Michael Polyviou - Argot Partners Bill Annett - Chief Executive Officer Lyndal Hesterberg - Senior Vice President of Research and Development Kristine Mechem - Vice President of Marketing Russell Skibsted - Chief Financial Officer.

Keay Nakae - Chardan Capital Markets Raymond Myers - Benchmark Paul Knight - Janney Montgomery Bruce Jackson - Lake Street Capital Markets.

Good day and welcome to OncoCyte's second quarter 2017 financial results conference call. Today’s conference is being recorded. At this time, I would like to turn the call over to, Mr. Michael Polyviou. Please go ahead sir..

Thank you, operator. We appreciate everyone joining us on this afternoon's conference call and webcast to review OncoCyte's financial results for the second quarter of 2017, product development update and experimental milestones. If you have not seen this morning's press release, please visit www.oncocyte.com.

Before turning the call over to Bill Annett, OncoCyte's President and Chief Executive Officer, I would like to remind you that during the course of this conference call the company will make projections and forward-looking statements regarding future events.

We encourage you to review the company’s filings with the SEC including without limitation the company’s forms 10-K and 10-Q, which identify the specific factors that may cause actual results or events to differ materially from those described in this these -looking statements.

These factors may include without limitation, risks inherent in the development or the commercialization of potential diagnostic tests, uncertainty in the results of clinical trials or regulatory certifications, uncertainty in timing of the training reimbursement authorization from third party payers, need and ability to obtain future capital and maintenance of intellectual property rights.

Therefore, actual outcomes and results may differ materially from what is expressed or implied by these forward-looking statements. OncoCyte expressly disclaims any intent or obligation to update these forward-looking statements except as otherwise may be required by applicable law. With that, I would like to turn the call over to Bill Annett.

Bill, please go ahead..

Thank you, Michael, and welcome everyone to our conference call to discuss the financial results for the second quarter ended June 30, 2017. Today I am joined by Lyndal Hesterberg, our Senior Vice President, Research and Development; Kristine Mechem, our Vice President of Marketing; and Russell Skibsted, our Chief Financial Officer.

They will be available during the question-and-answer session. During the past two years, we delivered a solid record of accomplishment in achieving important milestones and this trend has continued into the second half of this year.

Because of our continued progress, we plan for a launch of our lung cancer diagnostic test in the fourth quarter of 2017. I am pleased to announce today that we have selected a brand name for our lung cancer diagnostic, which is DetermaVu.

We are very excited about this branding because it directly speaks to what the test will do for clinicians, which is to help them to determine the next diagnostic step for their patients by providing information that isn't available to using only the standard of care, which is low dose CT Scan.

To arrive at the DetermaVu branding, our team undertook a thorough traditional branding exercise. During this process, we defined our product's core attributes and hard tests tended to advance the standard of care for lung cancer diagnosis.

We will be formally announcing the DetermaVu name at the upcoming CHEST 2017 Annual Meeting in Toronto and I have no doubt we will get quite a lot of attention. To maximize DetermaVu's commercial potential, I am excited to report that we are in the final stages of hiring a Vice President of sales.

This individual is an experienced executive who bring many years of sales and marketing leadership within the diagnostics industry.

The Vice President of sales will be responsible for building the company's sales force and infrastructure ahead of the anticipated launch of DetermaVu in the fourth quarter and for leading our ongoing sales efforts after launch.

We are confident that our new Vice President of Sales will add a great deal of depth to our commercial team and we look forward to announcing the appointment soon. In addition to a new head of sales, we are planning on expanding our management team further by hiring a permanent full time Chief Financial Officer.

We have begun the search process now for this key addition to the team. In July, we were pleased to report exciting data from the analytics validation study of DetermaVu.

These new data confirm that the encouraging data that we reported in May 2017 at the American Thoracic Society 2017 International Conference, which demonstrated sensitivity of 95%, specificity of 73% and area under the curve of 0.92.

As a reminder, sensitivity and specificity are statistical measures of test performance with sensitivity measuring the percentage of malignant nodules that are identified correctly by the test, and specificity measuring the percentage of benign nodules that are correctly identified.

The AUC of a test is a measure of overall global accuracy that combines sensitivity, specificity with 1.0 being perfect accuracy and 0.50 being a random result. The reported score of 0.92 means that 92% of samples were correctly identified.

Now that we have completed the analytics validation study, the final stage of development is clinical validation of DetermaVu. This stage consists of two distinct sets of studies that will be carried out in OncoCyte's new clinical laboratory. The first step is CLIA Lab Validation.

In this study OncoCyte will assay approximately 120 samples previously tested in the 299-patient study presented at the American Thoracic Society meeting. The goal here is to demonstrate that OncoCyte’s new clinical laboratory provides the same results on clinical samples as those obtained in our R&D lab.

This study has now begun and we anticipate completing it during the third quarter. On completion of the CLIA Lab validation study, the second step will be to carry out two separate clinical validation studies.

In these studies, OncoCyte will perform assays on blinded, prospectively collected samples to assess the performance of DetermaVu against clinically confirmed cancer diagnosis. OncoCyte will perform clinical validation of DetermaVu on two sets of samples.

The first study will consist of approximately 300 samples and if the results of the study meet commercial standards for sensitivity and specificity, OncoCyte will launch its DetermaVu liquid biopsy lung cancer diagnostic test.

All of the samples required for this first study have now been collected and we anticipate completing it during the fourth quarter. The second study will be conducted after commercial launch on approximately 200 additional samples.

The purpose is to provide additional data to increase the likelihood that physicians will adopt DetermaVu and that insurance companies and Medicare will provide reimbursement coverage for the test.

If we are able to complete our CLIA Lab validation study and the first DetermaVu clinical validation study with successful outcomes and we receive CLIA certification of our lab and we expect the timeframe, you will be in a position to begin the commercial launch of DetermaVu before year-end.

With respect to CLIA Lab certification, I am pleased to announce that the California Department of Public Health Laboratory Field Services team has reviewed OncoCyte's applications for State Clinical Laboratory licensing and CLIA certification.

LFS has also conducted an OncoCyte laboratory inspection for OncoCyte's initial paid clinical laboratory license. OncoCyte has passed the review and the inspection and is waiting for final issuance of the California State Clinical Laboratory License and the CLIA certificate.

Based on the experience of others in the industry, we anticipate receiving the California State Clinical Laboratory License in a few weeks and the CLIA certificate in about a month. As a reminder, lung cancer remains the deadliest form of cancer in the U.S. resulting in approximately 160,000 deaths per year.

Moreover, while life expectancy has been increasing for patients with certain other types of major cancers, the five-year survival for lung cancer patients remains stuck at about 17%. Just mainly because the majority of lung cancer patients are diagnosed in stage four by which time treatment options and their effectiveness are limited.

Thus, detection at stage one is key. Early detection of lung cancer is a high priority already for the U.S. healthcare system and we believe that DetermaVu may be useful in the diagnosis of lung cancer in as many as 1.4 million patients in the U.S. each year, based on published sources, Lung RADS guidelines and national lung screening trial data.

Assuming this number of patients and our currently planned pricing for DetermaVu, the total addressable market could be as much as $4.7 billion per year in the U.S. depending on reimbursement pricing.

Specifically, we believe DetermaVu can provide Medicare and private insurance companies with significant savings if the price of our product is 20% to 25% of the cost of a lung biopsy. According to recent Medicare estimates, biopsy costs averaged approximately $15,000 when the cost complications from biopsies are included.

Potential revenue to OncoCyte will depend in large measure on the diagnostic test market penetration and our natural approval reimbursement by Medicare and health insurance. With respect to presentations at prestigious conferences, we have consistently had a strong and visible presence at major scientific meetings. This will continue going forward.

As I have said, we have received notification that our latest confirmatory lung cancer diagnostic research has been approved for a Slide presentation at the CHEST 2017 Annual Meeting, which takes place in Toronto from October 28 through November 1. Dr.

Anil Vachani, an associate professor of medicine at the hospital of the University of Pennsylvania, and the Philadelphia Veterans Administration Medical Center, will present the data. Slide presentation at this prestigious event is a significant accomplishment and we very much look forward to a highly productive conference.

In addition to CHEST 2017, we are confirmed to present at the International Association for the Study of Lung Cancer in Chicago from September 14 to 16, where Dr. Philip McQuary, who is our Director of Product Development, will present the company's lung cancer analytical validation study results.

We are also preparing papers for submission to peer reviewed scientific journals. Publication of data in peer reviewed in peer reviewed scientific journals will help provide additional visibility and validation of our diagnostic test among our target physician audiences.

We look forward to announcing publication of papers in peer reviewed scientific journals at the appropriate time. With respect to the commercial side of the company, we are also making excellent progress building up commercial operations, including the business processes and systems necessary for our successful commercial rollout.

We are developing robust marketing and sales capabilities and we intend to commercialize DetermaVu using a specialized internal sales force.

As I laid out a moment ago, the individual we expect to be announcing soon as Vice President of Sales, will lead the recruitment of sales talent and continued to build sales operations, as well as creating our ongoing sales effort once DetermaVu launches.

To [flash] [ph] out the team, we are also in the process of recruiting other sales and sales operations professionals. We intend to sell DetermaVu through a focused sales force that will target key physicians, including pulmonologists, thoracic surgeons and radiologists.

Building relationships with physicians and large low-dose CT screening centers will be especially important to the adoption of DetermaVu. Overtime, we will continue to build the sales team in a deliberate and strategic manner by adding professionals with domain expertise in specific geographies that we will be targeting.

The sales force will leverage the efforts of our marketing team encouraging physicians to try the test in clinical practice and working to build customer loyalty and repeat business. On the reimbursement side, our team is executing a comprehensive proactive approach to pursuing coverage and reimbursement from Medicare and private payers.

Our approach to reimbursement has been carefully and methodically researched and developed and we believe it will enable us to meet our key objectives. OncoCyte expects that U.S. revenue will be limited until reimbursement is received.

As previously announced, Bill Haack, our Vice President of Market Access, will deliver a presentation on successful reimbursement strategies for diagnostic tests on August 16 at the Next Generation Diagnostics Summit 2017 in Washington, D.C.

Clinical utility, which is proving that your test works and that it provides value to the healthcare system, is fundamental to insurance reimbursement. Mr. Haack will point out that companies that have presented good clinical validation data and good clinical utility data to the insurance companies and Medicare have received reimbursement.

In addition to our product development efforts and commercial activities to maximize the upside potential of DetermaVu, Mr. Haack and our commercial team have developed a comprehensive evidence plan to drive coverage and reimbursement.

We have discussed this plan at great length and in detail with a group of ten large commercial and public payers who grouped together represent about 77 million covered lives.

The positive feedback from these payers has given us added confidence that upon meeting the objectives of our evidence plan, successful completion of our current studies and publication of our data, we will be well positioned to obtain broad coverage of DetermaVu by both public and private payers over time.

Also key to coverage and reimbursement is our health economics analysis.

Our analysis indicates that with our targeted product profile of sensitivity and specificity, DetermaVu will not only improve health outcomes by reducing the co-morbidity and death rates resulting from avoidable biopsies but also a significant reduced overall spend for lung cancer biopsies.

In order to receive favorable coverage decisions and our desired reimbursement levels, we intend to provide payers with objective proof of these economic and clinical benefits. To that end, we plan to initiate several clinical utility studies post-launch.

These studies will be designed to use real world evidence that illustrating both patient results and physician behavior. In particular, our studies will look at whether physicians who use DetermaVu will forego unnecessary biopsies if DetermaVu's results show no evidence of cancer and whether use of DetermaVu leads to cost savings.

Over time, if positive results are garnered from these studies, this data should help satisfy payers that DetermaVu can reduce the number of avoidable downstream procedures and lower the cost of care while maintaining the benefits of low dose CT screening. In addition to the U.S.

market, we believe that there maybe market opportunities to cash pay and distribution agreements outside of the U.S. including in Europe, Asia and the Middle East. We are currently looking at various strategies and will report on our progress at the appropriate time.

Success with this strategy could lead to additional DetermaVu revenues, perhaps beginning as early as 2018. Our second test under development is a liquid biopsy confirmatory diagnostic for breast cancer.

At the San Antonio Breast Cancer Symposium in December 2016, we reported data on our initial 100 sample study of a novel panel serum protein biomarkers designed to allow for the non-invasive and sensitive detection of breast cancer and BIRADS category 4 patients.

The 15 marker model demonstrated a high degree of accuracy with an area under the curve of 0.92, sensitivity of 90%, and specificity of 76%. We are conducting a multi-standard follow-up study to further develop and verify these results in a large set of prospectively collected patient samples.

In June, we successfully completed a follow-on study called NICE-BC, which stands for non-Invasive Confirmatory detection of breast cancer. This study confirmed the findings of our previous breast cancer study which we presented at the San Antonio Breast Cancer Symposium in December 2016.

We have submitted an abstract of the NICE-BC study findings to a major medical conference that will take place this year. If the abstract is accepted, we anticipate reporting final results at that conference. Lastly, before I summarize with my remarks and open up the call for Q&A. I will discuss our financial results.

As reported in the 10-Q that we have filed with the SEC, at June 30, 2017, we had $8.6 million of cash and cash equivalents, in addition to available for sale securities valued at $1.1 million. Subsequent to the end of the quarter, we received proceeds of approximately $5.74 million from the early exercise of warrants.

During the second quarter of 2017, we used approximately $3.1 million of cash and had an overall net loss of $3.8 million or $0.13 per share. Operating expenses for the first six months ended June 30, were $6.1 million on an as adjusted basis.

So to summarize, during the past two years and continuing into the second half of this year, we have been achieving our stated product and corporate milestones.

We are very excited by the success of our results of our DetermaVu lung patient analytics validation study and initiation of the CLIA validation study and we look forward to the initiation of the clinical validation stage which is the final step in the development process prior to launch.

Our current timeline indicates you will the CLIA certification of our laboratory and completion of the clinical validation stage in Q3 and completion of the build out of our commercial operation and launch of DetermaVu in the fourth quarter.

Upon launch, DetermaVu will be the only commercially available liquid biopsies lung cancer diagnostic product in what we estimate could be a U.S. market opportunity of up to $4.7 billion annually. In addition, we hope to report the results of our most recent breast cancer diagnostic study at a major medical conference.

So we remain excited about our progress and as we prepared for the launch of DetermaVu in the fourth quarter, we will continue to focus on building value for our shareholders. Operator, we are now open for questions..

[Operator Instructions] We will take our first question from Keay Nakae with Chardan..

Bill, maybe just starting with your breast cancer test. For the next study, can you tell us any significant differences in either the marker set you are evaluating or the number and types of patients you might be evaluating..

Sure. So, again, we can't say too much about it because we have submitted the results to a medical conference and we are under data embargo until release. So I will say that it's a somewhat larger study then the earlier study and as we announced previously, the results were successful. So we are happy with the results.

And we hope to hear soon from the medical conference about whether we will be able to present them..

With respect to lung, when you began to conduct the clinical utility studies, I know I think you mentioned more than one, but is there a priority in what you are going to try to demonstrate first or how would the different clinical utility study is different..

So basically the number of people that we are going to put through the clinical utility study will be dependent on basically the right number to power the study and the bio-statisticians will tell us what that number is. It will still be a significant number of patients.

What we will do at a very high level is follow actual patients going through the process, talking to the doctors and getting the information about what the test results are and then what the doctor does. For example, if there is a benign result, does that doctor send the patient home and avoid a biopsy or do they do a biopsy anyway.

So that’s the key factor we will be looking at is, is the doctor's actual practice what we anticipate. So that’s the main thing we will be looking at..

Yes. Maybe let me clarify what I was asking. If you are going to do more than one study, are you going to start with perhaps a specific BIRAD classification then move on to something less certain or what would the first study, clinical utility study look like versus some follow-on you are thinking of doing..

Okay. I think the primary -- the first [indiscernible] we will be doing will probably be an 8 mm and above nodules, which is the Lung RADS 4 category. The Lung RADS 3 of the 5 to 8 mm will come on along with the later. They will probably take a little longer to do clinical utility on those, on that type..

We will take our next question from Raymond Myers with Benchmark..

I want to just confirm regarding the progress getting your lab CLIA certified. Are there anymore steps that OncoCyte has to do to get certification or is it simply waiting for the state to come to you with the paperwork..

It's the latter. We are just waiting on the paperwork at this point. We did recently have, as I mentioned, the state inspector came out and ran through a very thorough inspection and analysis of our lab and our procedures and so on, and we did pass that. As well as the previous review of our applications by the department of the public health.

So we have done everything we need to do and as I mentioned in the call, what we are told is that -- again, there is two pieces. There is the state license and then there is the CLIA certificate, both of which are handled by the same group, the department of public health.

And we understand from others in the industry that it takes a number of weeks to get the state license and then it takes a month or so t actually get the CLIA certificate..

Is that a month or so after you get the state or is the concurrent?.

It's concurrent. It's a month or so after the inspection..

Okay. Great. So very soon. So let's move on to the launch plans. Can you outline what investment you intend to make on branding DetermaVu and what investment is necessary for the sales force etcetera..

So as we have said before, our launch of a diagnostic product is a little different than a launch of a therapeutic product and until we get reimbursement from Medicare and/or the private payers, our revenue will be very constrained.

So as a result, we will have a very -- the focus of the launch will really be to populate the clinical utility study and to get brand recognition, to go out and talk with the doctors and so on. It won't be our objective to drive large volumes at this point in time.

Later on, once we are closer to reimbursement or get reimbursement, then the focus of the team will be on starting volume. And this is fairly standard in diagnostics. So we will have a relatively small sales team. As I mentioned, we are hiring a head of sales.

We have a relatively small sales team who will be focused on clinical utility and regional [indiscernible]..

Right great. Thank you.

And then speaking of reimbursement, have you made any progress towards the coverage with data development half way for this DetermaVu test?.

So basically the Medicare coverage with data development process, first we have to finish the clinical utility study. We have put together the dossier of all of the results of that study, showing the healthcare economics and the decision impact of what the doctor's doing.

We sent that CA to CMS and then CMS makes the decision of whether to provide coverage with data development. So as we mentioned, we have gone and we have talked with the Medicare people in kind of preliminary way and discussed what we are doing. But until we actually submit that dossier, the process doesn’t begin until that point in time..

Okay. Very good. And then last you said something very intriguing in your comments. You said that you had positive feedback from discussions with payers that represent 77 million lives about the possibility of reimbursing.

Can you elaborate on that because that seems very important?.

Sure. So we did a study with ten different insurance companies including Medicare. And we basically took them through results to date. We took them through the clinical protocols and what our plans were going forward and ran that past that. Kind of the way, with the therapeutic, with the drug you would talk with the FDA in advance.

And basically said, do you have recommendations, you have suggestions, what do you think and I think there was -- in all ten of the people, the companies that we talk to in Medicare there was a consensus that this product -- if we continue to get the results which we have been getting and if the clinical utility studies are positive.

This should be the kind of test which we get reimbursement..

We will take our next question from Paul Knight with Janney Montgomery..

On the blinded study, it's going to be 300 samples in Phase 1 and then how many in the bigger study that you said will also be done in Q4 and necessary for the launch..

No. Sorry, let me explain. The study which we are doing right now is the CLIA lab validation study and it's 120 samples. These are samples which we ran in the R&D study or the ATS study which we presented at the American Thoracic Society.

We are taking 120 of those samples which were run in our R&D lab and we are now running them in our CLIA lab and the purpose of that is just to make sure that we are getting the same results in the CLIA lab on that equipment as we got in the R&D lab. So that is underway and we hope to finish that in Q3.

And then when that’s, assuming that it's completed successfully, then we go to the 300 patient clinical validation study. And that study is 300 new sample, they are blinded prospectively and collected at the 50 some odd sites we have around -- the collecting process around the country. And if that is successful, then we would launch DetermaVu.

Now in addition past that, and I am sorry for the confusion, but there will be another 200 patient after that. Another clinical validation study. And that is so that we can get the final numbers from the clinical validation study up to 500.

Now what that does is it gets our confidence intervals, our [indiscernible] bar smaller so that we can so the physicians and the payers with a high degree of confidence the results of the study..

And do you think that you should be -- well, I guess the question is, the bronchoscopy price point, can you talk about where you -- are you going to fit before a bronchoscopy? Where do you think bronch competes relative to your test in lung?.

Yes. So we will be before bronchoscopy. So after the low-dose CT scan which shows that there are lung nodules in a patient but before the bronchoscopy or other kinds of lung biopsies. Of course there is three different kinds of lung biopsies. The bronchoscopy, the needle biopsy or the thoracic surgery.

So we will be before any of those biopsies and of course to point, the value proposition of our test, is to avoid unnecessary biopsies because the vast majority of lung biopsies, well over 90%, even over 95% in some cases are benign. So we are trying to avoid those expensive and risky and unnecessary biopsies..

We will go next to Bruce Jackson with Lake Street Capital Markets..

Congratulations on all the progress with the CLIA license. So with regard to the market potential, can I get your latest thinking on the number of physicians that you need to target and their specialties. And then also, what's your current estimate on the number of low-dose CT screenings that are currently being done in United States..

Okay. So, again, in terms of the physicians we will be focusing on pulmonologists primarily. They are of course the people who manage the care of people with biopsies, and to some degree also radiologists and maybe some thoracic surgeons. But that’s primarily the people we will be focused on.

There is about 6,000 pulmonologists in the country and then tend to be grouped into practices and so we will do a standard or have done a standard kind of sales territory, sizing an alignment exercise where you look at the frequency that with which pulmonologists perform the number of cases that they manage and so on.

And so there is a 80:20 rule in place there. You get a relatively small number of pulmonologists who provide the majority of the -- care for the majority of lung nodule patients. So we will be focusing our sales team on those pulmonologists. In terms of the number of low-dose CTs in the U.S., it's a little hard to get that information.

There are 7 million to 10 million in the U.S. who are at high-risk of lung cancer, who should be getting annual low-dose CT.

An independent paper which we saw has shown that they believe by about 2021 and about 40 years from now, something in the area of about 60% or so of the people who should be getting the annual screens will be -- it's not at that level yet, it's only been a couple of years now.

About 2.5, 3 years since low-dose CT helping the standard of care and Medicare has only been covering low-dose for about year and half. So that number is increasing. We heard estimates of 20% to 25% of that 7 million to 10 million patient at-risk group, who are currently getting low-dose CTs.

We heard anecdotally from the key opinion leaders and the physicians we talked to that the numbers have low-dose CTs that are going up very rapidly. And again, and this independent journal article I mentioned, do anticipate that that will continue various lung patient advocacy groups doing a lot of work in terms or trying to get the message out.

If you are high risk for lung cancer, get your lung and your low-dose CT scan and so on. So that’s the best information we have. It's not complete but it is indicative anyway..

Thank you. That concludes today's question-and-answer session. I would now like to turn the conference back to Mr. Bill Annett for any additional or closing remarks..

Well, thanks everyone, again for attending the conference call. I look forward to updating you on our continued progress towards the achievement of our stated goals, including the planned launch of DetermaVu in fourth quarter. Thank you..

Thank you. That concludes today's conference. You may now disconnect..