Insight Molecular Diagnostics Inc. (IMDX) Earnings Call Transcript & Summary

Greetings, and welcome to the OncoCyte Corporation DetermaDx Results Call. [Operator Instructions] As a reminder, this conference is being recorded. I'll now turn the conference over to our host, Bob Yedid from Investor Relations. Thank you. You may begin.

Thank you, Diego, and thank you, everyone, for joining us for today's conference call to discuss OncoCyte's DetermaDx Clinical Validation Study results. If you have not seen today's press release, please visit OncoCyte's website at www.oncocyte.com. Before turning the call over to Ronnie Andrews, OncoCyte's President and Chief Executive Officer, I would like to remind you that this conference call -- that during this conference call, the company will make projections and forward-looking statements regarding future events. Any statements that are not historical facts, including, but not limited to, statements that contain words such as will, believe, plans, anticipates, expects, estimates and similar expressions 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-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 test, uncertainty in the results of clinical trials or regulatory approvals, the capacity of OncoCyte's third-party blood sample analytic system to provide consistent and precise analytic results on a commercial scale, 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 intellectual property rights. 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 Andrews, CEO. Ronnie?

Thanks, everyone. Thanks for joining today's call. Today with me here are Mitch Levine, our Chief Financial Officer; Dr. Doug Ross, our Chief Medical Officer; and Al Parker, our Chief Operating Officer. We will all be available during the question-and-answer session after the prepared statements. Earlier today, we issued a press release announcing the completion of the DetermaDx Clinical Validation Study. Despite the effort of an incredibly dedicated R&D and CLIA lab team who persevered the very unusual circumstances this spring to deliver this milestone on time, I'm disappointed to share that the performance of the test did not meet our predetermined study endpoints. As a very brief reminder, DetermaDx is a liquid biopsy test intended to clarify whether a lung nodule is likely benign, with the ultimate goal of avoiding unnecessary invasive lung biopsy. Our prospective blinded clinical validation study tested approximately 500 patient blood samples to serve as a validation of DetermaDx in our clinical lab setting. Clinical Validation is the final part of the R&D process where a lab validates the final performance parameters of a CLIA lab-developed test or LDT. Although we will not be discussing specific data or study results on the call today as the data are still new and we're in the process of analyzing the full data files, I wanted to share some details of the approach we took in our Clinical Validation study in order to give our investors confidence this was a rigorous and thoughtful process. As stated in the press release, DetermaDx did not meet the key trial endpoint of demonstrating that the test, which combine clinical factors and measurement of the immune response in blood, improved upon current clinical practice, which assesses clinical factors alone. In current practice today, physicians and patients use clinical factors such as the patient's age, smoking status, nodule size, location and shape. Sometimes these factors are combined using validated multifactor models such as the Mayo model to inform decisions about the use of potentially morbid interventions such as surgical or needle biopsies to definitively diagnose cancer. Our customer research conducted last fall clearly established that community physicians wanted a test that integrates the potential information from a blood test with clinical factors to give the best overall prediction to inform whether a worrisome nodule was, in fact, likely benign, which would allow them to be confident in following the nodule using radiology as opposed to requiring an invasive biopsy. A key point that community physicians emphasize was that the blood test had to offer incremental value above and beyond the current standard of care. Our analysis plan was explicitly designed to prospectively test whether or not our blood-based biomarkers, together with clinical factors, clearly demonstrated DetermaDx's ability to improve upon the current standard of care. Unfortunately, the performance of the test did not achieve these prospectively defined criteria. Based on the results from Clinical Validation, the team is fully aligned that we would not be moving forward to commercially develop DetermaDx. This is, of course, disappointing to us as well as our shareholders, patients and the medical community. However, since taking the helm as CEO of OncoCyte a year ago, I made a commitment to be fully transparent and straightforward with our shareholders, and that commitment remains steadfast even on days like today when I have to deliver disappointing news. Biomarker research is a challenging and expensive undertaking, and oftentimes, early discovery does not end up in final products, in this case, due to the complexity of the immune system's response to the presence of cancer. The early results of the research were very encouraging, and thus, we continued our pursuit of a test that would have filled a substantial unmet need in the management of lung cancer. With the experience of a solid research and bioinformatics team, we put in place a rigorous process last fall to ensure mitigation of any process variables before we completed CLIA validation and, ultimately, the final clinical validation in order to allow the biology of our biomarkers to power the decision points we set as the parameters for improving the current standard of care. Despite those efforts, the results of clinical validation show that our biomarker panel did not achieve these predetermined endpoints. As a result, we believe it is in the best interest of the company to discontinue any further investment in DetermaDx and to focus our resources and our organizational energy on our other products that are commercially available today. Over the last year, the OncoCyte management team has worked hard to build a more diversified, derisked company and have been executing on our strategic vision, which is much more than being solely focused on the opportunity with any single product. I came to OncoCyte with a vision to expand the reach of micro diagnostics, which has been transformative for oncology, and to focus on underserved clinical decision points with a real opportunity to improve clinical decision-making with meaningful impact for patients, physicians and health care economics. I recognize that DetermaDx fit neatly within that vision but was also fully aware of the well-known risks associated with the research and development of any novel technology. So a large part of our strategic vision was to expand our suite of offerings with new technology and content capable of addressing underserved clinical decision points but focusing on diagnostics developed on a fully validated platform with relatively mature clinical data to pursue a more derisked approach to acquiring, developing and commercializing valuable test on a global scale. Today, we offer 2 commercially available products, DetermaRx and DetermaIO, and we have a growing pharma services business. With DetermaRx, we've made the important transition to a revenue-generating commercial stage company. DetermaRx is the first and only predictive test for the identification of patients with Stage I to IIa non-squamous small cell lung cancer who are at high risk for recurrence following surgery and are likely responsive to adjuvant chemotherapy. We believe that more than the 350,000 patients globally could benefit from this test. This test has been validated in studies of more than 1,600 patients and published in prestigious medical journals such as the Lancet and the Journal for the American Medical Association or JAMA. As we have talked previously, we continue to make commercial progress even in the face of the challenges brought on by the COVID pandemic. We pivoted quickly to online physician education, and these programs have now attracted more than 1,700 health care professionals. We have established good momentum onboarding 34 sites with 60% of the physicians having already ordered multiple times, which is a solid indicator of the potential for the test. In the second quarter, we were granted coverage from Medicare, having been issued a final local coverage decision last month as well as having begun receiving reimbursement from several commercial payers. The second commercially available test is DetermaIO for immune therapy response prediction, with studies completed in non-small cell lung cancer and triple-negative breast cancer by researchers at the West Clinic and MD Anderson Cancer Center, respectively, and presented at SITC in November and the ASCO 2020 Annual Meeting this month. This test is currently available as a CLIA-validated servers for biopharma diagnostic development and for research use and has significant potential for use clinically, including a full companion diagnostic opportunity. DetermaIO represents a significant global opportunity for OncoCyte with close to 800,000 patients eligible to receive immunotherapy annually in the U.S. alone. Lastly, we're pushing forward with our successful boutique of pharma services businesses, which is a component of our acquisition of Insight Genetics completed earlier this year. That business represents a growing source of revenue for the company and allows us to immediately leverage our CLIA- and CAP-certified lab and proprietary products into pharma service revenue. Our proprietary products include DetermaIO, TNBC type and a noninvasive blood-based cell cycle assay, which are attracting interest from pharma companies as a companion or complementary diagnostics for multiple classes of therapy in development for solid tumors. So while, of course, we're disappointed with the outcome of DetermaDx Clinical Validation Study, we believe we have transitioned the company to become a diversified commercial stage revenue-generating molecular diagnostics company with a vision and well-developed strategy that will benefit cancer patients, physicians and, of course, our shareholders. I'd also like to remind you, we're well positioned to continue to execute that mission. With our growing support of high-quality institutional investors, we have continued to strengthen our balance sheet, enabling us to not only continue our successful commercialization development activities but also preserving our freedom and flexibility to execute on our overall strategic mission to expand our suite of offerings with derisked, validated, high-value assets. I hope that through our strong execution and transparency, we've earned your continued confidence. We thank you for your support and look forward to sharing our progress on our 2 products in the coming months. Before I open the call for questions, I'd like to remind you that we're not at this time discussing specific data or study results from the Validation Study. With that, we're now ready to open the call for questions. Operator?

[Operator Instructions] Our first question comes from Steven Mah with Piper Sandler.

I know you guys aren't going to discuss the data. But can you discuss potential differences between the R&D and the CLIA validation data that you guys got? I mean that was some stellar results. And I'm just wondering, yes, without discussing the data, was anything materially different between those samples? Or can you give us some color?

Yes. Let me give you a high-level color. Dr. Ross is on. I'll let Doug pick up the color commentary. I mean our goal is to give you what we can today. Obviously, we will continue to do, what we call in our industry a FME Analysis, Failure Mode Effects Analysis (sic) [ Failure Modes and Effects Analysis ]. These are things we normally do across any product development process where we look at all components of a development process and look at the various opportunities for improvement as we move forward in our processes here. And until we get to do that, we really won't have a real deep understanding of the various components of the test and where we did not -- where the test did not meet what we expected. But let me say this. I think the idea was that any time you go from research development in a very sterile environment to a CLIA environment, you're really introducing a variable of reproducibility. As you know, you're having live samples are coming in that DNA and RNA has to be extracted, and then you run it through your CLIA system. Your CLIA system really doesn't evaluate the endpoints but evaluates the testing systems' ability to reproduce the results of a controlled environment or controls. And so with that, I'm going to let Doug take it from there and talk to you about how you take that into clin development and then what we saw versus what we expected. Doug?

Yes. So we're still early in that process. We've only been exposed to the data for a couple or few days, starting with R&D and then there's the solar team later. But it's really a process of digging deeper. And the first look is that the obvious stuff, if you will, where you could have made a mistake, we don't believe that's what happened. We looked and looked, and none of the obvious things that would be simple to correct seemed to be what happened here. And so then you start dealing deeper, as you say, to look for differences in cohort biases. Quite frankly, we went into this aware of all those possibilities, and we're pretty carefully -- careful about how we design the clinical study. And so we're still digging through that. And then you dig deeper and deeper until you finally perhaps come to the conclusion that you can't find anything. And then it becomes -- what's left is the biologic signal to noise. So we're early in that process. And so we're not -- for that reason, we're not giving a lot of specifics because it's the process of elimination. But to date, I don't really have a good explanation of what happened.

Steve, I would say this, that as we prepared to -- last fall, as everyone knows, last summer, we unveiled CLIA data and found some discrepancies. We rapidly went into work as I was taking this job, and we did a Pareto Analysis and understood that the primary cause of that was the extraction reagents. We quickly fixed that, got 2 lots, validated the lots. And then we took that -- those lots, and we went back to the original R&D data and used that as training and then a subset of that as a clinical set that was blinded to the algorithm. So when we left that process of reestablishing the R&D data to head into CLIA val, we saw a really good indication that we believe allowed us to move forward obviously into CLIA val, and the CLIA val had incredible precision in our workflow. So what we know now looking back is that we did everything we could as a science and development team to ensure that the biomarkers were what were tested in the clin val. And so as you know, you blind these, you go into a clinical study, it's blinded to the scientists as well as to management and it goes into an honest broker. And just like a pharmaceutical trial would do from Phase I to Phase II, we were given the access to those results and the endpoints late last week and obviously committed to our investors to get that information out before the end of the month. And so we are doing that, knowing that we still have work to do to figure out some of these intellectual things that we're asking ourselves. So that's about as much as we can say today, but hopefully, that gives you some background as to how we got to here.

Our next question comes from Steve Unger with Needham.

Any color you can provide us on current discussions or new developments regarding biopharmaceutical collaborations for DetermaIO? And in particular, anything you can share regarding potential for some nondilutive financing?

Sure. Let me answer the first one. I think that's the one that is, for us, very exciting, as you might imagine. Since the ASCO data was published, we have had a surge of interest from -- we already had interest from the major players for checkpoint inhibitors for various reasons. What we've seen now is, because our IO test has the unique capability as it started as a classifier of tumors and how to subclassify these tumors, we have components of the -- both the immune activated genes, the immune suppressed genes, stromal cells and mesenchymal cells, which are tissue repair cells. And we are the only test on the market today that combines genetics from each one of those in an expression, an RNA expression algorithm, and we can look at a range of outcomes from a cold tumor to a hot tumor; meaning -- hot tumor, meaning one that responds to immune therapy. And we have the ability, unlike any test on the market, to show a tumor that might be a partial response and might require a complementary drug to checkpoint inhibitor to continue to keep it hot or to show that the tumor is indeed cold and hiding from the immune system and that we would then work with a whole new class of drugs that are emerging that would then turn that tumor into a hot tumor and, thus, be responsive to checkpoint and other immune therapies. And so we are a month away now from ASCO. We are engaged in numerous discussions at various levels of effort, and we hope to very soon, Steve, to be able to talk publicly about some of these studies and some of the things that we're doing that keep us pretty excited about our opportunity to have a differentiated product in the immune therapy world. Doug, do you want to complement that with any comments?

No. I think that, Ronnie, you hit all the high points. We're excited about the [ AV IO ] product, and it seems with several of the people that we've exposed it to are excited about it. And we believe it's differentiated because of kind of the comprehensive physiology that you've been describing. So I think you hit all the high points. Thanks.

And so let me -- any more questions on that discussion topic? If not, we'll pivot to sort of the balance sheet and where we are with that.

Yes. Go ahead, [indiscernible] follow up.

Yes, you might remember that at the end of Q1 earnings, we announced that we had $17 million in cash. We subsequently raised $10.7 million in a registered offering. So we expect to burn $5 million to $6 million a quarter, and we feel comfortable with our current cash position.

Steve, one thing you might note, and I know one question that's probably burning out there is if you're going to defund the Dx program, what does that mean on a go-forward basis? We're going to be working through that over the course of the next month. And obviously, at earnings, we'll be able to give a much clearer picture. We obviously have some opportunities now to fund the monitoring opportunity that's always been before us but was not being funded because of the Dx activities. And so what we want to do now is allow the dust to settle on the Dx news and rapidly internally began to look at how to redeploy and what resources need to be redeployed to move us faster towards a monitoring opportunity. And that monitoring world would be more therapy monitoring and the efficacy of therapy first, with ultimately entering the long-term MRD or recurrence monitoring world at some point in the future.

Right. Okay. And then regarding the DetermaRx, any update you can share regarding the Medicare reimbursement rate and testing volumes?

Yes. We -- as you know, we haven't really closed the quarter yet, but I can tell you that our volumes continue to increase month over month and certainly now week over week. We are seeing surgeries begin to open back up, and so we're starting to be encouraged with that opportunity. We continue to see activity with our private payers, and that's a good sign. And we do have a follow-up with Noridian and with Palmetto coming up. But we have submitted those invoices, and we are expecting to get paid for those. And hopefully, we'll be able to talk about that at our upcoming earnings call at the end of July, early August.

Our next question comes from Thomas Flaten with Lake Street Capital Markets.

Just to follow up on the first question with respect to the data. I mean since you've already made the decision to defund and not move it forward commercially, I mean, is it reasonable for us to assume that the miss, so to speak, was significant enough to where you don't think there's some post hoc analysis that shows a grouping of patients in which it might work? Is that a fair assumption on my part?

Thomas, I think that's fair. I think that we have work to do in our FME Analysis to understand the components of the test process and the components of the biomarker panel itself to better understand which one of those were -- sustained their sensitivity and specificity and which ones didn't. And maybe from that, there might be some learning that helps us in additional products in the monitoring space. But given the money the company spent on Dx to get to this point and as I say all the time that research -- discovery and research for biomarkers is a very expensive adventure. And there's companies out there that have raised a lot more money than we have, and that will continue to pursue those areas. I think we want to focus on being better stewards of our shareholder investments to go after things that we can go to market sooner with and not prolong sort of a burn on a product that we know may not work. And it's just a choice here to not go continue to raise capital for Dx and to focus our energies and our investments on things we know we can deliver where they have value right now to patients and to physicians.

Yes. And does this have any impact on IRENE?

Well the IRENE panel -- I'm sorry, the IRENE cohort ironically, Thomas, is a really valuable cohort. It is a, I'm looking at Doug, 3,000-plus patients today where we have collected blood and we have longitudinal, not blood draws, but longitudinal data follow-up on these patients. We do believe that that's a valuable asset. We do believe that there's interest in pharma for that. We do believe there are companies that are looking at blood-based technologies that may have interest. So we will -- now that we will not be using that for DetermaDx, we will look at potential partnerships there and see who might be interested. The infrastructure at those sites to collect samples for us is important going forward should we choose to move into the monitoring space because it would give us immediate opportunity to evaluate how we might tweak our IRB and focus our IRB on not earlier stage but actually patients that have been diagnosed with cancer, and now we're going to follow them in through blood-based technologies. And so it certainly allows opportunities to do partnerships on that end of the continuum, which was something we had sort of decided to delay until we got through the Dx process.

There are no further questions at this time. I will now turn the call back to Ronnie Andrews for closing remarks. Thank you.

Well thanks, everyone, for joining today. Before I go, I just want to say thanks to the team at OncoCyte. We asked a lot of this group through the COVID pandemic. They have rotated shifts so that they can have a few people in the lab and keep this process going and make sure we delivered on our commitment to our shareholders. We made the commitment to deliver the news by the end of the quarter. And if it weren't for their heroic efforts, we certainly wouldn't have been able to get that done. So listen, we appreciate the continued support of our shareholders. We know that today's news is not what we all wanted to hear, but the reality is you have invested in a very diversified company with 2 commercial products that we believe have potential upside and will make this company a very successful company in the future. So thank you for that support, and we look forward to further progress discussions as we head to our earnings call at the end of July, early August. Thanks, everyone.

Thank you. This concludes today's conference. All parties may disconnect. Have a good day.