Insight Molecular Diagnostics Inc. (IMDX) Q2 2021 Earnings Report, Transcript and Summary

Greetings, and welcome to Oncocyte Corporation Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow 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. You may begin.

Great. Thank you, Jessie. And thank you, everyone, for joining us for today's conference call to discuss Oncocyte's second quarter 2021 financial results, and recent operating highlights. If you have not seen today's financial results press release, please visit the Company's website on the Investor 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 Forms 10-K and Forms 10-Q, which identify specific risk factors that may cause actual results or events to differ materially from those described in these forward-looking statements. These factors include without limitation risks inherent in development and/or commercialization of potential diagnostic tests, uncertainty in the results of clinical trials and regulatory approvals, 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, risks inherent in strategic transactions such as failure to realize anticipated benefits, legal, regulatory or political changes the applicable jurisdictions, accounting and quality controls and greater than estimated allocations of resources, develop and commercialize technology or failure to maintain any laboratory accreditation or certification, and uncertainties associated with the COVID-19 pandemic and its possible effect on our operations. Therefore, actual outcomes and results may differ materially from what is expected 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 law. With those prepared remarks, it's my pleasure to turn the call over to Ronnie Andrews, CEO. Ronnie?

Hey, thanks, Bob, and welcome everyone to our conference call to discuss our second quarter 2021 financial results, and our operating highlights. Joining me today on today's call are Mitch Levine, our CFO, Dr. Doug Ross, our Chief Science Officer and Padma Sundar, our Chief Commercial Officer, will all be available at the end for questions-and-answers. Today's call, I'll review significant progress we continue to make across our initial four growth engines, which together aim to brought a single solution to answer key outstanding questions for patients and physicians, regarding the treatment of solid tumors throughout the patient journey. I'll also introduce an emerging fifth potential growth engine in the transplant rejection monitoring market, which we believe has the potential to rapidly drive an unexpected additional revenue stream out of Europe. The opportunity in transplant stems from our acquisition in April of Chronix Biomedical, which was driven by the opportunity to use their technology to enter the blood-based monitoring world of oncology. But recent developments, which I'll dive into later in the call have opened up a new market opportunity in the high value European transplant market. Our execution through the first-half of '21 continues to be solid with all major initiatives on track, despite the ongoing challenges in the macro environment. I'm extremely proud of how our professional program management process and dedicated teamwork are bringing us closer to commercializing multiple innovative tests [ph] that together have a total addressable market of over $10 billion. We believe we're extremely well-positioned for short and long-term growth, and I'm excited to share with you our progress for the quarter. Starting off with DetermaRx, the first and only commercially available test for predicting with risk of recurrence and informing the chemotherapy decision for early-stage lung cancer patients. Despite the continued challenges associated with the COVID-19 pandemic, our progress remains solid with a 23% sequential test volume growth in Q2. In the first-half of 21, our test volume has already exceeded our volume for the full year of 2020. We have continued our expansion into new hospitals with a total of 176 onboarded hospitals at the end of Q2 that represents an approximate 43% growth over what we reported for Q1. At the end of Q2, we had a total of 317 onboarded physicians, which is a 45% increase over what we reported in the first quarter. ` Continuing to grow our population of accounts and physicians is a good metric, it gives us continued confidence that as the effects of the pandemic begins to wane, we'll see early-stage surgeries for lung cancer get back to pre-pandemic levels, and our volumes grow an even faster pace. Right now, between 60% and 70% of our samples come from patients with Medicare and Medicare Advantage, which are covered by CMS and paid within a prescribed amount of time. However, private payer samples are slower to be paid, but we are making progress. These efforts combined with increased sample volumes, the anticipated increase in surgeries as more people get vaccinated, and our sales force back in the field securing new accounts leave us confident that our growth with DetermaRx will continue over the coming quarter and years. Along with this growing traction in the U.S. market, our agreement with Burning Rock to distribute DetermaRx in China, the world's largest market for early-stage patients is also advancing well. In fact, we recently completed the technical knowhow and software transfer milestone on schedule, bring along with it a $1 million milestone payment. This remarkable execution taking place virtually due to COVID is a testament to the incredible team we built here on Oncocyte. Our completed tech transfer remains on track for year-end, which will drive further revenue from Burning Rock in 2021. This important progress is just the beginning of our entry into China, and will be a solid source of both near and long-term revenue growth for Oncocyte. Let's now turn to DetermaIO, our differentiated and proprietary test for immune therapy response prediction, which is the only precision diagnostic test today on the market that evaluates the entire immune microenvironment and biopsies and surgical specimens, to identify patients likely to respond to immune checkpoint inhibitors. And excitingly, the opportunity with DetermaIO goes beyond approving treatment decisions for individual patients by facilitating the development and clinical validation of next generation immune therapies, by partnering with biopharma and pharmaceutical companies. It is clear there is a tremendous need and market for a better solution to immunotherapy response prediction. And we've been running full steam to advance DetermaIO as fast as possible. In terms of data, we've had a steady cadence of data that together provides compelling evidence that DetermaIO has a broad potential across a range of tumor types. We are very pleased to announce that the results from the NeoTRIP randomized clinical trial in triple negative breast cancer has been accepted for an oral presentation at the ESMO Annual Meeting to be held in this upcoming September. This extremely important study was a randomized clinical trial, which evaluated DetermaIO as a predictive biomarker for immunotherapy response, when administered prior to surgery. Evidence from these randomized clinical trial studies provide firm evidence of the predictive utility of a biomarker, and we look forward to being able to publish this important trial data. This past quarter, our presentation at AACR demonstrated clinical utility in bladder cancer, in addition to our previous data, we showed utility in both non-small cell lung cancer as well as triple negative breast cancer. And a presentation at ASCO in June extended the utility of DetermaIO to a four tumor type, renal cell carcinoma. As we previously reported, in addition to validation across tumor types, our studies have also demonstrated the applicability of this test across all four approved immunotherapies, KEYTRUDA, OPDIVO, TECENTRIQ and IMFINZI. Together, these data provide a strong foundation of clinical data that support the pan-cancer and pan-immunotherapy utility of our test. In Q2, we also announced the solid relationship with a team in Milan for the NeoTRIP trial led to a new collaboration with Gruppo Oncologico del Nord Ovest or GONO for sure. They are leading clinical trials group that conducts independent investigator sponsored clinical trials for targeted and for immune therapies across several tumor types. Our initial work with this prestigious group is in colorectal cancer, an important solid tumor today that only has one biomarker for treatment decisions, MSI, which only identifies less than 10% of patients eligible for IO treatment. If successful, this will validate DetermaIO as fifth tumor type, further strengthening the potential for pan-cancer utility. Together this progress brings us closer to launching the only precision diagnostics that can accurately predict sustained response across five major solid tumors, and builds a case for DetermaIO as a pan-cancer predictive test and a $3 billion immune therapy patient selection market. Importantly, in addition to all our progress in the research setting DetermaIO remains on track for clinical launch this fall. Precision oncology treatment options are rapidly expanding to all solid tumors and across all solid all stages of cancer. Our goal is to become the single and trusted diagnostic company to inform the optimal usage of these treatments for more than 1 million patients diagnosed with solid cancers every year in the U.S. alone. To that end, we'll be offering the most comprehensive and differentiated comprehensive molecular test on the market, DetermaTx, a next-gen sequencing-based comprehensive genomic profile of over 500 genes, which meets industry-leading gold standards for minimal tissue requirements and rapid turnaround time to expedite the time to treatment for patients. This test combined with both DetermaIO test for immunotherapy, and DetermaRx for chemotherapy decision, we're about a powerful resource to patients and physicians. Moving now to our Pharma Services growth engine, our pipeline contracted pharma services projects continues to grow. And we're excited to be a trusted partner for a growing number of top pharma and molecular diagnostic platform companies. While we've made great progress in securing projects, we remain reliant on trial enrollment for our former partners to generate samples to run. Because of the dependence on external project timelines and sample delivery, we often faced lumpy revenue cycles. This has been exacerbated this year by COVID, because enrollment in all types of trials have been impacted. But despite these headwinds, I'm still pleased to report that our pipeline remains solid, and so far in Q3, we're starting to see samples from some of our delayed projects beginning to come in to our lab in Nashville. A very noteworthy accomplishment in pharma services for the quarter was closing a master services agreement with one of the largest global molecular diagnostic platform companies, which makes our Nashville lab a primary facility for test development, and for verification and validation studies for this company's full family of PCR and next-gen sequencing instruments across several disease areas. The agreement was signed in June and our lab has already received installed several different molecular diagnostic platforms, and work on our first statement of work under the services agreement began in early July. Gaining large long-term agreements like this will go a long way to improve the predictability of revenue timing for our pharma and molecular diagnostic services business. And finally, in second quarter, we closed four DetermaIO companion diagnostic pilot projects, and samples for two of the studies have already started to come in. Obviously, gaining companion diagnostic contract is an important milestone for DetermaIO, and we look forward to sharing an update on those studies in future calls. Finally, moving to our newest growth opportunities, which come from our acquisition of Chronix Biomedical. On our last call, we provided an in-depth review of the TheraSure CNI monitor clinical assay, a patented blood-based assay that uses copy number instability or CNI for immunotherapy response monitoring in oncology. Let me highlight the important differentiators for DetermaCNI. First off, unlike the emerging minimal residual disease or MRD technologies, which require large amounts of tumor tissue our CNI test is blood only, and can be run on all solid tumor cancer patients. Because of the large tissue acquired by MRD technologies, they remain limited to post-surgical samples only, which today is a relatively small population of late-stage patients that are eligible for immune therapy, because of the vast majority of later-stage solid tumors are treated with neoadjuvant protocols which are pre-surgery, and therefore no large amounts of tissue available. DetermaCNI is the best choice for managing these pre-surgical patients, because CNI does not require our tissue-based genome panel, and thus can provide information on disease progression with blood-only sampling at the second cycle of immune therapy, weeks before the MRD methodology can even start their monitoring efforts, plus CNI will save payers and patients significant costs over other methods entering the market today. To accelerate CNI to market, we're currently applying the same playbook, we successfully used over the last year with DetermaIO, first, by rebranding the test the DetermaCNI, and second, by preparing for expanded commercialization, with plan validation studies and publications to support a U.S. research and pharma services launch later this year. In the near-term, we've established a clinical study plan for DetermaCNI, and will complete tech transfer to our lab in Nashville and start marketing to pharma companies in the U.S. later this year. However, immediately upon closing the deal in April, our team began working closely with the Chronix's team in Germany. And they've already made significant progress on advancing studies across several tumor types in EU and have well over 1,000 patients under study across several solid tumor types. The acquisition also provided us with ownership of IP that could help develop a foundation for our test for the estimated 6 billion plus recurrence monitoring market. A repeat testing opportunity that tells a patient and their oncologist that a second tumor may be forming long before it can be identified by imaging. Work on what we want brand is DetermaMx is already underway, and we're actively exploring several technology platforms to help us achieve our goal of delivering a recurrence monitoring test for cancer that is extremely sensitive, cost effective, and can be performed on digital PCR platform in the community hospital setting, where patients are most likely to get monitored. The addition of these new tests bring Oncocyte a distinct competitive advantage as the first and only company to offer a continue test from selecting patients for immune therapy to monitoring for the effective treatment, and finally, for monitoring for recurrence of disease. Let's now switch gears to a new testing opportunity that we believe will become our fifth revenue growth engine. The IP we use for DetermaMx was actually developed by Chronix for use in transplant rejection as the Chronix's TheraSure transplant projection monitoring test. We inherited the test already developed in a numerous studies in Europe to detect rejection reactions of organ transplant recipients. Like DetermaMx, the TheraSure transplant monitor test uses only a simple blood draw, making it easy to administer and potentially much more economical to perform than current tests that require a tissue biopsy. The recent CMS coverage policy for transplant rejection monitoring citing digital PCR methods for solid organ allograft rejection as it's titled cites three peer reviewed publications of Chronix on the performance of our test in solid organ transplant monitoring. This is a huge validation of the Chronix technology. Prior to the acquisition, the Chronix team completed several large clinical studies and published over 20 papers in peer reviewed scientific journals, including the most recent publication in Nature that validated the test across the top three solid organs, heart, kidney, and in liver where we have an uncontested opportunity since currently, there's no test for early detection of organ rejection in liver transplants. Diving in a little deeper, the studies completed to-date show that transplant rejection is associated with increased release of graft DNA, known as donor-derived DNA into the bloodstream. The Chronix's data presented today shows distinctly that donor-derived DNA monitoring using digital PCR can facilitate a personalized immunosuppression treatment plan, and potentially decrease premature graft loss by detecting injuries before clinical manifestations. This allows treatment of acute rejection and other causes of graft injury, which have the potential to significantly improve organ transplant outcomes in patients. As we learn more about the differentiated approach and heard feedback from the market in Europe, we took a pause on our previously planned approach to sell the IP, and began a deep dive into the viability of bringing the test to market under the Oncocyte banner. Our work illuminated that this is clearly an enormous revenue opportunity for Oncocyte. But to ensure we stay focused in the U.S. on a product development in oncology, with numerous critical milestones for DetermaIO, DetermaTx and DetermaCNI on the horizon, we will focus our launch for the TheraSure assay for transplant rejection in the EU, where we already have a contract relationship with a lab partner. There are about 41,000 transplants annually in Europe with over 150,000 people on waiting list, and a rate of 48,000 new registrants added each year. Our estimates of the total available market for Europe is approximately $1 billion. And we have a head start given Chronix's European IP, and work to-date with key opinion leaders who are interested in working with us to bring the test to fruition across Europe. We've already begun the process of standing up a separate business unit for transplant, and given the concentrated network of transplant centers in the EU, and our approach of using established molecular labs, we do not expect it to significantly increase our quarterly burn. Our strategy is simple, bring the test up and launches in LDT in the first-half of 2022 with carefully selected partners in Europe, and concurrently expedite the process to find an instrument partner to help complete the digital PCR kitting and platform studies under the prescribed regulatory process for the EU, and submit for regulatory approval in Europe by late 2022. We've covered a lot of ground today. So let me close by summarizing, I continue to be extremely enthusiastic about the continued progress we've made today. And what we expect to see over the next four quarters, including rising sample volumes, and revenues for DetermaRx and pharma services and at least three major product launches, DetermaIO, DetermaTx for the U.S. clinical market in early Q4, and DetermaCNI in the U.S. for pharma clinical trial market in Q4. In a very short time, we built a compelling and powerful portfolio, molecular diagnostic test assets with a total market opportunity of well over $10 billion. And we have proprietary positions in some of the fastest-growing areas of molecular oncology, and now in transplant rejection monitoring. We continue to attract the attention of leading pharmaceutical and biopharma companies and molecular diagnostic tool platform providers, and look forward to important contracts on horizon with these global partners to strengthen our market position. The progress we've made over the last 18-months despite the headwind of a global pandemic has been nothing short of amazing, and is a testament to our dedicated and experienced team. We built a world-class organization that I'm proud of and thankful for every day, as we advance our comprehensive diagnostic platform for cancer and beyond. I'd now like to turn the call over to Mitch Levine, to review our Q2 financials. Mitch?

Thanks, Ronnie. Hey, everybody. As of June 30, 2021, we had cash, cash equivalents and marketable securities of $47.5 million. This represents one of the strongest cash positions in Oncocyte's history and puts us in excellent financial position to fuel our five growth engines. One, DetermaRx, our reimburse lung cancer recurrence predictor. Two, DetermaIO, our immune therapy response predictor. Three DetermaCNI, our blood-based immunotherapy response monitoring assay, we acquired with our recent acquisition of Chronix Biomedical. Four TheraSure transplant assay for the early detection of transplant rejection, also part of the Chronix acquisition. And five, our pharma services offering which has a significant pipeline for the several pharma companies undergoing trials, and as Ronnie pointed out, an MSA from one of the largest platform companies. Our consolidated revenues for the second quarter of 2021 were approximately $2.03 million, up sequentially from Q1, 2021. Combined revenues for the first-half of 2021 are $3,154,000. During the quarter, we completed the first of two stages of technology transfer with Burning Rock Biotech, and achieved and received a $1 million milestone payment. I am incredibly proud of our team at Oncocyte, as well as the team at Burning Rock for their extraordinary efforts in completing this complicated process, despite the challenges presented by COVID-19. The process of technology transfer enabling Burning Rock to run tests independently and produce an accurate patient report is underway. The next milestone payment of $3 million will be received once Burning Rock begins to use the DetermaRx test, which we expect will occur by the end of this year. Burning Rock has significant aspirations for the use of DetermaRx in China, a market approximately six times larger than the U.S., and Oncocyte will receive a royalty on every test run by Burning Rock. As Ronnie mentioned, our progress with DetermaRx remain solid with 23% sample growth in Q2 versus Q1. We rely on sample growth as the best measure of DetermaRx adoption by physicians. We onboarded 93 additional doctors in the second quarter, a 45% increase from Q1, so our growth trajectory continues. Revenues associated with DetermaRx were $645,000, an increase over Q1 and now have received $1.25 million in revenue from DetermaRx thus far in 2021. I'd like to remind everyone about revenue recognition for DetermaRx. As we accumulate payment history and experience, we are able to progress from recognizing revenue on a cash basis to an accrual basis that records revenue in the period that tests are performed. Payments for Medicare Advantage are a good example of this. During the first quarter of 2021, we transitioned to the accrual basis for tests covered by Medicare Advantage insurance plan. The modest increase in DetermaRx revenues from Q1 to Q2 can be explained by this movement to an accrual basis accounting, which boosted our revenues in Q1. As a result, comparably recognized revenue increased significantly faster in Q2 than it may appear. We will continue to recognize revenues for commercial and other payers on a cash basis, until we have reimbursement contracts with those payers. At that point, those contracts will also progress to accrual basis for DetermaRx tests. From our acquisition of Chronix Biomedical, we received $252,000 of revenues, mainly from a marketing agreement with Amedes of Hamburg, Germany, which provides for exclusivity and prepaid royalties. This renewable contract calls for Amedes to market and sell Chronix's transplant and CNI test and process samples in the Germany, Austria, Switzerland and Belgium markets exclusively. And if this contract continues to be renewed, could provide Oncocyte with a minimum of $95 million in revenues over 12-years for Amedes to maintain exclusivity of the product portfolio. Our pharma services business also made a modest contribution of about $133,000 in the quarter. And as we have discussed previously, revenues in this business are lumpy, as we depend upon sample volumes from biopharma clinical trials. We believe there is a slowdown in clinical trials because of the ongoing COVID challenges, which means we receive fewer samples from our pharma partners for testing. We anticipate that higher vaccination rates in Europe and the U.S. will spur a clinical trial enrollment. Moreover, as we grow our base of biopharma clinical trials that use our lab services, and add a companion diagnostic to an FDA approved IO drug, which we expect over time, our pharma service revenues will grow and be more consistent. And as I mentioned, we expect additional revenues in the coming quarters from our recently signed master services agreement with large platform company. Cast used in operations for the quarter was around $7.5 million for normal operating burn, plus approximately $600,000 in non-recurring legal and business development expenses paid in the quarter. Excluding these non-recurring items, we expect our base operating cash burn to increase modestly in the future quarters, as we continue to invest in clinical studies for DetermaIO and DetermaCNI, as well as investments in sales and marketing to drive increased adoption of our DetermaRx test. GAAP operating loss, as reported for the second quarter of 2021 was $13.6 million, an increase of $4.8 million from the second quarter of 2020. Non-GAAP operating loss, as adjusted for the second quarter of 2021 was $10.3 million, an increase the $3.4 million as compared to the same period in 2020. We have provided a reconciliation between GAAP and non-GAAP operating losses in the financial tables included with our earnings release, which we believe is helpful in understanding our ongoing operations. Cost of revenues for the current quarter was approximately $2.4 million, which included $1.1 million in non-cash amortization expenses from our Razor asset acquired in February. Cost of revenues also included testing services we performed for our pharma customers. It is important to note that as we ramp our testing volumes, we expect to see an improvement in our gross margins in future quarters for the DetermaRx test. Research and development expenses for the second quarter 2021 were $2.5 million, as compared to $3.2 million for the same period in 2020. General and administrative expenses for the second quarter of 2021 were $7.9 million as compared to $3.8 million for the same period in 2020, due primarily to an increase in personnel and related expenses, including $2.5 million of assumed liabilities incurred from the Chronix merger, which we anticipated. Sales and marketing expenses for the second quarter of 2021 were $2.7 million as compared to $1.6 million for the same period in 2020, primarily attributable to ramp up in sales and marketing activities for our continued commercialization efforts of DetermaRx. For the second quarter of 2021, we reported a net loss of $10.5 million or $0.12 per share, as compared to $9.1 million, or $0.14 per share for the second quarter of 2020. We have a good history of making timely, thoughtful strategic investments in clinical studies, and additional sales and marketing initiatives, which has helped us build momentum in 2021. We will continue to evaluate key studies for DetermaIO and now DetermaCNI that will help us accelerate these two important products towards market launch and uptake. We will also be investing thoughtfully behind the launch of TheraSure transplant test for transplant rejection monitoring. We have several new relationships with biopharma and molecular platform companies that may require some capital investment to get the revenue streams flowing from these service opportunities. Our pharma services infrastructure remains extremely lean. And we expect these types of investments will lead rapidly to new and additional revenue streams in the second-half of 2021 and beyond. We are pleased with the growth of DetermaRx and positive developments with DetermaIO and DetermaCNI. We believe that these tests give Oncocyte a distinct competitive advantage as one of the first and only company to potentially offer a continuum of tests, from selecting patients for immune therapy treatments to monitoring the effectiveness of the treatment. That includes my remarks concerning our financial highlights. I'll turn the call back to Ronnie.

Thank you, Mitch. Operator, we would now like to open the floor or the phone lines for Q&A, please.

Absolutely. Ladies and gentlemen, we will now be conducting our question-and-answer session. [Operator Instructions] And I am showing our first question is coming from the line of Mark Massaro with BTIG. Please proceed with your question.

Hey guys, this is Vivian [ph] on for Mark. Thanks for taking the question. So I was wondering if you could discuss what steps need to be taken to ready the launch of the Chronix transplant test? Could you elaborate on those validation studies you mentioned? And was also wondering, is that test already kitable now or what additional work needs to be done there? Thanks.

Good question. Let me answer that. Today, when we acquired Chronix they were way down the road on commercializing in Europe. And so they have an arrangement as Mitch said with the molecular lab in Northern Europe called Amedes, we are actively engaged with Amedes and believe that they are the right lab for Northern Europe to launch the test as an LDT. We are venturing to Europe in a month or so. And we're going to be looking for and have identified a few part potential partners for Southern Europe. So our goal is to launch it as an LDT in the European market immediately as we bring the test up for those accounts, to go and begin active marketing in the various countries that they will be responsible for. The kitted process is across that's been identified. And to be candid, the test has to be put through that same process today to be run as an LDT. So for us, it's going to be more about documenting under design control the process, and then running studies that will correlate the kitted product to the LDT studies that are already published. As I said, there's over 20 of those today out there, and so we feel pretty confident that we'll be able to have a kitted product dossier ready to submit for IVDR, which is the European version of the FDA by late 2022. Our goal between now and then is to also find a platform partner. There are several of those Bio-Rad, Thermo Fisher and Roche, who have indicated interest in potentially being our platform partner. And we'd like to secure that partnership as we go into fourth quarter, so that when we start the design control studies to get our dossier ready for submission, we will be doing it on a single platform with a partner that already has a pervasive installed base in Europe.

Okay, great. Thanks so much. And if I could just add a follow-up, what are your dollar amount expectations for reimbursement in Europe?

For the transplant assay?

Yes.

Yeah, you know what we haven't publicly given those yet. But we do know the market is large. And depending on when we actually are able to take the product to market, we do believe there's a pent-up demand based on our discussions with key opinion leaders. Chronix had done a really nice job of fostering relationships with some of the top transplant centers in Europe, who's seemed to be extremely interested in the product, given it's going to improve the turnaround time versus sending the test out, being able to do it on-site will significantly improve the turnaround time, which as we're hearing from our market voice is the real critical attribute of our test versus the current tests that are being offered in Europe. In that, these centers when it's kitted and they can run the test the same day the patient comes in, they'll be able to give an immediate feedback to the patient as to whether there's a potential organ rejection. And so given that, and given that we expect the reimbursement levels in the European market to be less than the U.S., we do still believe it's about a $1 billion market versus the $2 billion, $2 plus billion market here in the U.S. So we are excited about the opportunity. And as we start to get the test into the market, we'll be able to give you a better forecast and when revenues will start and what they'll look like.

Okay. Awesome. Thanks. So you've also talked about working with a third-party for kitting for a therapy selection panel. Around what time would you expect to announce this? And is it possible that this could include a co-promote or a commercialization agreement from the third-party to sell this test? Thanks.

Yeah, good questions. So we have completed our decision on the DetermaTx Company. That decision was made that test is in process of being brought up on the platform we chose. We are obviously interested in a potential platform relationship globally with that company. So we're going to leave it unnamed today, because we're in negotiations, but I think the idea is that we will have a Tx test in fourth quarter to complement DetermaIO. And we are working with that vendor for potential broader kit opportunity ex-U.S.

Thank you. Our next question is coming from the line of Mike Matson with Needham & Company. Pleased proceed with your questions.

Yeah. Thanks for taking my questions. So you've got the three tests that you're going to be launching in the fourth quarter DetermaIO, DetermaTx and DetermaCNI. Just wondering what the outlook is for those as we get into 2022? I know you're not going to give me a specific guidance, but which of those you think can kind of ramp the fastest and why?

Yeah, it's a great question. Padma is here, so I'm going to give you a little high level, Ronnie thoughts and I'll let Padma give you a little more of the details about how we're going to market. But we are going to launch the two in tandem. The feedback from the voice of customer has been we want a one stop shop, we want to split the tissue sample and send one to one company one to another. So if you're bringing up a targeted panel and an IO panel, we want to be able to go to you and your lab to get that. And we want that turned around in seven to 10 days, which is our commitment to these clients. And so our strategy is to launch in fourth quarter with a series of key opinion leaders. And Padma why don't you take it from there and just give a quick thumbnail of the go-to-market strategy and what we expect in terms of when we expect to go to CMS for reimbursement on IO.

Yeah. So we are on track for launching this one stop shop. The idea behind this is that we would have a large comprehensive panel with over 500 genes. So best-in-class comparable to using panels by companies like foundation and catalyst. And the idea is, for the same amount of tissue and with a faster turnaround, you will get everything you get from other targeted panels but the differentiator, which only we will offer on that same sample will be the DetermaIO, and we believe that will be a winning strategy. The idea is to go to market in Q4, starting with an early access program with some of the key early adopter sites that we already know, thanks to our DetermaRx product, and then drive adoption ahead of CMS reimbursement through that early access program. And that's the strategy for 2022. And I've been actually traveling since the market has opened up a little bit in the Northeast and the South. And there's a big interest because doctors are very intrigued by the DetermaIO data and they say, instead of sending it to these bigger companies, if I can get all the answers from the bigger companies plus IO, why not use Oncocyte. In terms of CMS, the CMS coverage path for DetermaTx is pretty clear, because there's a clear path for NGS tests. And what they're looking for is just analytical validation. And once you completed satisfactorily, then you get the coverage within 90-days to six months of submitting the package, and the coverage ranges from $2300 to $2900 for an NGS panel. For DetermaIO, they are looking for us to get a couple of peer reviewed publications in lung and breast cancer. We've had conversations with them. Once we have those peer reviewed publications, then the path for reimbursement for that test is quite similar to what we had for RX and quite clear. So that's the path to launching the test. First goal is to gauge adoption in 2022, and then submit the dossiers in - the Tx dossier will go first, followed by the DetermaIO dossier, so that we're in a good position to get paid starting 2023 for both tests.

Okay, thanks. That's helpful. And then a couple questions on China and Burning Rock deal. So I understand you're getting these milestone payments in nearer-term. But when do you expect to really start to see some revenue from royalties from the sale the product? That's the first part of the question. I guess second part would be, is there a potential for Burning Rock to distribute any of these other products like Tx or CNI in China?

Yeah. So quick answer is that we expect - they are being very aggressive with the plans to launch Rx into the Chinese market. So we expect that we'll see royalty revenues from that in 2022. Obviously, they'll be launching at the beginning of the year. So by mid-year with their - they have a very pervasive commercial force in China. We expect to see meaningful revenue by mid-year and growing over time, obviously. In response to the second question, DetermaIO is a different animal than DetermaRx because it's pan-cancer, and we believe we can kill it. And it may be most advantageous for us in China, given the broad use of immunotherapy and given that Burning Rock has a lab that may have limited penetration potential that we might either take a two pronged approach, which would be partner with Burning Rock and a platform company, or we might just partner with a platform company if we got the right deal and they had the right installed base in China. So, the jury's still out on that. But if we launched IO, we'd want to launch it with DetermaCNI as well. Keep in mind, our go-to-market strategy is to be the only company in the industry that can offer a predictive test for determining sustained response immune therapy, and then following that right up with a blood test to monitor whether the therapy is actually working, a really important nuance. And we believe that's best exploited on a platform where a lab can run both tests simultaneously with the patient to start the monitoring immediately upon therapeutic initiation.

Okay, got it. Thank you.

Thank you. We'll move on to our next question, which comes from Steven Mah with Piper Sandler. Please proceed with your questions. Steven your line is live, you may proceed with your questions. Once again, Steven, you may be on mute. I apologize. We'll move on to our next question, which comes from the line of Thomas Flaten with Lake Street Capital Markets. Please proceed with your question.

Hey, thanks for taking the questions. Ronnie, I was wondering if you could go back to the TheraSure decision about focusing on Europe, which makes a lot of sense. Could you kind of walk us through your thinking around the U.S. given the benefit around the LCD that already exists and timing and just some more color on how you're thinking about that?

Absolutely. Europe already has an infrastructure Chronix had it to move rapidly. The U.S., so we're going to move on that and that makes a lot of sense. We're still a small team and we're trying to effectively execute a lot for a small team. And that when we sat around and talked about the timing of transplant in the U.S., it really we decided instead of an LDT approach, we felt like it's probably best in the U.S. to launch as a kitted strategy. And therefore, we need to execute this relationship with a platform partner, hopefully one that's already in the transplant world or has pervasive deployment of instrument platforms, either an HLAR and other types of testing done in transplant world, so that we could have a partner to go to market in the U.S. without hiring a sales force to go have to attack this. But that decision is still open Thomas, we just decided that given all that's on our team's plate, and I can't afford the distraction, because oncology is our franchise, it is the biggest growth engine we got and it's powerful. So for us, we want to make sure I have all the woods behind the tip of that arrow, as we go into the market with IO, and CNI and Tx. But we will get back to you as we enter third - probably by the third quarter call, hopefully, we'll have solidified the relationship with the platform player. And at that point, we can give you a better estimate of when we might be in the world of kitting it and bringing it to market as a democratized tool for transplant centers in the United States to provide same day turnaround time with this important information.

That's great. Appreciate that. And just one quick one for Padma, could you give us a quick update on the sales force, where you are, and where you are in terms of hiring, et cetera?

Yeah. So we haven't added to our sales force this quarter. So we still have 10 reps that cover about 70% of the addressable market. What we've actually done is we've been able to get some outstanding analytical data that talks that we purchase that directs at sales force even more efficiently that highlights the top surgeons by volume, and in those regions and also maps out their referral oncology network. So we felt that, with that database that we recently purchased on CMS data, we have given armed our sales reps with more leads that they can pursue. Now in terms of adding more sales reps, I think a great opportunity to do that will be as we launch our next products into medical oncology. We're going to optimize how we do this because like we've said before, our current sales reps do have these medical oncology connections, especially in lungs. And through that in some of these large community systems where many of these doctors treat multiple cancers, we'll be able to reach out to oncologists to treat not Milan but other cancer types that we have DetermaIO data. So we feel that we can launch DetermaIO plus Tx in the fourth quarter and maintain sort of momentum with a modest increase in sales force of about three to five. And that's the strategy for this year and next year.

Excellent. I appreciate the responses. Thanks, guys.

Hey, Thomas, we may add a few sales folks in Europe for transplant. They would be not direct force, they would be more what I would call med-ed type. So, we'll talk more about that in third quarter, but I'd certainly think that that's probably an option for us to accelerate our two markets for transplant.

Thanks, Ronnie.

Yeah, appreciate it.

Thank you. At this point, I would like to turn the floor back over to Mr. Andrews for any additional closing comments.

Okay, everybody, well thank you very much for your time today. Again, we appreciate your patience as we go through the incredible work that's going on here and giving you an update. I really appreciative as I said to the team here, they continue to be heroic in their efforts despite what's going on around us in the environment. We look forward obviously to a solid Q3 and the chance to give you an update on some of these projects as we go into Q3 and through Q3, as well as at our Q3 call. So, everybody stay safe and we look forward to connecting with you. We have a number of investor conferences coming up through the quarter, and we look forward to seeing many of you with those. Take care and have a great day.

Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation and you may disconnect your lines at this time.