OncoCyte Corporation — Q2 2016 Form 10-Q
The filing is for the quarter and six months ended June 30, 2016. The supplied metadata names Insight Molecular Diagnostics Inc., but the filing identifies the registrant as OncoCyte Corporation, a majority-owned subsidiary of BioTime. OncoCyte is developing molecular cancer diagnostics, with programs focused on lung, bladder, and breast cancer.
Financial results and position
- Revenue: None for the periods presented. OncoCyte had not generated revenue since inception; profit margins are therefore not meaningful.
- Q2 2016: Operating expenses and operating loss were $2.532 million, versus $1.405 million in Q2 2015. Net loss was $2.543 million, or $0.10 per share, versus $1.411 million, or $0.07 per share.
- First six months of 2016: Operating expenses and operating loss were $5.464 million, versus $2.773 million in the comparable 2015 period. Net loss was $5.471 million, or $0.22 per share, versus $2.780 million, or $0.13 per share.
- Expense mix: Six-month R&D expense rose 43.9% to $2.884 million; G&A rose 235.5% to $2.580 million. Lung cancer diagnostics accounted for $1.489 million, or 51.6%, of R&D expense, compared with $73,000 in the prior-year period.
- Cash flow: Cash used in operations was $3.974 million for the first half of 2016, compared with $1.148 million in 2015. Investing used $64,000; financing provided $42,000. Cash declined $3.996 million to $4.000 million.
- Liquidity and balance sheet: At June 30, cash and cash equivalents were $4.000 million and BioTime shares held as available-for-sale securities were valued at $1.617 million. Current liabilities were $2.713 million; total liabilities were $2.957 million. Amounts due to BioTime and affiliates totaled $1.839 million. Accumulated deficit was $29.605 million.
- Lease obligations: Capital lease liabilities totaled approximately $417,000, including $173,000 current and $244,000 noncurrent. The associated equipment lease requires monthly payments of $14,442 for 36 months and carries an imputed rate of approximately 10%.
Material changes and management outlook
- Management attributed higher R&D spending primarily to increased outside research, laboratory, consulting, and clinical-trial costs, while shifting development resources toward the lung cancer test and reducing spending on other cancer programs.
- Higher G&A reflected increased staffing and consulting, BioTime allocations, stock-based compensation, public-company compliance, audit, legal, and marketing research costs.
- Management expected continued significant R&D spending, operating losses, and negative cash flows. Based on cash, liquid securities, and projected spending, it believed ongoing operations could be funded through December 31, 2016. Additional capital would be needed to establish a diagnostic testing laboratory and commercialize tests; management cautioned that financing might not be available on favorable terms, or at all.
- The company held 619,706 BioTime shares; their fair value is exposed to BioTime’s share-price movements. Six-month 2016 comprehensive loss was $6.394 million, including a $923,000 unrealized loss on those securities.
Risks, contingencies, and other items
- OncoCyte had sustained losses and negative operating cash flow since inception and stated that insufficient financing could force it to modify, delay, or suspend planned operations. BioTime provides allocated services and administrative support, but the filing says there is no assurance BioTime will provide future financing.
- BioTime allocated approximately $774,000 of R&D costs and $381,000 of G&A costs to OncoCyte in the first half of 2016. The related-party payable balance was $1.839 million at June 30, 2016.
- The filing reports no material litigation and no off-balance-sheet arrangements. It describes potential executive severance and broad indemnification commitments; no indemnification liability was recorded.
- Management judged disclosure controls effective and reported no material changes in internal control over financial reporting during the quarter.
Key facts for investors to verify
- Whether OncoCyte obtained financing after the filing date and how its cash runway compared with management’s estimate through year-end 2016.
- Progress, validation, regulatory or laboratory requirements, and commercialization plans for the lung cancer diagnostic and other tests.
- Changes in losses, operating cash use, BioTime and affiliate balances, and the terms or availability of additional related-party support.
- Changes in the value or disposition of BioTime shares and the remaining commitments under the equipment lease.
- The filing’s identity: it is an OncoCyte Corporation 10-Q, not a filing identified in the supplied metadata as Insight Molecular Diagnostics Inc.