Greetings, and welcome to the Oncocyte Corporation Third 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. I would now like to turn the conference over to your host, Bob Yedid of LifeSci Advisors.

Thank you, Joe, and thank you everyone for joining for today's conference call to discuss Oncocyte’s third 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 Investors 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 10-Qs, 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 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 in the applicable jurisdictions, accounting and quality controls, greater than estimated allocations of resources to develop and commercialize technology or the 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 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 to discuss our third quarter 2021 financial results and our operating highlights. Joining me today on our call is Mitch Levine, our CFO; Gisela Paulsen, our new COO; Dr. Doug Ross, our CSO; Padma Sundar, our CCO; and Dr. Ekke Schütz, our GM of our Oncocyte Germany and Head of our Liquid Biopsy and Transplant Programs will all be available during the question-and-answer session. I received feedback from several investors during my travels over the past few months that wants exciting to follow all the progress being made in Oncocyte. They'd appreciate more context as to how all the moving parts fit into our overall strategy. So based on that welcomed honest feedback, I want to start first with a high level overview of how all the initiatives fit together to enable our future. For those new to Oncocyte, two years ago, I stepped off the board and into the CEO role to reposition the company for the future and laid out a strategy to bring a market, a portfolio test that would compliment each other and deliver answers to critical questions, physicians and patients still face today that the industry's focus on large-scale genomics has failed to answer. Two major decisions still face every physician managing a cancer patient. What is the best treatment option? And is the therapy working for my patient? The advancement of targeted and immunotherapy options has happened rapidly with a clinical trial pipeline full of promising drugs across all major solid tumors. As the options for mono or combinatorial therapy expand understanding the tumor biology of each patient is becoming more and more important. With confidence, I can say in two short years, and then the face of a global pandemic, team Oncocyte has made…

Thanks, Ronnie. Hi everybody. Our consolidated revenues for the third quarter of 2021 were approximately $1 million, representing 77% growth year-over-year combined revenues for the first three quarters of 2021 are $4.1 million, which represents a 480% increase year-over-year. Progress with the terminal DetermaRx remain solid with 289 samples for the third quarter, an increase of 65% year-over-year and a modest increase over Q2 despite the substantial slowdown in early stage cancer surgeries caused by the Delta variant. I would like to make an important point here. We feel the best measurement of adoption growth for DetermaRx is the number of physicians being trained to use the test, which we call onboarding as well as the adoption by community cancer center treatment – treatment centers and hospital systems. When we no longer have the headwinds of COVID-19, these physicians and hospitals will be responsible for ordering DetermaRx for their patients. Growth in physicians trained and hospital adoption should drive test adoption and revenue growth. DetermaRx clinical results are attracting a rapidly growing base of prescribing physicians. In the third quarter, the pool of onboarded prescribing physicians increased by 22% from Q2 and 150% year-over-year to a total of 367 physicians. Similarly, onboarded hospitals and account site increased 24% from Q2 and increased 225% year-over-year to a total of 218 sites. Again, our key performance metrics of onboarding of physicians, as well as adding new hospitals and community treatment locations are the best measure of DetermaRx adoption by physicians who will generate higher sample growth and lead to greater revenues. So it’s worth keeping an eye on those. Third quarter revenues associated with DetermaRx were $402,000, a 93% increase year-over-year, and a modest decrease from Q2 attributable to the pandemic headwinds in July and August. We saw a significant drop in…

Operator that concludes our formal remarks. If you don’t mind open up the call for question, please.

Yes. Thank you. [Operator Instructions] Our first question comes from Paul Knight with KeyBanc. Please proceed.

Ronnie, how do you expect IO to roll out? I understand you’re going to collect more data in 2022. But when do you think the data that is complete and you’re able to submit a DACA into the CMS?

Yes. Great question, Paul. We believe we have the data today to clinically – to go-to-market clinically. We’ve got enough in the tumors that we’ve validated already to go much like, historically in our industry, whether it be Genomic Health, Clariant Foundation Medicine, Garden, I mean, all of these companies – these great companies have launched their tests ahead of reimbursement and have moved towards adoption. So we realized that we still have a little bit of a road ahead for reimbursement. But especially given that DetermaTx, I’m sorry, DetermaIO as a PCR test, we believe it’s prudent to go ahead and launch it and start the clinical adoption process. The DACA, we believe will be completed and we should be able to submit for submission by the end of the first half of 2022.

And then on the Burning Rock milestone, are we on progress there?

Mitch is really on point with his executive team. We have an executive sponsor. I’ll let Mitch, answer that for us.

Paul, we were on point with Burning Rock and are completing the tech transfer on time and to everyone’s satisfaction.

And lastly, any change in the sales force composition, Ronnie?

Not today, Paul. We had plans to expand and we may expand by a few heading out of this year because there’s some interesting territories that we have interests for IO that are uncovered. So we may add a few, but until we see the pandemic completely lift and reps be able to access positions for face-to-face meetings, we’re low reluctant to go full throttle and add a lot more reps. But ultimately as we’ve spoken, I think a few times on calls, we will be adding and expanding the sales force because as you add DetermaIO and Tx it adds breadth to the offering and requires these reps to spend more time in the key accounts detailing and talking to various positions within the account. So as we began to expand the menu and launch these tests, we will more than likely at some point in 2022 add to the sales force. But not planning on significant adds today.

Okay. Thanks.

Our next question comes from Mark Massaro with BTIG. Please proceed.

Hey guys, thanks for the questions. I guess, my first one is on transplant. Recently the market leader received two federal investigations and one state investigation. I’m just curious, if you are familiar, if any of these investigations might be pertinent to the transplant industry at large? Or do you think it’s perhaps specific to the market leader itself. And the second part of that question is can you clarify, which organ states you will launch in initially? My understanding is kidney, but I’m not sure about that.

Yes. Well, on the first question to be candid, I don’t know enough about the situation to be able to comment specifically. I will say, being in this space for 30 years, that it’s not uncommon for labs running LDTs and submitting claims to get investigated. Unfortunately, it’s somewhat the nature of our industry at times. So again, don’t want to comment on what the nature is. But I do believe that as we launch in – as we launch our LDT, our plan is to launch the LDT across all three tumor – I’m sorry, all three donor types kidney, heart and of course, liver, since we have a unique position with liver. But as we go to our clinical trials to start the clinical trials for putting our test into a kit, we may end up having to prioritize the organs. And when we do that, most likely we would do liver and probably kidney in that order given that we have a proprietary position in liver.

Yes. That makes perfect sense. So, just to clarify, you’ve talked about wanting the launch kidney, heart and liver. You’ve talked about the TheraSure transplant test launching as an LDT out of your national lab in Q1 2022. Are you planning to launch kidney, heart and liver out of that lab in Q1 of 2022? And then I know you’ve also talked about potentially partnering with another company. Any clarity on some of your planning around a potential partnership would be helpful.

Yes. Sure, Mark. Let me give you the call on that. Our plan is to bring all three indications up as a lab developed test and have that ready to go by Q1. We will then sit Padma on the CMS and let her go after getting our reimbursement. As you know, the LCD was did cite our publication. So we feel good that the tests we’re bringing up is the test they’ve already approved for that blanket LCD. But we still have to go through the paces of getting that. Once we get through that, then we will be going to market with the LDT across all three donor indication, all organ indications. And so the goal is to launch as an LDT. We are in process of speaking with a couple of major partners and our goal is still to have those as a long-term partner to help us with the clinical trial process. And obviously, ultimately turn this into a kit that can be democratized, which is really the unique opportunity that we have. And from the market research that we completed to make the decision to go into transplant, we clearly saw that the leading attribute or decisions for these centers is the ability to provide same day turnaround time for their transplant patients. And we believe that we will be in a unique position to deliver on that promise to these centers by completing the clinical trial and democratizing on a digital PCR instrument. Therefore, we do need a partnership with a digital PCR platform company, and as you might imagine, there’s three really good ones. And so I can’t go much deeper than that, but just suffice to say, we’re in conversations with them all and trying to find the best one to partner with.

Okay. And then I do want to ask, I guess, about the quarter itself. So I do think it’s impressive that you grew sequentially DetermaRx volumes despite the headwinds in the South and Southeast and California, and the decline in surgeries. I think every other precision oncology lab that has reported has commented about the headwinds in Q3. I guess, if you could elaborate a bit as we think about the last couple months here in Q4 and a little bit into 2022 is it your expectation that Rx can meaningfully accelerate from here quarter-to-quarter. And then my understanding is you had about 10 people in the field. I think you’ve talked about going to 20 by the end of this calendar year. Any commentary on go-to-market and sales headcount would be helpful as well.

Yes. Padma is on, and I’ll let her answer that. I’ll start with though, we did see a really solid October. Both Mitch and I said that we wanted to be open about that. We started to see surgeries come back and we started to see our volumes pick up and they were meaningful. It was a meaningful increase. It wasn’t just by a little bit. So that’s the good news. So we’ll see how the quarter plays out. As you know, there’s – the end of the year, there’s always seasonality with elective surgeries because physicians nor patient want to be in the hospital over the Christmas holiday season. So yet to see, we do know there’s a backlog of these types of patients. So it could be that because they’ve been waiting for these surgeries, they do work through the holidays. So we’ll have to wait and see what happens. But in terms of the sales force expansion and grow partner, why don’t you handle that one?

Yes. I just wanted to reiterate what Ronnie said. We are pleased with our 65% year-over-year growth and I’m confident of the growth continuing into 2022 even with our existing 10 reps. So I’m very confident of continuing the growth into 2022. In terms of the sales reps, as of now, we still have the 10 reps. And as Ronnie said, we’ll be very judicious about adding reps. We didn’t intend to have 20 by the end of this year. We had said, perhaps by the end of next year. And as Ronnie said, we’ll be adding a small number of reps to support the launch of IO which has a broader oncologist call point. And we’ll be adding them in states with the largest total addressable market as you can imagine. So that’s the strategy and it’ll be a phased addition starting with a small number now and additional reps as we proceed through the year and have additional launches, including the DetermaTx.

Mark, in terms of the transplant sales approach, you can’t anticipate as we get to the end of Q1, depending on who our partner will. We will more than likely support that partner with what I would call medical liaisons or medical technical sales reps, so that we can actually go in and help those platform companies differentiate our test and et cetera. So we’ll probably add some of those reps, but more to come as we get closer to that date.

Terrific. Thanks for all the color. I'll hop back in the queue.

Thanks Mark.

Thanks Mark.

Our next question is from Michael Matson with Needham. Please proceed.

Hi everyone. This is Joseph on for Mike. I guess, maybe first one, just around DetermaIO and the launch. I guess, you did say earlier that you do not expect to need another study for reimbursement, but I guess maybe I just want to see what you guys are thinking in terms of the next couple of studies, the next study that you'll be pursuing, what type of cancers you guys are targeting and maybe the structure of this. And then I guess, the second part to that in terms of physician education, should we be expecting more KOLs in the future to drive awareness? Thank you.

Yes, those are all good questions and really best answered by Padma, our Chief Commercial Officer. Let me just clarify something. We believe we have enough data to-date to support the launch in utility of the test, but we are still in the middle of collecting data that we expect to be published that we can use to go for CMS. So Padma, you want to take it from there?

Yes. In terms of usage of the test, the reason we announced the EAP is because there was interest from physicians to have access to the test clinically. So there's definitely a demand for the test. And that's why we're doing the EAP program. As a reimbursement, yes, we do have data obviously for clinical launch. We are completing studies that will generate the data. These are retrospective studies that will generate the data we need to put into our dossier. Obviously, we have data in lung and triple negative breast cancer, but we do believe that this test has pan-cancer utility. And so we will be making investments and Doug chime in here to show utility in additional tumor types. So last quarter we talked about, for example, we are part of the AtezoTRIBE study in colon cancer. So there will be investments in clinical studies to demonstrate the utility of the test, that will ultimately lead to a pan-cancer claim. After KOLs, we are very lucky that because we've done studies in multiple tumor types, we already have enthusiastic KOLs and you'll see them speaking about DetermaIO in upcoming conferences, namely SITC, the Society of Immuno-Oncology Conference happening in Washington, D.C. this week. And there'll be a CME at San Antonio Breast Cancer Symposium so we are very lucky that because of these people have participated in our studies in Europe and here, we already have enthusiastic KOL speakers. And of course, the goal of – one of the goals of the EAP is that those early access sites, those doctors will automatically become additional KOLs that will kind of spread the word about the test as they go for full commercial launch.

Okay, great. That makes a lot of sense. Thank you for clearing that up. And then maybe just a quick one on DetermaRx, what’s the expectations or I guess, could you guys maybe clear up the timeline a little bit on potential NCCN guideline inclusion. And then it was my understanding that there would also be an additional milestone payment in coordination with guideline inclusion from Burning Rock, is that correct?

Yes. So I'm going to let Doug comment on where we are at NCCN since he's on point for that, but let me give you just a high level answer. There are two milestones, one milestone is the completion of the tech transfer and then Burning Rock going live. And then there's a follow-on milestone that when we do get into NCCN guidelines, that there is an additional milestone. So that is correct. There are two milestones. And so that's correct assumption. Doug, you want to talk a little about NCCN? I know that they report it out on quite a few of the smaller tumors, but we still haven't seen anything on some of the larger tumors yet.

Yes, that's correct. So their proceedings are confidential until they're released publicly, and so we really don't get any clue from them about what's going on. I have written them and asked for an update on what is usually a fall release and they've written back and said more likely towards the end of the year. So we're in a wait-and-see mode but it appears that the lung cancer guidelines are going to be released later this year than as usual. And I don't have any knowledge of why that is.

Just to add a little color commentary from my role with ASCO. There have been a significant number of new therapies and new additions to the arsenal for non-small cell lung cancer this year. And so the feeling is there was a lot to take in and a lot to add context to for the members. And so I suspect that what's driving some of the delay, but clearly we like you guys, are very hopeful that we see those soon.

Yes. Absolutely. Well, thank you for taking our questions.

Of course, yes. Thank you.

Our next question is from Bruce Jackson with Benchmark Company. Please proceed.

Hi everyone. Thanks for taking my question. I wanted to talk about the pharmaceutical services business briefly. In the past, you've discussed the backlog in that business. It's been rather sizeable. I wanted to know if we could get maybe a rough update on the amount. And then secondly, with the data that shows that DetermaIO is predictive, have you gotten any more inbound calls from potential pharmaceutical partners?

Yes, we'll split this amongst a team. Let me sort of start with the last question. We continue to see and get discussions opened up by some of the emerging therapy companies that have products that are either complimentary to the patients who are not responding to an immune therapy and/or therapy companies that are trying to enter the ICI or the immune checkpoint inhibitor world. And so those conversations are always ongoing. We continue to do some pilots for those companies. We are hopefully going to see some of the closure of some of those pilots and those pilots, obviously we hope will lead to a full access to a trial. So there is interest there. We continue to get inbound phone calls as well as we continue to make outbound phone calls. So we aren't short of activity with pharma but it is mostly with the emerging therapy companies that are trying to take on the large market leaders. In terms of pharma services, we still have a solid pipeline, but it's been a little bit confounding for us if I can just be totally transparent, which Bruce, you always expect me to be. We have these projects and we have them, the master services agreement signed up, but the actual projects, it's kind of a start, stop, start, stop. Every time we think we're going to get started on the big project. We are told by the company that they're going to delay it for another quarter or another month. And so which is one of the reasons we wanted to do something a little more reproducible and predictable, which is why we started taking the bandwidth we had and going after some of the diagnostic companies that need platform validation. And obviously, we're extremely good at that, both in Nashville, as well as in California. And so we can offer them a clear environment by which they can do crossover studies from one version of an instrument, to a new version, one version of software, to a new version, and even validate new kits for them and software for their FDA submissions. And so that business does not really require pharma patient samples for clinical trials and is more predictable. So as Mitch said, we did get our first big contract in, we had got the instruments installed and that first big contract is underway. So hopefully, we'll be able to complete that by the end of the quarter, but we should see a lot more of those as we enter 2022 and that should help smooth out the revenues in pharma services.

Okay, great. And then one follow-up question if I could on Burning Rock. So you're on track this quarter for the milestone – next milestone. How does that revenue stream unfold during 2022 when they transition to actually performing a test and do you have like a rough idea of how much that might add to the top line?

Hey, Bruce, well, we're not sure how much it's going to add to the top line, but we will get paid per sample that they run, and they have given indications that it's a very large market in China for early stage lung cancer surgeries. And so we are hopeful that it adds quite a bit, but it is premature for us to have a better handle on that because they haven't gone out to commercialize it as of yet.

Mitch, as soon as we complete tech transfer though, their plan is to immediately launch in the new year.

Absolutely.

Yes. So Bruce, we'll start to see the royalty trail and we'll kind of get an idea of how they're going to ramp in Q1. And as you know, Burning Rock is an extremely capable company. They are one of the top molecular oncology companies in China. And so obviously, we have high hopes for that. And our royalty payment actually is a guaranteed per patient fee, which we like, because that way we aren't susceptible to pricing fluctuations in various provinces and things. So we'll know more as we get into Q1, but it's something to watch and we're obviously eager to see how they take off.

Okay, great. Thanks for taking my questions.

Yes, Bruce, thanks.

Ladies and gentlemen, there are no more questions at this time. And I would like to turn the call back to Ronnie Andrews for any closing remarks.

Well, thanks to everyone. I know this was a little longer call than we probably had wanted, but the reality was getting the feedback we got in the quarter as I was out traveling around that we really wanted to share the full strategy and how each one of the components that we are bringing to market or each test that we're bringing to market mattered in the overall strategy. So hopefully that was helpful. And as always, we appreciate your support and we just look forward to further updates as we exit the year and enter next year. Have a great day.

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