Business context and reporting period
This is OncoCyte Corporation’s unaudited Form 10-Q for the quarter and six months ended June 30, 2019, filed August 14, 2019. The filing identifies OncoCyte—not Insight Molecular Diagnostics Inc.—as the registrant, so the company name in the request metadata does not match the filing. OncoCyte develops non-invasive, blood-based cancer diagnostics and was concentrating substantially all research and development resources on its lung cancer test, DetermaVu.
Financial performance and position
Amounts below are in millions, except per-share data. The filing reports expenses and losses but no revenue; accordingly, a revenue-based margin is not meaningful from the information provided.
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Research and development | $1.508 | $2.322 | $2.851 | $3.784 |
| General and administrative | $3.636 | $1.335 | $6.085 | $3.122 |
| Sales and marketing | $0.318 | $0.569 | $0.523 | $1.227 |
| Total operating expenses / operating loss | $5.462 | $4.226 | $9.459 | $8.133 |
| Net loss | $5.383 | $4.505 | $9.247 | $8.284 |
| Basic and diluted loss per share | $0.10 | $0.12 | $0.19 | $0.24 |
- At June 30, cash and cash equivalents were $35.826 million, marketable equity securities were $0.518 million, and current assets totaled $37.064 million. Cash at December 31, 2018 was $8.034 million.
- Six-month operating cash use was $9.558 million, versus $6.710 million in the prior-year period. Investing activities provided $0.036 million; financing activities provided $37.314 million. The financing inflow included $37.0 million net proceeds from a February stock offering and $0.943 million from option exercises.
- Total liabilities were $4.161 million, including a $0.769 million current loan payable, $0.345 million in financing lease liabilities, and $0.556 million in accounts payable. The Silicon Valley Bank loan matures April 1, 2020; its stated rate was 6.25% at June 30, 2019. The loan is secured by substantially all assets other than specified intellectual property.
- Accumulated deficit was $80.566 million. Shares outstanding rose from 40.664 million at December 31, 2018 to 51.973 million at June 30, 2019; the company reported 51,972,830 shares outstanding July 31.
Material changes versus the prior comparable period
- Q2 operating expenses rose 29% year over year, primarily because G&A increased $2.301 million; six-month G&A increased $2.963 million. The filing attributes the increases to investment banking and advisory costs, personnel and management-transition costs, professional services, and higher stock compensation.
- Research and development fell 35% in Q2 and 25% for the six-month period, mainly reflecting lower intangible-asset amortization and outside services. The prior-year period included a $0.625 million intangible-asset impairment; no amortization was recorded in 2019.
- Sales and marketing expense declined 44% in Q2 and 57% for six months as activity was reduced while development focused on DetermaVu. Management said expenses are expected to increase as commercialization preparations proceed.
- Net loss widened for both periods, although reported loss per share improved, reflecting a larger weighted-average share count following equity issuances.
- Cash increased substantially following the February 2019 public offering. The company also paid BioTime $2.1 million in February for previously accrued shared-service fees.
Outlook, commentary, risks and unusual items
- Management expects operating losses and negative cash flows to continue for the foreseeable future. It believes available cash, cash equivalents and marketable securities can fund current operations for at least 12 months from the financial statements’ issuance date.
- OncoCyte expects to need additional capital to complete development and commercialize diagnostic tests. It does not expect significant DetermaVu revenue before Medicare reimbursement approval. Reimbursement timing, test development, financing availability and potential shareholder dilution are material uncertainties; management also described possible third-party marketing or joint-venture arrangements.
- Management stated that sales and marketing spending may rise substantially as the company builds commercialization capabilities, subject to development progress, available capital and expected reimbursement. No specific revenue, earnings or commercialization guidance was provided.
- CEO William Annett’s employment ended June 30; Ronald Andrews began as CEO July 1. The filing records approximately $376,000 of Annett-related severance in accrued compensation. A subsequent transition agreement provided for a $210,000 cash payment, other employment-related amounts, and consulting fees of $35,000 per month through August, with possible extensions.
- A July 22 agreement resolved Chardan Capital Markets’ claims and retained the firm for advisory services through September 30 for $500,000 cash and 250,000 warrants. The cash fee and approximately $329,000 warrant value were accrued at June 30 while the claim was pending; the cash was paid July 24 and warrants were issued August 1.
- The company was in compliance with its bank loan agreement as of the filing date. It reported no material litigation, no material changes to previously disclosed risk factors, and effective disclosure controls; no material changes in internal control over financial reporting were reported.
Important facts for investors to verify
- Confirm the intended issuer: the supplied filing is OncoCyte Corporation’s 10-Q, not a filing under the metadata company name.
- Track DetermaVu development, validation and Medicare or commercial reimbursement progress, and verify how these affect commercialization timing and potential revenue.
- Compare cash and operating burn in subsequent filings with management’s stated 12-month runway, including planned spending increases and future financing needs.
- Review the Chardan settlement and advisory costs, CEO transition obligations, and any related expense or cash-flow effects recorded after quarter-end.
- Monitor dilution from equity issuance, outstanding warrants and equity awards, as well as repayment of the bank loan at its April 2020 maturity.