OncoCyte Corporation — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. The supplied filing is for OncoCyte Corporation, despite the different company name in the request metadata. OncoCyte develops blood-based cancer diagnostic tests and focused substantially all development efforts on DetermaVu. Amounts below are in U.S. dollars.
Financial results and position
| Metric | Q1 2019 | Q1 2018 / prior balance date |
|---|---|---|
| Revenue | No revenue reported | No revenue reported |
| Research and development expense | $1.343 million | $1.461 million |
| General and administrative expense | $2.449 million | $1.787 million |
| Sales and marketing expense | $0.205 million | $0.658 million |
| Total operating expenses / operating loss | $3.997 million | $3.906 million |
| Net loss | $3.864 million | $3.778 million |
| Net loss per share, basic and diluted | $0.08 | $0.12 |
| Net cash used in operations | $6.718 million | $2.753 million |
| Cash and cash equivalents | $39.257 million | $8.034 million at Dec. 31, 2018 |
| Marketable equity securities | $0.606 million | $0.428 million at Dec. 31, 2018 |
| Total liabilities | $3.490 million | $6.095 million at Dec. 31, 2018 |
There was no reported revenue, so a revenue margin is not applicable. Net loss increased by $0.086 million year over year. Cash used in operations exceeded net loss partly because of working-capital uses, including payment of $2.1 million owed to BioTime for prior shared-services fees. Financing activities provided $37.894 million; investing activities provided $0.047 million. Cash increased by $31.223 million during the quarter.
At March 31, 2019, current assets were $40.993 million and current liabilities were $3.197 million. The balance sheet showed $0.959 million in loan payable, including current and noncurrent amounts, and $0.438 million in financing lease liabilities. The Silicon Valley Bank loan bears a floating rate (6.25% stated as of March 31) and matures April 1, 2020; substantially all assets other than intellectual property collateralize it. The company reported compliance with the loan agreement as of the filing date.
Material changes versus the prior comparable period
- General and administrative expense rose 37.0%, primarily due to higher personnel-related costs and stock-based compensation.
- Research and development expense declined 8.1%; management said spending remained focused on DetermaVu development and commercialization.
- Sales and marketing expense fell 68.8% as resources shifted from marketing activities toward test development.
- Stock-based compensation increased to $0.686 million from $0.347 million.
- Net operating cash use increased to $6.718 million from $2.753 million, including the settlement of the $2.1 million BioTime payable.
- In February, OncoCyte sold 10.733 million shares in an underwritten public offering, reporting $37.3 million in net proceeds in its liquidity discussion; it also received $0.943 million from option exercises. Shares outstanding rose from 40.664 million at year-end to 51.973 million at quarter-end.
Outlook, risks, contingencies, and notable items
- Management said cash, cash equivalents, and marketable securities were sufficient for current operations for at least 12 months from issuance of the interim financial statements. The filing also says additional capital will be needed to fund development and commercialization until diagnostic products generate sufficient revenue.
- Management expects continued operating losses and negative cash flows. It does not expect significant DetermaVu revenue until Medicare reimbursement approval; reimbursement by Medicare and private insurers is important to expected demand and commercialization.
- Management plans to develop an integrated sales and marketing capability and expand laboratory capacity, subject to available funding. It may consider licensing, marketing partnerships, or a joint venture to reduce capital needs.
- Development delays, difficulty raising capital, reimbursement timing, and potential dilution from future equity sales are key disclosed risks. The filing says there were no material changes to the risk factors in the 2018 Form 10-K.
- OncoCyte disclosed a February 2019 fee demand from Chardan Capital Markets relating to an engagement letter unrelated to the public offering. The company considers the claim without merit and intends to defend it; the potential financial effect could not be assessed.
- The company paid $0.3 million in liquidated damages during the quarter related to a late registration filing for a 2018 private placement.
- Management reported effective disclosure controls and no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Progress and clinical validation results for DetermaVu, and the timelines and requirements for Medicare and commercial reimbursement.
- Cash burn, operating runway, and whether management can secure additional financing or commercialization partners on acceptable terms.
- The status and potential impact of the Chardan fee dispute and any other contingencies.
- Terms, repayment schedule, and collateral provisions of the Silicon Valley Bank loan, including the April 2020 maturity.
- Actual proceeds and costs of the February equity offering, and the potential dilution from outstanding options and warrants.