OncoCyte Corporation — Q1 2021 Form 10-Q
Entity note: The filing provided is for OncoCyte Corporation (Nasdaq: OCX), not a registrant named Insight Molecular Diagnostics Inc. It covers the three months ended March 31, 2021; financial statement amounts below are in U.S. dollars and generally stated in millions.
Business context and reporting period
OncoCyte develops and commercializes molecular diagnostic tests and provides pharmaceutical services. Its commercial activities centered on DetermaRx, a lung cancer treatment-stratification test, and Pharma Services acquired with Insight Genetics. DetermaIO and other tests remained in development. On February 24, 2021, OncoCyte acquired the remaining interests in Razor Genomics, becoming its sole owner and consolidating its results from that date.
Key financial results and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $1.124 million | $0.016 million |
| Operating loss | $11.360 million | $8.431 million |
| Net loss | $3.919 million | $7.732 million |
| Net loss per share, basic and diluted | $0.05 | $0.13 |
| Net cash used in operating activities | $9.845 million | $6.870 million |
- Revenue increased by $1.108 million year over year. DetermaRx accounted for 54% of Q1 2021 revenue and Pharma Services for 46%. Revenue was also up 123% from Q4 2020’s $0.503 million, according to management.
- Combined cost of revenues and acquired-intangible amortization was $1.045 million, or approximately 93% of revenue, implying about $0.079 million of gross contribution before other operating expenses.
- Total operating expenses were $12.484 million, up from $8.447 million. Increases included R&D ($3.361 million), sales and marketing ($2.254 million), and a $1.060 million loss from revaluing contingent consideration.
- The smaller net loss despite the larger operating loss mainly reflects a $7.564 million income tax benefit related to a partial release of the valuation allowance following the Razor asset acquisition. Management retained a full valuation allowance on other deferred tax assets.
- Cash and cash equivalents were $58.907 million at March 31, 2021, compared with $7.143 million at December 31, 2020. Including restricted cash, period-end cash was $60.607 million. Net cash provided by financing activities was $69.871 million, primarily from common-stock sales.
- Current assets were $62.824 million and current liabilities $9.686 million. Loans payable totaled approximately $3.541 million, excluding lease liabilities; current and noncurrent lease liabilities were also reported. The filing does not provide a separate debt-total figure including all lease obligations.
- Accumulated deficit was $127.596 million. Management said existing cash, cash equivalents, and marketable securities should fund current operations for at least twelve months from issuance of the financial statements, while also stating that further capital will be needed.
Material changes versus the prior comparable period
- Revenue grew from a very low comparison base as DetermaRx sales and Pharma Services increased. The company had launched DetermaRx in early 2020 and acquired Insight in January 2020.
- Operating loss widened by $2.929 million, with higher R&D, sales and marketing, cost of revenues, acquired-intangible amortization, and contingent-consideration expense.
- Operating cash use increased by $2.975 million. Investing cash use was $8.262 million, including $6.648 million for the Razor acquisition, net of cash acquired.
- Oncocyte issued substantially more shares: outstanding common shares rose from 69.1 million at year-end 2020 to 88.9 million at March 31, 2021. The quarter’s equity financing materially strengthened cash but diluted shareholders.
Outlook, risks, contingencies, and unusual items
- No numerical revenue or earnings guidance was provided. Management expects continued operating losses and negative operating cash flows, with higher planned R&D, sales, marketing, laboratory, and commercialization spending.
- Management’s liquidity assessment depends on access to additional capital and eventual growth in test and service revenue. Additional equity financing may dilute shareholders; unavailable or inadequate financing could force delays, curtailments, or suspension of planned activities.
- COVID-19 could delay lung cancer surgeries, DetermaRx adoption, clinical trials, Pharma Services demand, customer outreach, and supply availability. The company said the impact on its revenue and results could not be reliably estimated.
- DetermaRx Medicare pricing approval became effective in September 2020. In Q1 2021, the company began accruing Medicare Advantage tests at the Medicare rate; other DetermaRx payers generally remained on cash-basis revenue recognition pending sufficient collection history or contractual arrangements. Medicare and Medicare Advantage each represented 27% of Q1 revenue.
- The Insight acquisition includes up to $6.0 million of milestone payments and ongoing revenue-share obligations. The contingent-consideration liability increased to $8.180 million at March 31, 2021, producing a $1.060 million quarterly loss, primarily due to revised timing estimates.
- The PPP loan’s $1.141 million principal and accrued interest remained subject to a pending forgiveness application; the filing cautions that forgiveness is not assured. The company also reported a secured bank loan and lease commitments.
- After quarter-end, OncoCyte completed its Chronix acquisition on April 15, 2021. The stated closing consideration included $4.25 million cash, approximately 591,000 shares, and $2.5 million of assumed liabilities, plus potential milestone and earnout payments. Chronix had approximately $4.6 million of liabilities above the contractual threshold, which may offset future payments to its equity holders.
- The company reported no material litigation, no material changes to the risk factors in its 2020 Form 10-K, effective disclosure controls, and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether DetermaRx test volume, reimbursement collections, payer coverage, and revenue recognition support durable revenue growth.
- Whether cash burn and planned investment remain consistent with management’s at-least-twelve-month liquidity estimate, including cash needed for Chronix and Insight obligations.
- Progress, costs, clinical evidence, and reimbursement prospects for DetermaRx, DetermaIO, and other pipeline tests, including the DetermaRx clinical trial.
- The terms, timing, and potential dilution from outstanding options, warrants, future equity financing, and acquisition consideration.
- Whether the PPP loan is forgiven and whether contingent consideration estimates or acquired-intangible valuations change materially.