OncoCyte (NASDAQ:OCX) Corporation (NYSEAMERICAN: OCX), a diagnostic testing firm, recently held its First Quarter 2024 Earnings Conference Call. CEO Josh Riggs provided updates on the company's commercialization efforts, particularly in transplant management and oncology diagnostics.
Despite a decrease in net revenue for the quarter, OncoCyte is optimistic about its growth prospects, citing strategic investments in product development and commercialization. The company aims to be the transplant community's research tool of choice within 12 to 18 months and is preparing for the global launch of its GraftAssure RUO product. With $5.6 million in cash reserves and an additional $15.8 million from equity financing, OncoCyte is confident in its pathway to FDA clearance for its VitaGraft Kidney IVD by the end of Q4 2025.
Key Takeaways
- OncoCyte's Q1 2024 net revenue was $176,000, a 41% decrease from Q1 2023.
- The company holds $5.6 million in cash reserves, a 60% increase from the previous year.
- Strategic partnerships, such as with Bio-Rad Laboratories (NYSE:BIO), are central to OncoCyte's growth.
- OncoCyte is focusing on transplant management and oncology diagnostics, with products like GraftAssure RUO and VitaGraft Kidney IVD.
- The company is on track with the regulated kit pathway for its transplant products and does not foresee new rules impacting its timeline.
- OncoCyte anticipates journal publications in 2024 to support clinical claims for its DetermaCNI and DetermaIO tests.
Company Outlook
- OncoCyte aims to become a leading research tool for the transplant community within the next year to year and a half.
- The company plans to ship its GraftAssure RUO product to sites in Asia, the US, and the EU.
- The U.S. markets for OncoCyte's DetermaCNI and DetermaIO diagnostics are valued at $2 billion and $4 billion, respectively.
- FDA clearance for VitaGraft Kidney IVD is expected by the end of Q4 2025.
Bearish Highlights
- Q1 2024 net revenue saw a significant decrease, attributed to investments in product development and commercialization efforts.
Bullish Highlights
- OncoCyte's cash reserves have improved significantly from the previous year.
- The company secured an additional $15.8 million through equity financing in April.
- OncoCyte has established deep relationships with research institutions, especially in Germany, facilitating product launches.
- There is a strong indication of interest from the well-networked transplant community in the US and Asia.
Misses
- The company's net revenue for Q1 2024 fell short compared to the same period in the previous year.
Q&A Highlights
- There is an industry trend towards in-house testing due to the longer turnaround time for send-out tests.
- Once a regulated product is on the market and reimbursed, it is unlikely that centers will forgo the associated revenue.
- Commercial hires are on track, with job postings expected by the end of the quarter and training slated for Q3.
- The goal is to have a fully trained commercial team in place by Q4.
In summary, while OncoCyte faces challenges with its current revenue, the company's strategic investments and partnerships, along with its robust pipeline and commercialization plans, provide a positive outlook for its future in the diagnostic testing market. With plans to engage more frequently with the investment community, OncoCyte is positioning itself for sustained growth and innovation in the years to come.
InvestingPro Insights
OncoCyte Corporation's (NYSEAMERICAN: OCX) latest financial metrics and market performance provide a nuanced perspective on the company's current position and future prospects. As of the last twelve months leading up to Q4 2023, OncoCyte reported revenue of $1.5 million, which is a notable increase of 56.89% compared to the previous period. This growth indicates a positive trajectory in the company's ability to generate sales, despite the reported decrease in net revenue for Q1 2024.
However, the company's operational efficiency appears to be a concern, with an operating income margin of -1481.57% for the same period. This suggests that OncoCyte's expenses far exceed its gross income, which could be attributed to its investments in product development and commercialization, as mentioned in the article. Additionally, with a market capitalization of $39.43 million, OncoCyte is considered a small-cap company, which typically offers higher growth potential but also comes with higher risk.
From an investment standpoint, two InvestingPro Tips stand out for OncoCyte:
1. The company holds more cash than debt on its balance sheet, which provides some financial flexibility and may reassure investors of its ability to fund operations in the short term.
2. Analysts do not anticipate the company will be profitable this year, which aligns with the operational challenges reflected in the financial metrics.
Investors interested in a deeper analysis of OncoCyte can find additional InvestingPro Tips at https://www.investing.com/pro/OCX. There are 5 more tips available, offering insights that could guide investment decisions. For those considering an InvestingPro subscription, use the coupon code PRONEWS24 to receive an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
Full transcript - OncoCyte Corp (OCX) Q1 2024:
Operator: Good afternoon. My name is Briana and I will be your conference operator today. At this time, I would like to welcome everyone to the OncoCyte First Quarter 2024 Earnings Conference Call. Please note that this call is being recorded. [Operator Instructions] I will now turn today’s call over to Jeff Ramson, CEO of PCG Advisory. Please go ahead.
Jeff Ramson: Thank you, Briana and thank you to everyone for joining us for today’s conference call to discuss OncoCyte’s first quarter 2024 financial results and recent operating highlights. If you have not seen today’s financial results press release, please visit the company’s website on the Investors page. Before turning the call over to Josh Riggs, OncoCyte’s President and CEO, I’d 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-Q, 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 under applicable law. I’d like to now turn it over to Josh Riggs.
Josh Riggs: Thanks, Jeff and thank you to everyone for joining today. Building on the strong momentum in 2023, we have kicked off 2024 with impressive strides at OncoCyte. We expect the next 12 to 18 months will be unprecedented for the company as we execute on multiple milestones, driving value creation across all aspects of our business. Today, we are going to talk about the early stages of commercialization, the developing horizon in transplant management and the potential role that OncoCyte plays and also opportunities for growth in oncology. Our partnership with Bio-Rad Laboratories is a game changer. Bio-Rad extends our reach, allows us to introduce the GraftAssure RUO product into prominent academic centers while supporting the development of regulated products like VitaGraft Kidney IVD. As part of the agreement, Bio-Rad and OncoCyte will co-market the assay in the U.S. and Germany, with OncoCyte acting as the commercial lead there. Outside these countries, Bio-Rad has been granted the exclusive global distribution and commercial rights. We have already felt the advantage of this scale as our funnel continues to grow and more sites become early beta site adopters. At launch, we expect the ship to sites in Asia, the United States and the EU. Our value proposition in transplant monitoring is simple. We offer an easy-to-use test, a rapid turnaround time and attractive economics for ourselves, customers and Bio-Rad. We continue to be pleased and encouraged by the warm welcome we are getting at transplant research centers around the world. They long have been frustrated by the limited access that they have to transplant rejection monitoring technology and their inability to answer vital additional clinical questions. That need opens up a significant market opportunity, including in the United States and Germany, where we have a long history of publishing with top research hospitals. We are excited to support these customers as they bring this technology in-house and continue to push boundaries of what is possible with this type of transplant rejection monitoring testing known as donor-derived cell-free DNA testing or BDC FD&A. Our own research is breaking new ground in transplant. We see an opportunity for OncoCyte’s technology to improve transplant rejection management through earlier intervention. Currently, within the first 5 years, post-transplantation, approximately 20% of kidney transplant patients will test positive for donor-specific antibodies or DSAs, which are antibodies that tied to their donor organs that their immune systems have created. DSA is an important biomarker used to monitor organ health in transplant patients and those who test positive for DSA face elevated risk rejection and potential loss of their organ. Our recent randomized interventional kidney study demonstrated that our technology can detect antibody mediate rate rejection, or AMR or ABMR, as a common and challenging type of organ rejection in DSA positive patients 10 months before standard-of-care methods. In this study, patients were divided into two groups, one who use our test and the other who didn’t. In the group that used our test rejection detected much sooner. And while there are no currently approved therapies for AMR that research in early detection has supported our inclusion in multiple Phase 2 pharma studies that are seeking to address the disease. A successful pharma study would open up new use cases for our test like therapeutic efficacy and minimal residual disease testing. OncoCyte is now in position to support both early detection and long-term management of transplant rejection risks. And we want to support this type of research across the board. I believe that as research centers validate and begin to use the GraftAssure RUO, we are going to see an explosion of research and collaboration in the space that will seek to address needs that are clearly unmet today, things like immunosuppression tapering for liver transplant patients and the early detection of AMR. By partnering with the research community, we expect strong pull-through into academic centers around the world. Our goal is to become the research tool of choice for the transplant community over the next 12 to 18 months. Working with Bio-Rad and leveraging their expertise in life sciences gives us a great head start with the research community. Building this relationship with the research community supports our plans to develop and deliver an FDA-regulated kit version of our VitaGraft assay to the market. To that end, we expect to make an investigational use kit available to support the development of new clinical indications in investigator and pharma-sponsored studies. This specially labeled kit makes working with the FDA much easier coming out of trials. For the past couple of quarters, we have talked about the coming transition in transplant monitoring from centralized labs to local testing. And I don’t think this was a controversial point, doctors want an answer in a day instead of a week and cash strapped hospitals would rather capture revenue than send it out. We have seen it happen in multiple diagnostic markets once regulated kits become available and expect that this market will be no different. Ultimately, the transplant market will be dominated by regulated kit products used locally, which is why we started down this path over a year ago. And while incumbent central labs generate hundreds of millions of dollars annually in the transplant market, the market is nowhere near oversaturated, presenting a substantial opportunity for growth. Most of that revenue today is derived from a U.S. focused central lab model. That leaves a big gap in the EU and rest of world markets. And OncoCyte is actively working to disrupt the market and step into that gap. It’s worth keeping in mind that the global transplant market with over 150,000 transplants annually and a 9.1% growth rate remains largely unserved or underserved. Improving patient outcomes by increasing the number of successful transplants is an important health priority in many countries. For example, in the U.S., the Center for Medicaid and Medicaid Services, which is known as CMS, recently issued a proposed rule, which would increase the incentives for hospitals to provide more kidney transplants and achieve better post-transplant outcomes. This new rule seems likely to drive further adoption of transplant monitoring diagnostic testing. For distributed regulated kits, adoption is about being easy to use, affordable and quick to generate a result. We will be working very closely with the clinical team at Bio-Rad to deliver a product that supports the current and emerging needs of the transplant community, one where the demand for our local testing option is growing by the day. In addition to revenue, we have two key measures of success, publications and site activation. With publications, its how many posters, papers and studies are being presented using our technology. These will be the leading indicator of adoption in the development of new utilities. Very little happens in the clinic that hasn’t been validated many times over in the research lab. And that is why it’s so important to lead with a research product and support the research community early on. We look forward to watching the body of literature expand as access to our affordable, easy-to-use test grows. Site activation is critical for long-term success and supporting the eventual transition to IVD. This is a very concentrated market. There are only a couple of hundred potential transplant sites in the U.S. and EU, where we plan to launch our regulated product, VitaGraft Kidney IVD. With each one we bring up, we are picking up meaningful long-term recurring revenue and market share. Based on population data, we would expect the average U.S. Target transplant center to generate recurring kit revenues in the millions. Most markets do not quickly shift to a new product based on a single advantage unless that advantage is overwhelming. But when there are multiple substantial advantages and the switches to something that customers normally prefer to do anyway, that switch can be quite rapid. In those cases, the inertia of habit and existing practice patterns and the influence of sales forces is neutralized. Now when people talk about transplant monitoring, they’re usually talking about single nucleotide polymorphisms or SNP-based detection, where you’re looking at specific gene targets in the blood. It is what the market leaders in transplant monitoring use in their test via next-generation sequencing, and it’s what we use in Droplet Digital PCR, which is a cheaper, quicker and more widely available technology platform. We believe that SNP-based detection methods will continue to dominate mind share in the transplant monitoring space. Competitively, it feels like we are in a great position with our turnaround time, ease of use and affordability – and to that – add to that differentiated clinical data and some unique technical capabilities and we’re bringing a lot to the transplant community. It’s not unreasonable to imagine 30 to 50 centers or more in both the United States and EU having this as an in-house test, generating recurring revenue above $100 million annually. When we began the kit manufacturing process in 2023 with our prototype lots coming off the production line at the end of last year, with that step behind us, we expect to move rapidly through the final phases of product development, and we will provide updates as we clear key hurdles in the path to FDA clearance. To bolster these efforts and help scale our operations in April, Bio-Rad joined current and new shareholders and a $15.8 million private placement valued at market. This investment solidifies OncoCyte’s foundation and marks a significant endorsement of our partnership. The FDA’s long-awaited final rule for the regulation of lab-developed tests finally was released in early May. We believe that most of our lab developed tests meets the currently marketed carve-out in this final rule but it remains to be seen how this clause will go into effect. This is something akin to, but not quite like the concept of grandfathering. And the 4-year plus phasing period for the final goal gives us plenty of time to adjust any change that might be needed. It is also unclear what legal challenges and further delays this rule may have to survive as it comes into full effect and is an area that we will be watching very closely. That said, we are already fully on the regulated kit pathway for our transplant product and do not expect these rules to meaningfully alter our approach or time lines. In fact, these rules may help to shift the focus of our industry towards regulated kits over time. Alongside the positive developments we are making in transplant, our oncology portfolio continues used to make important progress as well. We anticipate journal publications in 2024 involving both the DetermaCNI and the DetermaIO that will support our clinical claims and path to coverage and reimbursement. Our DetermaIO test aids physicians in evaluating where patients are likely to benefit from immunotherapy, while our DetermaCNI test tracks patients’ responses to cancer therapies. With the U.S. markets for these diagnostics valued at $2 billion and $4 billion, respectively, we see significant partnership opportunities as these products continue their development. We expect to follow a commercial path similar to the one we are developing in transplant rejection monitoring, by which a partnership leads the way into a large market opportunity. Our excitement about our strong growth outlook is deeply rooted in fulfilling our core mission at OncoCyte, democratizing the diagnostic testing market. We are dedicated to ensuring that everyone regardless of location or circumstances has access to fast and reliable testing. This commitment drives our development of user-friendly, rapid diagnostic solutions aimed at leveling the playing field in health care and enhancing patient outcomes globally. Looking forward, as the demand for local testing options is on the rise, our innovative solutions, strategic alliances and targeted commercial strategies position us strongly to seize these opportunities. We’re enthusiastic about what lies ahead and remain dedicated to delivering value to our shareholders, customers and the broader health care community. We’ll shift over to the financials. In the first quarter of 2024, although our net revenue saw a decline, it does not reflect the momentum we are building in early commercial efforts for kitted products. We increased our research and development expenses by 2% compared to the same period in 2023. This increase is a testament to our commitment to innovation and our focus on developing kitted products. Additionally, our sales and marketing expenses rose by 22% and largely driven by our intensified efforts in sales and commercialization activities. On the flip side, our general and administrative expenses decreased by 22%, primarily because of reductions in stock-based compensation and personnel costs. reflecting our ongoing initiatives to streamline operations and enhance financial efficiency. Our key operational metrics clearly demonstrate our dedication to efficiency and growth while continuing to invest in our future. Our net revenue for the quarter stood at $176,000, a 41% decrease from the same period in 2023, predominantly due to our strategic investments in product development commercialization. We are confident these investments will drive long-term growth and increase shareholder value. On to our cash at hand. Q1 continued to benefit from the cost reductions we undertook in 2023. Cash reserves declined $3.9 million in the quarter, leaving $5.6 million on the balance sheet. This is a 60% improvement in cash earned year-over-year. As mentioned earlier, our equity financing added $15.8 million in cash to our balance sheet in April. GAAP net loss from continuing operations for the first quarter was $9.1 million or $1.13 per share as compared to net income of $6 million or $0.82 per share for the first quarter of 2023. Non-GAAP operating loss as adjusted for the first quarter was $5 million, an increase of $100,000 compared to the same period in 2023. We have provided a reconciliation between our GAAP and non-AP operating losses in the financial tables included with our earnings release, which is available at our website at oncocyte.com. We have reflected the operations of Razor as discontinued operations for the DetermaRx product for all periods presented in our financial statements. In closing remarks, as we forward in 2024 and beyond, we are doubling down on our commitment to invest in hey focus areas, especially in developing kitted versions of the assays like VitaGraft DetermaIO and C&I. OncoCyte anticipates several key catalysts in 2024. These include the global launch of GraftAssure RUO, the reimbursement of the next generation of our VitaGraft kidney lab-developed test, publication of data supporting new claims for VitaGraft’s kidney and publication of data to support coverage and reimbursement for DetermaIO and DetermaCNI. Additionally, we expect to make significant progress on VitaGraft Kidney IVD aiming for FDA clearance by the end of Q4 2025. OncoCyte is now at the starting line of its most exciting growth phase to-date. By delivering our advanced tools to researchers around the world from leading institutions in the U.S., EU and Asia to everyday labs needing straightforward record results with fast turnaround times, we are carving out new pathways for research and patient care. We foresee a boost in sales, marketing and commercialization activities with our expanding role in the transplant sector alongside our ongoing efforts in oncology. Financially, our disciplined approach is clear, shown by our modest cash burn of $3.9 million in the first quarter, and our capital-light business model should enable us to keep our burn low as we commercialize our tests and build revenue under way to profitability. Coupled with our strategic moves and the $15.8 million boost from our recent private placement, we are well positioned for sustained growth and innovation. As we begin our product launch, we also plan to interact more frequently with the investment community over the next few months. If you are an institutional investor or a long-term oriented investor revenue type, and please contact us if you would like to schedule a meeting. I plan to meet with investors in a number of U.S. cities over the next few months. And in the meanwhile, please take the time to look at the Investor Relations sections of the OncoCyte website at oncocyte.com. On it, you can find our most recent slide deck and a range of other information about our company and business opportunities. We extend our heartfelt thanks to our team, shareholders and partners for their unwavering belief in our vision and their continued support on this transformative journey. Your trust fuels our commitment to democratize patient care through innovative diagnostics. I will turn the call back over for the Q&A session.
Operator: [Operator Instructions] Our first question comes from Mike Matson (NYSE:MATX) with Needham. Please go ahead.
Mike Matson: Yes. Thanks. So, just in terms of GraftAssure research is something we – is that – should we start to see any meaningful sales of that this year, or is it really going to be more in ‘25?
Josh Riggs: Yes. Thanks. I think we will start shipping those first customers here in Q2. It’s going to take them a little while to validate since this is an RUO product. We will expect to see kind of like the first revenues from those sites probably middle, late Q4 and then building into 2025.
Mike Matson: Okay. Got it. And then just the – your sales and marketing was up, I think you said 22%. So, is that going to continue to go up as you move to commercialize GraftAssure or is that – should we expect that to sort of level off from here?
Josh Riggs: Yes. I think when we talked a couple of weeks back, we said that we were going to add a couple of headcount there. I think that’s still our commitment that we want to put on a handful of bulk here in the U.S. and maybe a person or two in Europe to kind of support product launch and the validation activities that are going to be going on, so the site activation. So, we will pick up a little bit there and then it will level off in the latter part of Q4.
Mike Matson: Okay. Got it. Thank you.
Operator: Our next question comes from Mason Carrico with Stephens. Please go ahead.
Mason Carrico: Hey Josh. So, in your discussion with transplant centers, I am just curious what you are hearing in terms of clinicians’ willingness to switch away from the current transplant offerings that are on the market and fairly well utilized. I guess once there is a kitted option, I guess how do you think about that transition playing out? Do you think it’s on a clinician-by-clinician basis, or could it be more top-down from the transplant center itself?
Josh Riggs: Yes. I mean, so I can – I got two rounds of experience this year here, I guess is we have kind of the interaction that we are having on the lab service side. And I think what we have learned in the past year, 1.5 years of interacting with the transplant community is that, if you have seen one transplant center, you have seen one. And even within centers, you have kind of split use. Some docs prefer one test, one doctor prefer another test. And we haven’t seen any kind of like heavy-handed organizational mandates that say you have to use this test or you have to use that test maybe in a few rare circumstances. And I would say that as the industry builds trust in the assay, you will start to see more of a shift, but I wouldn’t expect it to be kind of day one that there is going to be kind of a flip of the switch and all the testing is going to go. But I do expect that the motivations to do testing in-house are going to remain relatively constant, which is there is no way to get a send-out test answer in one day. And that’s going to have a lot of power once the regulated product is on market. And presuming that it’s reimbursed, it’s really hard to imagine that those centers would want to forego that revenue. So, I think those are going to be powerful motivators to switch once there is a regulated product out there. I don’t know if I have answered your question as if that gets where we are trying go.
Mason Carrico: No, that was helpful. Yes, that was helpful. And then in terms of the conversations you are having with potential beta sites that you will begin shipping to. I mean where are you seeing the most interest? Is there some commonality among the centers that are set to be those beta sites and those who aren’t, I mean were these through established relationships or any color on how those opportunities kind of presented themselves?
Josh Riggs: Sure. I mean I think the way we structured the agreement with Bio-Rad with carving out Germany probably gives you some hint there. I mean we have been publishing with those guys a lot of those research institutions for the past 7 years to 8 years. So, those are really deep relationships. And we would expect that that’s really fertile ground for these product launches. In the U.S. and Asia, I mean it’s been a lot of word of mouth really that’s driving this. I think the community is fairly well networked. It’s small, right. I mean there is only a certain number of centers that do transplants in any volume. And I would say the centers that are reaching out to us are very capable. They are research-focused. They have questions that they have been wanting to ask for a long time. But their research interests haven’t really lined up with the commercial interests of the incumbents. And so they are excited to get their hands on the technology and be able to answer the questions that have been bugging them for a very long time.
Mason Carrico: Got it. And then the last one here for me, you touched on it in a previous question, but in terms of the commercial hires, how are those progressing? How do you think about the cadence of those reps being hired, being trained up and getting out there?
Josh Riggs: Yes. I mean we have been preparing those JVs. And so we will get those posted by the end of the quarter. We will expect to be bringing those folks on in Q3 and so they will get trained up, be training alongside the Bio-Rad team. And then that way once we get into Q4, we have got a really strong team on the field.
Mason Carrico: Perfect. Alright. Appreciate it.
Josh Riggs: Thank you.
Operator: This will conclude our question-and-answer session. And with that, we will conclude today’s conference call. Thank you all for your participation and you may now disconnect.
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