Business Context and Reporting Period
This Form 8-K is filed by OncoCyte Corporation (trading symbol: OCX) for the reporting period ending December 14, 2020. The filing primarily addresses the entry into a material definitive agreement regarding the expansion of its DetermaRx test into the People's Republic of China (PRC) and the settlement of previously deferred compensation for executive officers and directors.
Key Financial Metrics and Agreements
- Escrow Funds: The Sublicensee (Burning Rock Biotech Limited) is required to deposit $4,000,000 into an escrow account within 15 days of the agreement's effective date.
- Escrow Composition:
- $250,000: Sublicense fee.
- $750,000: Initial technical installation service and support fee.
- $3,000,000: Flat royalty for the right to offer 1,800 Licensed Tests for clinical studies or marketing.
- Contingent Payment: An additional fee of $2,000,000 is payable to the Company if the Licensed Test achieves inclusion in the United States National Comprehensive Cancer Network Guidelines, granting rights for 1,200 additional tests.
- Deferred Compensation Settlement: On December 11, 2020, the Company paid deferred fees to non-employee directors and named executive officers.
- Non-employee Directors: Received $111,567 in cash and 50,111 shares of common stock (valued at $103,731).
- Named Executive Officers: Received $313,126 in cash and 16,724 shares of common stock (valued at $34,619).
Material Changes and Operational Updates
The Company entered into an Exclusive Sublicense Agreement with Razor Genomics, Inc., Encore Clinical, Inc., and Burning Rock Biotech Limited. This agreement releases the Company's exclusive sublicense rights in the PRC Territory to the Sublicensee for the manufacture and distribution of the DetermaRx test. The transfer of testing technology is scheduled for the first quarter of 2021, with installation expected to be completed by the third quarter of 2021.
Guidance, Risks, and Contingencies
- Agreement Termination: The agreement will terminate on December 31, 2021, unless the Escrow Funds are released to the Company. It may also terminate upon a "Refund Event" or material breach by any party that is not cured within 100 days of notice.
- Revenue Recognition Risk: The $4,000,000 in escrow funds is contingent upon the release of funds to the Company; if the agreement terminates before release, the funds may not be recognized as revenue.
- Regulatory Contingency: The additional $2,000,000 payment is strictly contingent on the test's inclusion in the National Comprehensive Cancer Network Guidelines.
Investor Verification Checklist
- Verify the status of the $4,000,000 escrow deposit and whether it has been released to OncoCyte.
- Monitor the progress of technology transfer and installation in the PRC Territory against the Q1 and Q3 2021 timelines.
- Track the regulatory status of DetermaRx regarding inclusion in the National Comprehensive Cancer Network Guidelines to assess the likelihood of the $2,000,000 contingent payment.
- Review the full text of the Exclusive Sublicense Agreement (Exhibit 10.1) for specific definitions of "Refund Event" and termination clauses.