Good day, and welcome to the OncoCyte Conference Call to discuss the Second Quarter 2022 Financial Results. Today's call is being recorded. At this time, I would like to turn the call over to Caroline Corner, Westwicke, Investor Relations. Please go ahead..

Thank you, operator, and thank you, everyone, for joining us on today's conference call to discuss OncoCyte's second quarter of 2022 financial results. If you've not seen todays financial results press releases, please visit the company's website on the Investors page.

Joining me on today's call are Ronnie Andrews, President and Chief Executive Officer; and Anish John, Chief Financial Officer. I would like to remind you that during this conference call, the company will make projections and forward-looking statements regarding future events.

Any statements that are not historical facts our forward-looking statements.

We encourage you to review the company's SEC filings, including, without limitation, the company's Form 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 and/or the commercialization of potential diagnostic tests, uncertainty and the results of clinical trials or regulatory approvals, the capacity of OncoCyte's third-party supply blood sample analytic system to provide consistent and precise analytic results on a commercial scale, the need to obtain third-party reimbursement for patients use of any diagnostic test the company commercializes, our need and ability to obtain future capital, the maintenance of IP rights, risks inherent in strategic transactions, such as failure to realize anticipated benefits, legal, regulatory, or political changes in the applicable jurisdictions, accounting and quality controls, greater than estimated allocations of resources to develop and commercialize technologies or failure to maintain any laboratory accreditation or certification and uncertainties associated with theCOVID-19 pandemic and its possible effect on our operations.

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 under applicable law. With that, I'll turn the call over to Ronnie..

Thanks, Caroline, and welcome, everyone. Today, I'll begin by reviewing recent decisions and actions we're taking to reduce our operating expenses and cash burn, enabling us to weather the current market conditions, while still delivering on the important product launches that will deliver significant shareholder value.

Beginning in Q1, our leadership team began working on a reprioritization of our product investments to identify ways to reduce our cash burn, while preserving the important short-term value-creating programs.

That reprioritization was completed in Q2 and allowed us to right size the resources required to deliver on the new priorities as we enter the second half of 2022. The resulting savings are expected to reduce our headcount carrying costs by more than $4.5 million when annualized.

When combined with the operating savings from the reprioritization process, reduced head count and the imminent modernization of some of our assets through licensing and strategic activities, we anticipate being able to reduce our annual operating cost by over $12 million over the next year and have improved line of sight to how our cash will last into 2024, but still allowing us to deliver on VitaGraft, DetermaIO and DetermaCNI product launches.

In order to allow us to divide and conquer with a lean organization, I'm happy to announce that Gisela Paulsen has been promoted to President and COO, and Anish John has been promoted to the role of CFO from his previous role as interim.

These moves will allow me to focus on Corporate Business Development, Investor Relations while they operate the company day-to-day.

Both promotions are well deserved, and I look forward to working with this core team to deliver for OncoCyte to the current market storm and emerge as a leaner focused company, delivering products that fulfill our mission. I'd like to start today's progress update discussing our compelling revenue opportunity in transplant rejection monitoring.

For those of who’ve been following the story since our acquisition of Chronix Biomedical, you also noticed that we rebranded the test from TheraSure to VitaGraft, branding, we believe is more reflective of the intended use in transplant.

As you likely recall, last fall, we set out to complete the technical transfer of the test from our German R&D team into our Clearlab in Nashville and then validate our laboratory test for liver patients with an ambitious goal for the end of the first half of ’22.

I'm very proud of the focused effort by our Clearlab team and the transplant R&D team in Germany for the combined effort to deliver on this important milestone ahead of schedule in early April.

This expedited effort also allowed us to complete the clinical validation required to submit our dossier to CMS for liver reimbursement, which we accomplished in late April. We then followed that submission with our kidney dossier in late June.

With our liver test now clinically validated, we have entered our early adopter program phase of launch and have already signed on one of the largest liver transplant centers in the U.S., and we'll begin sending our first samples later this month. Responses from key opinion leaders have been resoundingly positive.

Since today, there's no routine molecular monitoring test in use to monitor for projection of a transplanted liver. We're encouraged by the KOL interest and believe our test will become very important to the liver transplant community.

Our vast experience in polymerase chain reaction or PCR has allowed us to develop a streamlined workflow, delivering an incredibly efficient digital PCR application that allows us to consistently process and report patient monitoring results within 1 to 2 days when we launch the product.

We've now confirmed with numerous KOLs in liver and our turnaround time is indeed expected to deliver the fastest donor-derived cell free DNA monitoring results in the industry. This, of course, is something we set as a goal in our test workflow redesign and a product attribute that we believe will differentiate OncoCyte from the competition.

We've also made progress on the IBD process for creating a kit to democratize the transplant market, and we'll soon begin development of a kitted version of the monitoring test across liver, kidney and ultimately part.

We're fortunate to have several instrument systems that work with our assay and are working with the best platforms through feasibility to ensure we have the best results and cost position for our democratization efforts.

For strategic reasons, we will not be speaking specifically about our potential instrument partner’s platform performance until we're ready to publish and announce the data, but we are on track for completion of feasibility and trial initiation by early 2023.

There are several milestones to watch for our liver program coming in the next few months, as we commercialize our VitaGraft products. First, we'll continue to onboard KOLs from the liver transplant community as part of our early adopter program. Second, we expect reimbursement decision from CMS this fall.

Third, we expect to initiate a full market launch of VitaGraft liver and kidney in Q4 once reimbursed. And finally, fourth, we plan to complete platform feasibility for the IVD kit product by end of the year in site enrollment for the clinical trial so that we can commence that trial in early 2023.

Now let's turn next to our flagship oncology program, DetermaIO. To remind you, this is our gene expression test to help physicians assess tumor microenvironments to determine which patients are suitable candidates for immune-oncology therapies. Our early adopter program continues to underscore to us the need for this test across a slate of cancers.

Previously, we shared the valuable insights as to the importance of DetermaIO test in early-stage triple negative breast cancer and late-stage non-small cell lung cancer. We now have solid data from various meetings, including results from the NeoTRIP randomized trial in TNBC that was presented at ESMO last fall.

Then in second quarter, at the AACR meeting, we presented data supporting its use in metastatic bladder cancer, our third tumor type and now have had our peer review paper accepted for publication. We see this as a major milestone if they well positioned as we prepare DetermaIO for CMS submission for reimbursement this fall.

Adding to our growing data sets in June at the American Society of Clinical Oncology, or ASCO meeting, we released results from the [indiscernible] Clinical Trials Group, where DetermaIO is tested as a biomarker on the AtezoTRIBE study.

As a reminder, AtezoTRIBE is a randomized clinical trial in metastatic colorectal cancer, where patients received placebo or the standard of care plus the Roche drug, Atezo. If you haven't had a chance to review the data and the subsequent comments AtezoTRIBE principal investigator, I encourage you to do so.

The key takeaway is that DetermaIO found a new patient population in metastatic colorectal cancer that no other biomarker found. And today, these patients are not eligible for immune therapy.

DetermaIO is expected to expand the market for ICI use in metastatic colorectal cancer and may allow for enrollment of a whole new population of patients into a life-saving treatment protocol. Also at ASCO, we released date on the DetermaIO o and metastatic triple-negative breast cancer, or TNBC, using the Merck drug, KEYTRUDA.

The data presented at ASCO confirm all the previous data set findings. DetermaIO has demonstrated superior accuracy to predict response to immune checkpoint inhibitor therapy and is agnostic to which branded immune checkpoint inhibitor physician uses.

Finally, at ASCO, we released new data in gastric cancer, the third leading cause of cancer death outside of the U.S. We feel that this indication is important now that we have solidified our platform and channel partner for rest of world markets and are already working on the kidded version of DetermaIO.

DetermaIO has now been validated in over 1,100 patients in 6 tumor types and across all 4 major immune therapies. Our early adopter program continues to provide valuable use cases for CMS submission and market launch, and our volumes have continued to double each quarter during our limited launch.

EAP clinicians are reordering the test for multiple use cases across multiple tumor types, and we remain incredibly enthusiastic about the future of DetermaIO. In Q2, we also began refining the priorities of our kit strategy with our platform partners.

We made a decision to focus these relationships on short-term ROI projects that require less investment, but still have significant market impact. The two product efforts we settled on are a kitted version of DetermaIO for submission for regulatory approval in the EU and ultimately here in the U.S.

and our VitaGraft digital PCR transplant modern test for liver and kidney for U.S. FDA submission. We've already initiated the work to move both projects forward to keep us on track to meet the aggressive time lines we've set for IBD development team.

We look forward to updating you on our progress in this incredibly important strategic effort as we join you in future calls. Despite the ongoing macro environment challenges in the second quarter, we continue to make solid commercial progress with DetermaRx, our lung cancer stratification test.

Since its launch at mid-2020, DetermaRx has now touched well over 1,100 patients' lives. These patients had Stage 1 tumors and without our test information may have gone untreated, and statistically, half of them may not be with us now.

Recently, we were introduced one of the first patients to utilize the test when it was first developed and then used prior to our acquisition. Jamie ne was only 34 years old when diagnosed with early-stage non-small cell lung cancer.

Jamie told us our greatest at the time was not being able to beat up our kids, not being able to beat up for their milestones and seen them go up and not being able to grow old with her husband and see her grand kid someday. Her surgeon ran to DetermaRx to see if she was high risk for recurring tumor.

When it came back positive, she said she didn't hesitate to offer the single round chemo. Today, Jamie remains cancer-free after 10-plus years, enjoying life with their family, celebrating anniversaries and graduations and is a fantastic advocate for DetermaRx.

She believes every early-stage lung cancer patients deserves to know if their high risk or recurring metastatic disease. It's stories like her that inspires our team to continue our mission. I encourage you to watch Jamie's story on our website.

DetermaRx is now the standard of care in large lung cancer surgical programs like Ford oncology and others and continues to gain momentum in its usage. I'm pleased to report that in the second quarter, DetermaRx m sample volumes were 66% above prior year, driving us towards our stated goal of doubling 2021 volumes and revenues here in 2022.

We're also able to expand our pool o on board physicians, which now stands at 549 practitioners, which is up 15% year-over-year. In sum, we're really pleased with the traction our small but extremely effective sales team is secured.

And of course, we are thrilled that OncoCyte is positively impacting treatment plans and outcomes for lung cancer patients.

In closing, I want to reemphasize, when you combine the cost reduction activities, I mentioned earlier, with the anticipated attractive gross margins of VitaGraft and DetermaIO, revenue streams in 2023, you can start to understand our confidence and our ability to bring OncoCyte through the challenging market environment leaner and stronger.

Some key revenue-based milestone to keep an eye on for the next 6 months include the anticipated receipt of reimbursement for VitaGraft and the subsequent full market launch of our test. Expected submission to DetermaIO TX for reimbursement and planned monetization of assets through strategic licensing of our tissue-based assays.

I'm grateful for your support as we advance our products through the various development cycles to deliver on our mission. At this point, I'd like to turn the call over to Nish John to review our financials.

Anish?.

Thanks, Ronan. And hello, everyone. Our consolidated revenues for the second quarter of 2020 were approximately $2.1 million, up $0.7 million quarter-over-quarter and a slight increase as compared to the same period a year ago.

Second quarter revenues associated with DetermaRx were $0.8 million, down $0.2 million sequentially and up $0.2 million year-over-year. We received $1 million in licensing related revenues in the second quarter from the final Burning Rock milestone payment.

Our Pharma Services business generated $0.2 million in the second quarter, a decrease of $0.1 million quarter-over-quarter and an increase of $0.1 million year-over-year.

As we have discussed previously, revenues in via services depend on our partner's ability to enroll patients for trials, which continue to face headwinds and will likely continue to fluctuate from quarter-to-quarter.

We do have a pipeline of work from our diagnostic development partners, QIAGEN and Thermo Fisher, which we believe will grow and be more predictable in future quarters.

Cost of revenues for the second quarter were approximately $2.4 million, including $1.4 million from the cost of diagnostic tests and testing services we performed for our DetermaRx and Pharma Services customers, providing revenue deliverables under our license agreements and $1 million in noncash amortization expenses of DetermaRx and Pharma Services related intangibles.

Research and development expense for the second quarter of 2022 was $5.6 million, an increase of approximately $3 million from the same period a year ago.

The increase in R&D expense was related to site start-up costs for our pharma trial for DetermaRx and headcount as we prepare to begin the IVD development in order to kit DetermaIO and VitaGraft liver and kidney to fulfill our platform partnerships.

We also continued R&D activity to support ongoing clinical trials to gain statistical power to our current DetermaIO data sets to ensure success as we submit to CMS for reimbursement. Additionally, we completed the CLIA validation for our new VitaGraft product offering in preparation for the Q3 launch of our new transplant business.

Sales and marketing expense for the first quarter of 2022 was $3.5 million, an increase of $0.9 million year-over-year, primarily attributable to an increase in headcount and continued ramp in sales and marketing activities to prepare for commercialization of our transplant business, as well as support the commercialization efforts of the DetermaIO and DetermaRx.

General and administrative expense for the second quarter of 2020 was $5.5 million, a decrease of $2.4 million for the same period in 2021, primarily due to onetime acquisition-related costs of Chronix Biomedical in the same period of the prior year.

Excluding this onetime prior year cost, general and administrative expenses were maintained year-over-year, inclusive of increases in stock-based and cash compensation for our new hires and a standard cost of living increase for many employees.

Non-GAAP operating loss as adjusted for the second quarter of 2022 was $11.2 million, an increase of $3.4 million as compared to the same period a year ago.

GAAP operating loss as reported for the second quarter of 2022 was $8.6 million, a decrease of $1.3 million quarter-over-quarter and a decrease of $5 million as compared to the same period a year ago. We've provided a reconciliation between these GAAP and non-GAAP operating losses in the financial tables included with our earnings release.

For second quarter of 2022, we reported a GAAP net loss of $8.3 million or $0.07 per share as compared to $10.3 million or $0.11 per share, a decrease of $2 million quarter-over-quarter and $10.5 million, an increase of $2.2 million as compared to the same period a year ago. Turning now to the balance sheet.

As of June 30, we had cash, cash equivalents, restricted cash and marketable securities of $47.1 million. Early in the second quarter, we raised $32.8 million in net proceeds from an underwritten offering of common stock priced at market.

We received the first of two $5 million tranches of preferred stock offering proceeds in the second quarter with the final tranche expected in the fourth quarter of this year. Additionally, we are currently reviewing several options for non-dilutive forms of capital, including capital lease lines and licensing tests in ex U.S.

markets, as well as commercial partnerships and the monetization of certain assets. We feel confident that our current balance sheet, combined with these non-dilutive opportunities provide us with sufficient cash to take the company into 2024.

Over the first half of 2022, we have proactively prepared for continued market headwinds and reprioritized our investments in our product portfolio by focusing on shorter-term revenue opportunities and instituting a more sequential approach to product development and test launches.

Specifically, we plan to reduce the number of clinical trials we invest in over the next 18 to 24 months and rely on the data collected to date to support the submission for reimbursement in any subsequent product launches.

We also plan to reevaluate timing of several capital-intensive investments, including the planned sales force expansion that we launched DetermaTX and DetermaIO. The expense reductions, combined with the anticipated revenue growth once our test received reimbursement is expected to have an immediate impact on reducing our cash burn.

Since the end of the first quarter, we have rightsized our organization to match the more focused priorities and have taken a definitive step to reduce our headcount carrying costs by over $4.5 million on an annualized basis. In Q3, we expect to incur a severance charge of approximately $2 million as a result of these actions.

et cash used in operations for the quarter was $11.3 million Net cash used in operations decreased sequentially due to focused efforts to control hiring and optimize our use of cash primarily by reducing clinical trial spend and marketing investment beyond the $1 million milestone payment from the Burning Rock, licensing agreement.

In summary, management has taken numerous actions in the first half of 2022 to focus investments and reduce our cash burn without impacting the long-term potential enterprise value of OncoCyte.

In future quarters, we expect to benefit from the anticipated wind down of several studies and trials, the rightsizing of the organization to better match the new prioritization and revenue growth from our high-margin major product launches planned for the coming quarters.

We remain confident that the combination of these activities will allow us to enter the first half of 2023 with a quarterly cash burn rate below $10 million, and we expect the burn to decline below $8 million by the second half of 2023.

We are committed to weathering the current market headwinds with a well-constructed plan that we believe will position us to deliver on critical product launches over the next 6 to 8 quarters. That concludes my remarks concerning our financial highlights. Operator, please open the call for questions..

Hi. Thank you for taking the questions, here. I really like all the color here on the transplant, the incremental [indiscernible] all the way to commercialization.

So can you just give me some color on - or maybe rank order, what's under your control versus kind of what's out of your control? And I'm just trying to think about what could go wrong in terms of the things that are outside of your control. And then sticking with that liver and kidney thing, you submitted two different time frames.

Do you expect to receive reimbursement at the same time? Or is that going to be laddered the way you reimburse, so….

Great question. Thanks for those. Let me start with the last one first. I think it will be easier. We knew that liver today does not have any test covered to date and even though the LCD was written as someone like an LCD for kidney and heart, and those are established pricing at about $2,700 to $2,800.

We knew that liver did not - been through that process. And so we wanted to bring liver early so that we could submit liver land go ahead and get the first round questions which we have already received have already begun response to. So we received those questions last week. We were now answering those questions this week.

We expect to have the return of those questions back to CMS next week. We expect kidney that we always get some questions so we expect kidney as well. We'll have some follow questions. but we don't expect them to be as an intensely turn around for clinical utility, which is where the liver questions were mostly standard.

And so it's important that we have our KOLs, we've been very kind and gracious and we're excited about what we're doing in liver. And that will be part of our response on the utility but we don't expect kidney to have as many of those types of questions. And so we submitted them.

You know, the liver and the kidney hoping that we end up somewhere in the September, October time frame, getting responses for both. But you ask what's in and out of our control. What's in our control right now is we've redone the workloads.

It is – I’ve doing TCER for a long time since we incubated it in Water Bask [ph] And I'm really excited of our team and what put together. This is a really, really solid workflow, our CLIA lab workflow in the cloud as well less than a day. And so it's the logistical parts around that that push it over a day. So we're excited we can control that.

Well we do control is the outreach we have to the current high-value targeted liver centers, which has been - response has been very solid there. We can control obviously ourselves larger bills [ph] and how we actually execute on the test and performance.

What we can control, as you've already mentioned, is the timing for CMS and under blanket LCDs, you guys are well aware of this, but just for everyone on the call, under a blanket LCD, typically, there is a time frame about 60 to 90 days when you give them a review and you get your questions and you get an answer.

But given how backed up, how metal [ph] and just given the current environment, we did see those questions for liver come in within the time frame they committed. So we're hoping that we're on those time frames, but we can't obviously - we can't predict those time frames.

So hopefully that’s a good thorough answer David, but that’s were focused on is execution, and we just hope that when CMS they can respond as soon as they claim they want to, so..

Yeah. And then maybe let's go back to the liver – in that answers implied it's on a different time line. So after submission, I mean, it's not the 60 to 90 days, it's whatever - whatever the – I don’t know around some….

Yeah. David - basically answer you with for the first round in 60 days and you have a chance to respond and then they have another 60 days from that point. And so we got their answers, we're very happy that they got on to us at the timing they did for liver. We – we’re answering our questions this week.

That will get back next week and so somewhere 60 days for next week, we hope to hear back from them if not sooner..

Got it. Okay. I appreciate it. And then you touched on some changing of roles here. I believe you said at your every day - you're going to be kind of backing away from everyday operations. I just want to confirm that I heard that correctly.

And can you maybe take a layer - another layer back in terms of what that means other than just kind of Investor Relations and biz-dev kind of outlook? Can you talk kind of little bit more about your day-to-day?.

Absolutely, David. I don't want anyone to get the impression I'm not going to be very active. I am very active. But we're at a point where we have an incredible operating professional in Gisela Paulsen. She came with all the experience she had from Roche, Netech and Exact Sciences years.

And it just really - she's been here since the fall and we're at a point where from project management, program management, internal operation lab, oversight and all that.

She can take on a lot of what I was doing that please need to do more corporate development work, more time with investors and certainly more time with strategy and some things that are imported, it gives me more time to be in the field.

I'm personally going to oversee the transplant launch and programs since I have much product launch experience, and I am old and I've been doing this a long time. I've launched a lot of products in the PCR world. So I'm going to be very active with that.

And so having Gisela step in before it manage the, as COO she's already doing most of the operations, but she'll take on a little bit more now, and then I'll get to go do more focus on growth of the company and revenue - execution on revenue generating opportunities.

And Anish, obviously, we're very excited, he stepped in with interim role for a couple of months, and he was what he was doing and we love to have him. So he is now kind of stepped in before time CFO, which were all very great portfolio, he has incredible background in operating finance, which is what we need as a company right now..

Got it. All right. I appreciate it. Just because I'm given that I'm first, I don't want to take any other questions. I think the next one would be really, really short because probably you just keep mishearing something. Did I hear on Determa, it's a little bit delayed because you need that power - you need more patients.

I don't know if I heard that correctly in the prepared remarks or not, maybe I misread that.

Can you just clarify that?.

Yeah. Yeah, let me clarify. DetermIO is on track to submit this fall. We are - we have it powered and we believe in 3 tumor types, we are going to - we are waiting on the acceptance of these - these data in a peer-reviewed publication. That's the last criteria that we have to check, the [indiscernible] have to check before we could submit.

Those manuscript are out. We’ve actually had a one accepted. And so we are hoping to see the other 2 for non-small cell lung and for triple negative get accepted as well. And once those are all 3 bladder, TNBC and lung accepted will go. So we don't need any more statistical power necessarily, we’re all most the power.

But we are ready for that, but we are not going - I think the message that we sent last quarter and David, just how you guys as you think about modeling. We're going to go to market with those 3 indications.

We did have a really superior output in colon at ASCO, and we're following up with lots of different opportunities there, but we will need to get more data on the colon before we can submit the paper and then add that to the list..

Got it. Appreciate. Thank you very much. I’ll hop back in queue..

Thanks, David. Yeah, appreciate it..

Our next question is from Mike Mattson of Needham & Company. Please go ahead..

Yeah. Thanks for taking my questions. I got a few on VitaGraft, I guess. So in terms of when you actually launch it, I guess, versus it's going to be kind of a CLIA test that you're doing in your own lab and then you'll eventually have a kit version.

So do you think there's going to be a kind of a difference in terms of how the sales or the rate at which they ramp for the CLIA offering versus the kit offering? And is it going to be kind of limited in the early days when you're going to do it yourself or and then really take off of the kit? Or do you think you could take off pretty strongly just with the initial launch?.

Yes. The feedback we've gotten from the market is there is no one using liver. Thanks to a couple pioneering companies that have sort of created the market in kidney and heart. We benefit from the kind of - overall, if you will, of people knowing how to use these types of tests now in liver.

And so when we did our outreach, we got some very positive feedback from some very high-profile centers. And so our goal in the early - by now the adopter phase Mike is to get as many of those sites onboarded as we can to really play through our logistics, our turnaround time, our lab.

And we'd also like to get it within a day or within 24 hours, but that's going to require overnight shift and logistics that today are - we're putting in place but we haven't tested yet.

And so ultimately, we think that once we're ready to go for market, hopefully by October, November when we get reimbursement, the idea would be that we would open it up to all centers in liver and assuming we get kidney, obviously, that's a very dependent market. We'll do our best to go after the kidney market.

I think the real opportunity for us, though, honestly, we'll create nice business as a lab adult test product. But the participation in economics that are afforded by democratization to the transplant centers themselves and to pathology lab serving transplant centers are significant.

And the turnaround time, plus those new economics that they don't receive today because as the simple lab, we get those economics, sharing those economics, we do expect that. And that all our market research says that will be the sort of a catalytic event for the market growth in – for our kit. And so, we're seeing how that goes.

But we are planning on – we’re planning on going over with liver, and we do expect a rapid revenue ramp in '23 into '24 on liver before we get to a kitted products..

Okay. Got it. And then in terms of the - I just have a question on something that Anish said, on the cash burn. So I think he said it would be under $10 million in a quarter and then fall to under $8 million a quarter, but I didn't get the timing and all that and the reasoning that it's going to decline.

Is that because you start to have more revenue or I apologize if there….

Yes. No, it's fine. It's a combination, I’ll let Anish give the commentary. It's actually a combination of reductions in headcount that we made recently, reprioritization of projects and deep funded some things that we were funding. We're winding down some clinical studies now.

So that - I think you guys know this, now they have conversations with most of the analysts you follow. You don't just go and plug these studies because these are very high-profile accounts, very high profile key opinion leaders who want to complete the study and then publish.

And the last thing we want to do is, we have a very, very solid brand of high science with a month of oncology community day, and the last thing we want to do is run that. So we are going to continue the current trial that we have going study. Those will bleed off over time as we head into next year.

So the combination of that with the reduction in headcount or some probably lift decisions we made will reduce it to about a $12 million operating expense reduction. And then from there, you add revenue on top of that. And that revenue even nominal revenue that we modeled takes us under $8 million in burn as you enter the second half of 2023.

Anish, you can comment on that?.

Yeah. And just to confirm the timing also, the $810 million burn rate per quarter is really in the first half of 2023, just so that's clear, too..

Yeah. Got it. Okay. All right…..

Yeah. I mean - I mean we're really trying to give guys incredible transparency and visibility. Now, I think it's important given the market environment. We went from 13.3 to 113 in operating burn Q1 to Q2. So that was a nice reduction for us based on a lot of stuff we've done internally.

We can’t do 15% every quarter getting to TAM because we do have a severance charge from the reduction in the account this quarter as well as, we need to bleed off some of these studies. But we're committed to this.

We do believe that we've got a line of sight and modest revenue gives us really significant impact on burn next year once the infrastructure costs as we established for the new levels..

Okay. And then just want to farm out services. I mean is that running, I guess, it was like 300,000 or something.

Is that - is that a focus for the company? I mean, is that something that can grow into something more material? Or is it just more - you have some drug companies approaching you and want to use our tests and you're coupling along with that, you're not really out there actively trying to build that business?.

Yeah. As part of our reduction in expenses, we did sort of pull back on the commercial, those are expensive headcount, on the commercial effort there. However, we have long-term relationships, most of us with certain areas within pharma.

And we do have two arrangements, one with QIAGEN, one with Thermo that are long-term contracts to do validation, verification, what we call DMD, as well as some development work for them. Those projects will continue. And the good news for us is we don't – we have a dedicated pharma services lab team.

This is the lab team that is in R&D in Nashville and R&D here, doing things around either DIO are doing things around C&I and transplant in Nashville.

And so what we do, though, is when we get a project, those folks can flex and perform the pharma project when they need to and when they have time from their activities though - that they're working on every day because pharma turn around time is not as essential as a transplant patient turn around time.

So because we have flexibility there, we're able to get pharma work done with the headcount we already have. And it doesn't - it really doesn't mean we have to increase our headcount to grow our pharma business. We do have a nice pipeline of worth $2 million of pharma service contracts.

Our biggest problem is pharma isn't enrolling patients as fast as we need them to, so that we can complete our study and get and we can build for, that’s the big challenge we're having right now..

Okay. Got it. Thank you..

The next question is from Thomas Flaten of Lake Street Capital Markets. Please go ahead. Apology. Our next question is actually from Mason Carrico of Stephens. Please go ahead..

Hey, guys. Just wanted to ask a couple on DetermaRx here. Great to see the volume growth year-over-year, but it seems like ASP may have declined sequentially.

So I was just hoping to get some color there in terms of what drove the decline and then what your expectations are from an ASP standpoint going forward throughout 2022? And then maybe as we start to get closer to 2023?.

Yeah, Mason. Thanks for asking that because when you just take the wrong numbers and divide it by the revenue, it doesn't show the average AUP because we actually do it by building class. And so in some of those samples are unbillable. So let me give everyone the breakdown.

In the quarter, about 90% of our volume that was billable was Medicare and Medicare Advantage.

Medicare and Medicare Advantage at 90% renders somewhere around $300,000 AUP and about 10% of our samples were commercial samples, meaning they were not Medicare, which means when you blend that AUP and at a much lower AUP, which is somewhere in that $1,800 range, you end up with about a $2,972 per case revenue - collectible revenue from RX.

That is a very solid number for us. We have bee tracking that number over time. It's come up in the high 1,800-ish into the low 2s and now over 2.5 and now the 2 mine. So we do see that we're getting at our challenges. We have a billing backlog as you might imagine, because it takes us a little while to get some of the commercial payers to pay us.

And that building backlog has increased as we've increased our sample volumes. And so that doesn't show up in our – it doesn’t show up with the revenue, doesn't match the same period as the samples come in. So hopefully, that gives you some clarity about the AUP. Our Medicare, Medicare Advantage samples are consistently coming at around $3,000.

And so that is the majority of our revenue push. And so as you think about modeling, obviously, you need to model the commercial payers as well, which is much less, but it's not a high percentage. So the product mix or the payer mix right now is really advantageous for us, given we're getting such high AUPs for Medicare and Medicare Advantage..

Got it. Okay. And then maybe just on the large transplant center that you talked about signing on.

And sorry if I missed some of this commentary, but any incremental detail you can give around that maybe the level of volumes they're doing in terms of liver transplants and if there's any stipulation about the number of patients that you're going to be able to capture any qualitative or quantitative color you can give there would be helpful..

Yeah. That's - this account probably does somewhere between 3 and 500 livers a year. And I'm not trying to – so I'm not trying to call it's a hypercompetitive environment and we'd like to keep these KOLs under that for a while just because there've been some gracious to help us out so much.

And we have a number of these that are interested in joining the early doctor program being part of the program. So if you think about liver, the utility is going to be different to liver than kidney. You're looking - you can say, if you say about you know, they have 5, 300 a year, 300 a year, then you probably 500 total transplants.

So 300 of those are, I am sorry, 500 liver cases, about 300 were total transplants, 300 of those a year, if you get two samples or two tests for every limitation, that's about 600 tests a year. You can start thinking about $2,000 per reimbursed test. That's what the kidney and heart are, 27, 28. You can start to build a case for.

There's about 70 of these types of centers in the United States. And so you start to think about liver at, I think, around 8,500 liver cases a year, somewhere in that neighborhood. And so - so you've got a nice market for liver, but kidney becomes very important to us as well as hard.

But obviously, we have a nice competitive advantage in liver since we were sort of the first out and we have a very rapid turnaround time..

Got it. Thanks, Ronnie. That’s helpful..

Thanks, Mason..

[Operator Instructions] ladies and gentlemen, we have reached the end of question and answer session. And I would like to turn the call back to Rom Andrews for closing remarks. Please go ahead, sir..

Thanks, everyone, and we appreciate your time today. We certainly appreciate the questions, and we're eager to obviously to see many these milestones unfold over the fall, and we look forward to speaking at numerous conferences through the fall and update you guys on our progress. So thanks for your time today..

This concludes today's conference. Thank you for joining us. You may now disconnect your lines..

Thank you, operator..