OncoCyte (NASDAQ:OCX) Corporation (NYSEAMERICAN: OCX), a healthcare company specializing in transplant diagnostics, has reported its financial results for the fourth quarter and year-end 2023. During the earnings call, CEO Josh Riggs provided insights into the company's strategic advancements, including a significant partnership with Bio-Rad and the development of their product GraftAssure.
OncoCyte emphasized its successful reduction in cash burn, down by 58% year-over-year, and its consolidated revenues of approximately $300,000 for Q4 2023. The company is preparing for the first full production lot of GraftAssure in Q2 and expects to start shipping to sites following quality control release. With an eye on the future, OncoCyte is gearing up for a global launch and anticipates generating revenue from new streams in Q4, while maintaining a disciplined approach to cash burn.
Key Takeaways
- OncoCyte reduced cash burn by 58% year-over-year and reported Q4 revenues of around $300,000.
- The company is transitioning its transplant LDT workflow into a manufactured product, GraftAssure, with the first full production lot expected in Q2.
- Bio-Rad invested $15.8 million in OncoCyte and will co-market GraftAssure in the US and Germany, with exclusive global distribution and commercial rights elsewhere.
- OncoCyte plans to offer GraftAssure kits globally for transplant monitoring.
- The company aims to maintain a low quarterly cash burn below $5 million and plans to add 5 new sales and marketing positions.
Company Outlook
- OncoCyte expects to begin shipping GraftAssure to sites in Q2 after quality control release.
- Revenue growth is projected to start in Q4, with an increase anticipated in Q1 and Q2 of the following year.
- The company is committed to keeping its quarterly cash burn under $5 million.
Bearish Highlights
- Specific details regarding the installed base of Bio-Rad machines in the US and internationally were not disclosed during the call.
Bullish Highlights
- The partnership with Bio-Rad is expected to support the global launch of GraftAssure and meet the growing market demand for transplant monitoring.
Misses
- No minimum volume commitments were mentioned in the Bio-Rad agreement.
Q&A Highlights
- In response to Mike Matson (NYSE:MATX) from Needham, OncoCyte did not reveal the installed base of Bio-Rad machines but discussed plans for RUO and FDA-cleared versions of the test.
- The company will continue to offer the transplant test as a lab service and maintain their Nashville lab for clinical development.
OncoCyte Corporation, under the leadership of CEO Josh Riggs, is navigating a period of strategic growth, marked by its partnership with Bio-Rad and the development of its key product, GraftAssure. The company's focus on reducing operational expenditures has resulted in a significant decrease in cash burn, while it continues to develop and market its transplant diagnostics products. OncoCyte's commitment to maintaining financial discipline while expanding its product offerings and market presence suggests a cautious yet optimistic approach to growth in the healthcare diagnostics sector. As OncoCyte moves forward with its plans, investors and stakeholders will be watching closely for the impact of these strategies on the company's financial health and market position.
InvestingPro Insights
OncoCyte Corporation (NYSEAMERICAN: OCX) has demonstrated a commitment to financial prudence by significantly reducing its cash burn, as reflected in the latest earnings call. InvestingPro provides further insights into the company's financial health and market valuation:
InvestingPro Data indicates that OncoCyte's market capitalization stands at 20.88 million USD, with a notably high revenue growth of 216.48% in the last twelve months as of Q3 2023. This growth is accentuated by a quarterly revenue increase of 540.3% in Q3 2023, showcasing the company's potential for scaling its operations.
In terms of valuation, the Price to Book ratio as of the last twelve months ending Q3 2023 is 0.64, which may suggest that the company's stock is potentially undervalued relative to its assets. However, the negative P/E Ratio of -0.67 and adjusted P/E Ratio of -1.05 indicate that the company is not currently profitable.
InvestingPro Tips highlight that while OncoCyte holds more cash than debt on its balance sheet, it is quickly burning through cash, and analysts anticipate a sales decline in the current year. Additionally, they do not expect the company to be profitable this year, and the valuation implies a poor free cash flow yield.
For investors seeking a deeper analysis of OncoCyte's financials and future prospects, InvestingPro offers additional insights. There are a total of 8 InvestingPro Tips available for OncoCyte, which can give investors a more comprehensive understanding of the company's financial position and market potential. To access these tips and make more informed investment decisions, investors can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
Full transcript - OncoCyte Corp (OCX) Q4 2023:
Operator: Thank you for standing by. My name is JL, and I will be your conference operator today. At this time, I would like to welcome everyone to the OncoCyte Fourth Quarter and Year-end 2023 Earnings Conference Call. [Operator Instructions] Thank you. I would now like to turn the conference over to Jeff Ramson, PCG Advisory Inc. You may begin.
Jeff Ramson: Thank you, operator, and thank you, everyone, for joining us for today's conference call to discuss OncoCyte's fourth quarter and full year 2023 financial results and recent operating highlights. If you have not seen today's financial results press releases, please visit the company's website on the Investors page. Before turning the call over to Josh Riggs, OncoCyte's President and Chief Executive Officer, I'd 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 fact are forward-looking statements. We encourage you to review the company's SEC filings including, without limitation, the company's Forms 10-K and 10-Q, which identify specific risk factors that may cause actual results or events to differ materially from those described in these forward-looking statements. Actual outcomes and results may differ materially from what is expressed or implied by these forward-looking statements. OncoCyte expressly disclaims any intent or obligation to update these forward-looking statements except as otherwise may be required under applicable law. With that, I'll turn the call over to Josh.
Josh Riggs: Thanks, Jeff, and welcome, everyone. A year ago, we said that we were going to reduce our burn, package our IP for distribution and find a partner for commercialization. Including Q1 of 2024, our average burn for the past 3 quarters has been $3.91 million compared to $11 million from the same period a year ago. We successfully converted our transplant LDT workflow into an easy-to-use manufactured product called GraftAssure. The first prototypes came out of manufacturing in December of last year. I'm proud to say that the quality and performance of that assay has exceeded our expectations. We expect to receive the first full production lot in Q2 and begin shipping our first sites after QC release. And lastly, yesterday, we announced our partnership with Bio-Rad to support the global launch of the GraftAssure product. They invested alongside current and new shareholders in a $15.8 million private placement offering to support the accelerated development and commercial efforts. The investment was priced at market value. Having them as an investor and commercial partner provides OncoCyte with the highest level of validation and strong base to build from. As part of the agreement, Bio-Rad and OncoCyte will co-market the assay in the U.S. and Germany with OncoCyte acting as commercial lead. Outside these countries, Bio-Rad has been granted exclusive global distribution and commercial rights. Having the support of the Bio-Rad team in U.S. and Germany gives us the scale that we need to meet the market opportunity. The market in both countries is highly concentrated at the top academic centers where most transplant surgeries are performed. At around 100 call points, we can effectively commercialize with minimal incremental headcount. Globally, over 157,000 transplants are performed annually with a 9.1% growth rate. Much of this transplant population is going underserved or unserved. It's really challenging to try and meet the global demand with a central lab in the United States. A robust kitted product with this partnership puts that market within reach. Going forward, both companies have committed to joint efforts in developing a regulated product and system designed to facilitate widespread distribution and clinical adoption of the core technology in the United States and beyond. Additionally, Bio-Rad has been granted an option for IBD commercial rights at FDA clearance, subject to meeting specific objectives. Exercising the option would come with a second equity investment into OncoCyte. We look forward to working with their experienced team to bring this needed product to market as quickly as possible. We've discussed the upcoming transition in transplant monitoring from one where central labs dominate to one where local labs are empowered to serve the community. This partnership on IBD development is a key step in that direction. Working together, we believe that we are on an accelerated path to deliver this product to market and look forward to updating on our progress. Prior to that, we are going to offer researchers and labs around the world an opportunity to use our technology through the GraftAssure kit, an easy-to-use rapid turnaround test for monitoring and measuring donor-derived cell-free DNA in the blood. We are encouraged by the response and demand for the technology and look forward to supporting our day 1 sites in the U.S. and rest of world markets. We're going to measure success over the next 12 to 18 months by site activation, looking to build alongside Bio-Rad a significant installed base of early adopters that are interested in doing in-house research on their patient populations to push the body of knowledge and literature forward. We couldn't be more excited to put our tools into the hands of these capable researchers and institutions around the world. We continue to make progress on the clinical development of our products. Last year, we achieved reimbursement for VitaGraft Kidney. This year, we have an opportunity for claims expansion when the data that was presented at ESOT gets published. It is currently in review. Claims expansion would be an opportunity to build beyond the for cause testing claims that we have today. As a reminder, this data is from a randomized interventional kidney study that showed our technology can pick up ABMR, a common and dangerous type of organ rejection in DSA-positive patients 10 months ahead of standard of care. The DSA is a biomarker that is used for monitoring for organ health in transplant patients. Those that become DSA positive are at higher risk for rejection. This study put DSA-positive patients into 2 arms: one used our test and the other didn't. Those that used our tests were able to catch rejection much sooner than those that didn't. Approximately 20% of kidney patients will test positive for DSA within the first 5 years of kidney transplant. Many of them will go on to have rejection and potentially lose their organ. The data showing using our technology gives an opportunity for earlier intervention. Further, and very important, ABMR is notoriously hard to treat. But certain new drugs are in trials to treat DSA-positive ABMR. Assuming positive outcome of these trials, an early diagnosis will become truly crucial. We are watching these Phase II studies very closely as we believe that they have the opportunity to change the outcomes for the many patients that experience ABMR. And our technology has the potential to be the front-end diagnostic to find these patients in time to make a difference. For DetermaCNI, we are waiting on the publication of pancreatic data presented at AACR earlier in 2023 to submit to MolDX under LCD-38835. This is the same LCD that multiple companies have received coverage under in the past several months. Reimbursement for these types of assays has reached into the 1,000s per episode of care. For DetermaIO, we continue to make progress processing samples from the 800-plus patient TNBC study being ran by the Southwest Oncology Group funded by the NIH. Success in this study would represent an opportunity to support the treatment decision post surgery for these patients by identifying those most likely to benefit from immunotherapy. On our financials. Q4 benefited from the cost reductions we did in the first 3 quarters of the year. Cash reserves declined $4.4 million in the quarter, leaving $9.4 million on the balance sheet. This is a 58% improvement in cash burn year-over-year. Our consolidated revenues for the fourth quarter of 2023 were approximately $300,000 and the cost of revenues for the fourth quarter were approximately $400,000, primarily from services and customers. Research and development expense from the fourth quarter increased 85% year-over-year from $1.4 million to $2.5 million, driven by our strategic pivot to focus our investment on developing the manufacturable version of our assay. General and administrative expense for the fourth quarter decreased 66% year-over-year from $5.1 million to $1.8 million, reflecting our successful efforts to reduce spending not directly related to product development and commercial activities. Sales and marketing expense for the fourth quarter increased 74% year-over-year from $300,000 to $600,000 where we focused our sales and marketing investments on our early access program and early market access work for the RUO product. GAAP net loss from continuing operations of $16 million or $1.99 per share as compared to a net loss of $12 million or $2.08 per share for the fourth quarter of 2022. Non-GAAP operating loss as adjusted for the fourth quarter was $4.2 million, an increase of $1.2 million compared to the same period in 2022. We have provided a reconciliation between our GAAP and non-GAAP operating losses in the financial tables included with our earnings release, which is also available at our website at oncocyte.com. We have reflected the operations of Razor as discontinued operations for all periods presented in our financial statements. In my closing remarks, I'd like to talk a little bit about why the partnership came together. It has exactly what you would expect. It has a good product, an established commercial channel and robust demand. But what makes it special and what makes it work is the timing. What we see and ultimately what we think led Bio-Rad to invest is the chance to take the lead in an opportunity that only comes along once in any given clinical market, where it shifts from one that's centralized to one that's local. It only makes sense that transplant centers would rather have an answer in a day instead of waiting up to a week for results from a lab in another state. And if you add to that a reimbursement rate in the thousands for an easy-to-use PCR test, you start to build a pretty compelling business case. It happened in HIV testing, respiratory testing, eGFR, among others, and it's about to happen in transplant. And again, it's something that only happens once. After local labs have access to testing, it never goes back to being centralized. Over the next 2 years, we are going to see this transition take place and believe that we have the right partnership and the right product to position OncoCyte as a leader in that transition. That will mean more research, more patients being tested and hopefully better outcomes. Our appreciation goes out to the Bio-Rad team and our current and new shareholders who have joined us in supporting this vision. Thank you.
Operator: [Operator Instructions] And your first question comes from the line of Mike Matson of Needham.
Mike Matson: I guess just a few on the Bio-Rad agreement. So can you tell us what their installed base is U.S. and o-US, if possible, for the machines that could run this test?
Josh Riggs: They don't publicly disclose their installed base.
Mike Matson: Okay. No, that's fine. And then just to be clear and make sure I understand how this is going to work. So initially, you'll be working with them. There'll be a research use-only version of the test. You'll try to build up some initial customers using that test, and then eventually you'll have FDA-cleared and EU-cleared versions of the kitted test to have them sell for their testing systems.
Josh Riggs: Yes, that's correct, Mike. And so we're excited by it. There's a really nice overlap between the life science side of Bio-Rad that's calling on the academic centers where the research is being done today and our call point, which happens to be academic centers who have the talented surgeons that can actually perform the transplant surgeries. So there was a really nice overlap and call point that made this make a lot of sense.
Mike Matson: Okay. Got it. All right. And then is there any kind of minimum volume commitments or anything like that put in the agreement?
Josh Riggs: There are not.
Mike Matson: Okay. All right. And then are you going to continue to offer the transplant test in the U.S. as a lab result test or CLIA way of testing in your own facility? Or is it kind of fully transitioned over to being kitted?
Josh Riggs: We will absolutely maintain our service lab in Nashville. It's a wonderful vehicle for us to do clinical development work. It's through that lab that we're able to engage with MolDX to do the claims expansion work, like we're doing with the DSA-positive patients. It also gives us a path through the FDA so we can take our single site -- or our lab through the single site process and establish a predicate device that we can then use to bridge clinical claims over to our kitted product. And we believe that's a really efficient path through the FDA, and look forward to being able to bridge those two things together in the future.
Mike Matson: Okay. And then finally, what should we expect for the pricing on the kitted test once you fully transition over to a cleared version of the product? I don't know if you're willing to disclose that --
Josh Riggs: Well, I mean, I can tell you how the math usually works. So depending on whatever the reimbursed value is for the test, and so that's whatever your customer can bill to the payers, you're usually capped at about 50% of the reimbursed value for the top end of your pricing. And so if you have a kit that has a national price of $1,500, then the limit you can really charge to generate the result is about $750. If it's $2,000, it's $1,000. If it's $1,000, it's $500. And that's just kind of the way the math works and that's the general expectation in the industry. And until we have the national price for the kit, it's really tough to say exactly where we would set the price.
Mike Matson: Okay. But then you would -- I assume you'd be sharing a portion of that pricing with Bio-Rad?
Josh Riggs: That's correct.
Operator: Your next question comes from the line of Mason Carrico of Stephens.
Mason Carrico: Can you guys hear me all right?
Josh Riggs: Yes, Mason.
Mason Carrico: So if you don't mind, maybe just a few quick ones here. Could you provide just a bit more detail on kind of how the commercial strategy with Bio-Rad is going to work going forward? I mean, given you're the commercial lead, what type of team do you have in place today or presence do you have? What type of incremental investments need to be made here?
Josh Riggs: Thanks. Yes, we're expecting to add incremental about 5 headcount, so 4 in the U.S. on top of our small team today and then 1 in Germany. And that goes against the Bio-Rad marketing machine that's already in place in the U.S. and Germany. And so we will -- if you think of them as kind of filling the funnel, and then we're at the bottom end of the funnel closing the accounts is generally how the relationship will work. Outside of those 2 territories. Bio-Rad has the full commercial and distribution lead on that, and so we will bear no incremental cost there.
Mason Carrico: Got it. Okay. And could you talk a bit about revenue expectations going forward as well as the cash burn outlook?
Josh Riggs: Sure. So it is an RUO product and so it takes time for a lab to bring it up, validate it and get it running. And so we expect that the day 1 sites will start converting into revenue customers in Q4, and then the revenue will start to build from there. And so we'll see a little bit of revenue in Q4, more in Q1 and so on and so forth through Q2 next year. The cash burn, we've committed to maintaining a low cash burn. We'll take up a bit here in Q2 with just some manufacturing expense and onetime expense. But I think you can expect to see us try to maintain that below $5 million on a quarterly burn basis average.
Operator: Your next question comes from the line of Bruce Jackson of The Benchmark Company.
Bruce Jackson: So getting into the mechanics of how this works with Bio-Rad, and we'll start with the easier scenario with the international markets that are not Germany. So if they sell a test, then how does that get booked to you? Is it going to come in on the income statement as like a license fee? Or that hits either the operating expenses or the nonoperating expenses? Tell me how the mechanics of the -- just one piece of it are going to work.
Josh Riggs: No, good question. It's a manufacturing and supply agreement. So it comes off the end of the manufacturing line and then Bio-Rad is our customer. And so it hits the top line and then you'll see a normal COGS-type calculation.
Bruce Jackson: Okay. And then with the United States in particular, so you've got the lab version of the test as well. So are they going to be like sort of two revenue streams here? So there's going to be the lab revenue and then there's also the RUO kit revenue. So does the -- tell me how that piece of it is going to flow?
Josh Riggs: Yes. I mean, they'll both show up on the top line. One will just show up as services and one will show up as products. I don't know if that answers your question, Bruce.
Bruce Jackson: It does, it does. And then last question is on the incremental sales and marketing spend. So is there going to be any shift in just the $5 million burn rate per quarter -- I'm sorry, less than $5 million burn rate per quarter from R&D to sales and marketing? Or is it -- just maybe a little color on the operating expense mix would be helpful.
Josh Riggs: Yes, sure. I think we are planning on adding about 5 headcount to our sales and marketing team to support this over the next quarter. And so that will tick up that a little bit. And then we will try to maintain as well as we can that below $5 million quarterly burn. Again, we are going to tick up here in Q2 with just onetime manufacturing expense, obviously some deal costs, but we'll go right back to that low burn.
Bruce Jackson: All right. That's it for me. Congratulations on the agreement.
Josh Riggs: Thank you. Appreciate it.
Operator: There are no further questions at this time. That concludes our Q&A session. This concludes today's conference call. You may now disconnect.
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