Good day, and welcome to the OncoCyte Conference Call to discuss the Third 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 third quarter of 2022 financial results. If you have not seen today’s 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 are 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 will turn the call over to Ronnie..

Thanks Caroline, and welcome everyone. Today, I would like to update you on the progress we have made against the strategic goals that we laid out on our last call and share some of the important milestones we have ahead.

Our newly streamlined organization has maintained our momentum against our most critical milestones and we are working hard to complete our product development and gain reimbursement for our transplant and for our oncology programs. I will start today with our transplant rejection monitoring opportunities.

As you know, we have two products in this $2 billion U.S. market, VitaGraft liver and VitaGraft kidney. If you recall, both tests have completed analytical validation and have been submitted for reimbursement.

We have active conversations with the team at MolDX ongoing, and this is very similar to what we experienced with the term RX a few years ago when we gained that very important reimbursement and we expect to continue these discussions, but we do expect reimbursement for both by year end.

In Q3, we began accepting clinical samples at our lab in Nashville as part of our VitaGraft liver early adopter program. The goals of the liver EAP are engaged key opinion leaders to refine our clinical utility and prepare the lab for full launch, which we expect to be in Q1 of 2023.

We are very encouraged by the positive response to our test and the lab workflow that is now under 36-hours for our initial patient workup to establish the personalized baseline and only 12-hours for all the diagnostic monitoring tests thereafter.

This rapid turnaround time is necessary to serve patients in a for cause setting when their care team is seeing an increase in liver function test, their docs don’t have time to wait on the long turnaround time for NextGen sequencing and so we are excited to serve this unmet need in liver transplant management.

In Q4 we plan to open up the kidney early adopter program and begin feasibility for the IBD versions of both assays.

While we do expect that our two lab developed tests will generate early revenues for our transplant monitoring program, as you know, our primary goal is to disrupt the transplant monitory market by delivering kits to democratize these critical decisions that physicians have to make for their patients.

Our market research and the ongoing key opinion leader interaction have provided strong indication that rapid turnaround time, absolute quantification and the ability to participate in the reimbursement economics, a powerful attributes that only VitaGraft will be able to provide for the foreseeable future.

We remain on track for IBD trial to begin sometime in Q1 2023. In summary for VitaGraft the key milestones to watch over the coming months are first, we plan to continue onboarding new key opinion leaders from the liver transplant community as we open up our early adopter program.

We also anticipate the launch of our kidney test by year end to existing and new key opinion leaders. We expect reimbursement decision from CMS by year end. And finally, we will begin a feasibility for the IBD kit product and site management for the important FDA clinical trial, which we expect to commence in 2023.

Now let’s turn to our flagship oncology product. DetermaIO to remind you this is our 27th RNA gene expression test designed to help physicians access patients that have a tumor and assess the tumor microenvironment and 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 the slate of cancers. And as I mentioned on our last call, we have compelling data now in early triple negative breast cancer, late stage non-small cell lung cancer, metastatic bladder cancer, metastatic colorectal cancer and gastric cancer.

The term IO has now been validated in over 1200 patients in six tumor types and across all four major immune therapies. The results to-date have been outstanding and in all studies to-date have outperformed the current test for predicting response to immune therapy.

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 a limited launch.

The early adopter clinicians are reordering the test for multiple use cases across multiple tumor types and we remain incredibly enthusiastic about the future of DetermaIO. We also recently announced that DetermaIO is part of a large biomarker grant award for the SWAG clinical trial study group in breast cancer.

These awards were given by the National Cancer Institute and the process was highly competitive where only a handful of clinical trial groups and National Cancer Institute sites were even allowed to apply.

Even then, each trial group was only allowed to submit two to three grant applications, which is a particularly small number when consider all the variety of cancers that these groups are investigating. All applications were reviewed by an independent committee of clinical experts.

In addition to having extremely solid data which DetermaIO has, the grant application needed to provide evidence that one, the test was not merely interesting scientifically, but would actually changed clinical practice in a very meaningful way for patients and two was ready to be used immediately within the clinic.

We are very excited to say that DetermaIO meets both of these criteria.

We realize there are a lot of biomarker claim a claim to find responders of patients who benefit from the immune checkpoint inhibitors, but DetermaIO selection by the true experts in the clinical field show that DetermaIO is rapidly distinguishing itself from the competitive test and is a solid validation of the progress we have made in a very short time with DetermaIO.

As with our VitaGraft program, we are also working on a path to create a kit to make our oncology test more accessible to physicians and to patients.

The beauty of DetermaIO is that it was developed from a large scale 2000 gene panel and the 27 gene RNA algorithm can actually performed on multiple data sources, including samples that were run with RNA seek data or PCR kit or even a next gen sequencing targeted re-sequencing chip.

Given that there are thousands of PCR and next gen sequencing systems and labs around the world, this allows us to be incredibly flexible with our market access. In-line with our new cash management strategies, we are planning for the regulatory process for our candid inversion to start in mid-2023.

As we mentioned on our last call, in order to reduce our overall burn, we have moved to a concurrent development and clinical study to a more sequential process.

DetermaCNI and our DetermaI life blood based therapy margin test continues to be in use in clinical studies in the EU, where the product has been effective in identifying disease progression across several tumor types.

The results to-date allow a physician to identify the failure of treatment protocol weeks in advance of the current MRD test on the market and a much lower cost.

Given that large majority of later stage patients do not get their tumor surgically removed, current MRD tests are often not an option to monitor those patients, since a large amount of tumor tissue is required for the upfront genomic panel to be completed. The market feedback so far has been overwhelming.

A blood-only monitoring test that can tell a physician that a drug is not working but the second cycle of treatment is game-changing for them and for their patients. According to our plan, the U.S.

clinical validation will begin working with academic institutions and with biobanks to complete blinded retrospective studies in the first half of 2023 and hopefully submit for reimbursement under the current blanket LCD for immune therapy monitoring shortly after that.

Finally, I will turn to our progress with DetermaRx, our lung cancer stratification test. Since its launched in mid-2020, DetermaRx has now touched well over 1500 patients lives. These patients had stage one tumors without our test information may have gone untreated and statistically then half of them would not be with us right now.

So I’m pleased to report that, our streamlined sales force and our current covered territories, which now make up about 30% of the market opportunity delivered third quarter growth in RX sample volumes that were above 51% above prior year.

This is a really strong testimony to the sales team and their growing reliance on the DetermaRx to identify patients that are high risk for recurring tumors and in need of treatment to improve their chance of living. We are also able to expand our pool of onboard physicians, which is now 596 practitioners, which is up 62% year-over-year.

As I close out my remarks, I want to reemphasize my confidence in our ability to bring OncoCyte through this challenging macro environment and emerge leaner and stronger. In our Q2 call, we mentioned our intent to initiate several corporate development activities to evaluate the strategic alternatives we have given our broad portfolio.

We have engaged Perella Weinberg as an advisor to assist us in identifying and evaluating a range of these possible strategic alternatives, and we are actively engaged in several meaningful conversations.

On a parallel path, we continue to explore avenues to bolster our cash runway and to reduce our spend, including the possible reevaluation of our clinical trial expenses, potential changes to our executive compensation structure and reallocation of investments in our fixed capital and infrastructure.

While I can’t speak to specifics on today’s call due to the sensitivity of the various discussions we have ongoing, we remain very confident that we will be able to execute on one or more of our options to secure OncoCyte’s future. So please stay tuned.

And I also encourage you to watch for some key milestones over the next few months, which include the reimbursement decisions for VitaGraft kidney and liver, both which we expect this year and then the subsequent plan, full market launches of our LDTs in transplant.

As well, we are on path to submit to term IO for reimbursement and we expect to do that uh, before year in. I’m grateful for your continued support and with that, I will turn the call over to Anish John to review our financials. Anish..

Thanks Ronnie and hello everyone.

Our consolidated revenues for the third quarter of 2022 were approximately $1 million, representing a slight increase as compared to the same period a year ago, versus prior quarter revenues were down $1.1 million without the benefit of $1 million in licensing related revenues associated with the final burning rock milestone payment.

Third quarter revenues associated with the term RX were $1 million up, 0.1 million sequentially and up 0.5 million year-over-year. Our pharma services business generated approximately 0.1 million in the third quarter, a decrease of 0.2 million, both quarter-over-quarter and year-over-year.

As we have discussed previously, revenues in pharma services depend on our partner’s ability to enroll patients for trials which continue to face headwinds and will likely to 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 third quarter were approximately $2.2 million, including $1.2 million from the cost of diagnostic tests and testing services we perform for our DetermaRx and pharma services customers, and $1 million in non-cash amortization expenses of DetermaRx and pharma services related intangibles.

Research and development expense for the third quarter of 2022 was 4.4 million, an increase of approximately 1.3 million from the same period a year ago.

The increase in R&D expense was related to site startup costs for our POD trial for DetermaRX and headcount as we prepare to begin the IVD development in order to DetermaIO and VitaGraft liver and kidney.

We also continued R&D activity to support ongoing clinical trials to gain statistical power with our current DetermaIO dataset as we submit to CMS for reimbursement.

Additionally, as Ronnie had mentioned earlier, we have successfully initiated our VitaGraft liver early access program and are on track for a full launch of our new VitaGraft product offering in Q1 of next year. Sales and marketing expense for the third quarter of 2022 was $4 million, an increase of 1.1 million year-over-year.

The increase is primarily attributable to the growth of our portfolio and reflects increased investments in headcount along with sales and marketing activities to prepare for commercialization of our transplant business and support the continued commercialization efforts of DetermaIO and DetermaIO RX.

General administrative expense for the third quarter of 2022 was $5.8 million, an increase of 0.3 million for the same period in 2021. General administrative expenses were relatively flat year-over-year.

Non-GAAP operating loss as adjusted for the third quarter of 2022 was $9.8 million, an increase of 0.4 million as compared to the same period a year ago.

GAAP operating loss as reported for the third quarter of 2022 was 9.2 million, an increase of 0.7 million quarter-over-quarter and a decrease of 4.4 million as compared to the same period a year ago. We have provided a reconciliation between these GAAP and non-GAAP operating losses in the financial tables included with our earnings release.

For the third quarter of 2022, we reported a GAAP net loss of 9.3 million or $0.08 per share as compared to 8.3 million or $0.07 per share, an increase of a million dollars quarter-over-quarter and 13.8 million or $0.15 per share, a decrease of four and a half million as compared to the same period a year ago.

Turning now to the balance sheet, as of September 30, 2022, we had cash, cash equivalents, restricted cash and marketable securities of 34.2 million. Early in the year, we raised 32.8 million in net proceeds from an underwritten offering of common stock price at market.

We are currently reviewing several options for non-diluted forms of capital, including equipment, finance lease lines and as Ronnie has stated evaluating strategic alternatives we have against our broad portfolio offering.

In addition, we continue to make progress on ways to further reduce our spend and ongoing burn rate from the beginning of the year. Our focus over the first three quarters was to reprioritize our investments in our product portfolio and institute a more sequential approach to product development and test launches.

In Q2, we had announced the right sizing of our organization to match the more focused priorities and had taken the definitive step to reduce our headcount carrying cost estimated to be over four and a half million dollars on an annual basis. In Q3, we incurred 0.7 million in severance expenses as a result of this prior quarter action.

Net cash used in operations for the quarter was 11.3 million, inclusive of 0.3 million of severance payments. Net cash used in operations decreased versus the first half 2022 quarterly average due to focused efforts to control hiring and optimize our use of cash primarily by reducing clinical trial spend and marketing investment.

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

Outside of the range of strategic alternatives under consideration, we continue to evaluate what steps we can take to further reduce spend and ongoing cash burn in the coming quarters. That concludes my remarks concerning our financial highlights. Operator, please open the call for questions..

[Operator Instructions] Our first question comes from the line of David Westenberg with Piper Sandler. Please proceed with your question..

Hi. Thank you for taking the question. So I want to start with a current event. Maybe you haven’t seen this yet, so maybe I’m catching you off guard. CMS I think is meeting next week to look at reimbursement and transplant. I don’t believe it is in the, I believe it is heart and lung, so not really overlap with what you are doing in transplant.

Do you think that there is any concern if they find anything there for lowering price, maybe that is a headwind or maybe is this an opportunity in the sense that maybe it makes what you are doing a little bit more unique?.

Dave, that is a great question. We are following this closely, obviously. And we do have some insight that has been very helpful for us.

One of the challenges in the current LCD is somewhat ambiguous number of expected tests to be monitored a year and the companies today that are out promoting their current kidney test and heart test have a certain protocol that they believe is appropriate based on the data that they have released.

I think there is some discrepancy between that and what CMS actually believes that number needs to be and how many times these need to be performed. I don’t know that is the value of the test itself in terms of reducing the price as much as it is.

Are we overusing this test? Is it necessary for that number many times, but we are going to follow this closely. But your point about us is a good one. In liver, the utility is a real interesting question, because today for everyone’s identification in liver, when you get a liver transplant, unlike kidney and heart.

There is a very low cost monitoring test called liver function test, it is a panel test, which includes liver enzymes and some other components. And that test can be run very rapidly and can be run for weigh less than $100.

And so what we realized in our conversations with CMS and our key opinion leaders is that, there is not really a need for pure monitoring in liver and you may find that same knowledge to come out around kidney.

But what there is a real need to resolve elevated liver enzymes and to identify the patients with that, that do not need a biopsy, because right now the reflexes from elevated liver many times is go to a biopsy, and as you know those are painful and they are invasive.

We know that our test now based on the results so far of our EAP are very accurate in identifying our patient population that does not need a biopsy. And so what this does do for instance, is it reduces the total number of monitoring tests a year, but it is a very unique indication that gives us a sort of a first mover advantage.

And so what the numbers look like, there is about one hundred thousand or so patients that are living with a liver, they all get tested somewhere between four, six, some centers we found are about eight times a year and about 30% to 40% of those patients end up with an elevated liver enzyme liver function test that needs to be reflex for resolution.

And so if we can be that test that some, let’s say, is $2500 reimbursement our market opportunity for liver is not the size of kidney and heart, but it is still a $150 million to $200 million market. We will have a very appropriate utility data set and we think we will have a very good opportunity to penetrate the market. So it is a great question.

We are watching it closely. I do think CMS is concerned about the amount of money that is being spent to monitor using these more expensive tests, when there are cheaper enzymatic tests that could be run to monitor function of an organ..

Got it. Thank you. And apologies for the next one. I just - like I’m trying to give it with tact and I realize I can’t. So I will just apologize upfront. Your confidence level and DetermaRx that this isn’t going to be slipping into another quarter, just because we really like won’t want the reimbursement there, sorry to ask it that way, but just -..

You mean DetermaIO or you mean DetermaRx?.

Yes, sorry..

Yes, just DetermaRX as everybody knows, is reimbursed. And right now at 31.50 by Medicare we did get identification that you saw in our press release. We did get a crosswalk to a higher AUP, which is being reviewed today by public opinion. And if assuming everything goes well, the expert panel has said that they want to put that in a new category.

And that would give us about a 23% increase in that AUP. So it will go from a 31.50 to 38.73. The DetermaIO, we are on path to submit just to remind everybody, we can’t submit until we have papers that are published or papers that are accepted for publication. And David, we wanted to go with three indications. And so we have two of those papers.

We are waiting on the third. That third one has been accepted. So we are expected to be on track with a submission by the end of the year, if not sooner..

Thank you..

Thank you..

Our next question comes in the line of Mark Massaro with BTIG. Please proceed with your question..

I certainly appreciate the commentary about pursuing strategic alternatives. Obviously, we are living in pretty challenging times just in general. But maybe Ronnie, can you just share, I know that you have been looking to find a kit partner for several months now. So I imagine that these two items are probably related.

But is there anything you could share just about the types of things you are looking at strategically and to what extent there is overlap between the kitted partner and other strategic alternatives?.

I’m actually glad you asked it. Listen, I think it is very us, Mark, you have followed us and you have known us our history. We realize today that we are an unprecedented times in the marketplace and as an optimist and someone that was very hopeful that the markets would get better, the reality is we know now that is probably not going to happen.

And so our effort this year was to get all the products to a value inflection point that would give us optionality across the spectrum of our portfolio. And so, basically where we are right now is we have basically the tissue-based therapy selection tests.

We have therapy monitoring tests, which determines C&I and oncology and we have the transplant monitoring portfolio. And all three of, once we submit the DetermaIO, the tissue based cancer platform or cancer test will be will be reach a value inflection point because we will be heading towards reimbursement with IO.

And we already have IO a reimbursement for RX. So that creates a nice opportunity for partnering and licensing there. We have transplant, which that we talked about is at CMS today. And assuming we get those reimbursements, we will have another asset that is certainly available for monetization either through partnering or licensing.

The kitted partner in transplant has been a unique learning experience for us. We signed an agreement in the summer with a large platform company only to find out that once we got in, got really under the hood that their product wasn’t going to be ready for a clinical market for some time and would have thrown us off our tracks.

So what we did is we went back and began to look at the other platforms again and in doing that, we realized that we can build these kits. There is third-party kit manufacturers that will build these kits for us.

And so we can instead of sharing the economics with an instrument company, we can build the kits and sell the kits ourselves once they are approved. And then we could own all the economics in the kit cell and not have to share it.

And so once we understood that obviously we have got a lot of experience in PCR here, so we said let’s move forward with that. And so we are looking at validating the kit on a primary platform, but we are open to the flexibility of it being, especially in Europe, a kit that could be used across any digital PCR instrument so more to come on that.

But that does open up opportunities with some of the European digital PCR companies that have platforms and don’t have content for them. And one of those most recently said, one of their biggest priorities in 2023 for growth is digital PCR menu.

So you know, the idea here is there is a lot of opportunity, we think, both for the LDT partnering in the United States, but ultimately for the kit partnering for Europe. And so without getting any more specific, those are the things that we have said publicly. But all of those opportunities are in play today.

And to be candid, we kind of narrowed the focus to a few and we are pushing those to the goal line as we speak..

Okay. Great. Thanks for that color. So, the market leader in the MRD space Netera just got a $7,489 bundle price from MOVAK for SignatureIO. I wonder if that is a potential proxy for DetermaIO. It may not be, but I guess what I’m really asking, I don’t think Netera knows yet how many tests they can run under that bundle.

But so can you just give us a sense for the number of tests you think DetermaIO could be done in a year and, and how you are thinking about the reimbursement rate of that and then is it fair to say that that should be ordered on three clinical indications and maybe just walk through the pathway to expand that to multiple indications or pan cancer over time?.

Sure. Absolutely. So DetermaIO we believe given it is sort of a, it is much like the tumor mutation test that are run by Foundation Medicine and Garden et cetera today to identify if the patients a responder for target therapy.

And so because immune DetermaIO is really following in that same decision point, we think will fall in-line with that same value. So we are modeling - those are now reimbursed under a blanket LCD of about $2,500 a panel. I would say that is a fair, we would like, we are obviously going to go for more.

We believe that we save a lot of money for selecting the appropriate patient and not over treating with immune therapy. But we know that is an uphill battle at pharma.

So the idea here is to go in and go in much like we did with the DetermaRx and submit a dossier that shows some significant health economic savings for running our test before you give an immune therapy. If we do that, I mean, you know, DetermaRX is at 3150, but, the other test in therapy selection not prognostic, are in the $2,500 range.

So somewhere in that range is where I think we will finish up. On the other side of the coin of that is the DetermaCNI and as you mentioned, the Netera LCD and the increase there for the bundle, we are looking at DetermaCNI being run two to three times, maybe four times max cause at the second cycle of therapy without, without the big genome panel.

We can give a very appropriate result looking at disease progression. And so, I suspect, it would be great to get the $7000 bundle and we will certainly give it our best shot. But the reality is our test cost significantly less than that and we would expect something in the neighborhood of, I don’t know, maybe $3,500 or $4,000 for a bundle.

And I think the private payers that we have spoken to are much more obviously inclined to look at us as a lower cost alternative and someone that can be - we can turn around a result in later stage patients and we don’t have to have a surgical resection, which also adds cost. So I think from that perspective, we think we got a great play.

We just hired a really, really talented lady as our market access person. I think you guys know manage cost. We had not really gone after that level of a person, until we knew we were ready to get into the private payer world. We are ready to go now and she just started about a month ago and she’s already seeing returns there.

So obviously, we are going to be working on the private payroll. We think that the large payer groups for DetermaIO if they understand that they could save hundreds of millions of dollars in the two to three year period on better decisions around, Immunotherapy and then monitor it to identify if it is working in a faster way.

We think it is great health economic story so more to come on that. We are submitting now and we are going to be actively out knocking on doors to talk about reimbursement for DetermaIO..

Okay. And then thank you for that. Last one for me.

Just on C&I, what other data needs to be developed and think I heard you say first half of 2023 was that for reimbursement or was that for when the paper could be published? And then maybe can you remind us on - since C&I is a blood-only test, remind us to what extent is this pan cancer versus certain indications?.

Great. Yes. Let me be clear first, because I want to make sure we are very clear. We had to put a prioritization in order and transplant to DetermaIO and then C&I became the priorities for us at this second, third and now fourth quarter and we couldn’t do a model sequentially or currently anymore, so we lined them up.

Right now, the term of C&I has under its under study and published papers around 1200 patients in Europe and that is across multiple tumor types. If you look at the number of tumors that slump off have copy number variability, it is about 35 solid tumors. About the top 16 tumors are the ones that we believe we can really effectively do.

We may be able to do the rest, but we aren’t going to have the money for some period of time to go chase those. So right now, we are looking at C&I to get indication in the United States, to get a validation study under our belt and non small cell lung cancer.

We would like to follow that with breast cancer and then ultimately we would like to follow that with colon cancer given DetermaIO’s recently published efficacy at identifying MSI negative patients that today have no option for immunotherapy, we assume that we are going to - as we identify a bigger population, we assume that pharma is going to want to invest with us there and then on the second part of that would be to monitor for colon.

So our C&I effort in the U.S. because it does need to be validated to U.S.

clinical studies not European is really going to be focused on non small cell triple negative and then ultimately colon with the hope that, we can prove out the thesis that it really is a pan cancer test, given all the other data that shows that these copy number instability is relevant across 35 solid tumors..

That is really helpful. Thanks so much..

Sure, Mark. Thanks..

Our next question comes from the line of Mike Mattson with Needham & Company. Please proceed with your question..

This is [Joseph Fox] (Ph) for Mike. So I guess maybe just a handful of questions around the DetermaRX. Let’s try break them up. Maybe to start off, could you maybe give some expectations around maybe volume growth or, or physician based growth for 2023.

I guess maybe what is the strategy on here to maybe accelerate some of the volume there? But yes, we will start off with that..

Yes, I mean, I think everyone knows we, we significantly reduced our sales force to cut back on some of the cash burn. Sales reps, it takes about a year for them to get to a point where the revenue they create covers their cost. And so we said, we were going to take the six basically six top territories, which we now have.

And we were going to keep those and then we were going to hold off on increasing the salesforce until the DetermaIO got its trapped LCD. And then we would move forward with expanding at that point in time, which will probably sometime mid-year to third quarter next year. So given that we have six heroes out there, I say that with a lot of confidence.

These folks work hard and you can see that they were still able to grow the bus, the number of samples at 50% year-over-year, even with just six people.

So what we have started thinking about is mining the current territories they have and the current accounts they have, and now that obviously the pandemic’s over and we can get in and we can detail all the surgeons within an account that is onboarded.

That is a better, more productive use of a sales rep’s time than trying to create new accounts and onboard new people because that takes time and energy versus just continuing to do, we call same in my old world it be same-store sales here it is more same doc sales or same account sales.

And so with that, the goal here is to continue to grow the current territories as best we can.

And then obviously, if the DetermaIO makes its way through the reimbursement paces and we some of these other strategic alternatives come to fruition we hope to have the capital to go and add and a number of sales reps to really go after both IO and RX in a meaningful way..

I guess just continue on with DetermaRx, maybe on potential NCCN guideline inclusion. I know you guys had a trial going on or registry and maybe reduce some of the spend in that, if I remember correct.

Could you maybe talk about maybe timeline on there of the, maybe the next point where a decision can come out? And in terms of maybe the increased reimbursement potential you said there having the meeting I guess today, is that something you would send out a press release for? And then lastly on that, on the expanded I guess coverage, could you maybe talk about how that could maybe increase the potential or I guess the tam around annual volume for it to DetermaRX? Kind of where is it at right now and work at that growth the expanded coverage? Listen, the registry we did close down the registry and the reason we were able to do that is we have a randomized clinical trial as well going, we made the decision to run them concurrently because the randomized clinical trial and the early phases of it was very difficult to enroll.

And why was it difficult to enroll? Well, not only was there pandemic going on, but given the vast amount of data that around DetermaRx that has already been published in peer reviewed journals, there is over 1600 patients in different studies that have been published.

Patients did not want to randomize if you knew you had a 50% chance of dying, if you did not get chemo or if you got chemo, you had a 94% chance of living for five years. And a fire test is elevated.

We found patients did not want to randomize, so they really didn’t want to flip a coin to decide, hey, I’m not going to, I will work and I mean, I will take the risk of not getting chemo. And so it was very difficult in the early days.

What we have done now by expanding the indication is the expanded indication allows us not to just indicate to physicians for chemotherapy use in these early state patients, but they can also use immune therapy. And so, and a targeted therapy, it is if it is EGFR positive.

And so what the expanded indication and change in that did was open up the playing field for any therapeutic decision. And that significantly opened our chances to get the RCT populated and hopefully report it out next year. We do have some ongoing third-party work that is going on, and we are hoping to revisit NCCN.

They meet once a year and, you know, right after ASCO. So in summertime we do hope to revisit the NCCN team. You have hit on a really important thing. I mean, right now, what are the two things that are limiting RX growth. Really, it is the size of the sales force. We need about 20 reps to really penetrate a hundred percent of the country.

And so given our cash situation, we are not going to go hire those people today. And the other thing is NCCN guidelines. And so hopefully, obviously getting NCCN would be a powerful indicator for us. And that would, you know, drive a lot of revenue growth just because, you know, docs would it would be in guidelines, of course.

And then, the new price is really around the idea that we were, our test care category, they cross walked us from the original CPT code we had to a new one that is expansive for prognostics. And so that is why we are, they recommended unanimously that we move from the old one of 31.50 to the new one, which is, 38.47, I believe 38.73.

And so that has to go for public opinion that that is all collected. And they are meeting as you said now. So assuming there is no public pushback that final pricing guidelines will go in place and be effective in January of 2023. And as we know that, we will certainly let the world know that..

Okay. Yes. Perfect. Thank you so much for all of that..

Yes,.

And our next question comes from the line of Thomas Flaten with Lake Street. Please proceed with your question..

Hey guys, appreciate you taking the questions.

Ronnie, anything on the VA, that you could share with us in terms of penetration so far? I know it is only been a couple of months, but any uptake or how are you managing that from a commercial perspective or field force perspective?.

Yes, of course that contract gives us the, it is kind of a license to sell into the VA. Our reps are actually actively targeting certain VAs that we know have a high surgical rate of long, which we know which ones those are.

Thomas, I don’t know - as I look at our, I’m looking on our board as I look at the volumes for the quarter, I don’t have it broken out by VA, but that is a great question and something that we can certainly start getting and identifying for you.

My experience, which as you know, I’m old and been around a while, the VA contracts are really, like I said, a license to sell and they will be one off. But the good news is, once you close one, they typically run these tests on everybody that goes through. It becomes part of their protocol.

And so it is a very important contract for us and does represent a significant number of covered lives. And so that along with some of the private pay efforts that are ongoing today. I mean, we did see - we are continuing to see an increase in our commercial AUP for our commercial payers in RX.

And we are averaging right around 2,000, I think this last quarter. And so our ASP for the quarter was up. It was $3097, so the mix is still favorable for us. Year-to-date, we are about $3,058. So we are getting a really nice mix of Medicare and commercial that is starting to pay. But as I said, we hired this market access hotshot. She is amazing.

And we expect to see some improvement in the commercial payer world now that she is here for RX and one of her primary goals, though, is to start paving the way for IO..

Got it. Thank you. And then how are - given that you downsized the field team to support RX, I know you divert some of those headcount to the transplant group.

How are you thinking about timing of building up that commercial infrastructure to really support that once reimbursement is in place?.

You would transplant or DetermaIO?.

Transplant..

Yes. Well, right now, as you know, it is a pretty concentrated market. We know where our target centers are. We have more of a business development approach to those target centers right now with the early adopter program. We are ready to enroll the next wave of early adopter and so we are close to doing that and we will be on boarding those accounts.

We hired one rep to date and that rep is targeting the region of the country that we believe we have the greatest chance to exercise our rapid turnaround time and have a key attribute that we can compete with. So once we get reimbursement and we start to see revenue and that transplant revenue can support the increase. It is a very profitable test.

So once we start seeing revenue that could support within that P&L, the addition of more headcount. But we are going to be very deliberate about how we add headcount, given how concentrated the market is and we will add them as we have the money to do it..

Great. And then if I might, just flipping back to the discussion of kitting the products yourselves and validating them as opposed to working with a partner. Just strategically, I’m assuming that you would have benefited greatly from tapping into the commercial infrastructure of a box partner as certainly you would have.

I’m just wondering what that would look like from a commercial perspective and would you actually earn net income, because you would have to invest in the infrastructure to out and sell those things yourselves as opposed to piggybacking off of a partner. I’m just curious if you could help us to think through that strategic decision making..

Yes. That was a good question because that is where we were right in the summer. What we found out is, there is not a lot of digital PCR equipment today in some of the centers that are running - elevate the liver function test are running the kidney function test and the immunosuppressive panels.

Those are more immuno chemistry and clinical chemistry tests. And so, once we understood that, the companies that you are out there, Bio-Rad Thermo now has a new one, QIAGEN is the closest to being a clinical company, really if you look at it.

Bio-Rad nor Thermo Fisher, at least their digital PCR group, Roche digital PCR group, and then QIAGEN, they all have ambition to be in the clinical digital PCR space, but none of them really have a validated product necessarily for the digital PCR space in transplant or anything near transplant.

So what we realized is, all of them would be very eager for us to reagent rent a box. So we would lease it from them for the account. We would then create a reagent rental lease, and then that instrument would go into the account and be serviced by that instrument company.

But we would not we would be able to get our COGS on our kits at a much lower price by going direct to a manufacturer than working through an instrument manufacturer. And they get to mark up the kit and then or some level to us and then we would, our profitability would go down.

So for us, we just made the decision that since we can run on multiple instruments, we are going to validate the IBD product though on a, we can’t do every box, to your point, Thomas. So we have selected an instrument. There is another company out of Europe that is interested. So those, I got to be careful.

Those are the two things we are working on today and part of our strategic alternative. So I can’t say a whole lot more, but there is interest in the IBD kit and there is interest in the LBT. The LBT obviously is our shortest path of revenue and one that we are pressing hard on..

Got it. I appreciate that. Thank you..

Yes, sure..

Our next question comes from the line of Mason Carrico with Stephens Inc. Please proceed with your question..

Ronnie, I just wanted to circle back on some of your earlier comments just to make sure that I heard it right or I’m thinking about it correctly.

For your liver test, the dynamics that you were calling out, were you saying that the use of this test would be more for or more for, because I would guess say the for cause indication where you, you are using it to detect an active rejection instead of surveillance monitoring or where would that decision largely be based on the outcome of this MolDX meeting that is going on next week?.

No, we have been ongoing discussions with MolDX. They have been extremely helpful. Liver is an area as you know that no one has kind of pioneered yet. They are very interested and have been very interested in the utility.

In fact, the majority of the questions that go back and forth between our team and them have been around the utility and what is the true utility. Their input along with our - we were working with the largest liver transplant center in the United States, and the key opinion leader there is world renowned.

And that between, he and the group at CMS and certainly our team, we have really landed on a utility that is a reflex test for acute cases where liver function test panel comes back above the normal range and they need to reconcile, do they do a biopsy for that patient or not. And we are a really nice adjunct to that.

And it seems to be where we have landed with our reimbursement with our utility for reimbursement, but also the energy and the excitement around that from the other centers we have been talking to is pretty high. It is liver enzyme tests are cheap and actually, they function pretty well as a surrogate of an organ.

Something going on with an organ, you just don’t know what it is. And then our molecular profile can be more, add specificity as to what is actually causing the increase. And so for us, again it is, listen, we went into this hoping it would be a monitoring cause it is a much bigger market.

But the reality is, I think CMS’s current focus on kidney and heart with the current players led them to ask us a lot of hard questions about utility. And I will just say this, I think it forced us to think about our opportunity and we have really landed, I think in a pretty good place..

Got it. That makes sense. And then I didn’t hear much on DetermaTX during the call, are efforts to submit that test for reimbursement still in progress.

And if so, how are you thinking about the timeline for submission there?.

Yes, thanks Mason. You know, DetermaTX is a test that is very, you know, it is kind of a me too test for everybody on the market. We developed a prototype for the test, but it was going to cost about 700,000 to validate it.

And we just decided to hold off on spending that money today and put it behind transplant and wait until we got the LCD for DetermaIO and once we see the draft LCD and we know that we are going to get reimbursement for IO at that point we will pick back up on what we do around a targeted mutation panel.

There is folks that we could partner with for that as well and we could save ourselves the cost of development. So we are kind of looking, we are rethinking DetermaTX since it is a me too test and it is going to take a lot of money to validate it given the number of mutations that are on the panel..

Got it. Okay. And then last one from me here.

Could you run through your thoughts on the mix of patients Medicare versus commercial for the initial indications for DetermaIO, what percentage of those patients, maybe for each indication is with Medicare age?.

Yes, it is changing Mason rapidly. In the early days of IO it was indicated mostly for late stage and salvage treatment cause that was the easiest place for pharma to get their indication. So back then it was 60% 70%, you know, Medicare, Medicare advantage.

But what is happened as they have moved from stage four, cause those are typically people who are older and have later stage tumors, what we are finding now is as they are moving their studies to move these drugs into Stage 2B, 3A, 3B, these patients are younger and there is a younger cohort.

I only know this from my, you know, work I do with ASCO and I’m active with the team and the board of ASCO. And I know from what they are seeing that we are starting to see that mix change. I expect, I don’t, I mean if I was, if I was guessing, I would say maybe somewhere in the, 55 Medicare, 45 private pay at some point.

But I think the big number to know that, I think I reiterate this number every time I speak publicly to at conferences right now it is estimated $125 billion will be spent on immune therapy in 2025. 70 billion or 80 billion of that based on the current statistics will have zero impact on the patient outcome.

And so that is where the overuse of this therapy class is going.

And I think it is only going to get worse as we move down into younger patients who will come in and try to demand that they get an immune therapy cause they have seen the commercials that say, I’m going to cure when we know that less than 25% of the patients actually have durable response.

And so I think for us, that is why we are so excited about the private pay world because they are the ones bearing the brunt of that, of course Medicare as well, but the private pay, many of those folks are publicly traded and creating a product mix for them that reduces overall drug spend and creates the efficacy of that spend to be better.

I think that is a good story for us and one that will begin telling, you know, now that we have our med, our market access first..

Got it. That is helpful. Thanks guys..

And our last question comes from the line of Bruce Jackson with Benchmark Company. Please proceed with your question..

Hello. Thank you for taking my question. Just a follow-up on VitaGraft. You have got the early access program growing right now.

Is the lab pretty much set for launch and are you prepared to scale for additional volume?.

Great question. Right now, the lab is ready. We are accepting samples from our EAP accounts. We continue to refine our logistics and workflow and career services and things like that. So that is why we do these EAPs. But we are ready to go full market. As I speak now we have hired the people we need, we needed to hire.

We are able to run the multiple shifts. And so we are appropriately staffed and ready to go to provide the turnaround times that I mentioned in my earlier comments. So I feel like we are good there.

Nashville is not a small, it is not a big lab, it is a small facility, but we think that team was running a couple shifts we think we can get that somewhere between 18 million to 20 million in revenue before we have to think about a third shift or expanding the facility.

So we have got some runway ahead of us there, but obviously we hope to flow through that as quickly as we can. So we are having to look at that and think of our long-term planning about what do we do about expanding Nashville..

Okay, great. And then in terms of the other launch preparations, it is a fairly compact target market that you are going after. So we can scale the sales force pretty effectively.

Is there anything else that needs to be put in place prior to the launch?.

Transplant. The only other thing that we really probably want to add are some net add folks, some folks that can go in and educate the accounts on utility of our test and having used it. And as you know, that is not a sales rep under the current compliance where we live in. That needs to be doctor-to-doctor, scientist-to-scientist.

And so we have one of those, but we will we need to give up a few of those to be able to serve a broader market in transplant..

Okay, great. That is it for me. Thank you for taking my questions..

Thanks Bruce..

And we have reached the end of the question-and-answer session. I will now turn the call back over to Ron Andrews for closing remarks..

Thanks everyone. I appreciate your time today. We certainly appreciate your patience with these long calls, but it is really important to have a lot going on. All these products are making their way rapidly through the process and we are very excited about where we are in terms of the product development moving and transitioning to commercialization.

So we look forward to chatting with you soon. Have a great week..

And this concludes today’s conference and you may disconnect your lines at this time. Thank you for your participation..