Filing summary
Entity note: The supplied filing is OncoCyte Corporation’s Form 10-Q, not a filing by Insight Molecular Diagnostics Inc. It covers the quarter ended March 31, 2020; financial statement amounts are in thousands of dollars unless stated otherwise.
Business context and reporting period
OncoCyte develops and commercializes cancer diagnostics, including DetermaRx, DetermaDx and DetermaIO. It acquired Insight Genetics on January 31, 2020, adding DetermaIO, a CLIA-certified laboratory and pharma-services operations. Q1 results include Insight from the acquisition date. The company reported its first revenue since inception.
Financial performance and liquidity
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Revenue | $16,000 | $0 |
| Cost of revenue | $173,000 | $0 |
| Research and development | $2.159 million | $1.343 million |
| General and administrative | $4.625 million | $2.449 million |
| Sales and marketing | $1.490 million | $205,000 |
| Operating loss | $8.431 million | $3.997 million |
| Net loss | $7.732 million; $0.13 per share | $3.864 million; $0.08 per share |
| Net cash used in operations | $6.870 million | $6.718 million |
Revenue was primarily from Insight’s pharma services; DetermaRx revenue was recognized on a cash basis because reimbursement and collection experience were not yet established. Cost of revenue exceeded revenue, resulting in a $157,000 gross loss; the filing does not present a useful overall operating margin given minimal revenue.
At March 31, cash and cash equivalents were $16.577 million, marketable equity securities were $325,000, and restricted cash was $1.7 million. Current assets totaled $18.139 million versus current liabilities of $6.928 million. Net cash used in investing was $6.191 million, mainly for the Insight acquisition; financing provided $7.565 million, primarily from a $7.597 million share sale. Total liabilities were $22.878 million, including $3.065 million of loan payable net of financing costs, lease liabilities, and $11.130 million of acquisition-related contingent consideration. The company had an accumulated deficit of $101.477 million.
Material changes and unusual items
- Insight acquisition consideration had a fair value of $23.130 million, including $12.0 million of cash and stock consideration and $11.130 million of contingent consideration. The acquisition added $14.650 million of DetermaIO in-process R&D and $9.187 million of goodwill.
- Operating expenses increased substantially year over year, reflecting higher clinical consulting and personnel costs, acquisition-related and public-company costs, new facilities, and DetermaRx commercialization efforts. Sales and marketing rose 627% and G&A rose 89%.
- A $1.095 million income-tax benefit resulted from a partial release of the valuation allowance associated with the Insight acquisition; otherwise, the company maintained a full valuation allowance on deferred tax assets.
- On April 30, 2020, Palmetto GBA issued a local coverage decision making DetermaRx eligible for Medicare reimbursement for services performed on or after June 14, 2020. CMS pricing had not been communicated by the filing date. The decision triggers a $4 million payment to Encore under the Razor arrangements.
Outlook, risks and contingencies
Management expects continued operating losses and negative cash flows and states that additional capital will be needed until diagnostic-test revenue can cover expenses. It believed existing resources and access to financing would fund operations for at least twelve months from issuance of the statements. After quarter-end, OncoCyte raised approximately $10.75 million through a share offering and obtained a $1.141 million PPP loan; it also had a $25 million ATM facility available. These financings involve potential dilution, and PPP forgiveness was not assured.
On April 2, the bank deferred principal payments for six months and extended loan maturity to September 30, 2022. Key risks include reimbursement pricing and coverage, test development and clinical milestones, commercialization and customer uptake, access to capital, and potential impairment of acquired IPR&D or goodwill. The company reported no material litigation and no material changes to previously disclosed risk factors other than tax-related risks. Management reported disclosure controls were effective and no material change in internal controls.
Investor facts to verify
- Confirm the correct issuer: this filing is for OncoCyte Corporation, despite the request metadata naming Insight Molecular Diagnostics Inc.
- Check CMS’s final DetermaRx reimbursement pricing and the timing and conditions of the $4 million Encore milestone payment.
- Track cash burn, subsequent financing proceeds, ATM usage, and the company’s stated twelve-month liquidity outlook.
- Assess progress, reimbursement prospects and impairment assumptions for DetermaIO and other development programs, alongside the acquisition’s contingent obligations.
- Review dilution from equity issuance, outstanding options and warrants, and future capital requirements.