Insight Molecular Diagnostics Inc (IMDX) 2021 Q3 法說會逐字稿

Greetings, and welcome to the OncoCyte Corporation Third Quarter 2021 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Bob Yedid of LifeSci Advisors.

Thank you, Joe, and thank you, everyone, for joining for today's conference call to discuss OncoCyte's third quarter 2021 financial results and recent operating highlights. If you have not seen today's financial results press release, please visit the company's website on the Investors page.

Before turning the call over to Ronnie Andrews, OncoCyte's President and Chief Executive Officer, I would like to remind you that during this conference call, the company will make projections and forward-looking statements regarding future events, and these statements that are not historical facts are forward-looking statements. We encourage you to review the company's SEC filings, including, without limitation, the company's Forms 10-K and 10-Qs, which identify the specific risk factors that may cause actual results or events to differ materially from those described in these forward-looking statements.

These factors may include, without limitation, risks inherent in the development and/or commercialization of potential diagnostic tests; uncertainty in the results of clinical trials or regulatory approvals; the need to obtain third-party reimbursement for patients use of any diagnostic test the company commercializes; our need and ability to obtain future capital and maintenance of IP rights; risks inherent in strategic transactions such as the failure to realize anticipated benefits; legal, regulatory or political changes in the applicable jurisdictions; accounting and quality controls; greater-than-estimated allocations of resources to develop and commercialize technology; or the failure to maintain any laboratory accreditation or certification; and uncertainties associated with the COVID-19 pandemic and its possible effects on our operations.

Therefore, actual outcomes and results may differ materially from what is expressed or implied by these forward-looking statements. OncoCyte expressly disclaims any intent or obligation to update these forward-looking statements, except as otherwise may be required under applicable law.

With those prepared remarks, it's my pleasure to turn the call over to Ronnie Andrews, CEO. Ronnie?

Thanks, Bob, and welcome, everyone, to our conference call to discuss our third quarter 2021 financial results and our operating highlights. Joining me today on our call is Mitch Levine, our CFO; Gisela Paulsen, our new COO; Dr. Doug Ross, our CSO; Padma Sundar, our COO; and Dr. Ekke Schuetz, our GM of our OncoCyte, Germany and head of our liquid biopsy and transplant programs. We'll all be available during the question-and-answer session.

I received feedback from several investors during my travels over the past few months that while it was exciting to follow all the progress being made in OncoCyte, they'd appreciate more context as to how all the moving parts fit into our overall strategy. So based on that welcomed honest feedback, I want to start first with a high-level overview of how all the initiatives fit together to enable our future. For those new to OncoCyte, 2 years ago, I stepped off the Board and ended the CEO role to reposition the company for the future and laid out a strategy to bring a market -- a portfolio of test that would complement each other and deliver answers to critical questions physicians and patients still face today, that the industry's focus on large-scale genomics has failed to answer.

Two major decisions still face every physician managing a cancer patient, what is the best treatment option, and is the therapy working for my patient? The advancement of target and immunotherapy options has happened rapidly with the clinical trial pipeline full of promising drugs across all major solid tumors. As the options for mono or combinatorial therapy expand, understanding the tumor biology of each patient is becoming more and more important. With confidence, I can say in 2 short years and in the face of a global pandemic, Team OncoCyte has made several important strategic advances that have moved us rapidly to the forefront of precision oncology diagnostics to answer these questions.

On the treatment front, we are now the only company that has a menu of precision test to answer all 3 questions necessary to select the best treatment protocol for cancer patients. The first question, do I give chemo is answered by our DetermaRx product. Secondly, do I give a targeted drug? This is answered by DetermaTX, which is currently planned to launch in late Q1 of 2022. Or do I give an immunotherapy, which is answered by DetermaIO. These 3 tests complete the treatment selection menu we've been working on for the past 18 months and allow us now to enter an extremely large market for treatment decisions.

To answer the do I give chemo question, DetermaRx was launched last year in the middle of the pandemic. And while it has the smallest of the available markets of any of the test in our arsenal, it's become a beacon for our mission of improving the lives of cancer patients. In a little over a year, we touched over 1,200 patients, of which just over 500 have been found to be high risk for recurrence and thus, needed chemo. And with that choice, those patients will now have an improved 5-year life expectancy of 92% versus the 49% 5-year expectancy they would have had without our test information.

We are now bringing the second of our 3 treatment selection test to clinicians with the commercial launch of DetermaIO this quarter. Moreover, we plan on fulfilling the promise we made to investors and the customers we serve to have a complete repertoire precision treatment decision test on the market by the middle of 2022 with the launch of DetermaTx, our 500 gene targeted decision panel scheduled for launch in late Q1 of 2022.

By midyear next year, OncoCyte will be the only company with a full menu of test from 1 lab that uses minimal tissue and provides less than 10-day turnaround time to address the estimated $5 billion cancer treatment decision diagnostic market in the U.S. and the EU. The potential value generation from the full menu is very substantial. And after 2 years of integration, development and clinical studies, we are now on the cusp of realizing our vision to go after these large markets with our proprietary offering.

The second question that remains unanswered from the majority of tumors is, is the therapy working? This information has provided early in the disease cycle to allow changes to therapy to be made in real time and thus, potentially offer better outcomes for more patients. While emerging companies are beginning to offer tests that help identify minimal residual disease to answer whether patients were adequately treated by surgery alone, they can only serve a subset of patients whose tumors can be removed surgically. These tests are complicated to execute upon because they need to be personalized to individual patients and they require genomic sequencing of the resected tumor specimen prior to testing, which takes time and extra tissue is not always available.

The fact is the majority of decisions in solid tumor treatment monitoring happen without a surgical resection of the tumor, meaning patients -- these patients have no option today since MRD cannot serve them. When we acquired Chronix Biomedical earlier this year, we acquired patents and proprietary methods that allow a blood-only approach to therapy monitoring. This allows immediate initiation of testing upon the start of therapy and interpretations test results without requiring knowledge of the tumor genome.

Our therapy monitoring product, DetermaCNI, is launched in the European Union for research use. And we will be completing tech transfer to the U.S. in Q1 of 2022. Our test is a blood-based only and does not need resected tumor tissue, offering physicians an option for the majority of patients that they serve. In fact, we not only solved the tumor tissue requirement problem, DetermaCNI also provide results on disease progression at the second cycle of immunotherapy, target therapy or chemotherapy weeks before MRD or imaging can provide meaningful results. This is a very exciting opportunity for OncoCyte to participate in the $4 billion to $6 billion global therapy monitoring market.

With DetermaIO now in its launch phase, our development efforts can now focus on getting more clinical utility studies under our belt so we can move DetermaCNI closer to market in the U.S. and in Europe. Taken as a whole, our monitoring capability rounds out a very robust offering that represents the only comprehensive set of tests to answer every question facing patients and physicians who treat them throughout that patient's journey.

Bottom line is this. Despite the challenges of the pandemic, I'm excited to say we've stayed focused and are now poised to deliver the full complement of test in our current portfolio to the market over the next 4 quarters. With these product launches, OncoCyte is now entering very large market opportunities with unique proprietary capabilities. And based on our current momentum, we believe all the current tests on our portfolio will be on the market within the next year gaining market adoption, the most important metric we'll be watching during their launch year.

Ultimately, we'll see reimbursement, which will drive the rapid revenue growth we envisioned when we laid out our compelling strategy. While there will be solid revenue growth along the journey for individual tests as we launch them, the full force of OncoCyte's strategy is found in the comprehensive information we can deliver to treating physicians. Our go-to-market strategy is only in the beginning stages. And thus, we remain incredibly enthusiastic about the potential for long-term value creation ahead. That's the strategy.

And now some updates on the product supporting our vision. Last week, we announced the clinical launch of DetermaIO. Internally, we've known for some time that the proprietary technology behind DetermaIO had incredible potential to change the way we selected patients for immune therapy. In less than 2 years, we validated the analytical reproducibility, completed CLIA validation and completed clinical validations across 4 major solid tumors. We've now tested over 1,000 patients to date. And in every study, including randomized clinical evaluations, we've outperformed every other molecular diagnostic test.

So today, I'm very excited to discuss the clinical launch strategy for our flagship product, DetermaIO, the first and only clinical test that comprehensively assesses both the tumor and the immune microenvironment to identify patients who can benefit from immunotherapy.

In clinical studies evaluating patients across multiple tumor types, including breast, lung, bladder and renal cancers, DetermaIO has consistently been better identifying immunotherapy responses than the standard of care test PD-L1 IHC in head-to-head comparisons. And in some tumor types, even identify patients missed by the current test who would have benefited from immunotherapy. DetermaIO addresses a critical unmet need in the market, which is to inform the optimal use of immune therapy treatment for more than 1 million eligible patients annually in the U.S. alone.

Over the past few quarters, we share updates on the incredibly strong foundation of data that we presented at various conferences. And we believe we've now built a solid clinical foundation for DetermaIO to be used by physicians as a potential pan-cancer and pan-immunotherapy test. Our strategy is to roll out the test initially as part of an Early Access Program with sites and physicians that have successfully partnered with OncoCyte on prior test and participated in our clinical study efforts.

During the Early Access Program, we'll optimize sample processing and logistics to ensure we deliver on our promise to provide rapid turnaround time and utilize the lowest sample requirements in the industry to inform immune status while maintaining strict HIPAA compliance.

After the successful EAP launch of DetermaIO and our processes have been optimized, we will then roll out DetermaTx, our tissue-based 500-gene comprehensive genomic profiling test using next-generation sequencing on the same tumor sample that we use for DetermaIO. This will allow us to meet our ton targets of less than 10 days and conserve precious tissue while still delivering the comprehensive synoptic information a physician needs to understand the targeted and immune therapy options for their patient.

DetermaTx will fall under a current local coverage decision, or LCD, for Medicare. So we expect DetermaTx to be revenue generating in the second half of 2022. And its launch will complete our treatment decision menu, giving us access to a large market of close to $5 billion and establish us as the most comprehensive and differentiated test provider with predictive answers for various therapy options available to physicians for their cancer patients.

To complement this exciting test combination, we'll launch DetermaCNI as a research use product in the U.S. in Q1 of 2022. Our initial efforts in the U.S. will be providing the test for pharma clinical trials and via our registry efforts to generate real-world evidence on the benefit of this test for managing patients being treated for cancer. DetermaCNI, as I said, is currently available in Europe for pharma research and trials and is already attracting researchers who are running immunotherapy and targeted therapy trials. We now have over 1,000 patients in various studies in the EU across several solid tumors and look forward to report out as early as ASCO of 2022. We remain very enthusiastic about DetermaCNI. And the feedback from researchers and oncologists has been solid as they appreciate the blood-only monitoring solution without the need for tissue or the need for very costly genome testing.

Moving to DetermaRx, our test for early-stage lung cancer patients. When we launched in the spring of 2020 at the beginning of the pandemic, we had no idea what was ahead of us. But our team forged ahead to bring this important test for early-stage lung cancer patients rapidly to market. Despite the unprecedented challenges, surgeons managing these patients' cases have had giving access to surgical suites for well over a year now, I'm proud to say that we are on track to close 2021 at over 100% year-over-year growth in test volume for DetermaRx.

Since launching DetermaRx just over a year ago, we've run over 1,200 samples of which 40% or approximately 500 samples have been deemed high risk for recurrence of their lung cancer. Without action, more than 40% for these patients will lose their life within 5 years. Instead, many of these high-risk patients are receiving chemo based on the results from our test, and their 5-year survival rate is expected to increase well above 90%. Simply put, DetermaRx is saving lives. This is the essence of OncoCyte's mission.

We continue to experience strength in key metrics we use to judge adoption in the current environment. Our growth in the number of new physicians and hospitals onboarded in Q3 was solid, and Mitch will go into more details. But this is particularly meaningful given the strong headwinds from the Delta surge, which has dramatically impacted surgeries and early-stage diagnoses in a key area where we have significant adoption.

In fact, one study showed a 38% reduction in diagnosed cases and early-stage lung cancer surgeries through the summer of 2021. While the summer showed a slowdown in surgical cases, we were encouraged by a steady uptick in sample volume in September and had our largest volume month-to-date in October, which we believe is a really good sign for our year-end closing push.

Our growing installed base of physicians ordering DetermaRx speaks to the value our test brings to patients and has us poised to experience strong volume growth as we emerge from the Delta surge and screenings in early-stage surgeries return to pre-pandemic levels.

Next, I'll transition to our emerging growth opportunities which stem from our acquisition of Chronix Biomedical. We briefly talked earlier about DetermaCNI, our patented blood-based test, to monitor cancer patients post treatment. Through this acquisition, we also acquired access to the TheraSure transplant monitor test for early transplant solid organ rejection monitoring. This is a very large market of approximately $2 billion in the U.S. alone, with established reimbursement of between $2,700 and $2,800 per test per patient in the United States.

Given the repeat testing modality for monitoring for transplant rejection, this is a recurring revenue stream and represents a very large revenue opportunity for OncoCyte. Recently, we received issuance of our second U.S. patent covering the use of our digital PCR technique for molecular detection of solid organ allograft projection. This new patent complements our first patent issued, which gave us IP around absolute quantification, a very important differentiator for our method versus the competing next-generation sequencing methods. We now have both IP components needed in the U.S. to support entry into the transplant monitor market in the U.S. with our TheraSure product starting out as an LDT out of our Nashville CLIA lab.

So how is TheraSure differentiated? First, our test offers the broadest application across transplanted organs. While we have indication in heart and kidney, the 2 largest volume organs transplanted, TheraSure is the only test with a current indication for monitoring liver transplants. We will also offer the fastest turnaround time and greater sensitivity for early indication rejection which can prompt a timely and critical change in dosing of therapy to suppress the rejection. Additionally, our test offers absolute quantification, which allows for greater sensitivity to identify early onset of rejection, providing utility for longitudinal monitoring of organ health over time.

Over 20 clinical studies in numerous peer-reviewed publications have validated the usefulness of our donor-derived cell-free DNA test as a noninvasive biomarker to assess rejection, cell death and under immunosuppression, all signs that a transplant is or soon will be rejected. However, the other technologies in use different effectiveness, accuracy and speed of turnaround.

Data published to date identifies our digital PCR method as the fastest and most cost-effective for payers as compared to other measures -- other methods that measure donor-derived cell-free DNA. These results have been published in prestigious journals, including PLOS Medicine, American Journal of Transplantation and others. Importantly, the recent CMS coverage policy for transplant rejection monitoring citing digital PCR methods for solid organ allograft rejection, as it's titled, cites 3 peer-reviewed publications and Chronix on the performance of our test in solid organ transplant monitoring. This is a huge validation of the Chronix technology, and we believe paves the way for commercialization and reimbursement here in the U.S.

We're now on a fast track to launch an LDT in the U.S. by the end of Q1 2022, so we can begin our efforts to gain access to the current reimbursement offered by the Center of Medicare Services.

Europe represents another attractive market, which is currently untapped. And last quarter, we unveiled the new details about our plans for the TheraSure transplant monitor test in Europe. We're now moving rapidly to work with local governments for reimbursement ahead of our 2022 launch in Germany. We're incredibly enthusiastic about the potential of our donor-derived cell-free DNA to deliver cost-effective, precise surveillance of transplant recipients to decrease premature graft loss resulting in a need for retransplantation. In summary, our differentiated approach is more specific, quantitative for longitudinal follow-up, cost-effective and can provide same-day turnaround time of important information for patient management.

As we look forward, I'm very excited for our team and our investors who have supported us through the development phase of our comprehensive offering. We're continuing to make progress on each product area, and we'll exit 2021 with solid momentum to our goal of launching a compelling and powerful portfolio of molecular diagnostic test assets with a large combined market opportunity well over $10 billion, and we will have proprietary positions in some of the fastest-growing areas of molecular oncology.

2022 promises to be a year of rapid expansion of our markets and testing growth. In order to take full advantage of our progress, the Board and senior management thought it was time to solidify the infrastructure to deliver a best-in-class customer experience.

Our recent appointment of Gisela Paulsen as Chief Operating Officer, brings world-class talent and strategy, operations and industry leadership to the OncoCyte team. Her history with Genentech/Roche and Exact Sciences/Genomic Health brought solid experience and positions us to enter our upcoming growth period where flawless execution will be essential. We're excited to have her on the team and look forward to her contributions as we build out the fundamentals required to deliver our menu to physicians and patients in the United States and Europe.

We continue to be amazed by the dedication of our incredible team particularly during the relentless challenges of the pandemic. And I'm incredibly proud of how our organization has responded by keeping all major programs on track. I can say with incredible conviction that Team OncoCyte believes, we have the potential to transform treatment decisions in oncology and beyond and their unwavering commitment is evidence.

At this point, I'd like to turn the call over to Mitch Levine to review our financials. Mitch?

Thanks, Ronnie. Hi, everybody. Our consolidated revenues for the third quarter of 2021 were approximately $1 million, representing 77% growth year-over-year. Combined, revenues for the first 3 quarters of 2021 are $4.1 million, which represents a 480% increase year-over-year. Progress with DetermaRx remains solid, with 289 samples for the third quarter, an increase of 65% year-over-year and a modest increase over Q2 despite the substantial slowdown in early-stage cancer surgeries caused by the Delta variant.

I would like to make an important point here. We feel the best measurement of adoption growth for DetermaRx is the number of physicians being trained to use the test, which we call onboarding as well as the adoption by community cancer center -- treatment centers and hospital systems. When we no longer have the headwinds of COVID-19, these physicians and hospitals will be responsible for ordering DetermaRx for their patients. Growth in physicians trained and hospital adoption should drive test adoption and revenue growth.

DetermaRx clinical results are attracting a rapidly growing base of prescribing physicians. In the third quarter, the pool of onboarded prescribing physicians increased by 22% from Q2 and 150% year-over-year to a total of 367 physicians. Similarly, onboarded hospitals and account sites increased 24% from Q2 and increased 225% year-over-year to a total of 218 sites. Again, our key performance metrics of onboarding of physicians as well as adding new hospitals and community treatment locations are the best measure of DetermaRx adoption by a physician who will generate higher sample growth and lead to greater revenues. So it's worth keeping an eye on those.

Third quarter revenues associated with DetermaRx were $402,000, a 93% increase year-over-year and a modest decrease from Q2 attributable to the pandemic headwinds in July and August. We saw a significant drop in early-stage lung cancer surgeries and related testing, particularly in the South and Southeast regions of the United States that were hard hit by COVID-19 as well as California, which was in lockdown.

According to a CNN report, surgeries were down 38%. The pandemic headwind was strongest in the months of July and August. We did, however, see a solid rebound in samples ordered beginning in September, and this strengthening continued through October.

We received $260,000 in licensing revenues in Q3 from licensing of our proprietary molecular test to third parties in Europe and China. Our pharma services business also made a modest contribution of about $282,000, a decrease of 19% year-over-year and an increase of 68% quarter-over-quarter, as we have discussed previously. Revenues in pharma services are lumpy as we depend upon sample volumes from biopharma clinical trials. And because of the ongoing COVID challenges, we received fewer samples from our pharma partners for testing. We expect a rebound in samples in Q4 as clinical trials resume.

And as I mentioned in our second quarter call, we signed a major services agreement with a large molecular platform company in June and have spent the last couple of months investing in and installing instruments in our Nashville lab facility. We believe increasing our work for diagnostic companies should drive a rising and more predictable level of services revenue.

Turning to the balance sheet. As of September 30, 2021, we had cash, cash equivalents and marketable securities of $44.3 million. In July, 2 institutional investors increased their positions in OncoCyte by acquiring 1.1 million shares via our ATM or at-the-market at an average price of $5.63 per share, providing a total of $6.2 million to OncoCyte. We use the ATM strategically in response to investor demand, not to simply offer stock into the market, and this was a perfect example of the ATM in action.

Additionally, we collaborated with a long-term investor to exercise for cash warrants issued in a 2016 offering. OncoCyte received $1.8 million in non-dilutive capital when the legacy warrants were exercised. With that being said, we're in a solid financial position and are well funded to fuel our engines of long-term revenue growth.

DetermaIO, our immune therapy response predictor, which we just launched via our Early Access Program. DetermaIO and DetermaRx together will establish us as the most differentiated precision diagnostic company for cancer treatment selection. DetermaCNI, our blood-based treatment monitoring assay that we expect to launch research-use only in the first quarter of 2022, which completes our oncology menu and offers a complete solution for treatment selection and response monitoring for patients throughout their journey. DetermaRx, our reimbursed lung cancer recurrence predictor, and TheraSure transplant assay for the early detection of transplant rejection that we expect to launch in the first half of 2022.

Cash used in operations for the quarter was $10.0 million for normal operating burn plus approximately $1.3 million in nonrecurring acquisition, legal and business development related payments in the quarter. Excluding nonrecurring items, we expect our base operating cash burn to remain stable. We will continue to invest in our diagnostic test to create or gain market share to solidify proof of concept through studies and registries and to strengthen collaborations with strategic partners.

Non-GAAP operating loss as adjusted for the third quarter of 2021 was $9.3 million, an increase of $3.3 million as compared to the same period in 2020. GAAP operating loss, as reported for the third quarter of 2021 was $13.6 million, an increase of $7.4 million from the third quarter of 2020. We have provided a reconciliation between GAAP and non-GAAP operating losses in the financial tables included with our earnings release which we believe is helpful in understanding our ongoing operations.

Cost of revenues for the current quarter was approximately $1.9 million, including $990,000 in noncash amortization expenses from our Razor asset acquired in February. Cost of revenues also include testing services we perform for our pharma customers. It is important to note that as we ramp our testing volumes, we expect to see an improvement in our gross margins in future quarters for the DetermaRx test.

Research and development expenses for the third quarter 2021 were $3.1 million as compared to $2.6 million for the same period in 2020. General and administrative expenses for the third quarter of 2021 were $5.5 million as compared to $5 million for the same period in 2020, due primarily to an increase in personnel, insurance and legal expenses.

Sales and marketing expenses for the third quarter of 2021 were $2.9 million as compared to $1.6 million for the same period in 2020, primarily attributable to ramp-up in sales and marketing activities for our continued commercialization efforts of DetermaRx and now DetermaIO. For the third quarter of 2021, we reported a net loss of $13.8 million or $0.15 per share as compared to $6.8 million or $0.10 per share for the third quarter of 2020.

We have a good history of making timely, thoughtful strategic investments in clinical studies and additional sales and marketing initiatives, which has helped us build commercial momentum in 2021. We aim to extend that momentum by growing the sales of DetermaRX. In November, we began the U.S. commercial launch of DetermaIO, and soon, we expect to launch DetermaRx and DetermaCNI. We will also invest thoughtfully behind the planned launch of TheraSure transplant test for transplant rejection monitoring by the end of the first quarter of 2022.

Thanks, everybody, for your time. That concludes my remarks concerning our financial highlights. Ronnie?

Operator, that concludes our formal remarks. If you don't mind opening up the call for questions, please.

(Operator Instructions) Our first question comes from Paul Knight with KeyBanc.

Ronnie, how do you expect IO to roll out? I understand you're going to collect more data in 2022. But when do you think the data that is complete and you're able to submit a dossier into the CMS?

Yes. Great question, Paul. We believe we have the data today to clinically -- to go to market clinically. We've got enough in the tumors that we've validated already to go. Much like historically in our industry, whether it be Genomic Health, Clarient, Foundation Medicine, Guardant, I mean, all of these companies, these great companies have launched their test ahead of reimbursement and have moved towards adoption.

So we realize that we still have a little bit of a road ahead for reimbursement. But especially given that DetermaTx -- I'm sorry, DetermaIO as a PCR test, we believe it's prudent to go ahead and launch it and start the clinical adoption process. The dossier, we believe, will be completed, and we should be able to submit for submission by the end of the first half of 2022.

And then on the Burning Rock milestone, are we on progress there?

We -- Mitch is really on point. We -- he has an executive team, we have an executive sponsor. I'll let Mitch answer that for us.

Paul, yes, we are on point with Burning Rock and are completing the tech transfer on time and to everyone's satisfaction.

And lastly, any change in the sales force composition, Ronnie?

Not today, Paul. We had plans to expand and we may expand by a few heading out of this year because there are some interesting territories that we have interest for IO that are uncovered. So we may add a few. But until we see the pandemic completely lift and reps be able to access physicians for face-to-face meetings, we're a little reluctant to go full throttle and add a lot more reps.

But ultimately, as we've spoken, I think, a few times on calls, we will be adding and expanding the sales force because as you add DetermaIO and Tx, it adds breadth to the offering and requires these reps to spend more time in the key accounts detailing and talking to various physicians within the account. So as we began to expand the menu and launch these tests, we will more than likely at some point in 2022 add to the sales force, but not planning on significant adds today.

Our next question comes from Mark Massaro with BTIG.

I guess my first one is on transplant. Recently, the market leader received 2 federal investigations and 1 state investigation. I'm just curious if you are familiar if any of these investigations might be pertinent to the transplant industry at large? Or do you think it's perhaps specific to the market leader itself?

And the second part of that question is, can you clarify which organ states you will launch in initially? My understanding is kidney, but I'm not sure about that.

Yes. Well, first, on the first question, to be candid, I don't know enough about the situation to be able to comment specifically. I will say, being in this space for 30 years, that it's not uncommon for labs running LDTs and submitting claims to get investigated. Unfortunately, it's somewhat the nature of our industry at times. So again, I don't want to comment on what the nature is. But I do believe that as we launch in -- as we launch our LDT, our plan is to launch the LDT across all 3 tumor -- I'm sorry, all 3 donor types, kidney, heart and, of course, liver since we have a unique position with liver.

But as we go to our clinical trials, to start the clinical trials for putting our test into a kit, we may end up having to prioritize the organs. And when we do that, most likely, we would do liver and probably kidney in that order, given that we have a proprietary position in liver.

Yes, that makes perfect sense. So just to clarify, you've talked about wanting to launch kidney, heart and liver. You've talked about the TheraSure transplant test launching as an LDT out of your Nashville Lab in Q1 '22. Are you planning to launch kidney, heart and liver out of that lab in Q1 of '22?

And then I know you've also talked about potentially partnering with another company. Any clarity on some of your planning around a potential partnership would be helpful.

Yes. Sure, Mark. Let me give you the color on that. Our plan is to bring all 3 indications up as a lab developed test and have that ready to go by Q1. We will then sit Padma on CMS and let her go after getting our reimbursement. As you know, the LCD was -- did cite our publications. So we feel good that the test we're bringing up is the test they've already approved for that blanket LCD, but we still have to go through the paces of getting that.

Once we get through that, then we will be going to market with the LDT across all 3 donor indications, all organ indications. And so the goal is to launch as an LDT. We are in the process of speaking with a couple of major partners. And our goal is still to have those as our long-term partner to help us with the clinical trial process and obviously ultimately turn this into a kit that could be democratized, which is really the unique opportunity that we have.

And from the market research that we completed to make the decision to go into transplant, we clearly saw that the leading attribute for decisions for these centers is the ability to provide same-day turnaround time for their transplant patients. And we believe that we will be in a unique position to deliver on that promise to these centers by completing the clinical trial and democratizing on a digital PCR instrument. Therefore, we do need a partnership with a digital PCR platform company. As you might imagine, there's 3 really good ones. And so I can't go much deeper than that. But just suffice to say, we're in conversations with them all and trying to find the best one to partner with.

Okay. And then I do want to ask, I guess, about the quarter itself. So I do think it's impressive that you grew sequentially DetermaRx volumes despite the headwinds in the South and Southeast and California and the decline in surgeries. I think every other precision oncology lab that has reported has commented about the headwinds in Q3. I guess if you could elaborate a bit, as we think about the last couple of months here in Q4 and a little bit into 2022, is it your expectation that Rx can meaningfully accelerate from here quarter-to-quarter?

And then my understanding is you had about 10 people in the field. I think you've talked about going to 20 by the end of this calendar year. Any commentary on go-to-market and sales headcount would be helpful as well.

Yes. Padma is on, and I'll let her answer that. I'll start with the -- we did see a really solid October, both Mitch and I said that. We want to be open about that. We start to see surgeries come back, and we start to see our volumes pick up, and they were meaningful. There's a meaningful increase. It wasn't just by a little bit. So that's the good news.

So we'll see how the quarter plays out. As you know, there's -- the end of the year, there's always seasonality with elective surgeries because physicians nor patients want to be in the hospital over the Christmas holiday season. So we're yet to see. We do know there's a backlog of these types of patients. So it could be that because they've been waiting for these surgeries, they do work through the holidays. So we'll have to wait and see what happens.

But in terms of the sales force expansion and growth, Padma, why don't you handle that one?

Yes. I just wanted to reiterate what Ronnie said. We are pleased with our 65% of year-over-year growth, and I'm confident of the growth continuing into 2022 even with our existing 10 reps. So I'm very confident of continuing the growth into 2022.

In terms of the sales reps, as of now, we still have the 10 reps. And as Ronnie said, we'll be very judicious about adding reps. We didn't intend to have 20 by the end of this year. We had said perhaps by the end of next year. And as Ronnie said, we'll be adding a small number of reps to support the launch of IO, which has a broader oncologist call point. And we'll be adding them in states with the largest total addressable market, as you can imagine. So that's the strategy, and it will be a phased addition, starting with a small number now and additional reps as we proceed through the year and have additional launches, including DetermaTx.

Mark, in terms of the transplant sales approach, you can anticipate as we get to the end of Q1, depending on who we partner with, we will more than likely support that partner with, what I would call, medical liaisons or medical technical sales reps so that we can actually go in and help those platform companies differentiate our test and et cetera. So we'll probably add some of those reps, but more to come as we get closer to that date.

Our next question is from Michael Matson with Needham.

This is Joseph on for Mike. I guess maybe first one just around DetermaIO and the launch. I guess you did say earlier that you do not expect to need another study for reimbursement. But I guess maybe I just want to assume you guys are thinking in terms of the next couple of studies, the next study that you'll be pursuing. What type of cancers you guys are targeting? And maybe the structure of this?

And then, I guess, second part to that in terms of physician education. Should we be expecting more KOLs in the future to drive awareness?

Yes, those are all good questions and really best answered by Padma, our Chief Commercial Officer. Let me just clarify something. We believe we have enough data today to support the launch and utility of the test. But we are still in the middle of collecting data that we expect to be published that we can use to go for CMS.

So Padma, you want to take it from there?

Yes. In terms of usage of the test, the reason we announced the EAP is because there was interest from physicians to have access to the test clinically. So there's definitely a demand for the test, and that's why we're doing the EAP program.

As to reimbursement, yes, we do have data, obviously, for clinical launch. We are completing studies that will generate the data. These are retrospective studies that will generate the data we need to put into our dossier. Obviously, we have data in lung and triple-negative breast cancer. But we do believe that this test has pan-cancer utility. And so we will be making investments and best time in here to show utility in additional tumor types.

So last quarter, we talked about, for example, we are part of the AtezoTRIBE study in colon cancer. So there will be investments in clinical studies to demonstrate the utility of this test that will ultimately lead to a pan-cancer claim.

As to KOLs, we are very lucky that because we've done studies in multiple tumor types, we already have enthusiastic KOLs. And you'll see them speaking about DetermaIO in upcoming conferences namely SITC, the Society of Immuno-Oncology Conference (sic) [the Society for Immunotherapy of Cancer] happening in Washington, D.C. this week, and there'll be a CME at the San Antonio Breast Cancer Symposium.

So we are very lucky that because of these people have participated in our studies in Europe and here, we already have enthusiastic KOL speakers. And of course, the goal of -- one of the goals of the EAP is that those early access sites, those doctors will automatically become additional KOLs that will kind of spread the word about the test as we go for sort of commercial launch.

Okay. Great. That makes a lot of sense. And then maybe just a quick one on DetermaRx. What's the expectations? Or I guess, could you guys maybe clear up the time line a little bit on potential NCCN guideline inclusion? And then it was my understanding that there would also be an additional milestone payment in coordination with guideline inclusion from Burning Rock, is that correct?

Yes. So I'm going to let Doug comment on where we are with NCCN, since he's on point for that. But let me give you just a high-level answer. There is -- there are 2 milestones. One milestone is the completion of the tech transfer and then the Burning Rock going live. And then there's a follow-on milestone that when we do get into NCCN guidelines that there is an additional milestone. So that is correct, there are 2 milestones. And so that's a correct assumption.

Doug, do you want to talk a little bit about NCCN? I know that they've reported out on quite a few of the smaller tumors, but we still haven't seen anything on some of the larger tumors yet.

Yes, that's correct. So their proceedings are confidential until they are released publicly. And so we really don't get any clue from them about what's going on. I have written them and asked for an update on what is usually a fall release. And they've written back and said more likely towards the end of the year. So all -- we're in a wait-and-see mode, but it appears that the lung cancer guidelines are going to be released later this year than as usual. And I don't have any knowledge of why that is.

Just to add a little commentary from my role with ASCO, there have been a significant number of new therapies and new additions to the arsenal for non-small cell lung cancer this year. And so the feeling is there was a lot to take in and a lot to add context to for the members. And so I suspect that, that's what's driving some of the delay. But clearly, we, like you guys, are very hopeful that we see those soon.

Our next question is from Bruce Jackson with The Benchmark Company.

I wanted to talk about the pharmaceutical services business briefly. In the past, you've discussed the backlog in that business, it's been rather sizable. I wanted to know if we could get maybe a rough update on the amount?

And then secondly, with the data that shows that DetermaIO is predictive, have you gotten any more inbound calls from potential pharmaceutical partners?

Yes. Let's -- we'll split this amongst the team. Let me sort of start with the last question. We continue to see and get discussions opened up by some of the emerging therapy companies that have products that are either complementary to the patients who are not responding to an immune therapy and/or there are companies that are trying to enter the ICI or the Immune Checkpoint Inhibitor world.

And so those conversations are always ongoing. We continue to do some pilots for those companies. We are hopefully going to see some of the closure of some of those pilots. And those pilots, obviously, we hope will lead to a full access to a trial. So there is interest there. We continue to get inbound phone calls as well as we continue to make outbound phone calls. So we aren't short of activity with pharma, but it is mostly with the emerging therapy companies that are trying to take on the large market leaders.

In terms of pharma services, we still have a solid pipeline, but it's been a little bit confounding for us, if I can just be totally transparent, which Bruce, you had always expected me to be. We have these projects and we have them -- the master services agreement signed up. But the actual projects is kind of a start-stop, start-stop. Every time we think we're going to get started on the big project, we are told by the company that they're going to delay it for another quarter or another month. And so which is one of the reasons we wanted to do something a little more reproducible and predictable, which is why we started taking the bandwidth we had and going after some of the diagnostic companies that need platform validation.

And obviously, we're extremely good at that, both in Nashville as well as in California. And so we can offer them a CLIA environment by which they can do crossover studies from one version of an instrument to a new version, one version of a software to a new version and even validate new kits for them and software for their FDA submissions.

And so that business does not really require pharma patient samples for clinical trials and is more predictable. So we -- as Mitch said, we did get our first big contract in, we got the instruments installed, and that first big contract is underway. So hopefully, we'll be able to complete that by the end of the quarter. But we should see a lot more of those as we enter 2022, and that should help smooth out the revenues in pharma services.

Okay. Great. And then one follow-up question, if I could, Burning Rock. So you're on track this quarter for the milestone, next milestone. How does that revenue stream unfold during 2022 when they transition to actually performing a test? And do you have like a rough idea of how much that might add to the top line?

Bruce. Well, we're not sure how much it's going to add to the top line, but we will get paid per sample that they run. And they have given indications that it's a very large market in China for early-stage lung cancer surgeries. And so we are hopeful that it adds quite a bit, but it is premature for us to have a better handle on that because they haven't gone out to commercializing it as of yet.

Mitch, as soon as we complete tech transfer though, their plan is to immediately launch in the new year.

Absolutely, yes.

Yes. So Bruce, we'll start to see the royalty trail, and we'll kind of get an idea of how they're going to ramp in Q1. And they are -- as you know, Burning Rock is an extremely capable company. They are one of the top molecular oncology companies in China. And so obviously, we have high hopes for that. And our royalty payment actually is a guaranteed per patient fee which we like because that way we aren't susceptible to pricing fluctuations in various provinces and things. So we'll know more as we get into Q1, but it's something to watch, and we're obviously eager to see how they take off.

Ladies and gentlemen, there are no more questions at this time. And I would like to turn the call back to Ronnie Andrews for any closing remarks.

Well, thanks, everyone. I know this was a little longer call than we probably had wanted. But the reality was, getting the feedback we got in the quarter as I was out traveling around, that we really wanted to share the full strategy and how each one of the components that we are bringing to market or each test that we're bringing to market mattered in the overall strategy. So hopefully, that was helpful.

And as always, we appreciate your support, and we just look forward to further updates as we exit the year and enter next year. Have a great day.

This concludes today's conference. You may disconnect your lines at this time. Thank you very much for your participation.