Oncocyte(US:OCX)2024-04-16 01:55Part I Business Oncocyte Corporation is a precision diagnostics company focused on oncology and transplantation, with core products VitaGraft, DetermaIO, and DetermaCNI Products and Technology The company's portfolio features DetermaIO for immunotherapy, DetermaCNI for cancer monitoring, and VitaGraft for transplant surveillance - DetermaIO: A gene expression test computing a proprietary IO Score from 27 genes to identify immunotherapy beneficiaries, validated in four tumor types and across major ICIs229 - DetermaCNI: A therapy response monitoring test using a proprietary genome-wide copy number instability (CNI) score from cell-free DNA (cfDNA), not requiring an initial tumor tissue sample12 - VitaGraft: A transplant monitoring test measuring both percentage and absolute quantification of donor-derived cell-free DNA (dd-cfDNA), with positive Medicare coverage for Kidney in August 2023 and commercial launch in January 202425200 Reimbursement and Competition Securing Medicare and private payer reimbursement is critical, facing competition from established biomarkers and other dd-cfDNA tests - Medicare reimbursement approval, managed by Medicare Administrative Contractors (MACs) through Local Coverage Determinations (LCDs), is a critical factor for the company's business145 - The company is currently an out-of-network provider with all commercial payers, potentially leading to lower reimbursement rates and slower payment cycles until in-network contracts are negotiated59171 - DetermaIO's primary competitors are PD-L1 expression testing and Tumor Mutational Burden (TMB), which the company believes have significant limitations in predicting immunotherapy response30 - VitaGraft competes with other donor-derived cell-free DNA tests, differentiating itself through digital PCR, faster turnaround time, and native absolute quantification62 Intellectual Property The company protects its technologies via patents, trade secrets, and know-how, but faces risks from patent validity challenges - The company's IP strategy combines patents, trade secrets (especially for its mathematical algorithms), and non-disclosure agreements with employees and consultants175176 - Through the acquisition of Chronix, the company obtained rights to 10 patent families for detecting cell-free tumor DNA and quantifying donor-derived cell-free DNA, with patents expiring between April 2031 and October 203433 - The company faces legal uncertainty regarding the patentability of its diagnostic tests due to Supreme Court decisions like Mayo v. Prometheus and AMP v. Myriad, which limit patents on natural phenomena and correlations1776736 Government Regulation The company's CLIA-regulated LDTs face potential FDA oversight as medical devices, alongside state, international, and data privacy laws - The company's tests are currently regulated as Laboratory Developed Tests (LDTs) under CLIA, which establishes quality standards for laboratories4071 - The FDA has proposed a rule to regulate LDTs as medical devices, phasing out enforcement discretion over four years, potentially requiring premarket review and increasing costs4173582 - The company is subject to various state laboratory licensing requirements, which can be more stringent than federal CLIA regulations4980 - Operations are subject to numerous data privacy and security laws, including HIPAA, HITECH, CCPA, and international laws like GDPR1965486 - The company must comply with federal and state anti-fraud and abuse laws, such as the Anti-Kickback Statute, the Stark Law, and EKRA, governing relationships with healthcare providers9119993 - The company's core focus is on three main product lines: VitaGraft for transplant monitoring, DetermaIO for immunotherapy response, and DetermaCNI for cancer treatment monitoring474201 - In February 2023, the company divested its DetermaRx test by selling a 70% stake in its subsidiary Razor Genomics, eliminating associated development and commercialization costs720478 Key Product Addressable Markets | Product | Description | Total Addressable Market (TAM) | | :--- | :--- | :--- | | DetermaIO | Predicts response to Immune Checkpoint Inhibitors (ICIs) | $3.0 billion (clinical use) | | DetermaCNI | Monitors therapy response via blood-based testing | $6.0 billion (emerging opportunity) | | VitaGraft | Monitors transplant graft health via dd-cfDNA | $2.0 billion (reimbursed market) | - A key strategic element is the development of distributable kitted formats of its technologies for research use only (RUO), expected through direct sales, partnerships, and licensing18 - The company operates CLIA-certified laboratories in Nashville, Tennessee, and a research and development facility in Göttingen, Germany31159 Risk Factors The company faces substantial risks, including going concern doubt, regulatory changes, reimbursement uncertainty, and IP challenges - Going Concern: There is substantial doubt about the company's ability to continue as a going concern due to its history of operating losses, negative cash flows, and the need to raise additional funding249250 - Financial Performance: The company has incurred operating losses since inception, with a net loss of $27.8 million in 2023 and an accumulated deficit of $289.9 million as of December 31, 2023254 - Regulatory Risk: A primary risk is the potential for the FDA to end its enforcement discretion for LDTs and regulate the company's tests as medical devices, which would increase costs, delay commercialization, and require more stringent approvals579582 - Reimbursement Risk: Commercial success is highly dependent on obtaining and maintaining sufficient third-party payer coverage and reimbursement from Medicare and private insurers, which is uncertain and may be inadequate512513 - Intellectual Property Risk: The company's financial success depends on its ability to protect its patents and trade secrets, which face challenges from competitors and potential invalidation based on recent legal precedents regarding diagnostic methods361364 - Operational Risk: The company's near-term revenues depend on the successful commercialization of a small number of diagnostic tests, facing challenges related to physician adoption, competition, and limited marketing and sales resources261264266 Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - Not applicable438 Cybersecurity The company maintains a cyber risk management program, overseen by the Audit Committee, to manage cybersecurity threats - The company has a cyber risk management program to identify, assess, and mitigate cybersecurity threats439 - The Audit Committee of the Board of Directors oversees cybersecurity risks, with management briefing the committee at least semi-annually441 Properties The company leases executive offices in Irvine, CA, a CLIA lab in Nashville, TN, and an R&D facility in Göttingen, Germany - Principal executive offices are leased in Irvine, CA, with the lease expiring in September 2027; a portion was subleased effective September 2023442 - The company operates a CLIA-certified laboratory and office space in Nashville, TN, under leases expiring in January 2027443 - A research and development facility is maintained in Göttingen, Germany443 Legal Proceedings The company is not currently involved in any material pending litigation or legal proceedings - The company reports no material pending litigation444 Mine Safety Disclosures This item is not applicable to the company - Not applicable445 Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under "OCX," has never paid dividends, and does not anticipate doing so - The company's common stock is traded on The Nasdaq Capital Market under the ticker symbol "OCX"448 - No cash dividends have been declared or paid on common stock, and none are expected in the foreseeable future449 [RESERVED] This item is reserved - Not applicable473 Management's Discussion and Analysis of Financial Condition and Results of Operations Oncocyte reported a 57% revenue increase to $1.5 million in 2023, with a reduced net loss, but faces going concern doubts despite recent capital raises Summary Results of Operations (2023 vs. 2022) | Metric | 2023 (In thousands) | 2022 (In thousands) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Revenue | $1,503 | $958 | $545 | 57% | | Loss from Operations | $(25,136) | $(17,997) | $(7,139) | 40% | | Loss from Continuing Operations | $(24,855) | $(18,612) | $(6,243) | 34% | | Loss from Discontinued Operations | $(2,926) | $(54,290) | $51,364 | -95% | | Net Loss | $(27,781) | $(72,902) | $45,121 | -62% | - The 57% increase in revenue was primarily driven by a $509,000 (53%) increase in Pharma Services revenue486498 - General and administrative expenses decreased by $10.7 million (49%), mainly due to lower stock-based compensation and headcount reductions initiated in late 2022 and early 2023491 - The company recognized a $6.8 million impairment loss in 2023 related to IPR&D and leasehold improvements, compared to an $18.7 million goodwill impairment in 2022493494 - The company's financial state raises substantial doubt about its ability to continue as a going concern, addressed by raising approximately $13.9 million in April 2023 and an additional $15.8 million in April 2024 through private placements605607609 Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, Oncocyte is not required to provide information for this item - Not applicable as the company is a smaller reporting company652 Financial Statements and Supplementary Data This section presents audited financial statements, auditor reports, and notes detailing accounting policies, business combinations, and subsequent events Consolidated Balance Sheet Highlights (As of Dec 31) | Account | 2023 (In thousands) | 2022 (In thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $9,432 | $19,993 | | Total Current Assets | $10,698 | $25,536 | | Intangible assets, net | $56,595 | $61,633 | | Total Assets | $74,892 | $100,091 | | Contingent consideration liabilities | $39,900 | $45,662 | | Total Liabilities | $49,298 | $60,497 | | Total Shareholders' Equity | $20,468 | $34,292 | - Going Concern: The auditors' report includes an explanatory paragraph highlighting substantial doubt about the company's ability to continue as a going concern due to recurring operating losses and negative cash flows658 - Subsequent Events (April 2024): The company entered into a collaboration agreement with Bio-Rad for transplant products and a securities purchase agreement for a private placement expected to raise gross proceeds of approximately $15.8 million552635 - Discontinued Operations (Razor): The results of the Razor subsidiary (DetermaRx test) are reported as discontinued operations, generating a net loss of $2.9 million in 2023 (up to sale date) and $54.3 million in 2022547549 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company changed its auditor to Marcum LLP in September 2023, with no disagreements and a remediated material weakness - The company changed its independent registered public accounting firm from WithumSmith+Brown, PC to Marcum LLP on September 29, 2023325326 - There were no disagreements with the former auditor, Withum, on accounting principles or practices327 - A previously disclosed material weakness in internal controls was remediated prior to June 30, 2023327 Controls and Procedures Management concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2023 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2023387 - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2023390 - No changes in internal control over financial reporting occurred during the fourth quarter of 2023 that materially affected, or are reasonably likely to materially affect, internal controls331 Other Information The company reported no other information for this item - None392 Disclosure Regarding Foreign Jurisdictions That Prevent Inspections This item is not applicable to the company - Not applicable394 Part III Directors, Executive Officers, and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2024 Proxy Statement - Information is incorporated by reference from the forthcoming 2024 Proxy Statement397 Executive Compensation Information on executive compensation is incorporated by reference from the 2024 Proxy Statement - Information is incorporated by reference from the forthcoming 2024 Proxy Statement400 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership is incorporated by reference from the 2024 Proxy Statement - Information is incorporated by reference from the forthcoming 2024 Proxy Statement401 Certain Relationships and Related Transactions, and Director Independence Information on related party transactions and director independence is incorporated by reference from the 2024 Proxy Statement - Information is incorporated by reference from the forthcoming 2024 Proxy Statement402 Principal Accountant Fees and Services Information on principal accountant fees and services is incorporated by reference from the 2024 Proxy Statement - Information is incorporated by reference from the forthcoming 2024 Proxy Statement403 Part IV Exhibits and Financial Statement Schedules This section lists financial statements and provides an index of all exhibits filed or incorporated by reference into the Form 10-K - This item lists the consolidated financial statements filed under Item 8407 - Provides an index of all exhibits filed with the report, including merger agreements, financing agreements, and equity incentive plans411 Form 10-K Summary This item is not applicable to the company - Not applicable467