OncoCyte Corporation — Q2 2020 Form 10-Q
Filing identity: The supplied metadata names Insight Molecular Diagnostics Inc., but the filing identifies the registrant as OncoCyte Corporation (NYSE American: OCX). This is the unaudited quarterly report for the three and six months ended June 30, 2020; filed July 29, 2020. Amounts below are in millions unless stated otherwise.
Business context and reporting period
OncoCyte develops and commercializes molecular diagnostic tests, initially focused on lung cancer. It launched DetermaRx in early 2020 and acquired Insight Genetics on January 31, adding pharma-services revenue and DetermaIO, a test still in development for clinical use. The 2020 results include Insight from the acquisition date; 2019 reported no revenue.
Financial performance and liquidity
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $0.143 | $0 | $0.158 | $0 |
| Cost of revenue | $0.365 | $0 | $0.538 | $0 |
| Operating expenses | $8.911 | $5.462 | $17.358 | $9.459 |
| Operating loss | $(8.768) | $(5.462) | $(17.200) | $(9.459) |
| Net loss | $(9.108) | $(5.383) | $(16.840) | $(9.247) |
| Net loss per share, basic and diluted | $(0.14) | $(0.10) | $(0.26) | $(0.19) |
- Revenue was primarily from Insight pharma services. DetermaRx revenue was recognized on a cash basis while payment uncertainty remained. Cost of revenue exceeded revenue by $0.222 million in Q2 and $0.380 million for the half year.
- At June 30, cash and cash equivalents were $16.795 million, marketable equity securities $0.341 million, current assets $18.445 million, and current liabilities $6.842 million. Working capital was approximately $11.6 million. Restricted cash of $1.7 million was not available for general use.
- Six-month operating cash use was $13.874 million; investing cash use was $10.681 million; financing provided $19.278 million. Cash, cash equivalents and restricted cash ended at $18.495 million, down $5.277 million from the start of the period.
- Reported loan payable was $4.104 million in total, split between current and noncurrent liabilities; the company also had lease liabilities. A $1.141 million PPP loan bears 1% interest and may be eligible for forgiveness, but forgiveness was not assured. The SVB loan maturity was extended to September 2022, with principal payments deferred through October 2020.
- Management stated that cash, securities and potential ATM proceeds were expected to fund current operations for at least 12 months from issuance of the financial statements. The company nevertheless expects continuing losses and said it will need additional capital until revenues can cover expenses.
Material changes versus the prior comparable period
- Revenue began in 2020, following the DetermaRx launch and Insight acquisition; year-ago revenue was zero. Revenue remained very small relative to operating costs.
- Q2 operating expenses increased $3.449 million year over year. Research and development rose 114% to $3.225 million, sales and marketing rose 391% to $1.562 million, and general and administrative expense rose 3% to $3.759 million. For the first half, total operating expenses rose to $17.358 million from $9.459 million.
- Oncocyte acquired Insight for $23.130 million of fair-value consideration, including $12.0 million cash and stock consideration and $11.130 million of contingent consideration. The acquisition added $14.650 million of DetermaIO in-process R&D, $9.187 million goodwill and contingent payment obligations.
- The company raised $18.342 million in net cash from common-stock sales during the first half, issuing 8.257 million shares; outstanding shares increased to 67.218 million from 57.032 million at year-end 2019.
- Oncocyte discontinued significant further development of DetermaDx in June and recorded a $0.422 million noncash impairment charge. It also recognized a $1.095 million tax benefit from a partial release of its valuation allowance related to the Insight acquisition.
Outlook, commentary and risks
- Palmetto issued a final local coverage decision making DetermaRx eligible for Medicare reimbursement for services from June 14, 2020. CMS reimbursement pricing had not yet been communicated; management expected to recognize Medicare test revenue when performed after pricing is established.
- Management expected continued substantial R&D and sales and marketing spending, including DetermaIO development and DetermaRx clinical trials and commercialization. It noted that clinical trials are important to physician adoption and private-payer coverage.
- COVID-19 had curtailed in-person marketing and physician outreach and contributed to delayed lung cancer surgeries, potentially reducing near-term DetermaRx demand. The company could not quantify the effect given its limited commercial history. Potential supply-chain, staffing, clinical-trial and financing disruptions were also cited.
- Oncocyte held a 25% equity interest in Razor, which licenses DetermaRx. It paid Razor/Encore a $4 million milestone payment in June after a positive final coverage decision. Further clinical-trial and acquisition payments may arise, and DetermaRx royalties are payable under the sublicense arrangements.
- The Insight merger includes up to $6 million of milestone payments and revenue-share obligations. The recorded fair value of contingent consideration was $11.130 million; the filing reported no change in fair value through June 30.
- The company reported no material litigation, no off-balance-sheet arrangements, and no material changes in risk factors other than the expanded COVID-19 discussion and the risk associated with discontinuing DetermaDx.
Investor facts to verify
- Confirm the registrant identity: the filing is for OncoCyte Corporation, not the company named in the request metadata.
- Track the CMS price decision for DetermaRx and the timing and extent of Medicare and private-payer reimbursement.
- Monitor DetermaRx test volumes, cash collections, and pharma-services revenue against the substantial cost base.
- Assess cash burn, use of the $25 million ATM facility, potential equity dilution, and the stated 12-month liquidity outlook.
- Follow DetermaIO development and clinical progress, DetermaDx discontinuation effects, and the achievement or remeasurement of Razor and Insight contingent obligations.