Business context and reporting period
The supplied filing is OncoCyte Corporation’s unaudited Form 10-Q for the quarter ended March 31, 2018; this differs from the request metadata naming Insight Molecular Diagnostics Inc. OncoCyte develops non-invasive cancer diagnostic tests and was concentrating substantially all research and development on DetermaVu, its lung-cancer test.
Financial results and liquidity
Amounts below are in U.S. dollars; financial statements report dollars in thousands unless noted.
| Metric | Q1 2018 | Q1 2017 / comparison |
|---|---|---|
| Revenue | No revenue reported | No revenue reported |
| Research and development | $1.461 million | $1.834 million; down 20.3% |
| General and administrative | $1.787 million | $2.043 million; down 12.5% |
| Sales and marketing | $658,000 | $655,000; up 0.5% |
| Total operating expenses / operating loss | $3.906 million | $4.532 million; loss narrowed |
| Net loss | $3.778 million | $4.704 million |
| Net loss per share, basic and diluted | $0.12 | $0.16 |
| Net cash used in operations | $2.753 million | $3.290 million |
There was no revenue, so revenue-based margins are not meaningful. Q1 2018 other income included a $190,000 unrealized gain on BioTime shares; interest expense was $60,000. The filing reports no income-tax provision or benefit and a full valuation allowance on deferred tax assets.
At March 31, cash and cash equivalents were $12.612 million, and marketable BioTime shares were valued at $950,000. Current assets were $14.054 million versus current liabilities of $5.467 million, for working capital of $8.587 million. Total liabilities were $6.560 million and stockholders’ equity was $9.022 million. Liabilities included $2.105 million due to BioTime and affiliates, $800,000 of current loan payable, $893,000 of noncurrent loan payable net of deferred financing costs, and $546,000 of capital lease liabilities.
Cash increased $5.012 million during the quarter, primarily because of $8.0 million in proceeds from a common-stock placement. On May 10, 2018, the company received a further $2.0 million under that placement. Management stated that cash, cash equivalents, and marketable securities, including the subsequent receipt, were expected to fund current operations for at least 12 months from the financial statements’ issuance date.
Material changes versus the prior comparable period
- Net loss narrowed by $926,000, while operating expenses declined $626,000. Lower R&D compensation and stock-based compensation contributed to the R&D decline. Lower G&A largely reflected a $1.1 million warrant-inducement charge in Q1 2017 that did not recur; higher legal, compliance, and business-development costs partly offset the decrease.
- Operating cash use improved by $537,000 year over year. Financing cash flow included $8.0 million of private-placement proceeds, compared with Q1 2017 financing inflows that included warrant proceeds and a bank-loan draw.
- Common shares outstanding rose from 31.452 million at December 31, 2017 to 37.818 million at March 31, 2018. The March placement provided for $10.0 million gross proceeds in total; $8.0 million had been received by quarter-end and the remaining $2.0 million arrived May 10.
- Effective January 1, 2018, adoption of ASU 2016-01 moved unrealized gains and losses on BioTime shares into earnings. The adoption reclassified an $888,000 accumulated unrealized loss to accumulated deficit; Q1 included a $190,000 unrealized gain.
Outlook, risks and unusual items
- Management expected continued operating losses and negative cash flow and planned to reduce spending while prioritizing DetermaVu development. Planned measures included a limited staff reduction, sabbaticals for some sales and marketing executives, and expected CEO and CFO salary reductions; the amounts and duration of the executive reductions were not determined.
- DetermaVu clinical validation was delayed after inconsistent analytic results were traced to variation in consumable lots. OncoCyte was evaluating alternative testing platforms, expected to complete a larger-sample follow-on evaluation in Q2 2018, and targeted completion of clinical validation in the latter part of 2018. These were plans, not guarantees.
- Commercialization depends on successful development and Medicare and private-payer reimbursement. Management noted that building an integrated commercial organization would require additional capital and was considering partnerships, royalties, or a joint venture. Funding may not be available on acceptable terms; further equity issuance could dilute shareholders.
- The Silicon Valley Bank loan bears a floating rate (5.50% as of March 31, 2018), matures April 1, 2020, and is secured by substantially all assets other than intellectual property. The company reported compliance as of the filing date. A default could accelerate payment and permit foreclosure on collateral.
- BioTime continued to provide facilities and services. Amounts owed to BioTime and affiliates were $2.1 million; minimum fixed Shared Facilities Agreement payments were approximately $131,000 per month. The agreement also permits allocated-cost charges and potentially a 5% markup.
- A May 14, 2018 board action provided for offering certain executives unpaid sabbaticals as part of cost savings. If they declined and were terminated, estimated severance would total approximately $200,000. The company reported no material litigation and no off-balance-sheet arrangements.
Important facts for investors to verify
- Confirm the issuer: the filing is for OncoCyte Corporation, not the company named in the request metadata.
- Check the timing and terms of the $10.0 million private placement, including the $2.0 million received after quarter-end and the resulting dilution; 39,405,066 common shares were outstanding as of May 10, 2018.
- Track platform selection, validation milestones, and any additional costs or equipment impairment associated with the DetermaVu delay.
- Assess the cash runway against operating burn, planned expense reductions, commercialization costs, and the timing and availability of reimbursement and future financing.
- Review debt service, collateral and default provisions, BioTime-related balances and service charges, and the potential severance exposure.