very helpful. Thank you. And on the -- on the deal call, you had talked about doing a bit of soft launch in the fourth quarter. Can you talk about what efforts have been directed in, in that in that have toward that effort?

Sure. We've been. Yes, we’ve been non-stop on the road and we Padma and I and and the marketing teams done a lot of meetings. We've been meeting with numerous thoracic surgeons. We've, had several meetings with potential early adopter sites. And so, Padma, you want to, I mean, we can't really mention names because it's still confidential and we have to keep it that way. But you want to give a little update about where you think we are and how we're doing there?

Yes, so we have been actively -- there's been a lot of interest in getting what we call early access to the test as soon as possible. So in our target states, we have identified three key sites that do want to participate in the program. And as soon as we are able to press release that our goal is to do that. And then launch -- and launch the test to those customers first.

Yes, the thing hold itself is not that the accounts To be honest, I think we've been pretty transparent, we acquired Razor and their lab, and we are actually moving our current lab into their lab space. And so some of this is just be we've done a great job, the team's work hard, literally 24/7. It's a lot of this manual work, if you can imagine moving equipment and moving and getting things ready, and preparing workflows, etcetera. But that is pretty much behind us now. And so, now we'll be able to begin to take on some of the early access and you'll definitely see us announce that as we close those deals and as we begin to take in samples.

Great. And then just one final one for me. With respect to to closing the complete acquisition, so for the remaining 75% of the shares, do you have a sense of, at what point in the year we might see that coming because it will lead up a fair bit of cash?

Yes, we expect it won't be for at least 12 months from the signing of the deal, so fourth quarter of next year. I’m looking at Tony and Mitch. And so if that's the case, I mean, what we, you know, by then we should have, we hope, a nice revenue ramp. And so as you know, this test is a PCR test, it's not next gen sequencing, which means we have some nice gross margins on it. So our goal is to really, get the revenue going. And then, take a deep breath and see where we are in terms of forecasting, the fact that you are looking 12 revenues at the point where we'd have to come out of pocket for cash, but that I think, right now, we're expecting that they will not be able to recruit and achieve those milestones until at least 12 months, and it might be as far as 15 months or somewhere in that time frame.

Got it. Thanks guys. Appreciate it.

Thank you.

Thank you. Your next question comes from Bruce Jackson with the Benchmark Company. Please go ahead.

Hi, thanks for taking my question. Very thorough job on the commentary. Just one question on the prospective study for the Razor test. Where are you in terms of setting up the parameters of the study or like just so recruiting partners? Have you given any thought to how big this study is going to be or when it might start?

We have. The original plan was to collect 750 patients across, an international study across multiple sites in the U.S. and Ex- U.S. Obviously, bringing on Kim Dickinson. Dr. Dickinson I think I introduced last time last call. She has incredible experience both is running lab work clinical trial group, as well as a couple divisions at Roche. And so she has a great hand alone on how we're going to go forward and do this. We have recruited already and signed on our COO for this study. And so I feel like we're in really good shape to move forward and it began to take in samples, but I don't expect that will happen until end of the New Year.

Alright, that's all I've got. Thank you.

Yesh. Thank you Bruce.

Thank you. Your next question comes from Keay Nakae with Chardan Capital Markets. Please go ahead, sir.

Hi, thanks.

Hi, Keay, how are you doing?

Good, good, thanks. Switching to the term of view with respect to their re-agent issue, sounds like you’re confident that what you have is sufficient to complete the clear Foundation Day, how do how see in terms of supply to complete the clinical validation study and maybe beyond that. How successful are your efforts with the vendor to type up the quality on the product they're sending it?

Yes, that's a great question. And I had that in the script. It was getting so long, we took it out. So I'm glad you asked it. We spent the better part of August and even into early September, working with a vendor got several lots. We had nausea and ran testing on lots till we found the two best ones. We gave them gave them or they gave us the actual composition of those lots. We’ve had them build 18 months work of inventory for those lots. And we've now sequestered that. So we now have based on our projected plans of use about 18 months of those two lots, so we feel that we're in really good shape. Within that 18-month period, once we get up and going we will clearly move over to an automated sample of our DNA extraction processes. I'm sorry, RNA extraction process. And as we do that, when we automate it, we will transition over to whoever manufacturers the piece of automation that we use. So we think we're really well covered right now to meet all the needs we’ll have going forward.

Okay, well great. That’s all I have.

Thanks, Keay.

Thank you. There are no further questions as this time. I would now like to turn the floor back to Mr. Ronnie Andrews, for closing comments.

Thank you. Thanks, everybody, for joining us today. And again, I hope that the details we shared, the level of transparency you're expecting as shareholders and that's what we committed to when I got here. We want to make sure we live up to that. I believe, we've made great progress during the quarter. We've made great progress on DetermaVu despite the speed bump we had in June and July. And the team has worked extremely hard. I couldn't be more proud of them, and getting us back on track and really having us poised to move forward with that. And I’m very excited about the Razor test and the potential ahead for that test. And we look forward to the commercial launch of that test in Q1. And we just hope you as shareholders are as enthusiastic as we are. And I can tell you the response from the physician community, especially around the Razor test so far. It has been extremely exciting. And so we're just excited at where we are and excited to what to move forward as we head into – finish Q4 for head into 2020. We’ll continue to drive each other developing our power to deliver for the physicians and the patients we serve. And for you guys to shareholders, who put your trust in us. So thank you guys for your support. And I like to thank our employees. This is a small group, they give it their all every day and I couldn't be more proud of them. So thank you and we look forward to future opportunities to share good news with you. This is a small group. They give it their all everyday and I couldn’t be more proud of them. So thank you and we look forward to future opportunities to share our good news with you. Take care everybody.

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