OncoCyte Corporation (NASDAQ:OCX) Q1 2023 Earnings Call Transcript May 11, 2023

OncoCyte Corporation beats earnings expectations. Reported EPS is $0.02, expectations were $-0.08.

Operator: Good day. And welcome to the OncoCyte First Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Ms. Stephanie Prince of PCG Advisory. Please go ahead, ma’am.

Stephanie Prince: Thank you, Chuck. And thank you to everyone joining us for today’s conference call to discuss OncoCyte’s first quarter 2023 financial results and recent operating highlights. If you have not seen today’s press release — financial results press release, please visit the company’s website on the Investor page. Before turning the call over to Josh Riggs, the company’s President and CEO, 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 Forms 10-K and 10-Qs, which identify specific risk factors that may cause actual results or events to differ materially from those described in these forward-looking statements.

Actual outcomes and results may differ materially from what is expressed or implied by these forward-looking statements. OncoCyte expressly disclaims any intent or obligation to update these forward-looking statements, except as otherwise may be required by law. With that, I will turn the call over to Josh Riggs. Josh?

Josh Riggs: Thanks, Stephanie. And welcome everyone to our conference call to discuss our first quarter 2023 highlights. For today’s call, we will review the progress we have made improving our cost structure and pivoting to a high margin scalable product business. OncoCyte has been faster path to market and lightweight infrastructure. Before we go there, I would like to try to provide a little extra context on our shift in strategy. While many other diagnostic companies are pursuing the more typical service lab business model. They have also historically generated substantially large losses and continue to consume significant capital. OncoCyte’s kitted product commercial models should allow us to scale our revenue with relatively little capital, while we generate higher profit margins that are sustainable over the long-term.

As a company, we continue to face adverse market conditions, reining in costs and focusing investment in Q1 was critical. We consolidated our lab operations, pared down our product portfolio and right-size the company, eliminating over $20 million in annual operating expense. Going forward, we will continue to focus on managing spend down and driving towards a capital efficient model. These efforts in the shift in strategy allowed us to complete a $13.86 million equity raise. That was at market continued to warrant coverage and was composed of topholders and insiders. We appreciate that continued commitment to the company and meeting the needs of patients. Now on to our product portfolio. On our last call we talked about DetermaIO RUO was a kitted product.

We are happy to announce that we are completed with the first phase of development and are now optimizing the assay to prepare for manufacturing. DetermaIO continues to build its case is the best in class measure of the tumor microenvironment. We believe that this was evident in the recent peer reviewed publication of the results of a study applying DetermaIO to samples collected from the randomized Phase II AtezoTRIBE clinical trial in metastatic colorectal cancer. The results were published in Clinical Cancer Research and showed the utility of DetermaIO in potentially identifying more responders to ICI therapy than current standard-of-care biomarkers. Additionally, we presented four abstracts exploring the tumor microenvironment and its potential implications for therapeutic response at the Annual Meeting of the American Association for Cancer Research.

Also at AACR data was presented highlighting exciting study results applying DetermaCNI, our blood based tests to metastatic pancreatic cancer that indicate our tests can identify patients not responding to therapy. DetermaCNI is a blood-only solution for efficacy monitoring, which we believe will make it an attractive alternative for researchers that don’t have access to or need to conserve precious tissue, since no upfront tumor typing is required. Our VitaGraft assays for transplant management continue to work their way through CMS as we pursue reimbursement. The kitted version of the transplant test is through Phase I of development and is on pace into manufacturing in the next three months. We are looking forward to an expected early access launch date later this year, making our technology available to research labs here in the U.S. and abroad.

Revenue is expected to begin in the first half of 2024. Gaining reimbursement for our portfolio and bringing our test to market to generate revenue growth is essential. We believe our optimized product strategy will attract revenue generating external partnership and licensing opportunities and our reduce burn ensures our current resources were — will carry us well into the first half of 2024. At this point, I would like to turn the call over to Anish John to review our financials.

Anish John: Hi, everybody, and thanks for joining our call. Before we begin our formal review of the financials, I’d like to start by saying that OncoCyte overall has seen a significant year-over-year operating expense decline across all categories of spend in Q1 of 2023. This largely reflects management’s successful efforts to optimize the portfolio and definitively reduce our operating expenses. With that, our consolidated preliminary revenues for the first quarter of 2023 were approximately $0.7 million, representing a decrease of 50% year-over-year. Excluding DetermaRx revenue, the continuing operations revenue related to pharma services was $0.3 million for the three months ended March 31, 2023. Cost of revenues for the first quarter were approximately $0.8 million, primarily from the cost of diagnostic tests and testing services we performed for our DetermaRx and pharma services customers.

Research and development expense decreased 45% year-over-year from $5.1 million to $2.8 million, primarily due to the decrease in CLIA laboratory expenses and focused product development spend in the three months ended March 31 2023. General and administrative expense decreased 34% year-over-year from $5.7 million to $3.7 million, reflecting management’s efforts to control spending not directly related to product development or commercial activities throughout 2022 and into 2023. Sales and marketing expense decreased 63% year-over-year from $3.2 million to $1.2 million, mainly attributable to the decrease in product development and commercialization efforts of DetermaRx and due to the sale of Razor Genomics during the first quarter of 2023.

Now I’d like to turn to our GAAP and non-GAAP analysis. Non-GAAP operating loss as adjusted for the first quarter was $7.8 million, a decrease of $3.5 million as compared to the same period in 2022. GAAP operating income as reported for the first quarter was $2.9 million, a change of $12.8 million, compared to a loss of $9.9 million for the first quarter of 2022. For the first quarter, we reported a GAAP net income of $3 million or $0.02 a share, as compared to a net loss of $10.3 million or $0.11 per share for the first quarter of 2022. We have provided a reconciliation between these GAAP and non-GAAP operating losses in the financial tables included within our earnings release. Turning out of the balance sheet. As of March 31, 2023, we had cash, cash equivalents and marketable securities of $12.4 million.

Net cash used in operating activities was $9.6 million for Q1 2023 and represents a 27% reduction versus prior year and includes non-recurring expenses related to the exit of the Razor business. We anticipate continued improvement in quarterly operating cash burn levels in the back half of 2023 and are now revising our guidance to below $5 million in quarterly average burn versus the $6 million quarterly average burn in the back half of 2023 that we guided to you previously. Lastly, I wanted to share that I will be resigning from my position of CFO of OncoCyte effective June 15, 2023. It’s been a privilege to serve OncoCyte during this period of significant transition, particularly over the last few quarters. From an operational finance perspective, we had taken a difficult but needed steps to successfully right-size the organization, optimize our product portfolio and deliver on our commitment to reduce our burn rate.

I am confident that these efforts have put us in the best position to bring our key products to market on behalf of our shareholders and patients. I know we are well positioned to realize the key value milestones ahead and I want to take a moment to thank my colleagues here at OncoCyte, our Board of Directors and our shareholders for the privilege of serving as OncoCyte’s CFO. That concludes my review of our financial highlights and I will return the call to the Operator for your questions.

Q&A Session

Operator: [Operator Instructions] And the first question will come from Mike Matson with Needham. Please go ahead.

Operator: The next question will come from Mason Carrico with Stephens. Please go ahead.

Operator: The next question will come from Mark Massaro with BTIG. Please go ahead.

Operator: The next question will come from David Westenberg with Piper. Please go ahead.

Operator: [Operator Instructions] Our next question will come from Bruce Jackson with The Benchmark Company. Please go ahead.

Operator: This concludes our question-and-answer session, as well as our conference call for today. Thank you for attending today’s presentation. You may now disconnect.