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…

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…

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.