Insight Molecular Diagnostics Inc (IMDX) 2022 Q3 法說會逐字稿

Good day, and welcome to the OncoCyte conference call to discuss the third quarter 2022 financial results. Today's call is being recorded.

At this time, I would like to turn the call over to Caroline Corner, Westwicke Investor Relations. Please go ahead.

Thank you, operator, and thank you, everyone, for joining us for today's conference call to discuss OncoCyte's third quarter 2022 financial results. If you have not seen today's financial results press release, please visit the company's website on the Investors page.

Joining me on today's call are Ronnie Andrews, President and Chief Executive Officer; and Anish John, Chief Financial Officer.

I would like to remind you that during this conference call, the company will make projections and forward-looking statements regarding future events. Any 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 Form 10-K and 10-Q, 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 the commercialization of potential diagnostic tests, uncertainties in the results of the clinical trials or regulatory approvals, the capacity of OncoCyte's third-party supply blood sample analytic system to provide consistent and precise analytic results on a commercial scale, the need to obtain third-party reimbursement for patient's use of any diagnostic test the company commercializes, our need and ability to obtain future capital, the maintenance of IP rights, risks inherent in the strategic transactions such as 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 technologies or 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 that, I'll turn the call over to Ronnie.

Thanks, Caroline, and welcome, everyone. Today I'd like to update you on the progress we've made against the strategic goals that we laid out on our last call and share some of the important milestones we have ahead. Our newly streamlined organization has maintained our momentum against our most critical milestones, and we're working hard to complete our product development and gain reimbursement for our transplant and for our oncology programs.

I'll start today with our transplant rejection monitoring opportunities. As you know, we have 2 products in this $2 billion U.S. market; VitaGraft Liver and VitaGraft Kidney. If you recall, both tests have completed analytical validation and have been submitted for reimbursement. We have active conversations with the team at MolDx ongoing, and this is very similar to what we experienced with DetermaRx a few years ago when we gained that very important reimbursement. And we expect to continue these discussions, but we do expect reimbursement for both by year-end.

In Q3, we began accepting clinical samples at our lab in Nashville as part of our VitaGraft Liver Early Adopter program. The goal to deliver EAP, our engaged key opinion leaders to refine our clinical utility and prepare the lab for full launch, which we expect to be in Q1 of 2023. We're very encouraged by the positive response to our test and the wet lab workflow that is now under 36 hours for our initial patient workup to establish the personalized baseline and only 12 hours for all the diagnostic monitoring tests thereafter. This rapid turnaround time is necessary to serve patients in a for cause setting when their care team is seeing an increase in liver function test. Their docs don't have time to wait on the long turnaround time for next-gen sequencing, and so we're excited to serve this unmet need in liver transplant management.

In Q4, we plan to open up the kidney Early Adopter program and begin feasibility for the IVD versions of both assays. While we do expect that our 2 lab developed tests will generate early revenues for our transplant monitoring program, as you know, our primary goal is to disrupt the transplant monitory market by delivering kits to democratize these critical decisions that physicians have to make for their patients. Our market research and the ongoing key opinion leader interaction have provided strong indication that rapid turnaround time, absolute quantification and the ability to participate in the reimbursement economics are powerful attributes that only VitaGraft will be able to provide for the foreseeable future. We remain on track for IVD trial to begin sometime in Q1 2023.

In summary, for VitaGraft, the key milestones to watch over the coming months are: First, we plan to continue onboarding new key opinion leaders from the liver transplant community as we open up our Early Adopter program. We also anticipate the launch of our kidney test by year-end to existing and new key opinion leaders. We expect reimbursement decision from CMS by year-end. And finally, we will begin the feasibility for the IVD kit product and site management for the important FDA clinical trial, which we expect to commence in 2023.

Now let's turn to our flagship oncology product, DetermaIO. To remind you, this is our 27 RNA gene expression test designed to help physicians access patients that have a tumor and assess the tumor microenvironment and determine which patients are suitable candidates for immuno-oncology therapies. Our Early Adopter program continues to underscore to us the need for this test across the slate of cancers. And as I mentioned on our last call, we have compelling data now in early triple-negative breast cancer, late-stage non-small cell lung cancer, metastatic bladder cancer, metastatic colorectal cancer and gastric cancer.

DetermaIO has now been validated in over 1,200 patients, in 6 tumor types and across all 4 major immune therapies. The results to date have been outstanding, and in all studies to date have outperformed the current test for predicting response to immune therapy. Our Early Adopter program continues to provide valuable use cases for CMS submission and market launch, and our volumes have continued to double each quarter during a limited launch. The Early Adopter clinicians are reordering the test for multiple use cases across multiple tumor types, and we remain incredibly enthusiastic about the future of DetermaIO.

We also recently announced that DetermaIO is part of a large biomarker grant award for the SWOG clinical trial study group in breast cancer. These awards were given by the National Cancer Institute and the process was highly competitive, where only a handful of clinical trial groups and National Cancer Institute sites were even allowed to apply. Even then each trial group was only allowed to submit 2 to 3 grant applications, which is a particularly small number when you consider all the variety of cancers that these groups are investigating. All applications were reviewed by an independent committee of clinical experts.

In addition to having extremely solid data, which DetermaIO has, the grant application needed to provide evidence that; one, the test was not merely interesting scientifically, but would actually change clinical practice in a very meaningful way for patients. And two, was ready to be used immediately within the clinic. We're very excited to say that DetermaIO meets both of these criteria.

We realize there are a lot of biomarker that claim to find responders of patients who benefit from immune checkpoint inhibitors. But DetermaIO's selection by the true experts in the clinical field show that DetermaIO is rapidly distinguishing itself from the competitive test and is a solid validation of the progress we've made in a very short time with DetermaIO.

As with our VitaGraft program, we're also working on a path to create a kit to make our oncology test more accessible to physicians and to patients. The beauty of DetermaIO is that it was developed from a large-scale 2,000-gene panel and the 27 gene RNA algorithm can actually be performed on multiple data sources, including samples that were run with RNA-Seq data, PCR kit or even a next-gen sequence in targeted resequencing chip. Given that there are thousands of PCR and next-gen sequencing systems and labs around the world, this allows us to be incredibly flexible with our market access.

In line with our new cash management strategies, we are planning for the regulatory process for our kitted version to start in mid-2023. As we mentioned on our last call, in order to reduce our overall burn, we've moved to a current development in clinical study to a more sequential process. DetermaCNI, our [DetermaCNI] blood-based therapy and monitoring test continues to be in use in clinical studies in the EU where the product has been effective in identifying disease progression across several tumor types. The results to date allow a physician to identify the failure of a treatment protocol weeks in advance of the current MRD test on the market at a much lower cost.

Given that a large majority of later-stage patients do not get their tumor surgically removed, current MRD tests are often not an option to monitor those patients since a large amount of tumor tissue is required for the upfront genomic panel to be completed. The market feedback so far has been overwhelming. A blood-only monitoring test that can tell a physician that a drug is not working by the second cycle of treatment is game changing for them and for their patients.

According to our plan, the U.S. clinical validation will begin working with academic institutions and with bio-banks to complete blinded retrospective studies in the first half of 2023 and hopefully submit for reimbursement under the current Blanket LCD for immunotherapy monitoring shortly after that.

Finally, I'll turn to our progress with DetermaRx, our lung cancer stratification test. Since its launch in mid-2020, DetermaRx has now touched well over 1,500 patients' lives. These patients had Stage 1 tumors and without our test information, may have gone untreated and statistically then half of them would not be with us right now. So I'm pleased to report that our streamlined sales force in our current covered territories, which now make up about 30% of the market opportunity, delivered third quarter growth in Rx sample volumes that were above 51% above prior year.

This is a really strong testimony to the sales team and the growing reliance on DetermaRx to identify patients that are high risk for recurring tumors and in need of treatment to improve their chance of living. We're also able to expand our pool of onboarded physicians, which is now number is 596 practitioners, which is up 62% year-over-year.

As I close out my remarks, I want to reemphasize my confidence in our ability to bring OncoCyte through this challenging macro environment and emerge leaner and stronger. In our Q2 call, we mentioned our intent to initiate several corporate development activities to evaluate the strategic alternatives we have given our broad portfolio. We have engaged Perella Weinburg Partners as our advisor to assist us in identifying and evaluating a range of these possible strategic alternatives, and we're actively engaged in several meaningful conversations.

On a parallel path, we continue to explore avenues to bolster our cash runway and to reduce our spend, including the possible reevaluation of our clinical trial expenses, potential changes to our executive compensation structure and reallocation of investments in our fixed capital and infrastructure. While I can't speak to specifics on today's call due to the sensitivity of the various discussions we have ongoing, we remain very confident that we'll be able to execute on one or more of our options to secure OncoCyte's future.

So please stay tuned and I also encourage you to watch for some key milestones over the next few months, which include the reimbursement decisions for VitaGraft kidney and liver, both which we expect this year and then the subsequent planned full market launches of our LDTs in transplant. As well, we're on path to submit DetermaIO for reimbursement, and we expect to do that before year-end.

I'm grateful for your continued support. And with that, I'll turn the call over to Anish John to review our financials. Anish?

Thanks, Ronnie, and hello, everyone. Our consolidated revenues for the third quarter of 2022 were approximately $1 million, representing a slight increase as compared to the same period a year ago. Versus prior quarter, revenues were down $1.1 million without the benefit of $1 million in licensing related revenues associated with the final Burning Rock milestone payment. Third quarter revenues associated with DetermaRx were $1 million, up $0.1 million sequentially and up $0.5 million year-over-year.

Our Pharma Services business generated approximately $0.1 million in the third quarter, a decrease of $0.2 million, both quarter-over-quarter and year-over-year. As we've discussed previously, revenues in Pharma Services depend on our partner's ability to enroll patients for trials, which continue to face headwinds and will likely to continue to fluctuate from quarter-to-quarter. We do have a pipeline of work from our diagnostic development partners, QIAGEN and Thermo Fisher, which we believe will grow and be more predictable in future quarters.

Cost of revenues for the third quarter were approximately $2.2 million, including $1.2 million from the cost of diagnostic tests and testing services we perform on -- for our DetermaRx and pharma services customers and $1 million in noncash amortization expenses of DetermaRx and pharma services related intangibles.

Research and development expense for the third quarter of 2022 was $4.4 million, an increase of approximately $1.3 million from the same period a year ago. The increase in R&D expense was related to site start-up costs for our PADMA trial for DetermaRx and headcount as we prepare to begin the IVD development in order to kit DetermaIO and VitaGraft liver and kidney. We also continued R&D activity to support ongoing clinical trials to gain statistical power with our current DetermaIO data sets as we submit to CMS for reimbursement.

Additionally, as Ronnie had mentioned earlier, we have successfully initiated our VitaGraft liver early access program and are on track for a full launch of our new VitaGraft product offering in Q1 of next year.

Sales and marketing expense for the third quarter of 2022 was $4 million, an increase of $1.1 million year-over-year. The increase is primarily attributable to the growth of our portfolio and reflects increased investments in headcount, along with sales and marketing activities to prepare for commercialization of our transplant business in support of continued commercialization efforts of DetermaIO and DetermaRx.

General and administrative expense for the third quarter of 2022 was $5.8 million, an increase of $0.3 million for the same period in 2021. General and administrative expenses were relatively flat year-over-year. Non-GAAP operating loss as adjusted for the third quarter of 2022 was $9.8 million, an increase of $0.4 million as compared to the same period a year ago. GAAP operating loss, as reported for the third quarter of 2022 was $9.2 million, an increase of $0.7 million quarter-over-quarter and a decrease of $4.4 million as compared to the same period a year ago. We've provided a reconciliation between these GAAP and non-GAAP operating losses in the financial tables included with our earnings release.

For the third quarter of 2022, we reported a GAAP net loss of $9.3 million or $0.08 per share as compared to $8.3 million or $0.07 per share, an increase of $1 million quarter-over-quarter and $13.8 million or $0.15 per share, a decrease of $4.5 million as compared to the same period a year ago.

Turning now to the balance sheet. As of September 30, 2022, we had cash, cash equivalents, restricted cash and marketable securities of $34.2 million. Early in the year, we raised $32.8 million in net proceeds from an underwritten offering of common stock priced at market. We're currently reviewing several options for non-dilutive forms of capital, including equipment finance lease lines. And as Ronnie has stated, evaluating strategic alternatives we have against our broad portfolio offering.

In addition, we continue to make progress on ways to further reduce our spend and ongoing burn rate from the beginning of the year. Our focus over the first 3 quarters was to reprioritize our investments in our product portfolio and institute a more sequential approach to product development and test launches. In Q2, we had announced the rightsizing of our organization to match the more focused priorities and had taken the definitive step to reduce our headcount carrying costs estimated to be over $4.5 million on an annual basis. In Q3 we incurred $0.7 million in severance expenses as a result of this prior quarter action.

Net cash used in operations for the quarter was $11.3 million, inclusive of $0.3 million of severance payments. Net cash used in operations decreased versus the first half 2022 quarterly average due to focused efforts to control hiring and optimize our use of cash primarily by reducing clinical trial spend and marketing investment.

In summary, management has taken numerous actions in the first 3 quarters of 2022 to focus investments and reduce our cash burn without impacting the long-term potential enterprise value of OncoCyte. Outside of the range of strategic alternatives under consideration, we continue to evaluate what steps we can take to further reduce spend and ongoing cash burn in the coming quarters.

That concludes my remarks concerning our financial highlights. Operator, please open the call for questions.

(Operator Instructions) Our first question comes from the line of David Westenberg with Piper Sandler.

So I want to start with a current event. Maybe you haven't seen this yet, so maybe I'm catching off guard. CMS, I think, is meeting next week to look at reimbursement and transplant. I don't believe it's -- I know it's heart and lung, so not really overlap with what you're doing in transplant. Do you think that there is any concern if they find anything there for lowering price? Maybe that's a headwind? Or maybe is this an opportunity in the sense that maybe it makes what you're doing a little bit more unique?

Yes, David, that's a great question. We are following this closely, obviously. And we do have some insight that has been very helpful for us. One of the challenges in the current LCD is a somewhat ambiguous number of expected tests to be monitored a year. And the companies today that are out promoting their current kidney test and heart tests have a certain protocol that they believe is appropriate based on the data that they have released. I think there's some discrepancy between that and what CMS actually believes the number needs to be and how many times these need to be performed.

I don't know that it's the value of the test itself in terms of reducing the price as much as is, are we over using this test? Is it necessary for that number many times? But we're going to follow this closely. But your point about us is a good one. In liver, the utility is a real interesting question, right? What -- because today, for everyone's edification in liver, when you do the liver transplant, unlike kidney and heart, there is a very low-cost monitoring test called liver function test, it's a panel test, which includes liver enzymes and some other components. And that test can be run very rapidly and to be run for way less than $100.

And so what we realized in our conversations with CMS and our key opinion leaders is that there's not really a need for pure monitor in liver. And you may find that same knowledge to come out around kidney. But what there is, is a real need to resolve elevated liver enzymes and identify the patients with that, that do not need a biopsy because right now, the reflex from the elevated liver many times is go to a biopsy. And as you know, those are painful and they're invasive. We know that our test now based on the results so far of our EAP are very accurate in identifying a patient population that does not need a biopsy. And so what this does do, for instance, is it reduces the total number of monitoring tests a year, but it is a very unique indication that gives us a sort of a first-mover advantage. And so what are the numbers look like.

There's about 100,000 or so patients that are living with the liver. They all get tested somewhere between 4, 6, some centers we found are about 8 times a year, and about 30% to 40% of those patients end up with an elevated liver enzyme and liver function test that needs to be reflexed for resolution. And so if we can be that test at some, let's say, $2,500 reimbursement, our market opportunity for liver is not the size of kidney and heart, but it's still $150 million to $200 million market. We will have a very appropriate utility data set, and we think we'll have a very good opportunity to penetrate the market.

So it's a great question. We're watching it closely. I do think CMS is concerned about the amount of money that's being spent to monitor using these more expensive tests when there are cheaper enzymatic tests that can be run to monitor function of an organ.

And apologies for the next one. I just -- like I'm trying to get it with packed, and I realize I can't -- so I just apologize upfront. Your confidence level and DetermaRx that this isn't going to be slipping into another quarter just because we really like want the reimbursement there. Sorry to ask it that way, but just --

You mean DetermaIO or you mean -- because DetermaRx, you mean DetermaIO?

Yes. Sorry. Sorry. Yes.

DetermaRx, as everybody knows, is reimbursed. And right now at $31.50 by Medicare. We did get identification you saw in our press release, we did get a crosswalk to a higher AUP, which is being reviewed today by public opinion. And assuming everything goes well, the expert panel has said that they want to put that in a new category, and that would give us about a 23% increase in that AUP. So it will go from $31.50 to $38.73.

DetermaIO, we are on path to submit just to remind everybody, we can't submit until we have papers that are published or papers that are accepted for publication. And David, we wanted to go with 3 indications. And so we have 2 of those papers. We're waiting on the third. That third one has been accepted. So we are expected to be on track with a submission by the end of the year, if not sooner.

Our next question comes from the line of Mark Massaro with BTIG.

I certainly appreciate the commentary about pursuing strategic alternatives. Obviously, we're living in pretty challenging times just in general. But maybe, Ronnie, can you just share -- I know that you've been looking to find a kit partner for several months now. So I imagine that these 2 items are probably related, but is there anything you could share just about the types of things you're looking at strategically and to what extent there's overlap between the kitting partner and other strategic alternatives.

That's a great question, and I'm actually glad you asked it. Listen, I think it's -- you know us, Mark, you've followed us and you've known us, our history. We realize today that we're in unprecedented times in the marketplace. And we, as an optimist and someone that was very hopeful that the markets would get better, the reality is we know now that that's probably not going to happen. And so our effort this year was to get all the products to a value inflection point that would give us optionality across the spectrum of our portfolio.

And so basically, where we are right now is we are -- we have basically the tissue-based therapy selection tests. We have therapy monitoring test, which determines CNI in oncology, and we have the transplant monitoring portfolio. And all 3, once we submit DetermaIO, the tissue-based cancer platform or cancer test will be -- reach a value inflection point because we'll be heading towards reimbursement with IO, and we already have reimbursement for Rx. So that creates a nice opportunity for partnering and licensing there.

We have transplant, which you know that we talked about is at CMS today and assuming we get those reimbursements, we will have another asset that is certainly available for monetization, either through partnering or licensing. The kidded partner in transplant has been a unique learning experience for us. We signed an agreement in the summer with a large platform company only to find out that once we got really under the hood that their product wasn't going to be ready for a clinical market for some time and would have thrown us off our track. So what we did is we went back and began to look at the other platforms again.

And in doing that, we realized that we can build these kits, there's third-party kit manufacturers that will build these kits for us. And so we would -- we can -- instead of sharing the economics with an instrument company, we can build the kits and sell the kits ourselves once they're approved, and then we could own all the economics in the kit cell and not have to share it. And so once we understood that, obviously, we've got a lot of experience in PCR here. So we said, let's move forward with that. And so we are looking at validating the kit on a primary platform but we are open to the flexibility of it being, especially in Europe, a kit that could be used across any digital PCR instruments.

So more to come on that, but that does open up opportunities with some of the European digital PCR companies that have platforms and don't have content for them. And one of those most recently said one of their biggest priorities in 2023 for growth is digital PCR menu. So the idea here is there's a lot of opportunity, we think, both for the LDT partnering in the United States, but ultimately for the kit partnering for Europe. And so without getting any more specific, those are the things that we've said publicly, but all of those opportunities are in play today. And to be candid, we've kind of narrowed the focus to a few, and we're pushing those to the goal line as we speak.

So the market leader in the MRD space Natera, just got a $7,489 bundle price from MolDx for Signatera IO. I wonder if that is a potential proxy for DetermaIO, it may not be. But I guess what I'm really asking, I don't think Natera knows yet how many tests they can run under that bundle. But can you just give us a sense for the number of tests you think DetermaIO could be done in a year? And how you're thinking about the reimbursement rate of that? And then is it fair to say that, that should be ordered on 3 clinical indications? And maybe just walk through the pathway to expand that to multiple indications of pan-cancer over time.

Sure, absolutely. So DetermaIO, we believe, given its sort of a -- it's much like the tumor mutation test that are run by Foundation Medicine and Guardant, et cetera, today to identify a patient's a responder for a targeted therapy. And so because immune is really following that same decision point, we think will fall in line with that same value. So we're modeling -- those are now reimbursed under a blanket City of about $2,500 a panel. I would say that's a fair -- we'd like -- we're obviously going to go for more. We believe that we save a lot of money for selecting the appropriate patient and not over-treating with immune therapy, but we know that's an uphill battle with pharma.

So the idea here is to go in and go in much like we did with DetermaRx and submit a dossier that shows some significant health economic savings by running our test before you give an immune therapy. If we do that, I mean DetermaRx is at $31.50. But the other test in therapy selection, not prognostic, are in the $2,500 range. So somewhere in that range is where I think we'll finish up. On the other side of the corner of that is DetermaCNI. And as you mentioned, the Natera LCD and the increase there for the bundle, we're looking at DetermaCNI being run 2 to 3x, maybe 4x max because at the second cycle of therapy without the big genome panel, we can give a very appropriate result looking at disease progression.

And so I suspect it would be great to get the $7,000 bundle, and we'll certainly give it our best shot. But the reality is our test cost significantly less than that, and we would expect something in the neighborhood of, I don't know, maybe 3,500 or 4,000 for a bundle. And I think the private payers that we've spoken to are much more obviously inclined to look at us as a lower cost alternative and someone that can be -- we can turn around a result in later-stage patients, and we don't have to have a surgical resection, which also adds cost. So I think from that perspective, -- we think we got a great play.

We just hired a really, really talented lady as our market access person, I think you guys know to manage costs. We had not really gone after that level of a person until we knew we were ready to get into the private payer world. We're ready to go now. And she just started about a month ago, and she's a are seeing returns there. So obviously, we're going to be working on the private pay world. We think that the large payer groups for DetermaIO if they understand that they could save hundreds of millions of dollars in the 2 to 3-year period on better decisions around immunotherapy and then monitor it to identify if it's working in a faster way.

We think it's a great health economic story. So more to come on that. We're just -- we're submitting now, and we're going to be actively out knocking on doors to talk about reimbursement for DetermaIO.

Last one for me. Just on CNI, what other data needs to be developed in? I think I heard you say first half of '23. Was that for reimbursement? Or was that for when the paper could be published? And then maybe can you remind us on since CNI is a blood-only test, remind us, to what extent is this pan-cancer versus certain indications?

Great. Yes. Yes, let me be clear first because I want to make sure we're very clear. We put -- we had to put prioritization in order and transplant DetermaIO and then CNI became the priorities for us in the second, third and now fourth quarter. And we couldn't do them all sequentially or concurrently anymore, so we align them up. Right now, DetermaCNI has under study and published papers around 1,200 patients in Europe, and that is across multiple tumor types.

If you look at the number of tumors that swap off or have copy number variability, it's about 35 solid tumors. About the top 16 tumors are the ones that we believe we can really effectively do. We may be able to do the rest, but we aren't going to have the money for some period of time to go chase those. So right now, we're looking at CNI to get indication in the United States to get a validation study under our belt in non-small cell lung cancer. We'd like to follow that with breast cancer.

And then ultimately, we'd like to follow that with colon cancer given DetermaIO's recently published efficacy at identifying MSI negative patients that today have no option for immune therapy, we assume that we're going to -- whereas we can identify a bigger population, we would assume that pharma is going to want to invest with us there. And then the second part of that would be to monitor for colon.

So our CNI effort in the U.S. because it does need to be validated to U.S. clinical studies, now European is really going to be focused on non-small cell, triple negative and then ultimately, colon with the hope that we can prove out the thesis that it really is a pan-cancer test given all the other data that shows that this copy number instability is relevant across 35 solid tumors.

Our next question comes from the line of Michael Matson with Needham & Company.

This is Joseph on for Mike. So I guess maybe just a handful of questions around DetermaRx. Let's try and break them up. Maybe to start off, could you maybe give some expectations around maybe volume growth or physician-based growth for 2023? I guess maybe what's the strategy on here to maybe accelerate some of the volume there, we'll start off with that.

Yes. I mean I think everyone knows we significantly reduced our sales force to cut back on some of the cash burn. Sales reps, it takes about a year for them to get to a point where the revenue they create covers their cost. And so we said we're going to take the 6 -- basically 6 top territories, which we now have, and we're going to keep those and then we're going to hold off on increasing the sales force until the DetermaIO got its trapped LCD and then we would move forward with expanding at that point in time, which will probably sometime midyear to third quarter next year.

So given that, we have 6 heroes out there. I say that with a lot of confidence. These folks work hard, and you can see that they were still able to grow the number of samples at 50% year-over-year even with just 6 people. So what we've started thinking about is mining the current territories they have and the current accounts they have and now that, obviously, the pandemic is over and we can get in and we can detail all the surgeons within an account that's onboarded, that's a better, more productive use of a sales rep's time to trying to create new accounts and onboard new people because that takes time and energy versus just continuing to do we call saint.

In my world, the same-store sales up here, it's more same doc sales or same account sales. And so with that, the goal here is to continue to grow the current territories as best we can. And then obviously, DetermaIO makes its way through the reimbursement paces. And we -- some of these other strategic alternatives come to fruition, we hope to have the capital to go and add a number of sales reps to really go after both IO and Rx in a meaningful way.

So yes, I guess just continue on with DetermaRx. Maybe on potential NCCN guideline inclusion. I know you guys had a trial going on a registry and maybe reduce some of the spend in that, if I remember correctly.

Correct.

Could you maybe talk about maybe time line on there of maybe the next point where a decision can come out. And in terms of maybe the increased reimbursement potential, you said they're having the meeting, I guess, today. Is that something you would send out a press release for? And then lastly on that, on the expanded, I guess, coverage -- could you maybe talk about how that could maybe increase the potential or I guess, the TAM around annual volume for DetermaRx, kind of where is it at right now? And where could that grow to the expanded coverage?

Great. Great questions. I wrote them down. We make sure I hit them off not. I'll be accountable my friend. Listen, the registry, we did close down the registry. And the reason we were able to do that is we have a randomized clinical trial as well going. We made the decision to run them concurrently because the randomized clinical trial and the early phases of it was very difficult to enroll. And why was it difficult to enroll? Well, not only was there pandemic going on. But given the vast amount of data around DetermaRx has already been published in peer-reviewed journals, there's over 1,600 patients in different studies that have been published patients did not want to randomized.

If you knew you had a 50% chance of dying, if you did not get chemo or if you got chemo, you have a 94% chance of living for 5 years. And if our test is elevated, we found patients did not want to randomize. So they really didn't want to put for coin to decide, hey, I'm not going to -- I work I mean, I'll take the risk of not getting chemo. And so it was very difficult in the early days. What we've done now by expanding the indication is expanded indication allows us not to just indicate to physicians for chemotherapy use in these early stage patients, but they can also use immune therapy. And so -- and a targeted therapy, if it's EGFR positive. And so what the expanded indication and change in that did was open up the playing field for any therapeutic decision and that significantly opened our chances to get the RCT populated and hopefully report it out next year.

We do have some ongoing third-party work that's going on, and we are hoping to revisit NCCN. They meet once a year and right after ASCO. So in summertime, we do hope to revisit the NCCN team. You've hit on a really important thing. I mean, right now, what are the 2 things that are limiting Rx growth, really, it's the size of the sales force. We need about 20 reps to really penetrate 100% of the country. And so given our cash situation, we're not going to go hire those people today. And the other thing is NCC and guidelines. And so hopefully, obviously, getting NCCN will be a powerful indicator for us, and that would drive a lot of revenue growth just because docs would -- it would be in guidelines, of course.

And then the new price is really around the idea that we were -- our test category, they cross walked us from the original CPT code. We had to -- a new one that's expansive for prognostics. And so that's why we are -- they recommended unanimously that we moved from the old one of $31.50 to the new one, which is I believe $38.73. And so that has to go for public opinion. That is all collected. And they're meeting, as you said now. So assuming there's no public pushback, that final pricing guidelines were going place and be effective in January of 2023. And as we know that, we'll certainly let the world know that.

And our next question comes from the line of Thomas Flaten with Lake Street.

Ronnie, anything on the VA that you could share with us in terms of penetration so far? I know it's only been a couple of months, but any uptake? And how are you managing that from a commercial perspective or a field force perspective?

Yes. Of course, that contract gives us -- it's kind of a license to sell into the VA. Our reps are actually actively targeting certain VAs that we know have a high surgical rate of lung, which we know which ones those are. Thomas, I don't know -- as I look at -- I'm looking on our Board, as I look at the volumes for the quarter, I don't have it broken out by VA, but that's a great question and something that we can certainly start getting and identifying for you.

My experience, which, as you know, I'm old and been around a while is the VA contracts are really, like I said, a license to sell and there'll be one-off. But the good news is, once you close one, they typically run these tests on everybody that goes through. It becomes part of their protocol. And so it is a very important contract for us and does represent a significant number of covered lives. And so that, along with some of the private pay efforts that are ongoing today, I mean we did see -- we are continuing to see an increase in our commercial AUP for our commercial payers in Rx.

And we're averaging right around 2,000, I think, this last quarter. And so our ASP for the quarter was up, it was 3,097 -- so the mix is still favorable for us. Year-to-date, we're about $3,058. So we're getting a really nice mix of Medicare and commercial that is starting to pay. But as I said, we hired this market access hotshot, she's amazing. And we expect to see some improvement in the commercial payer world now that she's here for Rx and her -- one of her primary goals. So is to start paving the way for IO.

And then how are you -- given that you downsized the field team to support Rx, I know you diverted some of those head count to the transplant group. How are you thinking about timing of building up that commercial infrastructure to really support that once reimbursement is in place?

Yes. You do a transplant or DetermaIO?

Transplant.

Yes. Yes. Well, right now, we've got -- as you know, it's a pretty concentrated market. We know where our target centers are. We have -- well, the business development approach to those target centers right now with the Early Adopter program. We are ready to enroll the next wave of Early Adopter. And so we're close to doing that, and we'll be onboarding those accounts. We have one -- we hired one rep to date, and that rep is targeting the region of the country that we believe we have the greatest chance to exercise our rapid around time and have a key attribute that we can compete with.

So once we get reimbursement and we start to see revenue and that transplant revenue can support the increase -- it's a very profitable test. So once we start seeing revenue, that could support within that P&L, the addition of more headcount, but we are going to be very deliberate about how we add headcount, given how concentrated the market is. And we'll add them as we have the money to do it.

And then if I might, just flipping back to the discussion of kitting the products yourselves and validating them as opposed to working with a partner. Just strategically, I'm assuming that you would have benefited greatly from tapping into the commercial infrastructure of a box partner so that we would have -- I'm just wondering what that would look like from a commercial perspective? And would you actually earn net income because you have to invest in the infrastructure to go out and sell those things yourselves as opposed to piggybacking off of a partner? I'm just curious if you could help us think through that strategic decision making.

Yes, that was a relatively good question because we -- that's where we were, right, in the summer. What we found out is there's not a lot of digital PCR equipment today in some of the centers that are running the -- the liver function test are running the kidney function test and the immunosuppressant panels. Those are more immunochemistry and clinical chemistry tests. And so once we understood that, the companies that are out there, Bio-Rad, Thermo now has a new one, QIAGEN is the closest to being a clinical company.

Really, if you look at it, Bio-Rad nor Thermo Fisher, at least our digital PCR Group, Roche, Digital PCR Group and then QIAGEN, they all have ambition to be in the clinical digital PCR space, but none of them really have a validated product necessarily for the digital PCR space in transplant or anything near transplant. So what we realized is all of them would be very eager for us to reagent rent a box. So we would lease it from them for the account. We would then create a reagent rental lease, and then that instrument would go into the account and be serviced by that instrument company, but we would not -- we would be able to get our -- I'm sorry, our COGS on our kids at a much lower price by going direct to a manufacturer than working through an instrument manufacturer and they get to mark up the kit and then some level to us, and then we would -- our profitability would go down.

So for us, we just made the decision that since we can run on multiple instruments, we are going to validate the IBD product, though on -- we can't do every box to your point, Thomas. So we have selected an instrument. We -- there's another company out of Europe that's interested. So those -- I got to be careful. Those are the 2 things we're working on today and part of our strategic alternatives. So I can't say a whole lot more, but there's interest in the IBD kit, and there's interest in the LVT. The LVT, obviously, is our shortest path to revenue and one that we're pressing hard on.

Our next question comes from the line of Mason Carrico with Stephens Inc.

Ron, I just wanted to circle back on some of your earlier comments just to make sure that I heard it right or I'm thinking about it correctly. For your liver test, the dynamics that you were calling out, were you saying that the use of this test would be more or more for cause, I would guess, say, the for-cause indication where you're using it to detect an active rejection instead of surveillance monitoring? Or would that decision largely be based on the outcome of this MolDx meeting that's going on next week?

No. We've been ongoing discussions with MolDx. They've been extremely helpful. Liver is an area, as you know, that no one's kind of pioneered yet. They are very interested and have been very interested in the utility. In fact, the majority of the questions that go back and forth between our team and then have been around the utility and what is the true utility. That -- their input, along with our -- we are working with the largest liver transplant center in the United States, and the key opinion leader there is world renowned. And that between he and the group at CMS and certainly our team, we've really landed on a utility that is a reflex test for acute cases where liver function test panel comes back above the normal range, and they need to reconcile -- do they do a biopsy for that patient or not.

And we are a really nice adjunct to that, and it seems to be where we've landed with our reimbursement -- with our utility for reimbursement, but also the energy and the excitement around that from the other centers we've been talking to is pretty high. It's -- liver enzyme tests are cheap. And they actually -- they function pretty well as a surrogate of an organ -- something going on with in Oregon. You just don't know what it is. And then our molecular profile can be more specificity as to what's actually causing the increase.

And so for us, again, it's -- listen, we went into this hoping it would be monitoring it. It's a much bigger market. The reality is, I think CMS's current focus on kidney and heart with the current players, led them to ask us a lot of hard questions about utility. And I'll just say this. I think it forced us to think about our opportunity, and we've really landed, I think, in a pretty good place.

And then I didn't hear much on DetermaTx during the call. Our efforts to submit that test for reimbursement still in progress? And if so, how are you thinking about the time line for submission there?

Yes. Thanks, Mason. DetermaTx is a test that's very -- it's kind of a me-too test for everybody on the market. We developed a prototype for the test, but it was going to cost about $700,000 to validate it, and we just decided to hold off on spending that money today and put it behind transplant and wait until we got the LCD for DetermaIO. And once we see the draft LCD and we know that we're going to get reimbursement for IO, at that point, we'll pick back up on what we do around a targeted mutation panel. There's folks that we could partner with for that as well, and we could save ourselves the cost of development. So we're kind of looking -- we're rethinking DetermaTx since it is a me-too test, and it's going to take a lot of money to validate it given the number of mutations that are on the panel.

And then last one for me here. Could you run through your thoughts on the mix of patients, Medicare versus commercial for the initial indications for DetermaIO? What percentage of those patients maybe for each indication is of Medicare age?

Yes. It's changing, Mason, rapidly. In the early days of IO, it was indicated mostly for late stage in salvage treatment because that was the easiest place for pharma to get their indication. So back then, it was 60%, 70% Medicare, Medicare Advantage. But what's happened is they've moved from Stage 4 because those are typically people who are older and have later-stage tumors. What we're finding now is that they're moving those studies to move these drugs into Stage IIb, IIIa IIb, these patients are younger, and these younger cohort. I know this from my work I do with ASCO and I'm active with the team and the Board at ASCO. And I know from what they're seeing that we're starting to see that mix change.

I expect -- I don't -- I mean if I was guessing, I would say maybe somewhere in the 55 Medicare, 45% private pay at some point. But I think the big number to know that I think I'll reiterate this number every time I speak publicly to at conferences, right now, it's estimated $125 billion will be spent on a new therapy in 2025, $70 billion or $80 billion of that based on the current statistics will have 0 impact on the patient outcome. And so that's where the overuse of this therapy class is going. And I think it's only going to get worse as we move down into younger patients who will come in and try to demand that they get an immune therapy because they've seen the commercials that say, I'm going to cure when we know that less than 25% of the patients actually have durable response.

And so I think for us, we -- that's why we're so excited about the private pay world because they're the ones bearing the broad of that, of course, Medicare as well, but the private pay, many of those folks are publicly traded and creating a product mix for them that reduces overall drug spend and creates the efficacy of that spend to be better. I think that's a good story for us and one that we'll begin telling now that we have our market access person.

And our last question comes from the line of Bruce Jackson with Benchmark Company.

Just a follow-up on VitaGraft. You've got the early access program going right now. Is the lab pretty much set for launch? And are you prepared to scale for additional volume?

Great question. Right now, the lab is ready. We are accepting samples from our EAP accounts. We continue to refine our logistics and workflow and courier services and things like that. So that's been -- it's why we do the EAP. But we are ready to go for market. As I speak now, we have hired the people we need. We needed to hire. We're able to run the multiple shifts -- and so we are appropriately staffed and ready to go to provide the town times that I mentioned in my earlier comments. So I feel like we're good there.

Nashville is not a small -- it's not a big lab. It's a small facility. But we think that team was running a couple of shifts. We think we can get that somewhere between $18 million to $20 million in revenue before we have to think about a third shift or expanding the facility. So we've got some runway ahead of us there, but obviously, we hope to blow through that as quickly as which we can. So we are having to look at that and think of our long-term planning about what do we do about expanding Nashville.

And then in terms of the other launch preparations, it's a fairly compact target market that you're going after. So you can scale the sales force pretty effectively. Is there anything else that needs to be put in place prior to the launch?

Of transplant. The only other thing that we really probably want to add are some med ed folks, some folks that can go in and educate the accounts on utility of our test and how to use it. And as you know, that's not a sales rep under the current compliance world we live in, that needs to be doctor to doctor, scientist to scientist. And so we have one of those, but we will probably need to give up a few of those to be able to serve a broader market in transplant. Thank you, Bruce.

And we have reached the end of the question-and-answer session. I'll now turn the call back over to Ron Andrews for closing remarks.

Thanks, everyone. I appreciate your time today. We certainly appreciate your patience with these long calls, but it's really important. We have a lot going on. All these products are making their way rapidly through the process, and we're very excited about where we are in terms of the product development, moving and transitioning to commercialization. So we look forward to chatting with you soon. Have a great week.

And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your patience.