Greetings, and welcome to the OncoCyte Corporation First Quarter 2020 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. Please go ahead, sir..

Thank you, Jerry, and thank you everyone for joining us for today's conference call to discuss OncoCyte's first quarter 2020 financial results and recent operating highlights. If you have not seen today's financial press release, please visit OncoCyte's Web site at www.oncocyte.com.

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 fact, including, but not limited to, statements that contain words such as will, believes, plans, anticipates, expects, estimates and similar expressions are forward-looking statements.

We encourage you to review the company's SEC filings, 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 the development or the commercialization of potential diagnostic tests, uncertainty in the results of clinical trials or regulatory approvals, the capacity of OncoCyte's third party supply blood sample analytical system to provide consistent and precise analytical results on a commercial scale, the need to obtain both third party reimbursement for patients' use of any diagnostic test the company commercializes, our need and ability to obtain future capital, maintenance of intellectual property rights and the potential impact of COVID-19 on OncoCyte's financial and operational results.

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, as otherwise may be required under applicable law.

With that, it's now my pleasure to turn the call over to Ronnie Andrews, CEO.

Ronnie?.

Thanks, Bob, and welcome everyone to our conference call to discuss our first quarter 2020 financial results and operating highlights. Joining me today mostly virtually are Ms. Levine, our Chief Financial Officer; Al Parker, our Chief Operating Officer; Dr. Lyndal Hesterberg, our Chief Science Officer; Dr.

Doug Ross, our Chief Medical Officer; and Padma Sundar, our Senior Vice President, Commercial. All these folks will be available during the question-and-answer session.

Thanks to the unparallel commitment and sacrifice of our amazing team, I’m very encouraged to start today’s call being able to say that we have continued our significant momentum through the first quarter of 2020, and as you’ll hear on the call today, have made considerable progress in pivoting the company’s strategy and are now beginning to rollout our mission even as we face the current macro environmental headwinds.

I think most exciting is our big news for DetermaRx, the first and only predictive test for the identification of patients with Stage 1 to 2a non-squamous small cell lung cancer who are at risk for recurrence following surgery and likely responsive to adjuvant chemotherapy.

With our recent announcement of final local coverage determination or what we call LCD for DetermaRx under the centers for Medicare and Medicaid services or CMS program. We anticipate that this final LCD will lead to nationwide Medicare coverage for up to 70% of eligible early stage lung cancer patients.

The final LCD is a significant milestone towards securing broad reimbursement for DetermaRx and we believe several national and regional players will follow the CMS decision.

Our next step is to intensity our efforts with private payers who historically follow Medicare coverage decisions with the goal of securing coverage for patients that have private insurance.

To date, our efforts have already included reaching out to additional commercial healthcare plans that represent over 100 million covered lives, and we will see very positive feedback on the evidence supporting our test. Importantly, in June, we will submit to CMS the invoices we’ve been holding for test run while waiting our final LCD.

This marks a new era for OncoCyte. We’re now proudly positioned as an innovative player in molecular diagnostics with secured high-value reimbursement.

As a brief reminder, DetermaRx is an important new test that addresses the critical unmet need for identifying the 30% to 50% of early stage lung cancer patients who have a high likelihood of recurrence despite having what is supposed to be curative surgery.

Most importantly, in a published clinical study, patients identified as high risk by DetermaRx test post surgery and treated with chemotherapy had a five-year survival rate of 92% compared to high-risk untreated patients who only had a survival rate of 49%.

With these striking results, it is clear that this test has the potential to dramatically improve outcomes for a large number of early stage lung cancer patients. Traditionally, spring is an active medical conference season.

But as expected, many of the medical associations we work with have either cancelled or moved their conventions to a virtual format this year due to COVID-19. Obviously, this was very disappointing for our team given the number of abstracts and presentations we submitted that were accepted.

We were proud to have an abstract for DetermaRx selected for an oral presentation at the American Thoracic Society or ATS 2020 International Conference. However, that was one of the meetings that was cancelled this year.

The abstract was published by the ATS and focused on the health, economic impact of DetermaRx and included long-term follow-up data from a study of 195 patients.

It showed that one in three untreated patients identified as high risk through testing with DetermaRx experienced a recurrence of their cancer and 70% of these patients had their recurrence within two years of surgery, 96% of patients identified as low risk through DetermaRx testing did not recur.

These low risk patients were followed closely by frequent radiologic scans which are associated with patient stress and can be inefficient costly uses of healthcare resources.

Our data showed that limiting the follow up of those low risk patients to annual surveillance scan would have reduced overall scan frequency by 50% on having very little impact on the detection of cancer recurrence.

These data are very important as they reinforce the clinical utility of DetermaRx in identifying high risk cancers which can recur rapidly if untreated, but also that it may be possible to safely limit radiological follow up for low risk patients thereby reducing the use of healthcare resources.

While our last call was only a few short weeks ago, I’m excited to say that we’ve continued our progress and our efforts to expand our reach with our new DetermaRx test. Even with the ongoing pandemic, since our last call on March 25, we’ve increased the number of onboarding sites from 13 to 22.

Even more impressive is that 12 of these 22 sites were onboarded since the start of the pandemic and include positions at large healthcare systems, like Dignity Healthcare, our large community base health system with 41 hospitals and primary care clinics in 22 states; Providence Network; and the Southern Health Network.

To date, we now identify 17 high risk patients that were at risk for recurrence who changed their treatment course with the addition of chemotherapy. Each of these represents a potential life saved and this is the type of patient impact is what drives me and the OncoCyte team to work harder every day.

In addition, we recently announced an international distribution agreement with CORE Diagnostics which will expand the commercial availability of DetermaRx into India, Middle East and Africa.

We’re thrilled to partner with CORE Diagnostics which is one of the fastest growing clinical reference labs in India delivering the most advanced testing techniques and expertise in the country. Under the terms of the agreement, the test will initially be run in the U.S.

by OncoCyte with CORE Diagnostics generating test orders and providing customer service in their local areas. An important part of our strategy is to expand beyond the U.S., partnering with labs who are focused on the delivery of high value, proprietary diagnostics into an already existing oncologic menu offering.

By partnering with CORE, we gained access to their sales force in oncology with 100 team members as well as the customer base of 5,000 ordering physicians in 12 countries. This is just the beginning of our plans to grow internationally with the intention of extending distribution to other geographies, including South America and other parts of Asia.

Now I’ll turn our efforts to further increase adoption by clinicians. Novel diagnostic test often face adoption challenges since they require physicians to change their practice. Extensive physician education is an essential component of driving adoption.

COVID-19 affected our plans as surgeries, even for cancer patients, were delayed and sometimes even halted. Many physicians, including surgeons and anesthesiologists, have been recruited to aid in the care of COVID patients and we’ve heard some patients are reluctant to undergo surgery or begin chemo as this may leave them immune compromised.

The challenge for patients is cancer doesn’t shelter in place. And because of that, we immediately pivoted to a virtual program for physician engagement and hospital onboarding to ensure we’ve done as much as we can in preparation for the time when surgeries resume normally.

With enthusiasm, I can share that we’ve had over 1,500 participants in online physician education programs. While they all remain very well aware of the challenges COVID has placed on the healthcare system, cancer patients remain in need of life-saving procedures and tests that provide clarity on the treatment plan.

We believe running this foundation in a virtual environment positions us to serve an expanded patient population as soon as the current situation eases.

My next update is on DetermaIO, our gene expression profile test that evaluates the immune microenvironment in biopsies from cancer patients to identify individuals more or less likely to respond to anti-PD-1 or PD-L1 immune therapy.

On our last call, we announced the completion of our CLIA validation and commercial launch of DetermaIO for research use only making it available for use in biopharma and other research settings.

As a reminder, while immunotherapy is bit transformative for a subset of cancer patients, it is still very challenging to identify the patients who are likely to benefit from these therapies both for oncologists and for pharma researchers.

Based on our current data, we believe DetermaIO has the potential to enable more accurate prediction of which patients will benefit from treatment compared to currently available biomarkers.

By distinguishing likely responders from non-responders, we can potentially give patients a more informed choice allowing them to select alternative therapies that avoid the potential side effects that can occur when a latent autoimmune disorder is exacerbated by an immune therapy.

Better management of these important but expensive therapies will save an overall health cost and allow more accurate selection of patients who will have a sustained response. We also believe that better performing biomarkers, such as DetermaIO, could have a real impact on the speed at which new immune therapies are brought to market.

As we work towards clinical launch, we recognize that there’s a large opportunity in the research market and are actively pursuing pharma services opportunities in the approximately 3,000 ongoing clinical trials for immune therapy which are designed to recruit well over 0.5 million patients worldwide.

We have received significant interest from numerous academic and pharma groups that are interested in participating in the further study of this biomarker signature.

At the 2020 now virtual ASCO meeting, American Society of Clinical Oncology, we will be presenting data demonstrating the performance of this test in predicting response in triple-negative breast cancer, as we call in the industry TNBC, which is the deadliest form of breast cancer.

And despite the incredible progress made to date in breast cancer, still more than 20% of women with this cancer will die within five years. As I’ll detail a bit more below, TNBC is our first data outside of lung cancer as we begin to explore potential applications across other tumor types.

With our 750,000 patients potentially eligible for immune therapy treatment annually in the United States, the potential addressable market for DetermaIO could be very significant.

Moving next to DetermaDx, our blood-based test in development to aid in the management of CT-identified lung nodules to help potentially avoid unnecessary invasive lung biopsies.

As a reminder for our new investors, DetermaDx utilizes our proprietary immune system interrogation approach that harnesses immune system’s response to the presence of cancer as a sensitive early biomarker.

We are currently conducting our clinical validation study, testing approximately 500 blinded prospectively collected patient blood samples to serve as the final validation of DetermaDx in our clinical lab setting.

Despite the COVID pandemic, we remain on track to complete clinical validation by the end of Q2 this year, thanks to the dedication of our clinical lab team.

Assuming success and final establishment performance parameters, we will begin preparation for commercial availability including the publication of clinical validation results which is required for CMS dossier submission as well as the execution of additional clinical utility studies.

We remain committed to serving pulmonologists and their patients to help reduce unnecessary biopsies, 25% of which can be associated with serious complications and the estimated 1.6 million cases of indeterminate CT scans annually.

As discussed on previous calls, clinical validation studies are blinded and thus we’ll not be able to comment on the results until they are revealed to us in late June when we complete the process. I’d like to touch upon our growing pharma services opportunity, which was enabled by our acquisition of Insight Genetics.

In addition to the DetermaIO test, the acquisition of Insight Genetics brought us a successful boutique pharma services business with a certified lab that allows us to immediately leverage our proprietary products into pharma services contracts while also continuing to meet the additional needs of biopharma customers.

Our pharma offerings enable a full suite of molecular analysis services needed to support pharma drug development from discovery stage in clinical trial support all the way through to companion diagnostic development and the subsequent regulation submission.

We built a robust pharma services pipeline and excitingly are in discussions with several global pharma companies developing immunotherapies in other drugs for a broad range of oncology indications.

As I mentioned in the call when we announced the Insight Genetics acquisition, the DetermaIO product has potential to aid in the management of immune therapies across different tumor types. It has its origins since development of a unique triple-negative breast cancer test called the TNBCType assay.

TNBCType is a 101 gene assay that measures RNA from a biopsy or surgical specimen and then uses the proprietary algorithm to classify patients into five subtypes associated with responses to different types of therapeutics, including immune-therapy, target therapies like PARP inhibitors and AR receptors and cytotoxic chemotherapy.

We believe that this assay may be an important classifier to help patients with TNBC select therapy and also more broadly as the potential companion diagnostic beyond immune therapy to appropriately target proprietary therapeutics in development for TNBC at various biopharmaceutical companies.

It’s important to note that the technology for this RNA-based predictive signature actually did lay the foundation for our now DetermaIO.

So why we’re so excited about this? While there have been great strides in improving outcomes for patients with breast cancer, it is still a real need to improve outcomes for those diagnosed with triple-negative breast cancer. It’s a very aggressive form of cancer with the lower five-year survival rates and less effective treatment options.

Because of this, there’s a significant amount of pharma focus in TNBC with over 100 ongoing clinical trials and additional discovery-phase programs. We believe that TNBCType may eventually provide an important role in identifying the best clinical treatment plan for these patients across multiple therapeutic platforms.

While still in clinical development, we’re incredibly excited about the potential of TNBCType as the first step in expanding the reach of our suite of tests beyond lung cancer and look forward to sharing more as the program develops.

Before I turn the call over to Mitch for a review of our financials, I’d like to touch upon how the COVID-19 pandemic is impacting OncoCyte. Because we manage patient cases for patients with early stage cancer, we are deemed essential and we do continue our operations.

We’ve taken all necessary steps to protect our employees, including rotating a small number of personnel in our labs to minimize contact and to maintain the appropriate social distancing.

We’ve also made revisions to our planned OpEx for 2020, given the capital market uncertainty and have prioritized our investments on three main projects, and reducing spend on future R&D projects that are not related to generating market value in the next 12 months.

Our prioritized projects are; one, complete the clinical validation for DetermaDx and prepare our CMS dossier. Two, continuing the DetermaRx launch to drive revenue growth; and three, pursuing pharma contracts and studies for DetermaIO and other pharma projects.

As I’ve shared today, we continue to be encouraged by the progress we’ve made on these exciting programs. Importantly, we do not anticipate any significant delays to our previously shared timelines. And due to the tremendous dedication of our team, we remain on track across all products.

After today’s call, I hope it’s clear that we’ve continued our strong momentum toward providing actionable answers for cancer patients.

We will look to continued success on the promotional and development front and always on the lookout for exciting new partnerships that will expand our reach at underserved decision points to improve outcomes for patients. So at this point, I’d like to turn the call over to Mitch Levine for a review of the financials.

Mitch?.

Thanks, Ronnie. Hi, everyone. As of March 31, 2020, we had cash, cash equivalents and marketable securities of $16.9 million.

I am pleased to share that we have once again strengthened our balance sheet with the completion on April 28 of a $10.7 million registered offering of common shares priced at market and without paying any commissions or placement fees.

This is an exciting accomplishment that adds to our track record of completing transactions directly with fundamentally-driven healthcare-focused institutional investors, which we believe is a testament to our execution and strategy.

Our strength in balance sheet allows us to support our ongoing commercial and development activities while also giving us greater freedom to execute on our overall strategy to build our suite of offerings. We now have 67,217,906 shares outstanding.

I would like to add that while the company has strengthened its balance sheet, our management and Board are mindful of the impact of COVID-19 on the current operating environment and felt it sensible to defer up 30% of our salaries and Board fees as part of a series of cost control measures implemented by OncoCyte.

Before I discuss our operating results, I’d like to add some comments around our revenue recognition policies in light of the recent CMS final LCD that Ronnie discussed earlier, which takes effect on June 14, 2020.

As a reminder, prior to Q1 2020, we did not have any revenue or cost of revenues in our results because we did not have any commercialized product. So this is a truly momentous quarter for OncoCyte with the commercialization of DetermaRx and the acquisition of Insight Genetics. Under U.S.

accounting principles, we will be able to recognize revenues on an accrual basis once we have contracts for reimbursement from third-party payers for a history of experience of cash collections for the test we performed or both. Until that time, we expect to recognize revenue on a cash basis.

Accordingly, we will incur and accrue cost of revenues and other operating expenses related to our diagnostic tests which may not necessarily have corresponding revenue. The final CMS LCD makes our DetermaRx test eligible for Medicare reimbursement.

After a final Medicare coverage price has been established, we expect to recognize revenue when the DetermaRx tests are performed for Medicare patients rather than on a cash basis. For private payers, such as healthcare plans, we expect to follow the similar policy.

Our results of operations now include the consolidated results of our wholly-owned subsidiary Insight Genetics which we acquired at the end of January this year. For the first quarter of 2020, we reported a net loss of $7.7 million, or $0.13 per share, as compared to a net loss of $3.9 million, or $0.08 per share, for the first quarter of 2019.

Operating losses, as reported, for the first quarter of 2020 were $8.4 million, an increase of $4.4 million from $4 million as compared to the first quarter of 2019; and operating losses, as adjusted, were $7.4 million, an increase of $4.2 million from $3.2 million as compared to the first quarter of 2019 on an as adjusted basis.

We’ve provided a reconciliation between GAAP and non-GAAP operating losses in the financial tables, included with our earnings release, which we believe is helpful in understanding our ongoing operations.

Research and development expenses for the first quarter of 2020 were $2.2 million as compared to $1.3 million for the first quarter of 2019, an increase of $800,000. The increase was primarily attributable to personnel and laboratory-related expenses for clinical validation activities related to our DetermaDx test.

General and administrative expenses for the first quarter of 2020 were $4.6 million, as compared to $2.4 million for the same period in 2019, an increase of $2.2 million.

The increase was mainly due to personnel and related expenses; investment banking expenses; legal, business development, investor relations expenses; and non-cash stock-based compensation expenses due to additional equity grants.

As mentioned before, we transitioned from Lineage Cell Therapeutics, formerly BioTime, shared services in the latter half of 2019, and established our own administrative, human resources, legal, finance and accounting teams. This transition also included the termination of the shared facilities agreement with Lineage as of December 31, 2019.

We have leased our own facilities last December and moved into our Irvine, California headquarters in January of this year. Sales and marketing expenses for the first quarter were $1.5 million, as compared to $200,000 for the same period last year, an increase of $1.3 million.

This increase was primarily attributable to ramp up in sales and marketing activities, including key hires, for our commercialization efforts of DetermaRx.

Cash used in operations was $6.9 million for the first quarter of 2020 as compared to approximately $6.7 million during the first quarter of 2019, which is in line with the expectations that the first quarter is generally the largest cash burn of the year because of timing of annual merit increases and payments.

We also had some nonrecurring, acquisition-related legal and other costs paid this quarter of approximately $500,000. That concludes my remarks concerning our Q1 2020 financial highlights.

Ronnie?.

Operator, we can now open it up for Q&A please..

Thank you. At this time, we’ll be conducting a question-and-answer session. [Operator Instructions]. The first question is from Thomas Flaten, Lake Street Capital Markets. Please go ahead, sir..

Good afternoon, guys. Thanks for taking the questions. Mitch, a quick question for you.

With some of the cost reductions that you’ve put in place and the raise that you recently did, could you comment on your cash runway, cash burn rate?.

Yes, Thomas, thanks for the question. We expect to burn just over 5 million a quarter and that’s what we have been doing. Those are our expectations. And expect to continue that rate for the course of the year..

And then I was wondering if you guys would be willing to share any numbers around test volumes that you’ve seen since the launch of RX? I know because of the accounting principles we’re probably not going to see it reflected accurately in the numbers..

Yes. Thomas, we had – we wanted to begin to give guidance on that at this quarter and obviously we didn’t expect the COVID pandemic.

It’s a little hard to give you a real good trajectory given that we just now are starting to ramp back up even though we saw steady flow of connections to physicians and samples came in during the COVID, the worst part of that pandemic.

Today, we’re just now starting to engage a lot of the places we brought on board during the virtual onboarding and we’re starting to see physicians start to order. Our goal obviously is to ramp up every site and have ordering physicians at every site. We do expect that will take a little while once we are able to engage them physically.

We want to go behind these onboarding activities and we want to be able to then recruit the actual physicians within those sites that are ready to order and get them and encourage them to order. So today, we gave the number 17 patients that we had actually identified as positive that had changed their course of therapy.

So that number we were public with today. So if you assume that about somewhere around 20% to 30% of the patient population that we see will be positive, you can kind of get to a number and that number is only reflective of what we were able to do during the pandemic.

What I committed to everyone and we’ll continue to reiterate is at the end of Q2, once we have a much greater understanding of how – what the long-term impact of COVID is going to be, we will give you sort of a target for the end of the year in terms of what patient population that we think we can touch..

That’s great. And then just one final one from me.

Would you mind detailing or providing a little bit more detail around the publication plan for DetermaDx given how central that is to your submission timing for CMS?.

Yes, happy to do that. Padma’s on the call and – I think the reason I invite our whole team is because we have an amazing team of experts that have been around in this space. So Padma, you’ve got – and Lyndal – I will just – we’re in virtual, Padma, so I apologize [indiscernible] Lyndal and Padma are going to tag team it.

So Lyndal, you want to go first in terms of the manuscript and then Padma maybe comment on CMS.

Lyndal?.

Sure. For DX, we’re on track until the end of Q2, which means we will be working with key opinion leaders to draft the manuscript and submit it as quickly as we can without sacrificing quality. Our goal is to have that completed by the end of Q3..

Great. And I’ll chime in to say that obviously that is a very important requirement to engage with CMS. So that will set us up for engagement directly with CMS once we have a publication in Q3..

Yes, Thomas, I always – to do as many of those activities concurrently as we can. But as Padma said, one, that the CMS engagement does require that accepted manuscript for publication. So that’s the chronology of how that will unfold in the fall..

Great. Thanks so much guys for taking the questions and congrats..

Yes, Thomas, thank you very much..

The next question is from Steven Mah, Piper Sandler. Please go ahead, sir..

Hi, everyone. Thanks for taking the questions..

Yes. Thanks, Steve. It’s good to hear from you..

Yes, likewise.

Maybe just to follow up on Tom’s question on RX on volumes and let’s not get specific, but I would expect that lung cancer surgeries will be pretty resilient as compared to other elective procedures and I just want to get a sense that do you guys expect a gradual ramp back up in terms of lung cancer surgeries or an immediate uptake based on the lung cancer surgery backlog and maybe can you give us a sense of how things have changed from maybe March to maybe late April, May?.

Yes. Steve, it’s a great question and I’m going to give you probably more detail than you want on this. So just to be careful and I’ll let Padma chime in and add color commentary.

But what we see is different areas of the country impacted differently and we chose regions of the country for our initial six reps to go concur based on high value or high volume incident rates of lung cancer with assertive thoracic surgeons that we knew were seeing a large number of patients.

Some of those surgeries and some of those really account our own states that are opening back up, others are not. And I’m going to give you just anecdotally here locally in Orange Country because I’m very active in the local hospital community here.

We had three hospitals who despite the volume of COVID cases still elected to save ventilators and save anesthesiology for a potential upswing in the outbreak. And so they basically stopped anything that was not an urgent surgery, so anything deemed elective. Now, you and I would agree that early stage lung cancer is traditionally not elective.

In fact, I’ve seen statistics where somewhere around 8% to 10% increase in potential recurrence every month an early stage lung cancer patient goes without surgery. So we do expect to see those surgeries to pick back up just because as you say they’re really not elective.

These surgeries are important for these patients but a lot of it has less to do with the patient situation and a lot to do with availability of surgical suites.

So Padma, any other color you’d like to add to that?.

Yes, I completely agree. So the doctors we talk to do recognize that this is not elective and so obviously the more you postpone these surgeries, the greater the chance that that cancer will actually become more advanced and untreatable. So we do expect – and they’re already seeing these surgeries resume.

Similar to the economy, I don’t think it’s going to be a sudden hockey stick [ph]. It will be gradual, but we are already seeing that it’s resuming particularly in the states that have already started to open up. So that’s the trend..

Okay, great. Yes, that’s great color. And maybe just one more question.

On your pharma services business, again kind of the same line of questioning, how COVID-19 shutdowns affected your pharma customers? And again, do you expect a gradual recovery or short ramp back up as research and academic labs begin to open up?.

Yes, this is one where I’ll recruit Dr. Ross or Dr. Hesterberg as well, but it’s interesting because right out of the gate the first couple of weeks, a lot of the engagement we had with the pharma companies themselves went down significantly in the quiet. And obviously after a few weeks, things began to open back up and we began to reengage.

What we do know is just from that feedback from the industry and my role at ASCO, we are hearing that there has been a reluctance of patients to go to the hospital to be treated and thus the number of patients that would normally get diagnosed and potentially put on a trial has slowed.

But what we do know is the engagement with pharma and the interest in what we’re doing is starting to pick back up. When those patients will actually show up and start begin enrolling in various trials is really still up for grabs I think, but we don’t have really direct insight to that expect through our pharma partners. But Dr.

Ross, any color commentary you want to add on that?.

No, I think you’re hitting it pretty well. I’ve divided it into two pieces. One is the legacy pharma services business independent of the IO opportunity and then the second is the IO opportunity enrolling trials where we could test out the biomarker with new agents.

And I would say believe it or not, sheltering in place has greased the wheel a little bit of conversations and negotiations where, as Ronnie said, the actual execution of these things have been delayed a little bit. So it’s a mixed bag.

We did have some delays in our conversations with some clinical trials we were trying to access that were in areas where there was pretty bad pandemic outbreak. And so some things got pulled down and some things got speeded up. It’s not a homogenous story..

Okay, great. Thanks for all the color. I appreciate it..

Thanks, Steven..

Yes. Thanks, Steven..

The next question is from Paul Knight, Janney Montgomery Scott. Please go ahead, sir..

Thank you.

Ronnie, can you talk about the highlights of the DetermaDx paper at ATS 2020 in terms of – kind of your highlights I guess? I know it’s centered around test versus biopsy, but still it’s since recent would love to hear your thought on it?.

Yes, sure. And I think it was – DetermaRx was at the ATS and I think Padma really – because she’s very close to this, I’d like to her to comment on that. But we were very excited about that. And then when obviously the association decided to cancel and just put everything online, we had hoped to have a podium, a presentation.

Those always go over well and they get – you get video, you can in this date and time you can use social media to promote that. But we didn’t get that opportunity.

But Padma, do you want to give some color commentary on the ATS poster?.

Yes. So just to clarify, we had two acceptances. One was the oral presentation for RX. So that was very exciting data and very timely too in this era as we try to think about conserving healthcare resources. So what data showed on 195 patients is two things. One, it showed that for the high risk patients, recurrence happens rather quickly.

So 70% of high risk patients have a recurrence within two years which speaks to again the previous comment that we can’t ignore these patients and they need to be managed rather quickly once they are found to be high risk.

The other thing that that poster showed was that low risk people tend to get intensively followed in terms of bringing them back for frequent CT surveillance. And actually only 4% of those low risk patients recurred.

So the case was made on that poster that perhaps we don’t need to follow these patients as intensively as we do and in fact we could switch them to annual CT surveillance which would relieve a lot of patient anxieties at the same time conserving precious healthcare resources.

So a very good health economic analysis here that will be very useful not just for patients but also for commercial payers as we approach them to cover this test. And --.

Padma – yes, the IRENE trial.

Can you go through the IRENE poster as well, that would be great?.

Lyndal?.

Sure. This is Lyndal Hesterberg. I’ll be glad to. By way of reminder, the IRENE cohort is a bio-bank essentially of over 2,900 patients that we had reported on in this poster that will be hopefully available electronically here in the next 10 days or so.

These 2,900 plus patients all had early stage lung cancer, early nodules and were recruited from over 60 sites across 31 states in Puerto Rico.

So very broad cohort focus very specifically on the physician’s dilemma of what to do with patients with nodules that are in this kind of immediate unclear diagnostic path? And what the poster that we presented and this will be – it’s co-opted by Dr. Nicole Tanner from the Medical University of South Carolina.

And what we’ve identified is that there are significant differences in the practice patterns for the use of invasive procedures across the various sites by grouping, and this highlights within the cohort that we’ve captured a great tool on this bio-bank to be able to apply what we believe will be better diagnostic choices for physicians as they decide who to proceed into an invasive procedure versus those that they can put under surveillance and follow up..

Yes, let me add to that, Lyndal, a little bit. Paul, one of the beauties of our opportunity with pharma is this longitudinal bio-bank that we have that follows patients with blood draws across time and looks at the progression of disease. And it’s kind of unheard of in our industry to have an active bio-bank.

And Doug, I know you – this is one of the things that you mentioned a lot in terms of the value of what we bring to pharma. Maybe just a 30-second vignette on sort of why it’s so important to have this type of access to longitudinal patients that are being actively followed..

Yes. So the clinical indication here is the question of what do you do when you see a lung nodule in a patient for which the current clinical paradigm is pretty unclear. Do you stick a needle into the nodule and try and make a diagnosis of tumor versus benign or do you watch and wait and repeatedly scan them to figure out what to happen.

And I believe the size of this bio-bank, 3,000 patients to date and growing, is unprecedented and it allows us not only to evaluate the current signature, the DX product that’s in clinical validation, but as we try and move to perhaps rule in test. It’s an amazing recourse for evaluating different technologies that can detect tumor in blood.

So I’m very excited about the potential of that bio-bank not just because of the DX which we’ll get the results in June, but also as we move towards detecting tumors and partnering with other folks that may have technologies that may be useful in blood..

Yes, Paul, just to net it out, we think that this asset – this bio-bank asset will be very helpful for us too as we think about the monitoring space and certain technologies that we have that could play there in looking at is the therapy working all the way through to is the patient seeing a sustained clinical response or are we seeing recurrence? So it’s a really valuable resource that we don’t talk a lot about.

I appreciate the opportunity to share the paper and the importance of that trial..

The last question I have Ronnie is on that paper, what Lung-RADS classification were these samples?.

I’m going to ask – Lyndal, you want to answer that?.

Yes. All of these were – these nodules in patients fall between 5 and 3 centimeters, 0.5 and 0.3, my apologies. And so those were all early stage low Lung RADS and as will be reported subsequently once the embargoes over. They’re all very early stage cancer patients which also is quite unique to Doug’s point..

Okay. Congratulations..

Sorry, guys. This is Doug. Just a reminder that this is a combination of benign and tumor. Only a fraction of them actually turn out to be tumor. And so that cohort is designed to inform whether or not we biopsy a nodule which it could be benign or tumor to determine whether or not it is in fact tumor.

So the clinical indication is for use of invasive biopsy procedures and obstructing the use of invasive biopsy procedures..

Okay. Thank you..

Thanks, Paul..

We have a question from Keay Nakae, Chardan Capital Markets. Please go ahead, sir..

Thanks. Mitch, what kind of – I guess two parts to this question.

What kind of pricing are you currently getting for RX and what percent of the test that you run are you actually getting payment for?.

So to date we have build – we have holding all the CMS payments because we need a final price before we do that. So somewhere between now and June 13, when we begin on the 14, we will get that price and we’ll be able to submit those. And as we’ve discussed publicly, we really had had a really powerful dossier that Padma and team put together.

We believe that because of the end of life cost in lung cancer that we have a really good support for our $4,000 asking price.

As I said, publicly I think that sometimes you might as well hit the easy button and they’ll crosswalk it to the test that it’s equal, if you will, in terms of the endpoint and that is Genomic Health OncoCyte DX, same endpoint but different disease and that is about $3,800 today.

But in the private pay world we have submitted our bills at our list price. And to date, the couple that we’ve had that were private payers, keep in mind, over 70% are CMS eligible patients. So the few that we’ve had that were private pay, they have accepted our list price.

But to be honest, Keay, that’s not unusual in the early days of a new launch like this. They are accepted because the patient – because of the high deductible plan the patient ends up having to pay a good bit of that. And so we will get recognized by these payers.

And if the physician that orders it does a good justification, we will indeed get paid but it won’t be at the list price. Ultimately when CMS gives us our price, we’ll use that as leverage to go in and start negotiating our price at these private payers.

We prefer not to begin that until – just historically, people that go before CMS tend to not always get the best value. It’s better to fight for with a really powerful dossier the price you want and then use that as your benchmark for private payers. And so that is our strategy..

Okay, great. And then for IO, what would be either the very pushback from pharma or what are they – you obviously have got some great results here.

What are they most complementary about using the test in their study?.

I’m going to let Doug add because he’s very close to this in the discussion of pharma. I think they already have a lot of studies with PD-L1 which as you know Merck did a great job of using PD-L1 to get everybody on the drug, but we know that only about 40% to 45% of the patients that are deemed as potentially responders by PD-L1 actually respond.

So you have a high percentage of the patients that go on the drug that don’t get a response, healthcare pays the bill and that patient is exposed to an immune therapy that basically can begin to increase the number of autoimmune diseases in our industry which would be bad as well.

So I think for us, the idea – at least pharma is that while PD-L1 gets everybody in, what we are positioning as we’re discriminating a marker that can identify sustained response. So not only can we predict who should be in, we can also predict who should not be in. And so that’s one of the headwinds.

It’s just overcoming the momentum that PD-L1 already has in these trials, but there are a number of companies chasing Merck that would love to have a marker that would identify patient populations that would allow them new niches, if you will, in the world.

So, Doug, any comments on the back of what I’ve just said?.

Yes. I think you’re hitting the high point well. For some of the competitors, for Merck as you said, moving from second line to first line is an opportunity and to have a biomarker that actually works much better for identifying responders is an opportunity to enter first-line therapy market.

And as well as a 40% response rate is not good enough and the side effects are very significant, so in our conversations with physicians and CMS it’s very clear that there is room for improvement in biomarker performance and a biomarker that clearly demonstrated an incremental improvement on the existing paradigm would be very attractive both for health economic reasons and for patient management reasons.

So in terms of pushback, I think the market has really been waiting for a good phenotypic assessment, a good assessment of what’s going on in the tumor specimen. We think ours is excellent at that. And so I don’t think that we’re getting much pushback aside from sort of the process of maturing the data..

Yes. One thing I would add, Keay, that I think is very positive. They do love the fact that this is a PCR test. It’s RNA-seq or PCR and the PCR test as you might imagine means that there are over 10,000 clinical placements of multiplex PCR instruments around the world.

So that should we get a positive companion diagnostic outcome for pharma, we would have a very broad install base to apply a kit strategy too outside the U.S. and that is something that none of these other capabilities or none of these other tests that can provide.

PD-L1 is a pathology assay and we do understand that’s important, but it is also subjective versus something as specific and sensitive as a multiplex PCR result.

So there’s been a lot of interest in that and a lot of excitement that we would have that large an install base to ensure their drug launched in any country would have access to the test to drive its utility..

Great. And then just a final question on sales force headcount.

Where are you now and where might you be around the beginning of the year with perhaps a commercial IO as well as DX?.

Yes. So because IO today is really focused in pharma, we have a small team including myself that actually – and Doug that are going after the pharma opportunities based on our history and knowledge of the people there and we’ve got a lot of experience there. Our commercial team selling RX today is six folks with a leader.

We chose the high incident rate areas that we believe we could reach that would give us some immediate upswing. The idea has always been that once we grow those current territories to a certain level, we would add another round of reps. And the goal is to responsibly add reps without impacting cash burn.

So the idea would be to try to build reps up until they’re covering their cost and adding to the accretion to the business. And then we would go use that accretion to go build out the next round of sales force.

Should we get an early immune-oncology CMS approval which we aren’t committing to, but should that happen, I reserve the right to come back and change that. But right now, that’s the plan..

Okay, great. Thank you..

Thank you..

Thanks, Keay..

We have a question from Bruce Jackson, The Benchmark Company. Please go ahead, sir..

Hi. Good afternoon and congratulations on all the progress..

Hi, Bruce. Thanks..

So with DetermaIO, there’s clearly a potential here for this test. You’ve got it available [indiscernible] test.

Can you tell us a little bit about some of the stuff you need to go through in order to make this available as a clinical use test, and then when could that happen?.

Great question. I’m going to do the first part. Then I’m going to turn it over Dr. Ross because he’s close to this. Padma and Dr. Ross have been in contact with CMS and we’ve gotten some really solid input from them. Today, we have a 71-patient study in lung.

Soon, ASCO when they release their data – they’re going to release a paper that MD Anderson has written and published that will be released at ASCO. That will be another 55 patients. We believe that we’re going to need another round of patients that will add to the statistical power.

Doug, you want to walk us through how we might get that and what options we might have to accelerate sort of the statistical powering of our tests, using some clinical trial samples that have already been run, but either the trial failed or they didn’t get the outcome they wanted..

Right.

So yes, as I’ve said a bit before, the clear bar for improvement upon tumor mutation burden on PD-L1 which is the current biomarkers that are in use out there and to some degree MSI, but not in lung cancer, is to show that we offer incremental value and that really means that we’re independent of tumor mutation burden and/or PD-L1 which in all of the clinical studies that we’ve done to date is looking very, very promising.

And so doing a retrospect of studies on a large enough cohort is second, if you will, independent study in lung cancer and/or a second independent study in triple-negative breast cancer is on that path, I’ll put it that way.

Also getting access to, as Ronnie says, a randomized clinical trial for perhaps an alternative drug to those that are on the market for first line and demonstrating a strong performance associated with a particular agent is another route to either a companion or complementary diagnostic, and we’re actively pursuing both of those trials..

Okay. That’s it for me. Thank you very much..

Thanks, Bruce..

Ladies and gentlemen, we have reached the end of the question-and-answer session. I’d like to turn the conference back over to Ron Andrews for closing remarks. Please go ahead, sir..

Thanks. Thank you guys for joining again this afternoon. It’s been a great first quarter. I’m very humbled by the energy and effort that our team puts in to their work every day.

We’ve had incredible accomplishments and progress really across all of our programs, and Mitch’s effort to strengthen the balance sheet, we just feel we’re very well positioned to move the company forward and continue the momentum. So just want to say thank you guys for your support. And as always, I’m incredibly grateful for our team.

They’re just an incredible group of people focused on a mission and making incredible personal sacrifices right now despite the COVID situation, we continue to move forward. So thank you for your support and for joining the call today. And I’d just encourage everybody to stay safe. Thanks, guys..

This concludes today’s conference. You may disconnect your lines at this time. And thank you for your participation..