Oncocyte(US:OCX)2023-04-12 20:54Part I Business Oncocyte is a precision diagnostics company focused on oncology and transplantation, strategically divesting DetermaRx to prioritize core products and navigate regulatory and reimbursement challenges - Oncocyte is a precision diagnostics company developing proprietary molecular technologies in oncology and transplantation, with labs in Nashville, TN, and Göttingen, Germany1820 - In February 2023, the company sold approximately 70% of its Razor Genomics subsidiary, retaining a 30% equity interest, to focus on other strategic priorities23291 Oncocyte's Key Product Portfolio | Product | Area | Description | Market Opportunity (Est.) | | :--- | :--- | :--- | :--- | | DetermaIO | Oncology | Gene expression test to predict patient response to immunotherapy | $3 Billion (Clinical TAM) | | DetermaCNI | Oncology | Blood-based test to monitor therapy response using copy number instability (CNI) | $6 Billion (US Clinical) | | VitaGraft | Transplant | Measures donor-derived cell-free DNA (dd-cfDNA) to monitor organ graft health | $2 Billion (US Reimbursed) | - Commercial success relies heavily on securing reimbursement from Medicare and private third-party payers, with DetermaRx being its only commercialized clinical test as of year-end 2022444547 - The business is subject to extensive government regulation, including CLIA, potential FDA oversight for LDTs, and data privacy laws like HIPAA and GDPR7678105 Risk Factors The company faces significant risks including substantial operating losses, capital needs, commercialization hurdles, regulatory complexities, and internal control deficiencies - The company has a history of significant operating losses, with a net loss of $72.9 million in 2022 and an accumulated deficit of $260.7 million as of December 31, 2022, anticipating the need for additional capital144145 - Oncocyte received a Nasdaq notice in August 2022 for failing to meet the $1.00 minimum bid price, subsequently transferring its listing to The Nasdaq Capital Market and receiving an additional 180-day compliance period from February 7, 2023251252255 - A material weakness in internal control over financial reporting was identified, specifically deficiencies in the review process for third-party valuations, potentially leading to material financial statement misstatements249 - Commercial success is highly dependent on obtaining and maintaining sufficient coverage and reimbursement from third-party payers, which remains uncertain and potentially limited202 - The company's LDTs, historically under FDA enforcement discretion, face potential legislative changes or policy shifts that could impose more stringent and costly pre-market review requirements196199 Unresolved Staff Comments The company reports no unresolved staff comments - Not applicable266 Properties Oncocyte's principal offices are in Irvine, California, with a CLIA-certified lab in Nashville, Tennessee, and subleased lab space in Brisbane, California - The company's main offices and lab are in Irvine, CA, with an additional CLIA-certified lab in Nashville, TN267 Legal Proceedings The company is not currently involved in any material litigation or legal proceedings - The company is not presently involved in any material litigation or proceedings268 Mine Safety Disclosures This item is not applicable to the company's business - Not applicable269 Part II Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities Oncocyte's common stock trades on The Nasdaq Capital Market under "OCX" after a February 2023 transfer, with no history or anticipation of cash dividends, and approximately 309 holders of record as of March 22, 2023 - The company's common stock transferred from The Nasdaq Global Market to The Nasdaq Capital Market on February 7, 2023, continuing to trade under the symbol "OCX"271 - The company has not declared or paid any cash dividends on its common stock272 Securities Authorized for Issuance under Equity Compensation Plans (as of Dec 31, 2022) | Plan Category | Number of Shares to be Issued upon Exercise | Weighted Average Exercise Price ($) | Number of Shares Remaining Available for Future Issuance | | :--- | :--- | :--- | :--- | | Oncocyte Stock Option Plans Approved by Shareholders | 9,168,000 | 2.96 | 10,804,000 | Selected Financial Data This item is reserved and no information is provided - This item is marked as [RESERVED.]278 Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion highlights strategic shifts and workforce reductions, reporting a $72.9 million net loss in 2022, with management believing recent financing provides sufficient liquidity for 12 months - The company initiated two workforce reductions in 2022, eliminating over 40% of full-time employees and incurring $1.9 million in severance costs to preserve cash289290 - In December 2022, the company agreed to sell approximately 70% of its Razor Genomics subsidiary, classifying it as a discontinued operation to eliminate associated development and commercialization costs291292 - Management believes the company has sufficient cash to fund operations for at least the next 12 months, supported by capital raises in 2022 and a subsequent $13.9 million offering in April 2023360361 Key Operating Results (in thousands) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Revenues (Continuing Operations) | $958 | $2,198 | | Loss from Continuing Operations | $(18,612) | $(43,610) | | Loss from Discontinued Operations | $(54,290) | $(20,487) | | Net Loss | $(72,902) | $(64,097) | - The company recorded a full goodwill impairment charge of $18.7 million in 2022, concluding its fair value was less than its carrying value after the decision to sell Razor Genomics352586 Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, Oncocyte is not required to provide the information for this item - As a smaller reporting company, this disclosure is not required371 Financial Statements and Supplementary Data This section presents audited consolidated financial statements for 2022 and 2021, highlighting critical audit matters and reflecting a $72.9 million net loss in 2022 and significant asset changes - The independent auditor's report identified two Critical Audit Matters: (1) Valuation of Contingent Consideration Liabilities and (2) Assessment of Held for Sale and Discontinued Operations Classification and Impairment Charge for the Razor Genomics divestiture382385 Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $19,993 | $32,948 | | Total current assets | $25,536 | $39,143 | | Goodwill | $0 | $18,684 | | Total Assets | $100,091 | $159,563 | | Contingent consideration liabilities | $45,662 | $76,681 | | Total Liabilities | $60,497 | $94,346 | | Accumulated deficit | $(260,676) | $(187,774) | | Total Shareholders' Equity | $34,292 | $65,217 | Consolidated Statement of Operations Highlights (in thousands) | Account | 2022 | 2021 | | :--- | :--- | :--- | | Net revenue (continuing) | $958 | $2,198 | | Loss from operations | $(17,997) | $(53,725) | | Loss from continuing operations | $(18,612) | $(43,610) | | Loss from discontinuing operations | $(54,290) | $(20,487) | | Net Loss | $(72,902) | $(64,097) | Consolidated Statement of Cash Flows Highlights (in thousands) | Account | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(45,568) | $(35,941) | | Net cash used in investing activities | $(4,340) | $(13,961) | | Net cash provided by financing activities | $35,806 | $78,364 | | Net (Decrease) Increase in Cash | $(14,102) | $28,462 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no disagreements with its accountants on accounting and financial disclosure - Not applicable727 Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of December 31, 2022, due to a material weakness in internal control over financial reporting, and is implementing remediation plans - Management concluded that disclosure controls and procedures were not effective as of December 31, 2022732 - A material weakness was identified due to insufficient accounting resources and a failure to design and maintain effective controls for complex and non-routine transactions734 - The company is implementing remediation plans, including designing new controls and continuing to engage external consultants for support736 Other Information No other information is reported under this item - None737 Disclosure Regarding Foreign Jurisdictions That Prevent Inspections This item is not applicable to the company - Not applicable738 Part III Directors, Executive Officers, and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's 2023 Proxy Statement - Information is incorporated by reference from the registrant's 2023 Proxy Statement740 Executive Compensation Information regarding executive and director compensation is incorporated by reference from the company's 2023 Proxy Statement - Information is incorporated by reference from the registrant's 2023 Proxy Statement743 Security Ownership of Certain Beneficial Owners and Management, and Related Stockholder Matters Information regarding security ownership of certain beneficial owners and management is incorporated by reference from the company's 2023 Proxy Statement - Information is incorporated by reference from the registrant's 2023 Proxy Statement744 Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's 2023 Proxy Statement - Information is incorporated by reference from the registrant's 2023 Proxy Statement745 Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the company's 2023 Proxy Statement - Information is incorporated by reference from the registrant's 2023 Proxy Statement746 Part IV Exhibit and Financial Statement Schedules This section lists financial statements filed with the Form 10-K and provides a comprehensive index of all exhibits, including various agreements and required certifications - This section contains the list of financial statements and an index of all exhibits filed with the report748 Form 10-K Summary No summary is provided under this item - None754