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What changed in Insight Molecular Diagnostics Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Insight Molecular Diagnostics Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+456 added−485 removedSource: 10-K (2024-04-16) vs 10-K (2023-04-12)

Top changes in Insight Molecular Diagnostics Inc.'s 2023 10-K

456 paragraphs added · 485 removed · 295 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

127 edited+36 added−20 removed104 unchanged
Biggest changeThe Company believes that the experience of its team with diverse technologies through its pharma services activities (acquired through Insight Genetics), strong scientific integrity regarding evidence generation and innovation mentality, alongside the company’s flexibility in operations and regulatory strategy, will drive its success, differentiate the Company, and are foundational to its future.
Biggest changeWe believe that the experience of our team with diverse technologies through our pharma services activities (acquired through Insight Genetics (“Insight”)) (“Pharma Services”), strong scientific integrity regarding evidence generation and innovation mentality, alongside our flexibility in operations and regulatory strategy, will drive our success, differentiate us from our competition, and are foundational to our future. 4 We plan to expand our role in the rapidly evolving healthcare market by strengthening our positions across our portfolio of capabilities, growing strategic opportunities that drive new business, and differentiating our unique offerings, capabilities, and financial performance.
We believe DetermaIO is a direct measure the status of the tumor immune microenvironment and as such identifies those tumors poised to respond to the addition of ICI’s.
We believe DetermaIO is a direct measure of the status of the tumor immune microenvironment and as such identifies those tumors poised to respond to the addition of ICI’s.
Prometheus Laboratories, Inc. , the Supreme Court ruled that patent protection is not available for simple the use of a mathematical correlation of the presence of a well-known naturally occurring metabolite as a means of determining proper drug dosage.
Prometheus Laboratories, Inc. , the Supreme Court ruled that patent protection is not available for the simple use of a mathematical correlation of the presence of a well-known naturally occurring metabolite as a means of determining proper drug dosage.
Typically, we will use outside vendors who are contractually obligated to comply with applicable laws and regulations to dispose of such waste. These vendors will be licensed or otherwise qualified to handle and dispose of such waste.
Typically, we use outside vendors who are contractually obligated to comply with applicable laws and regulations to dispose of such waste. These vendors will be licensed or otherwise qualified to handle and dispose of such waste.
Our business could be negatively impacted by any of the following: ● The claims of any patents that are issued may not provide meaningful protection, may not provide a basis for commercially viable diagnostic tests or may not provide us with any competitive advantages; ● Our patents may be challenged by competitors or other third parties and if the third parties are successful in their challenge, the patents could be invalidated, permitting third parties to use the patented inventions to compete with us; 10 ● Others may have patents that relate to our technology or business that may prevent us from marketing our diagnostic test candidates unless we are able to obtain a license to those patents; ● Patent applications to which we have rights may not result in issued patents and the information disclosed in those applications could be used by our competitors; ● Changes in government regulations or patent laws; and ● We may not be successful in developing additional proprietary technologies that are patentable.
Our business could be negatively impacted by any of the following: ● The claims of any patents that are issued may not provide meaningful protection, may not provide a basis for commercially viable diagnostic tests or may not provide us with any competitive advantages; ● Our patents may be challenged by competitors or other third parties and, if the third parties are successful in their challenge, the patents could be invalidated, permitting third parties to use the patented inventions to compete with us; ● Others may have patents that relate to our technology or business that may prevent us from marketing our diagnostic test candidates unless we are able to obtain a license to those patents; ● Patent applications to which we have rights may not result in issued patents and the information disclosed in those applications could be used by our competitors; ● Changes in government regulations or patent laws; and ● We may not be successful in developing additional proprietary technologies that are patentable.
Under the 21st Century Cures Act, health care providers that violate the information blocking prohibition will be subject to appropriate disincentives, which HHS services has yet to establish through required rulemaking. Developers of certified information technology and health information networks and health information exchanges, however, may be subject to civil monetary penalties of up to $1 million per violation.
Under the 21st Century Cures Act, health care providers that violate the information blocking prohibition will be subject to appropriate disincentives, which HHS services has yet to establish through required rulemaking. Developers of certified information technology and health information networks and health information exchanges, however, may be subject to civil monetary penalties of up to $1.0 million per violation.
DetermaCNI is differentiated from targeted approaches because it assesses changes across the whole genome broadly as opposed to changes in a subset of genes and is applicable in both adjuvant and neo-adjuvant patient scenarios versus tests that monitor Minimal Residual Disease (MRD) which are typically only used when the tumor is removed.
DetermaCNI is differentiated from targeted approaches because it assesses changes across the whole genome broadly as opposed to changes in a subset of genes and is applicable in both adjuvant and neo-adjuvant patient scenarios, versus tests that monitor Minimal Residual Disease which are typically only used when the tumor is removed.
Through our acquisition of Chronix in April 2021, we obtained intellectual property rights to 10 patent families in the field of detection of cell-free tumor DNA and quantification of donor derived cell-fee DNA, with numerous already issued patents in the United States and European Union, expiring between April 2031 and October 2034.
Through our acquisition of Chronix in April 2021, we obtained intellectual property rights to 10 patent families in the field of detection of cell-free tumor DNA and quantification of donor derived cell-fee DNA, with numerous already issued patents in the United States and European Union (“EU”), expiring between April 2031 and October 2034.
Companies that must comply with the GDPR face increased compliance obligations and risk, including more robust regulatory enforcement of data protection requirements and potential fines for noncompliance of up to €20 million or 4% of the annual global revenues of the noncompliant company, whichever is greater.
Companies that must comply with the GDPR face increased compliance obligations and risk, including more robust regulatory enforcement of data protection requirements and potential fines for noncompliance of up to €20.0 million or 4% of the annual global revenues of the noncompliant company, whichever is greater.
In addition, violation of these laws may result in sanctions imposed against us and/or the professional through licensure proceedings, and we could be subject to civil and criminal penalties that could result in exclusion from state and federal health care programs. 17 Federal and State Fraud and Abuse Laws A variety of federal and state laws prohibit fraud and abuse.
In addition, violation of these laws may result in sanctions imposed against us and/or the professional through licensure proceedings, and we could be subject to civil and criminal penalties that could result in exclusion from state and federal health care programs. Federal and State Fraud and Abuse Laws A variety of federal and state laws prohibit fraud and abuse.
A violation of this statute is a felony and may result in fines, imprisonment or exclusion from federal health care programs. Many states have laws similar to the federal laws described above, and state laws may be broader in scope and may apply regardless of payer. 18 Additionally, the U.S.
A violation of this statute is a felony and may result in fines, imprisonment or exclusion from federal health care programs. Many states have laws similar to the federal laws described above, and state laws may be broader in scope and may apply regardless of payer. Additionally, the U.S.
If a laboratory is out of compliance with state laws or regulations governing licensed laboratories, a state may impose penalties, which penalties vary from state to state but may include suspension, limitation, revocation or annulment of the license, assessment of financial penalties or fines, or imprisonment.
If our laboratory is out of compliance with state laws or regulations governing licensed laboratories, a state may impose penalties, which penalties vary from state to state but may include suspension, limitation, revocation or annulment of the license, assessment of financial penalties or fines, or imprisonment.
We believe that we are in material compliance with all applicable licensing laws and regulations. We may become aware from time to time of certain states that require out-of-state laboratories to obtain licensure to accept specimens from patients within the state.
We believe that we are in material compliance with all applicable licensing laws and regulations applicable to us. We may become aware from time to time of certain states that require out-of-state laboratories to obtain licensure to accept specimens from patients within the state.
It also establishes a new exception for certain arrangements under which a physician receives limited remuneration for items or services actually provided by the physician; establishes a new exception for donations of cybersecurity technology and related services; and amends the existing exception for electronic health records (EHR) items and services.
It also establishes a new exception for certain arrangements under which a physician receives limited remuneration for items or services actually provided by the physician; establishes a new exception for donations of cybersecurity technology and related services; and amends the existing exception for electronic health records items and services.
We are an early-stage company with a limited operating history and many of our competitors have substantially more resources than we do, including financial, technical and sales resources. In addition, many of our competitors have more experience than we have in the development and commercialization of diagnostics.
We are an early-stage company with limited resources and operating history and many of our competitors have substantially more resources than we do, including financial, technical and sales resources. In addition, many of our competitors have more experience than we have in the development and commercialization of diagnostics.
However, in the absence of reimbursement by a health insurance plan or Medicare, patients who would be candidates for the use of our tests may decline to use our tests, and physicians may be reluctant to prescribe our tests, due to the cost of the test to the patients.
In the absence of reimbursement by a health insurance plan or Medicare, patients who would be candidates for the use of our tests may decline to use our tests, and physicians may be reluctant to prescribe our tests, due to the cost of the test to the patients.
In addition, we obtained trade secrets, registered trademarks, domain names, copyrights and proprietary software material. In addition to relying on patents, we will rely on trade secrets, know-how, continuing technological advancement, and licensing opportunities to maintain our competitive position.
In addition, we obtained trade secrets, registered trademarks, domain names, copyrights and proprietary software material. In addition to relying on patents, we rely on trade secrets, know-how, continuing technological advancement, and licensing opportunities to maintain our competitive position.
The revocation or expiration of the Commission’s adequacy decision for the UK could require additional measures to ensure adequate protection and GDPR compliance and may lead to additional costs and increases our overall risk exposure.
The revocation or expiration of the European Commission’s adequacy decision for the UK could require additional measures to ensure adequate protection and GDPR compliance and may lead to additional costs and increases our overall risk exposure.
While the VALID Act outlines a framework for these elements (among others), the law, if enacted, would direct the FDA to promulgate regulations and issue guidance documents within two (2) years of its enactment, and establishes an effective date for the new IVCT regulatory system as four (4) years after enactment, giving clinical laboratories and others ample opportunity to participate in shaping and preparing for the new IVCT regulatory program.
While the VALID Act outlines a framework for these elements (among others), the law, if enacted, would direct the FDA to promulgate regulations and issue guidance documents within two years of its enactment, and establishes an effective date for the new IVCT regulatory system as four years after enactment, giving clinical laboratories and others ample opportunity to participate in shaping and preparing for the new IVCT regulatory program.
Expand Biomarker Technologies to Drive Advancements for Patient Management – Oncology The field of oncology receives significant investment in research, development, and treatment, yet it remains an area of great unmet medical need. For patients diagnosed with cancer, immunotherapies, particularly immune checkpoint inhibitors (ICI’s) targeting PD-1 and PD-L1, help recruit the body’s immune system to attack the growing tumor.
Expand Biomarker Technologies to Drive Advancements for Patient Management – Oncology The field of oncology receives significant investment in research, development, and treatment, yet it remains an area of great unmet medical need. For patients diagnosed with cancer, immunotherapies, particularly immune checkpoint inhibitors (“ICI’s”) targeting PD-1 and PD-L1, help recruit the body’s immune system to attack the growing tumor.
The CCPA establishes a comprehensive privacy framework for covered businesses in the State of California, by creating an expanded definition of personal information, establishing new data privacy rights for consumers imposing special rules on the collection of consumer data from minors, and creating a new and potentially severe statutory damages framework for violations of the CCPA and for businesses that fail to implement reasonable security procedures and practices to prevent data breaches.
The CCPA established a comprehensive privacy framework for covered businesses in the State of California, by creating an expanded definition of personal information, establishing new data privacy rights for consumers imposing special rules on the collection of consumer data from minors, and creating a new and potentially severe statutory damages framework for violations of the CCPA and for businesses that fail to implement reasonable security procedures and practices to prevent data breaches.
For more information regarding this transaction, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” – “Razor Genomics Purchase Agreement.” DetermaRx – DetermaRx is the first and only test to predict patient’s risk of cancer recurrence following surgery and response to chemotherapy in early-stage lung cancer, and was our first test to be commercialized and reimbursed by Medicare.
For more information regarding this transaction, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” – “Recent Developments” – “Razor Genomics Purchase Agreement.” DetermaRx DetermaRx is the first and only test to predict patient’s risk of cancer recurrence following surgery and response to chemotherapy in early-stage lung cancer, and was our first test to be commercialized and reimbursed by Medicare.
State laws generally include standards for the day-to-day operation of a clinical reference laboratory, including the training and skills required of personnel and quality control. In addition, those laws often mandate proficiency testing, which involves testing of specimens that have been specifically prepared for the laboratory. Some states require licensure of out-of-state laboratories that accept specimens from those states.
State laws generally include standards for the day-to-day operation of a clinical reference laboratory, including the training and skills required of personnel and quality control. In addition, those laws often mandate proficiency testing, which involves testing of specimens that have been specifically prepared for the laboratory. Some states require licensure of out-of-state laboratories that accept specimens from those states (i.e.
However, this adequacy decision includes a so-called “sunset-clause” stipulating that it will expire after four (4) years, and providing that the Commission will monitor the UK’s legal situation and could intervene at any point if it determines the UK has deviated from the level of protections in place at the time of the decision.
However, this adequacy decision includes a so-called “sunset-clause” stipulating that it will expire after four years, and providing that the European Commission will monitor the UK’s legal situation and could intervene at any point if it determines the UK has deviated from the level of protections in place at the time of the decision.
Through our acquisition of Insight Genetics in January 2020 and Chronix in April 2021, we obtained exclusive rights to additional intellectual property, including trade secrets, registered trademarks, domain names, copyrights, issued and reissued patents and pending applications, and software material, and have since the Insight Genetics acquisition filed our own patents to protect DetermaIO.
Through our acquisition of Insight in January 2020 and Chronix in April 2021, we obtained exclusive rights to additional intellectual property, including trade secrets, registered trademarks, domain names, copyrights, issued and reissued patents and pending applications, and software material, and have, since our acquisition of Insight, filed our own patents to protect DetermaIO.
Further, from January 1, 2021, companies have to comply with the GDPR and also the UK GDPR, which, together with the amended UK Data Protection Act 2018, retains the GDPR in UK national law. The UK GDPR mirrors the fines under the GDPR, e.g. fines up to the greater of €20 million (£17.5 million) or 4% of global turnover.
Further, from January 2021, companies have to comply with the GDPR and also the UK GDPR, which, together with the amended UK Data Protection Act 2018, retains the GDPR in UK national law. The UK GDPR mirrors the fines under the GDPR, e.g. fines up to the greater of €20.0 million (£17.5 million) or 4% of global turnover.
The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that result from a business’ failure to implement and maintain reasonable data security procedures. 16 State laws regarding the privacy and security of personal information are also evolving.
The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that result from a business’ failure to implement and maintain reasonable data security procedures. 18 State laws regarding the privacy and security of personal information are also evolving.
We may sometimes refer to our technologies as “diagnostic tests.” Oncocyte’s laboratory developed tests are intended to help support and inform physician decision-making but are not themselves diagnostic or prescriptive of treatment decisions.
We may sometimes refer to our technologies as “diagnostic tests.” Our laboratory developed tests (“LDTs”) are intended to help support and inform physician decision-making but are not themselves diagnostic or prescriptive of treatment decisions.
DetermaRx serves an unmet clinical need by helping to guide treatment decisions given the 30-50% mortality rate in patients in the absence of timely chemotherapy treatment. Prior to our transfer to Razor of all of the assets and liabilities related to DetermaRx, in February 2023, we commercialized and performed DetermaRx tests at a CLIA certified laboratory in Irvine. 5 2.
DetermaRx serves an unmet clinical need by helping to guide treatment decisions given the 30-50% mortality rate in patients in the absence of timely chemotherapy treatment. Prior to our transfer to Razor in February 2023 of all of the assets and liabilities related to DetermaRx, we commercialized and performed DetermaRx testing at a CLIA certified laboratory in Irvine. 2.
The program has developed guidelines for the level of evidence of efficacy required to be obtained through clinical trials. Palmetto, which contracted with CMS to administer the MolDx, issues Local Coverage Determinations that affect coverage, coding, and billing of many molecular tests and the current MAC for California, Noridian Healthcare Solutions, LLC, has adopted the coverage policies from Palmetto.
The program has developed guidelines for the level of evidence of efficacy required to be obtained through clinical trials. Palmetto, which contracted with CMS to administer the MolDx, issues LCDs that affect coverage, coding, and billing of many molecular tests and the current MAC for California, Noridian Healthcare Solutions, LLC, has adopted the coverage policies from Palmetto.
The molecular diagnostics that we are developing use gene expression classifiers or algorithms, which are mathematical models that weight the biomarkers to produce a score. We will treat the mathematical models as trade secrets. We have entered into intellectual property, invention, and non-disclosure agreements with our employees, and it is our practice to enter into confidentiality agreements with our consultants.
The molecular diagnostics that we are developing use gene expression classifiers or algorithms, which are mathematical models that weigh the biomarkers to produce a score. We treat the mathematical models as trade secrets. We have entered into intellectual property, invention, and non-disclosure agreements with our employees, and it is our practice to enter into confidentiality agreements with our consultants.
For example, in 2016, the EU and United States agreed to a transfer framework for data transferred from the EU to the United States, called the Privacy Shield, but the Privacy Shield was invalidated in July 2020 by the Court of Justice of the European Union.
For example, in 2016, the EU and United States agreed to a transfer framework for data transferred from the EU to the United States, called the Privacy Shield, but the Privacy Shield was invalidated in July 2020 by the Court of Justice of the EU.
Therefore, we are subject to laboratory quality regulations and accreditation standards in Germany, and will be subject to such regulations and standards in any other jurisdictions where we may operate. These requirements may vary by jurisdiction and differ from those in the United States, and may require us to implement additional compliance measures.
Therefore, we are subject to laboratory quality regulations and accreditation standards in Germany, and will be subject to such regulations and standards in any other jurisdictions where we may operate or accept samples from. These requirements may vary by jurisdiction and differ from those in the United States, and may require us to implement additional compliance measures.
The CPRA will create a new California Privacy Protection Agency, an “independent watchdog” whose mission is both to “vigorously enforce” the CPRA and “ensure that businesses and consumers are well-informed about their rights and obligations.” Among other things, the CPRA will create a new category of “sensitive personal information” and offer consumers the right to limit processing of such information, impose purpose limitation, data minimization, data retention, and security compliance obligations on regulated businesses, and add or modify the rights available to consumers, including by providing a right to correct the information a business holds about them.
The CPRA created a new California Privacy Protection Agency, an “independent watchdog” whose mission is both to “vigorously enforce” the CPRA and “ensure that businesses and consumers are well-informed about their rights and obligations.” Among other things, the CPRA created a new category of “sensitive personal information” and offers consumers the right to limit processing of such information, impose purpose limitation, data minimization, data retention, and security compliance obligations on regulated businesses, and add or modify the rights available to consumers, including by providing a right to correct the information a business holds about them.
Other countries have enacted similar anti-corruption laws and/or regulations. Other Regulatory Requirements Our laboratory will be subject to federal, state and local regulations relating to the handling and disposal of regulated medical waste, hazardous waste and biohazardous waste, including chemical, biological agents and compounds, blood samples and other human tissue.
Other countries have enacted similar anti-corruption laws and/or regulations. Other Regulatory Requirements Our laboratory is subject to federal, state and local regulations relating to the handling and disposal of regulated medical waste, hazardous waste and biohazardous waste, including chemical, biological agents and compounds, blood samples and other human tissue.
These concrete process steps were used, not merely to observe the presence of the phenomenon that fetal DNA is shorter than maternal DNA, but to exploit that discovery in a method for preparation of a mixture enriched in fetal DNA and thus supported a finding of patent eligible subject matter. 11 While the cases discussed above are instructive, the United States Patent and Trademark Office (the “USPTO”) has also issued guidelines in light of the Supreme Court decisions indicating that process claims having a natural principle as a limiting step will be evaluated to determine if the claim includes additional steps that practically apply the natural principle such that the claim amounts to significantly more than the natural principle itself.
These concrete process steps were used, not merely to observe the presence of the phenomenon that fetal DNA is shorter than maternal DNA, but to exploit that discovery in a method for preparation of a mixture enriched in fetal DNA and thus supported a finding of patent eligible subject matter. 11 While the cases discussed above are instructive, the USPTO has also issued guidelines in light of the Supreme Court decisions indicating that process claims having a natural principle as a limiting step will be evaluated to determine if the claim includes additional steps that practically apply the natural principle such that the claim amounts to significantly more than the natural principle itself.
Expand Biomarker Technologies to Drive Advancements for Patient Management – Transplant Clinicians have limited options in assessing graft health post-transplantation. Traditional methods to assess transplant organ damage are imprecise, invasive, and/or inadequate. Donor-derived cell-free DNA (dd-cfDNA) is one of the best investigated biomarkers, with an increasing number of clinical validation studies published.
Expand Biomarker Technologies to Drive Advancements for Patient Management – Transplant Clinicians have limited options in assessing graft health post-transplantation. Traditional methods to assess transplant organ damage are imprecise, invasive, and/or inadequate. Donor-derived cell-free DNA (“dd-cfDNA”) is one of the best investigated biomarkers, with an increasing number of clinical validation studies published.
Reimbursement rates paid by private third-party payers can vary based on whether the provider is considered to be an “in-network” provider, a participating provider, a covered provider, an “out-of-network” provider or a non-participating provider. Currently, we are out-of-network with all commercial payers. These definitions can vary among payers.
Reimbursement rates paid by private third-party payers can vary based on whether the provider is considered to be an “in-network” provider, a participating provider, a covered provider, an “out-of-network” provider or a non-participating provider. Currently, we are out-of-network with all commercial payers.
Among other requirements, the GDPR regulates transfers of personal data subject to the GDPR to third countries that have not been found to provide adequate protection to such personal data, including the United States, and the efficacy and longevity of current transfer mechanisms between the European Union, or EU, and the United States remains uncertain.
Among other requirements, the GDPR regulates transfers of personal data subject to the GDPR to third countries that have not been found to provide adequate protection to such personal data, including the United States, and the efficacy and longevity of current transfer mechanisms between the EU and the United States remains uncertain.
MACs also serve as the primary operational contact between the Medicare Fee-For-Service program, for paying Medicare claims, and approximately 1.5 million health care providers enrolled in the program. Delays in obtaining MAC approval, or any changes made related to any favorable Local Coverage Determinations, could have a material adverse impact on our business.
MACs also serve as the primary operational contact between the Medicare Fee-For-Service program, for paying Medicare claims, and approximately 1.5 million health care providers enrolled in the program. Delays in obtaining MAC approval, or any changes made related to any favorable LCDs, could have a material adverse impact on our business.
Current predictive biomarkers, including PD-L1 and Tumor Mutational Burden or TMB, have shown only limited ability to accurately predict which patients will respond to an immunotherapy. According to published literature, more than half of PD-L1 positive patients do not respond to immune-checkpoint inhibitors, and 1 in 6 patients who will respond are missed.
Current predictive biomarkers, including PD-L1 and Tumor Mutational Burden (“TMB”), have shown only limited ability to accurately predict which patients will respond to immunotherapy. According to published literature, more than half of PD-L1 positive patients do not respond to immune-checkpoint inhibitors, and 1 in 6 patients who will respond are missed.
Private payers generally will determine whether to approve a diagnostic test for reimbursement based on the published results of clinical validity and clinical utility studies, and may base their decision on whether to cover a test, and at what level to reimburse, on the MAC’s local coverage determination.
Private payers generally will determine whether to approve a diagnostic test for reimbursement based on the published results of clinical validity and clinical utility studies, and may base their decision on whether to cover a test, and at what level to reimburse, on the MAC’s LCD.
This test is differentiated from other monitoring tests in two ways; (1) it does not require tumor tissue upfront which can be hard or impossible to obtain, and (2) the test measures copy number variation instead of mutations identified in a patient’s diagnostic biopsy specimen. 6 3.
This test is differentiated from other monitoring tests in two ways; (i) it does not require tumor tissue upfront which can be hard or impossible to obtain, and (ii) the test measures copy number variation instead of mutations identified in a patient’s diagnostic biopsy specimen. 3.
Similar health care and data privacy laws and regulations exist in Europe and other jurisdictions, including reporting requirements detailing interactions with and payments to healthcare providers and requirements regarding the collection, distribution, use, security, and storage of personally identifiable information and other data relating to individuals, including the GDPR, which went into effect in May 2018.
Similar health care and data privacy laws and regulations exist in Europe and other jurisdictions, including reporting requirements detailing interactions with and payments to healthcare providers and requirements regarding the collection, distribution, use, security, and storage of personally identifiable information and other data relating to individuals, including the General Data Protection Regulation (“GDPR”), which went into effect in May 2018.
Based on our projected reimbursable pricing model, that the clinical use of DetermaIO will address a potential $3 billion total addressable market (“TAM”) opportunity.
Based on our projected reimbursable pricing model, we believe that the clinical use of DetermaIO will address a potential $3.0 billion total addressable market (“TAM”) opportunity.
If the denominator (concentration of total cfDNA in plasma) is not constant, or at least does not have a narrow window under all conceivable clinical conditions, dd-cfDNA(%) values can change without a change in the value of the analyte.
If the denominator (concentration of total cfDNA in plasma) is not constant, or at least does not have a narrow window under all conceivable clinical conditions, dd-cfDNA(%) values can fluctuate without a change in the value of the relevant analyte dd-cfDNA being measured.
Some Class I and most Class II devices may be marketed after a 510(k) premarket notification, while a more extensive PMA is required to market Class III devices.
Some Class I and most Class II devices may be marketed after a 510(k) premarket notification, while a more extensive Premarket Approval (“PMA”) is required to market Class III devices.
The GDPR applies to any company established in the EEA, as well as to those outside the EEA, if they collect and use personal data in connection with the offering of goods or services to individuals in the EEA or the monitoring of their behavior.
The GDPR applies to any company established in the European Economic Area (“EEA”), as well as to those outside the EEA, if they collect and use personal data in connection with the offering of goods or services to individuals in the EEA or the monitoring of their behavior.
Many states have comparable laws that are not limited to Medicare and Medicaid referrals. On November 20, 2020, CMS issued a final rule to modernize and clarify the regulations that interpret self-referral law.
Many states have comparable laws that are not limited to Medicare and Medicaid referrals. 19 In November 2020, CMS issued a final rule to modernize and clarify the regulations that interpret self-referral law.
DetermaIO – Through the acquisition of Insight in January 2020, Oncocyte has expanded its oncology portfolio to include a novel gene expression-based test called DetermaIO, which assesses the tumor microenvironment and identifies patients whose immune system is poised to benefit from immunotherapy.
DetermaIO Through the acquisition of Insight in January 2020, we expanded our oncology portfolio to include a novel gene expression-based test called DetermaIO, which assesses the tumor microenvironment and identifies patients whose immune system is poised to benefit from immunotherapy.
Minimally invasive blood-based monitoring technology, like DetermaCNI, provides physicians a secondary data point to assess the effectiveness of therapy. The test converts cell-free DNA (cfDNA) next-generation sequencing (NGS) results into a proprietary genome-wide copy number instability (CNI) score which can be used to monitor and guide ongoing treatment decisions.
Minimally invasive blood-based monitoring technology, like DetermaCNI, provides physicians a secondary data point to assess the effectiveness of therapy. 6 The test converts cell-free DNA (“cfDNA”) next-generation sequencing (“NGS”) results into a proprietary genome-wide copy number instability (“CNI”) score which can be used to monitor and guide ongoing treatment decisions.
Approval of that representative test would precertify other tests in the group and allow the lab to launch them without premarket review.
Approval of that representative test would pre-certify other tests in the group and allow the lab to launch them without premarket review.
They are critical to the Company’s ability to carry out its mission to improve patient outcomes by providing personalized insights that inform critical decisions throughout the patient care journey. We believe that if clinicians are given the right information and educational tools, they will make the right choices with their patients.
They are critical to our ability to carry out our mission to improve patient outcomes by providing patient specific insights that inform critical provider decisions throughout the patient care journey. We believe that if clinicians are given the right information and educational tools, they will make the right choices with their patients.
The HIPAA privacy regulations cover the use and disclosure of PHI by covered entities as well as business associates, which are persons or entities that perform certain functions for or on behalf of a covered entity that involve the creation, receipt, maintenance, or transmittal of PHI.
Penalties for violations of HIPAA regulations include civil and criminal penalties. 17 The HIPAA privacy regulations cover the use and disclosure of PHI by covered entities as well as business associates, which are persons or entities that perform certain functions for or on behalf of a covered entity that involve the creation, receipt, maintenance, or transmittal of PHI.
Most of these studies focused on the percentage of the total cfDNA in the patients’ plasma [dd-cfDNA(%)], however, changes in host cfDNA, which represents the denominator in the percentage calculations, over time adds an additional source of possible uncertainty.
Most of these studies focused on the fractional concentration (percentage) of the total cfDNA in the patients’ plasma (“dd-cfDNA(%)”), however, changes in host cfDNA, which represents the denominator in the percentage calculations, over time adds an additional source of possible uncertainty.
CMS relies on a network of Medicare Administrative Contractors (“MACs”) to make Local Coverage Decisions approving a test for reimbursement. The Molecular Diagnostics Services (“MolDx”) Program was developed by Palmetto GBA (the previous MAC for California) to identify and establish coverage and reimbursement for molecular diagnostics tests.
CMS relies on a network of Medicare Administrative Contractors (“MACs”) to make LCDs approving a test for reimbursement. The MolDx Program was developed by Palmetto GBA (the previous MAC for California) to identify and establish coverage and reimbursement for molecular diagnostics tests.
A device is substantially equivalent if, in comparison to a predicate it (a) has the same intended use as the predicate and has the same technological characteristics as the predicate; or (b) has the same intended use as the predicate, has different technological characteristics, and the information submitted to the FDA does not raise new questions of safety and effectiveness, and is demonstrated to be at least as safe and effective as the legally marketed predicate device. 15 A claim of substantial equivalence does not mean the new and predicate devices must be identical.
A device is substantially equivalent if, in comparison to a predicate it (a) has the same intended use as the predicate and has the same technological characteristics as the predicate; or (b) has the same intended use as the predicate, has different technological characteristics, and the information submitted to the FDA does not raise new questions of safety and effectiveness, and is demonstrated to be at least as safe and effective as the legally marketed predicate device.
Furthermore, data presented at recent oncology medical conferences suggests that TMB is not a reliable predictor of immunotherapy response. Further, data presented at SITC (discussed previously), suggested that DetermaIO outperformed both PD-L1 and TMB in predicting response to checkpoint inhibitors in patients with NSCLC.
Furthermore, data presented at recent oncology medical conferences suggests that TMB is not a reliable predictor of immunotherapy response. Further, data presented at the Society for Immunotherapy of Cancer, suggested that DetermaIO outperformed both PD-L1 and TMB in predicting response to checkpoint inhibitors in patients with NSCLC.
For example, on November 3, 2020, California passed the California Privacy Rights Act (“CPRA”) through a ballot initiative.
For example, in November 2020, California passed the California Privacy Rights Act (“CPRA”) through a ballot initiative.
Several Stark Law exceptions are relevant to arrangements involving clinical laboratories, including: (1) fair market value compensation for the provision of items or services; (2) payments by physicians to a laboratory for clinical laboratory services; (3) certain space and equipment rental arrangements that satisfy certain requirements, and (4) personal services arrangements that satisfy certain requirements.
Several Stark Law exceptions are relevant to arrangements involving clinical laboratories, including: (i) fair market value compensation for the provision of items or services; (ii) payments by physicians to a laboratory for clinical laboratory services; (iii) certain space and equipment rental arrangements that satisfy certain requirements, and (iv) personal services arrangements that satisfy certain requirements.
In particular, a covered entity must notify any individual whose unsecured PHI is breached according to the specifications set forth in the breach notification rule. A covered entity must also notify the Secretary of the U.S. Department of Health and Human Services and, under certain circumstances, the media of a breach of unsecured PHI.
In particular, a covered entity must notify any individual whose unsecured PHI is breached according to the specifications set forth in the breach notification rule. A covered entity must also notify the Secretary of the HHS and, under certain circumstances, the media of a breach of unsecured PHI.
Because we meet this definition, CLIA requires that we hold a certificate applicable to the complexity of the categories of testing we perform and that we comply with certain standards. Laboratories performing high complexity testing are required to meet more stringent requirements than laboratories performing less complex tests.
Since our laboratory in Nashville, Tennessee meets this definition, CLIA requires that we hold a certificate applicable to the complexity of the categories of testing we perform and that we comply with certain standards. Laboratories performing high complexity testing are required to meet more stringent requirements than laboratories performing less complex tests.
California’s patient privacy laws, for example, provide for penalties of up to $250,000 and permit injured parties to sue for damages. In addition to the California Confidentiality of Medical Information Act, California also recently enacted the California Consumer Privacy Act of 2018, or CCPA, which became effective January 1, 2020.
California’s patient privacy laws, for example, provide for penalties of up to $250,000 and permit injured parties to sue for damages. In addition to the California Confidentiality of Medical Information Act, effective in January 2020, California enacted the California Consumer Privacy Act of 2018 (“CCPA”).
ICIs are approved in 16 different tumor types, and it is estimated that 4.1 million patients are eligible for these drugs worldwide. Pharmaceutical companies are continuing to invest heavily in this space, with hundreds of clinical trials ongoing, and a number of drugs approved by the FDA, including pembrolizumab (Keytruda), nivolumab (Opdivo), and atezolizumab (Tecentriq).
ICIs are approved in 16 different tumor types, and it is estimated that 4.1 million patients are eligible for these drugs worldwide. Pharmaceutical companies are continuing to invest heavily in this space, with hundreds of clinical trials ongoing, and a number of drugs approved by the U.S.
VitaGraft’s dd-cfDNA Quantification as a Biomarker for Further Research Several questions remain unanswered in transplant graft management and offer interesting areas for research. Among these are, immunosuppression dosing optimization, the utility of absolute quantification in long-term management, and the viability of xenograft and 3-D printed organs.
VitaGraft Kidney is now broadly available to transplant professionals upon request. VitaGraft’s dd-cfDNA Quantification as a Biomarker for Further Research Several questions remain unanswered in transplant graft management and offer interesting areas for research. Among these are, immunosuppression dosing optimization, the utility of the absolute quantification of dd-cfDNA in long-term management, and the viability of xenograft and 3-D printed organs.
Based on our research of customer needs, we believe that this fast turnaround time is critical to inform timely, critical medical decisions. Facilities Oncocyte leases a building located at 15 Cushing in Irvine, California that serves as Oncocyte’s principal executive and administrative offices. Oncocyte operates a CLIA certified laboratory in Nashville, Tennessee.
Based on our research of customer needs, we believe that this fast turnaround time is critical to inform timely, critical medical decisions. Facilities We lease a building located at 15 Cushing in Irvine, California that serves as our principal executive and administrative offices.
Because of this patient cost factor, revenues from any new cancer test that we market may experience slow growth until the test is approved for reimbursement by larger payer plans which cover many patients. Medicare For diagnostics tests, Medicare or CMS reimbursement approval is critical.
Due to this patient cost factor, revenues from any new cancer test that we market may experience slow growth until the test is approved for reimbursement by larger payer plans which cover many patients. 7 Medicare For diagnostics tests, Medicare or the Centers for Medicare & Medicaid Services (“CMS”) reimbursement approval is critical.
Our laboratories are licensed by the appropriate state agencies in the states in which we do business, if such licensure is required.
Our laboratory in Nashville, Tennessee is licensed by the appropriate state agencies in the states in which we do business, if such licensure is required.
The dd-cfDNA biomarker has been shown to be a very valuable tool to the traditional surveillance of graft health after transplantation and is currently an estimated $2B reimbursed market in the United States under a blanket LCD.
The dd-cfDNA biomarker has been shown to be a very valuable tool to the traditional surveillance of graft health after transplantation and is currently an estimated $2.0 billion reimbursed market in the United States under a blanket local coverage determination (“LCD”).
Until regulatory requirements suggested by the FDA or required by any new legislation are phased in, our current LDTs will not require FDA filing before launch and we will continue to follow the CLIA certification and inspection pathway.
Until regulatory requirements are finalized by the FDA or required by any new legislation are phased in, our current LDTs will not require FDA filing before launch and we will continue to follow the CLIA certification and inspection pathway for certain products, as determined by our portfolio strategy.
On June 6, 2021, the European Commission implemented an adequacy decision enabling data transfers from EU member states to the United Kingdom without additional security measures.
In June 2021, the European Commission implemented an adequacy decision enabling data transfers from EU member states to the UK without additional security measures.
Our laboratories will need to pass various state inspections in order to get licensed to provide LDTs in each of state that requires licensure.
Pennsylvania, Rhode Island, Maryland and California). Our laboratories will need to pass various state inspections in order to get licensed to provide LDTs in each of state that requires licensure.
To do so, the Company is focusing on executing the following technology priorities, which have evolved to reflect its operations and strategic vision: 1. Strategic Review of Priorities and Capital / Resource Allocation Spin-off of DetermaRx As part of our initial strategy on the broader diagnostic continuum, we launched the DetermaRx test via our acquisition of in Razor Genomics, Inc.
To do so, we are focusing on executing the technology priorities discussed below, which have evolved to reflect our operations and strategic vision. 1. Priorities and Resource Allocation Spin-off of DetermaRx As part of our initial strategy on the broader diagnostic continuum, we launched the DetermaRx test via our majority acquisition of Razor Genomics, Inc. (“Razor”) in September 2019.
To remove this variable and cause of uncertainty, Oncocyte has introduced VitaGraft, a test to measure not only the percentage of dd-cfDNA, but also the absolute quantification dd-cfDNA, expressed as copies/mL.
To remove this variable and cause of uncertainty, we have introduced VitaGraft, a test to measure not only the percentage of dd-cfDNA, but also the absolute quantification dd-cfDNA, expressed as copies/mL. VitaGraft Through the acquisition of Chronix Biomedical, Inc.
Through the acquisition of Chronix Biomedical, Oncocyte also has a research and development facility in Göttingen, Germany, which serves as the center of excellence for the company’s blood based monitoring program. Materials There is a limited number of manufacturers of molecular testing equipment and related chemical reagents necessary for the provision of our cancer tests.
We also operate a CLIA certified laboratory in Nashville, Tennessee, and through the acquisition of Chronix, we also have a research and development facility in Göttingen, Germany, which serves as the center of excellence for our blood-based monitoring program. 9 Materials There is a limited number of manufacturers of molecular testing equipment and related chemical reagents necessary for the provision of our tests.
Government Regulation CLIA—Clinical Laboratory Improvement Amendments of 1988 and State Regulation We expect that DetermaIO, VitaGraft and DetermaCNI will be regulated under the Clinical Laboratory Improvements Amendment (“CLIA”) as laboratory developed tests or “LDTs”.
Government Regulation CLIA—Clinical Laboratory Improvement Amendments of 1988 and State Regulation We expect that DetermaIO, VitaGraft and DetermaCNI will be regulated under the CLIA as LDTs.
The term IVCT refers to in vitro clinical tests, a category that w comprises both test kits and lab-developed tests. The VALID Act includes precertification proposed by the FDA, a process through which diagnostic developers could receive premarket approval or clearance for one test representative of a group of tests using the same technology and have other elements in common.
The VALID Act includes precertification proposed by the FDA, a process through which diagnostic developers could receive premarket approval or clearance for one test representative of a group of tests using the same technology and have other elements in common.
VitaGraft as a Clinically Validated Laboratory Test In October 2021, our patent filing for the use of digital PCR for the quantification of dd-cfDNA was issued by the USPTO. Oncocyte successfully completed the technology transfer to our laboratory in Nashville in Q2 2022.
VitaGraft as a Clinically Validated Laboratory Test In October 2021, our patent filing for the use of digital PCR for the quantification of dd-cfDNA was issued by the United States Patent and Trademark Office (the “USPTO”). We successfully completed the technology transfer of VitaGraft to our laboratory in Nashville, Tennessee in the second quarter of 2022.
Additionally, the chemical reagents used with the testing equipment we chose are available only from the equipment manufacturer. This situation poses a risk to us. After encountering inconsistent results using testing equipment and reagents from one manufacturer, we switched to testing equipment from a different manufacturer.
Additionally, the chemical reagents used with the testing equipment we choose are available only from the equipment manufacturer. This situation poses a risk to us. If we were to encounter inconsistent results using testing equipment and reagents from one manufacturer, we would need to switch to testing equipment from a different manufacturer.
Failure to comply with applicable FDA regulatory requirements may trigger a range of enforcement actions by the FDA including warning letters, civil monetary penalties, injunctions, criminal prosecution, recall or seizure, operating restrictions, partial suspension or total shutdown of operations, and denial of or challenges to applications for clearance or approval, as well as significant adverse publicity. 14 State Laboratory Licensing In addition to federal certification requirements of laboratories under CLIA, we are required to maintain licensure under Tennessee law for our laboratory in Nashville, Tennessee.
Failure to comply with applicable FDA regulatory requirements may trigger a range of enforcement actions by the FDA including warning letters, civil monetary penalties, injunctions, criminal prosecution, recall or seizure, operating restrictions, partial suspension or total shutdown of operations, and denial of or challenges to applications for clearance or approval, as well as significant adverse publicity.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeRisks Related to Our Business Operations ● Our revenues in the near term will depend on our ability to commercialize a small number of diagnostic tests. ● The research and development work we are doing is costly, time consuming, and uncertain as to its results. ● Sales of our diagnostic tests could be adversely impacted by the reluctance of physicians to adopt the use of our tests and by the availability of competing diagnostic tests. ● We have limited capital, marketing, sales, and regulatory compliance resources for the commercialization of our diagnostic tests. ● We may face technology transfer challenges and expenses in adding new tests to our portfolio and in expanding our reach into new geographical areas on new instrument platforms. ● If our laboratory facilities become damaged or inoperable, or we are must vacate any facility, our ability to provide services and pursue our research and development and commercialization efforts may be jeopardized. ● There is a limited number of manufacturers of molecular diagnostic testing equipment and related chemical reagents necessary for the provision of our diagnostic tests. ● If we fail to enter into and maintain successful strategic alliances for diagnostic tests that we elect to co-develop, co-market, or out-license, we may have to reduce or delay our diagnostic test development or increase our expenditures. ● We may become dependent on possible future collaborations to develop and commercialize many of our diagnostic test candidates and to provide the manufacturing, regulatory compliance, sales, marketing and distribution capabilities required for the success of our business. ● Failure to adequately protect, or disputes relating to, trademarks could harm our business. ● Our business could be adversely affected if we lose the services of the key personnel upon whom we depend. ● Our business and operations could suffer in the event of system failures. ● Security breaches and other disruptions could compromise our information and expose us to liability, and could cause our business and reputation to suffer. ● Failure of our internal control over financial reporting could harm our business and financial results. ● We are subject to laws and regulations governing corruption, which will require us to develop, maintain and implement costly compliance programs. ● We may in the future be subject to litigation, which could harm our stock price, business, results of operations and financial condition. ● We may undertake strategic acquisitions in the future, and difficulties integrating such acquisitions could damage our ability to achieve or sustain profitability. ● We are subject to state laws in California that require gender and diversity quotas for boards of directors of public companies headquartered in California. 20 Risks Related to Our Industry ● Our operations as a clinical laboratory are subject to oversight by CMS under CLIA, as well as certain state agencies, and any failure to maintain our CLIA or applicable state permits and licenses may affect our ability to commercialize our diagnostic tests. ● If the FDA takes the position that any of our tests are not within the scope of its policy on enforcement discretion for laboratory-developed tests, or otherwise determines that it will seek to actively regulate one or more of our diagnostic tests, responding to such a regulatory position could lead to delays in commercialization, or (if encountered after commercialization) requirements to halt the commercial provision of our tests until FDA marketing authorization is obtained. ● We will also need to obtain FDA and other regulatory approvals for any IVDs that we may develop, in order to market those IVD tests. ● Clinical trial failures can occur at any stage of the testing and we may experience numerous unforeseen events during, or as a result of, the clinical trial process that could delay or prevent commercialization of our current or future diagnostic tests. ● The commercial success of our diagnostic tests depends on the availability and sufficiency of third-party payer coverage and reimbursement, which may be limited or unavailable. ● Changes in healthcare laws and policies may have a material adverse effect on our financial condition, results of operations and cash flows. ● Because of certain Medicare billing policies, we may not receive complete reimbursement for tests provided to Medicare patients. ● Long payment cycles of Medicare, Medicaid and other third-party payers, or other payment delays, could hurt our cash flows and increase our need for working capital. ● Private health insurance company policies may deny coverage or limit the amount they will reimburse us for the performance of our diagnostic tests. ● We will be required to comply with federal and state laws governing the privacy of health information, and any failure to comply with these laws could result in material criminal and civil penalties. ● If we are successful in commercializing our diagnostic tests, we will be obligated to comply with numerous additional federal and state statutes and regulations pertaining to our business and be subject to government oversight and scrutiny for our compliance with such laws.
Biggest changeFailure to obtain this necessary capital when needed may force us to delay, limit or terminate our operations. ● We have incurred operating losses since inception, and we do not know if we will attain profitability. ● It is likely that we will need to issue additional equity or debt securities in order to raise additional capital needed to pay our operating expenses. 22 Summary - Risks Related to Our Business Operations ● Our revenues in the near term will depend on our ability to commercialize a small number of diagnostic tests. ● The research and development work we are doing is costly, time consuming, and uncertain as to its results. ● Sales of our diagnostic tests could be adversely impacted by the reluctance of physicians to adopt the use of our tests and by the availability of competing diagnostic tests. ● We have limited capital, marketing, sales, and regulatory compliance resources for the commercialization of our diagnostic tests. ● We may face technology transfer challenges and expenses in adding new tests to our portfolio and in expanding our reach into new geographical areas on new instrument platforms. ● If our laboratory facilities become damaged or inoperable, or we are required to vacate any facility, our ability to provide services and pursue our research and development and commercialization efforts may be jeopardized. ● There is a limited number of manufacturers of molecular diagnostic testing equipment and related chemical reagents necessary for the provision of our diagnostic tests. ● If we fail to enter into and maintain successful strategic alliances for diagnostic tests that we elect to co-develop, co-market, or out-license, we may have to reduce or delay our diagnostic test development or increase our expenditures. ● We may become dependent on possible future collaborations to develop and commercialize many of our diagnostic test candidates and to provide the manufacturing, regulatory compliance, sales, marketing and distribution capabilities required for the success of our business. ● Our business could be adversely affected if we lose the services of the key personnel upon whom we depend. ● Our business and operations could suffer in the event of system failures. ● Failure of our internal control over financial reporting could harm our business and financial results. ● We are subject to laws and regulations governing corruption, which may require us to develop, maintain and implement costly compliance programs. ● We may undertake strategic acquisitions in the future, and difficulties integrating such acquisitions could damage our ability to achieve or sustain profitability. ● We are subject to state laws in California that require gender and diversity quotas for boards of directors of public companies headquartered in California. 23 Summary - Risks Related to Our Industry ● Our operations as a clinical laboratory are subject to oversight by CMS under CLIA, as well as certain state agencies, and any failure to maintain our CLIA or applicable state permits and licenses may affect our ability to commercialize our diagnostic tests. ● If the FDA takes the position that any of our tests are not within the scope of its policy on enforcement discretion for laboratory-developed tests, or otherwise determines that it will seek to actively regulate one or more of our diagnostic tests, responding to such a regulatory position could lead to delays in commercialization, or (if encountered after commercialization) requirements to halt the commercial provision of our tests until FDA marketing authorization is obtained. ● We will also need to obtain FDA and other regulatory approvals for any IVDs that we may develop, in order to market those IVD tests. ● Clinical trial failures can occur at any stage of the testing and we may experience numerous unforeseen events during, or as a result of, the clinical trial process that could delay or prevent commercialization of our current or future diagnostic tests. ● The commercial success of our diagnostic tests depends on the availability and sufficiency of third-party payer coverage and reimbursement, which may be limited or unavailable. ● Changes in healthcare laws and policies may have a material adverse effect on our financial condition, results of operations and cash flows. ● Because of certain Medicare billing policies, we may not receive complete reimbursement for tests provided to Medicare patients. ● Long payment cycles of Medicare, Medicaid and other third-party payers, or other payment delays, could hurt our cash flows and increase our need for working capital. ● Private health insurance company policies may deny coverage or limit the amount they will reimburse us for the performance of our diagnostic tests. ● We will be required to comply with federal and state laws governing the privacy of health information, and any failure to comply with these laws could result in material criminal and civil penalties. ● If we are successful in commercializing our diagnostic tests, we will be obligated to comply with numerous additional federal and state statutes and regulations pertaining to our business and be subject to government oversight and scrutiny for our compliance with such laws.
Laboratory and health care regulatory compliance efforts are expensive and time-consuming, and failure to maintain compliance with applicable laws could result in enforcement action which could be detrimental to our business.
Laboratory and health care regulatory compliance efforts are expensive and time-consuming, and failure to maintain compliance with applicable laws could result in enforcement action which could be detrimental to our business.
Any of the foregoing consequences could seriously harm our business and our financial results. 35 We plan to adopt policies and procedures designed to comply with applicable laws and regulations. Developing a compliance infrastructure is costly and time-consuming, and even a well-designed and implemented compliance program cannot necessarily prevent all violations of relevant laws.
Any of the foregoing consequences could seriously harm our business and our financial results. We plan to adopt policies and procedures designed to comply with applicable laws and regulations. Developing a compliance infrastructure is costly and time-consuming, and even a well-designed and implemented compliance program cannot necessarily prevent all violations of relevant laws.
Even if we ultimately prevail in such claims, the monetary cost of such litigation and the diversion of the attention of our management and scientific personnel could outweigh any benefit we receive as a result of the proceedings. We may not be able to enforce our intellectual property rights throughout the world .
Even if we ultimately prevail in such claims, the monetary cost of such litigation and the diversion of the attention of our management and scientific personnel could outweigh any benefit we receive as a result of the proceedings. 42 We may not be able to enforce our intellectual property rights throughout the world.
Any data privacy or security event could also disrupt our operations and damage our reputation, any of which could adversely affect our business. If a privacy or security event occurs, we may be required to comply with state breach notification laws and become subject to mandatory corrective action.
Any data privacy or security event could also disrupt our operations and damage our reputation, any of which could adversely affect our business. 31 If a privacy or security event occurs, we may be required to comply with state breach notification laws and become subject to mandatory corrective action.
A security event could also result in the compromise of our trade secrets and other proprietary information, which could adversely affect our competitive position. 28 Failure of our internal control over financial reporting could harm our business and financial results. Our management is responsible for establishing and maintaining adequate internal control over financial reporting.
A security event could also result in the compromise of our trade secrets and other proprietary information, which could adversely affect our competitive position. Failure of our internal control over financial reporting could harm our business and financial results. Our management is responsible for establishing and maintaining adequate internal control over financial reporting.
Additionally, on September 30, 2020, California enacted AB 979, requiring public companies with principal executive offices in California to each have at least one director from an underrepresented community based on ethnicity and sexual orientation by December 31, 2021.
Additionally, in September 2020, California enacted AB 979, requiring public companies with principal executive offices in California to each have at least one director from an underrepresented community based on ethnicity and sexual orientation by December 31, 2021.
Further, a derivation proceeding may be instituted by the USPTO or an inventor alleging that a patent or application was derived from the work of another inventor. Oppositions to the issuance of patents may be filed under European patent law and the patent laws of certain other countries.
Further, a derivation proceeding may be instituted by the USPTO or an inventor alleging that a patent or application was derived from the work of another inventor. 41 Oppositions to the issuance of patents may be filed under European patent law and the patent laws of certain other countries.
The sale of such shares could have a depressing effect on the market value of Oncocyte common stock and the prices at which we can sell our own shares of common stock to raise capital to support our operations. Item 1B. Unresolved Staff Comments Not applicable.
The sale of such shares could have a depressing effect on the market value of our common stock and the prices at which we can sell our own shares of common stock to raise capital to support our operations. Item 1B. Unresolved Staff Comments Not applicable.
Accordingly, the loss of the services of one or more of the members of that management team could have a material adverse effect on our business. Our cash and cash equivalents could be adversely affected if the financial institutions in which we hold our cash and cash equivalents fail.
Accordingly, the loss of the services of one or more of the members of that management team could have a material adverse effect on our business. 30 Our cash and cash equivalents could be adversely affected if the financial institutions in which we hold our cash and cash equivalents fail.
The anti-bribery provisions of the FCPA are enforced primarily by the United States Department of Justice. The SEC is involved with enforcement of the books and records provisions of the FCPA. Compliance with these anti-bribery laws is expensive and difficult, particularly in countries in which corruption is a recognized problem.
The anti-bribery provisions of the FCPA are enforced primarily by the United States Department of Justice. The SEC is involved with enforcement of the books and records provisions of the FCPA. 32 Compliance with these anti-bribery laws is expensive and difficult, particularly in countries in which corruption is a recognized problem.
If we and our subsidiaries expand operations internationally, we will need to increase the scope of our compliance programs to address the risks relating to the potential for violations of the FCPA and other anti-bribery and anti-corruption laws and data protection laws.
If we and our subsidiaries further expand operations internationally, we will need to increase the scope of our compliance programs to address the risks relating to the potential for violations of the FCPA and other anti-bribery and anti-corruption laws and data protection laws.
Even if capital is available, it may not be available on terms that we or our shareholders would consider favorable. ● Sales or other issuances of additional equity securities by us could result in the dilution of the interests of our shareholders. 23 Risks Related to Our Business Operations Our revenues in the near term will depend on our ability to commercialize a small number of diagnostic tests.
Even if capital is available, it may not be available on terms that we or our shareholders would consider favorable. ● Sales or other issuances of additional equity securities by us could result in the dilution of the interests of our shareholders. 26 Risks Related to Our Business Operations Our revenues in the near term will depend on our ability to commercialize a small number of diagnostic tests.
We will be required to comply with federal and state laws governing the privacy of health information, and any failure to comply with these laws could result in material criminal and civil penalties. HIPAA sets forth security regulations that establish administrative, physical and technical standards for maintaining the confidentiality, integrity and availability of Protected Health Information in electronic form.
We will be required to comply with federal and state laws governing the privacy of health information, and any failure to comply with these laws could result in material criminal and civil penalties. HIPAA sets forth security regulations that establish administrative, physical and technical standards for maintaining the confidentiality, integrity and availability of PHI in electronic form.
In addition, several states require that we hold licenses to test specimens from patients in those states. We do not have immediate plans to market our tests for commercial use in the European Union and as a result, at this time we do not believe we are subject to EU or EU member state post-market regulations related to our tests.
In addition, several states require that we hold licenses to test specimens from patients in those states. We do not have immediate plans to market our tests for commercial use in the EU and as a result, at this time we do not believe we are subject to EU or EU member state post-market regulations related to our tests.
Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our consolidated financial statements would be prevented or detected. Our growth and entry into new diagnostic tests, technologies and markets will place significant additional pressure on our system of internal control over financial reporting.
Due to its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our consolidated financial statements would be prevented or detected. Our growth and entry into new diagnostic tests, technologies and markets will place significant additional pressure on our system of internal control over financial reporting.
Because we are a smaller reporting company, we are exempt from the requirement of having our internal controls over financial reporting audited by our independent registered public accountants, which means that material weaknesses or significant deficiencies in our internal controls that might be detected by an audit may not be detected and remedied.
Since we are a smaller reporting company, we are exempt from the requirement of having our internal controls over financial reporting audited by our independent registered public accountants, which means that material weaknesses or significant deficiencies in our internal controls that might be detected by an audit may not be detected and remedied.
We will be subject to ongoing compliance with laws addressing our laboratory licensure and certification at the federal and state level; advertising and promotion (including laws enforced by the Federal Trade Commission); and laws intended to prevent fraud, waste, and abuse in healthcare programs (including among others the Anti-Kickback Statute, False Claims Act, the Eliminating Kickbacks in Recovery Act (EKRA), the Stark Law, and applicable state law equivalents).
We will be subject to ongoing compliance with laws addressing our laboratory licensure and certification at the federal and state level; advertising and promotion (including laws enforced by the Federal Trade Commission); and laws intended to prevent fraud, waste, and abuse in healthcare programs (including among others the Anti-Kickback Statute, False Claims Act, EKRA, the Stark Law, and applicable state law equivalents).
On April 1, 2022, the Los Angeles Superior Court declared AB 979 unconstitutional and, although the California Secretary of State has filed a notice of appeal in the case, the State of California is currently precluded from enforcing AB 979.
In April 2022, the Los Angeles Superior Court declared AB 979 unconstitutional and, although the California Secretary of State has filed a notice of appeal in the case, the State of California is currently precluded from enforcing AB 979.
Risks Related to Our Common Stock Ownership of our common stock will entail certain risks associated with the limited history of the trading of our common stock, volatility of prices for our shares, and the fact that we do not pay dividends. We have identified a material weakness in our internal control over financial reporting.
Risks Related to Our Common Stock Ownership of our common stock will entail certain risks associated with the limited history of the trading of our common stock, volatility of prices for our shares, and the fact that we do not pay dividends. We previously identified and remediated a material weakness in our internal control over financial reporting.
Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations.
The U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations.
Under the Merger Agreement pursuant to which we acquired Insight, as described in Note 3 to the consolidated financial statements included elsewhere in this Report, we have agreed to pay contingent consideration of up to $6.0 million in any combination of cash or shares of Oncocyte common stock if certain milestones related to DetermaIO are achieved (the “Contingent Consideration”), which consist of (i) a $1.5 million clinical trial completion and data publication milestone, (ii) $3.0 million for an affirmative final local coverage determination from CMS for a specified lung cancer test, and (iii) up to $1.5 million for achieving certain CMS reimbursement milestones.
Under the Merger Agreement pursuant to which we acquired Insight, as described in Note 3 to the consolidated financial statements included elsewhere in this Report, we have agreed to pay contingent consideration of up to $6.0 million in any combination of cash or shares of our common stock if certain milestones related to DetermaIO are achieved (the “Contingent Consideration”), which consist of (i) a $1.5 million clinical trial completion and data publication milestone, (ii) $3.0 million for an affirmative final LCD from CMS for a specified lung cancer test, and (iii) up to $1.5 million for achieving certain CMS reimbursement milestones.
Patent reform legislation in the United States and other countries, including the Leahy-Smith America Invents Act, or the Leahy-Smith Act, signed into law in September 2011, could increase those uncertainties and costs. The Leahy-Smith Act includes a number of significant changes to U.S. patent law.
Patent reform legislation in the United States and other countries, including the Leahy-Smith America Invents Act (“Leahy-Smith Act”), signed into law in September 2011, could increase those uncertainties and costs. The Leahy-Smith Act includes a number of significant changes to U.S. patent law.
Based on its most recent report of beneficial ownership on Schedule 13D, as of January 8, 2021 Lineage held 3,297,401 shares of Oncocyte common stock. Lineage has been periodically selling shares of Oncocyte common stock from its holdings and has announced its intention to continue to sell Oncocyte shares.
(“Lineage”). Based on its most recent report of beneficial ownership on Schedule 13D, as of January 8, 2021 Lineage held 3,297,401 shares of our common stock. Lineage has been periodically selling shares of our common stock from its holdings and has announced its intention to continue to sell our shares.
Clinical trial failures or delays can occur at any stage of the trials, and may be directly or indirectly caused by a variety of factors, including but not limited to: ● Delays in securing clinical investigators or trial sites for our clinical trials; ● Delays in obtaining Institutional Review Board and other regulatory approvals to commence a clinical trial; ● Slower than anticipated rates of patient recruitment and enrollment, or failing to reach the targeted number of patients due to competition for patients from other trials; ● Limited or no availability of coverage, reimbursement and adequate payment from health maintenance organizations and other third-party payers for the use of our diagnostic test candidates in our clinical trials; ● Negative or inconclusive results from clinical trials; ● Approval and introduction of new diagnostic or changes in standards of practice or regulatory guidance that render our clinical trial endpoints or the targeting of our proposed indications obsolete; ● Inability to monitor patients adequately during or after treatment or problems with investigator or patient compliance with the trial protocols; ● Inability to replicate in large controlled studies safety and efficacy data obtained from a limited number of patients in uncontrolled trials; and ● Inability or unwillingness of medical investigators to follow our clinical protocols.
Clinical trial failures or delays can occur at any stage of the trials, and may be directly or indirectly caused by a variety of factors, including but not limited to: ● Delays in securing clinical investigators or trial sites for our clinical trials; ● Delays in obtaining Institutional Review Board and other regulatory approvals to commence a clinical trial; ● Slower than anticipated rates of patient recruitment and enrollment, or failing to reach the targeted number of patients due to competition for patients from other trials; ● Limited or no availability of coverage, reimbursement and adequate payment from health maintenance organizations and other third-party payers for the use of our diagnostic test candidates in our clinical trials; ● Negative or inconclusive results from clinical trials; ● Approval and introduction of new diagnostic or changes in standards of practice or regulatory guidance that render our clinical trial endpoints or the targeting of our proposed indications obsolete; ● Inability to monitor patients adequately during or after treatment or problems with investigator or patient compliance with the trial protocols; ● Inability to replicate in large controlled studies safety and efficacy data obtained from a limited number of patients in uncontrolled trials; and ● Inability or unwillingness of medical investigators to follow our clinical protocols. 37 The commercial success of our diagnostic tests depends on the availability and sufficiency of third-party payer coverage and reimbursement, which may be limited or unavailable.
The FCPA also obligates companies whose securities are listed in the U.S. to comply with certain accounting provisions requiring us to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and devise and maintain an adequate system of internal accounting controls for international operations.
The FCPA also obligates companies whose securities are listed in the United States to comply with certain accounting provisions requiring us to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and devise and maintain an adequate system of internal accounting controls for international operations.
On May 13, 2022, the Los Angeles Superior Court declared SB 826 unconstitutional and, although the California Secretary of State has directed counsel to file an appeal of decision, the State of California is currently precluded from enforcing SB 826.
In May 2022, the Los Angeles Superior Court declared SB 826 unconstitutional and, although the California Secretary of State has directed counsel to file an appeal of decision, the State of California is currently precluded from enforcing SB 826.
If, however, we are required to find a third-party laboratory to conduct our testing services, we believe this would change our status and the FDA would consider such tests offered through a third-party to then be a medical device subject to active FDA regulation and enforcement under its in vitro diagnostic authorities.
If, however, we are required to find a third-party laboratory to conduct our testing services, we believe this would change our status and the FDA would consider such tests offered through a third-party to then be a medical device subject to active FDA regulation and enforcement under its IVD authorities.
These include provisions that affect the way patent applications are prosecuted, redefine prior art and provide more efficient and cost-effective avenues for competitors to challenge the validity of patents. In addition, the Leahy-Smith Act has transformed the U.S. patent system into a “first to file” system. The first-to-file provisions, however, only became effective in March 2013.
These include provisions that affect the way patent applications are prosecuted, redefine prior art and provide more efficient and cost-effective avenues for competitors to challenge the validity of patents. In addition, the Leahy-Smith Act has transformed the U.S. patent system into a “first to file” system, which became effective in March 2013.
For example, on March 10, 2023, the Federal Deposit Insurance Corporation (the “FDIC”) took control of Silicon Valley Bank (“SVB”) and created the National Bank of Santa Clara to hold the deposits of SVB after SVB was unable to continue its operations. On March 12, 2023, the FDIC, U.S.
For example, in March 2023, the Federal Deposit Insurance Corporation (the “FDIC”) took control of Silicon Valley Bank (“SVB”) and created the National Bank of Santa Clara to hold the deposits of SVB after SVB was unable to continue its operations. In March 2023, the FDIC, U.S.
Due to differences in the hardware and software platforms available at different laboratories for running molecular tests, we may need to make adjustments to the configuration of the reagents that make up our LDTs in our US labs or as we convert them to kits, and there may be changes to the related software in order for the tests to be performed on particular hardware platforms.
Due to differences in the hardware and software platforms available at different laboratories for running molecular tests, we may need to make adjustments to the configuration of the reagents that make up our LDTs in our U.S. laboratory or as we convert them to kits, and there may be changes to the related software in order for the tests to be performed on particular hardware platforms.
If we are unable to remediate the material weakness and otherwise maintain an effective system of internal control over financial reporting, it could result in us not preventing or detecting on a timely basis a material misstatement of the Company’s financial statements.
If we are unable to maintain an effective system of internal control over financial reporting, it could result in us not preventing or detecting on a timely basis a material misstatement of the Company’s financial statements.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. As further disclosed in “Item 9A.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.
Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with accounting principles generally accepted in the U.S.
Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with accounting principles generally accepted in the United States.
We are subject to laws and regulations governing corruption, which will require us to develop, maintain, and implement costly compliance programs. We must comply with a wide range of laws and regulations to prevent corruption, bribery, and other unethical business practices, including the Foreign Corrupt Practices Act or FCPA, anti-bribery and anti-corruption laws in other countries.
We are subject to laws and regulations governing corruption, which may require us to develop, maintain, and implement costly compliance programs. We must comply with a wide range of laws and regulations to prevent corruption, bribery, and other unethical business practices, including the FCPA, anti-bribery and anti-corruption laws in other countries.
No shares of preferred stock are presently outstanding. 43 We may issue additional common stock or other securities that are convertible into or exercisable for common stock in order to raise additional capital, or in connection with hiring or retaining employees, directors, or consultants, or in connection with future acquisitions of licenses to technology or diagnostic tests in connection with future business acquisitions, or for other business purposes.
We may issue additional common stock or other securities that are convertible into or exercisable for common stock in order to raise additional capital, or in connection with hiring or retaining employees, directors, or consultants, or in connection with future acquisitions of licenses to technology or diagnostic tests in connection with future business acquisitions, or for other business purposes.
We incurred research and development expenses amounting to approximately $7.3 million and $5.0 million during years ended December 31, 2022 and 2021, respectively. The current focus of our research and development efforts is the development of DetermaIO, VitaGraft and DetermaCNI.
We incurred research and development expenses amounting to approximately $9.3 million and $7.3 million during years ended December 31, 2023 and 2022, respectively. The current focus of our research and development efforts is the development of DetermaIO, VitaGraft and DetermaCNI.
For instance, the payment reductions imposed by the Affordable Care Act (“ACA”) and the expansion of the federal and state governments’ role in the U.S. healthcare industry as well as changes to the reimbursement amounts paid by payers for our tests and future tests and products may reduce our profits and have a materially adverse effect on our business, financial condition, results of operations and cash flows.
For instance, the payment reductions imposed by healthcare reform legislation known as the “Patient Protection and Affordable Care Act,” also known as the ACA (“ACA”), the expansion of the federal and state governments’ role in the U.S. healthcare industry, and the changes to the reimbursement amounts paid by payers for our tests and future tests and products may reduce our profits and have a materially adverse effect on our business, financial condition, results of operations and cash flows.
By December 31, 2022, each of these companies will be required to have at least two directors from such underrepresented communities if such company has more than four but fewer than nine directors, or at least three directors from underrepresented communities if the company has nine or more directors.
AB 979 required that each of these companies have at least two directors from such underrepresented communities if such company has more than four but fewer than nine directors, or at least three directors from underrepresented communities if the company has nine or more directors, by December 31, 2022.
Such challenges or related developments (for example if the labeling claims the FDA allows us to make are more limited than the claims we currently plan to make) may impact our commercialization efforts as orders or reimbursement may be less than anticipated. Any of these regulatory developments may cause our business to suffer.
Such challenges or related developments (for example if the labeling claims the FDA allows us to make are more limited than the claims we currently plan to make) may impact our commercialization efforts as orders or reimbursement may be less than anticipated.
If we acquire businesses with promising products or technologies, we may not be able to realize the benefit of acquiring such businesses if we are unable to move one or more products through preclinical and/or clinical development to regulatory approval and commercialization.
We may acquire businesses or assets that complement or augment our existing business. If we acquire businesses with promising products or technologies, we may not be able to realize the benefit of acquiring such businesses if we are unable to move one or more products through preclinical and/or clinical development to regulatory approval and commercialization.
Later that month, Senator Paul introduced the Verified Innovative Testing in American Laboratories Act of 2020, or VITAL Act, which proposes that all aspects of “laboratory-developed testing procedures” be subject to regulation under CLIA, and that no aspects of such procedures be subject to regulation by the FDA.
Later that month, Senator Paul introduced the VITAL Act, which proposes that all aspects of “laboratory-developed testing procedures” be subject to regulation under CLIA, and that no aspects of such procedures be subject to regulation by the FDA.
Our plan for expanding our business includes developing and acquiring additional tests that can be transferred into our current lab footprint in the US and/or onto molecular testing instrument platforms for distribution in ex-US markets.
Our plan for expanding our business includes developing and acquiring additional tests that can be transferred into our current lab footprint in the United States and/or onto molecular testing instrument platforms for distribution in non-U.S. markets.
We will also need to obtain FDA and other regulatory approvals for any IVDs that we may develop, in order to market those IVD tests. If we decide to develop IVDs, we will need to obtain regulatory clearance or approval to market each new IVD test.
Any of these regulatory developments may cause our business to suffer. 36 We will also need to obtain FDA and other regulatory approvals for any IVDs that we may develop, in order to market those IVD tests. If we decide to develop IVDs, we will need to obtain regulatory clearance or approval to market each new IVD test.
Department of the Treasury, and Board of Governors of the Federal Reserve System, issued a joint press release stating that all depositors would have access to all of their money beginning on March 13, 2023. As of March 24, 2023, we have access to our cash on deposit with SVB.
Department of the Treasury, and Board of Governors of the Federal Reserve System, issued a joint press release stating that all depositors would have access to all of their money beginning on March 13, 2023.
To the extent that any disruption or security breach results in a loss of or damage to our data, or inappropriate disclosure of confidential or proprietary information, we could incur liability under federal or state laws, be subject to litigation, and the development of our diagnostic test candidates could be delayed. 27 Security breaches and other disruptions could compromise our information and expose us to liability, and could cause our business and reputation to suffer.
To the extent that any disruption or security breach results in a loss of or damage to our data, or inappropriate disclosure of confidential or proprietary information, we could incur liability under federal or state laws, be subject to litigation, and the development of our diagnostic test candidates could be delayed.
Our net losses for the years ended December 31, 2022 and 2021 were $72.9 million and $64.1 million, respectively, and we had an accumulated deficit of $260.7 million as of December 31, 2022. We finance our operations primarily through sales of our common stock.
Our net losses for the years ended December 31, 2023 and 2022 were $ 27.8 million and $72.9 million, respectively, and we had an accumulated deficit of $ 289.9 million as of December 31, 2023. We finance our operations primarily through sales of our common stock.
If the FDA were to determine that our tests are not within the policy for LDTs for any reason, including new rules, policies, or guidance, or due to new legislation such as the proposed VALID Act, our tests may become subject to FDA requirements, including pre-market review.
If the FDA were to ultimately regulate our tests for any reason, including new rules, policies, or guidance, or due to new legislation such as the proposed VALID Act, our tests may become subject to FDA requirements, including pre-market review.
Reimbursement for our diagnostic testing may be negatively impacted by California MAC policies. Long payment cycles of Medicare, Medicaid and other third-party payers, or other payment delays, could hurt our cash flows and increase our need for working capital. Medicare and Medicaid have complex billing and documentation requirements that we will have to satisfy in order to receive payment.
Long payment cycles of Medicare, Medicaid and other third-party payers, or other payment delays, could hurt our cash flows and increase our need for working capital. Medicare and Medicaid have complex billing and documentation requirements that we will have to satisfy in order to receive payment.
The secure processing, maintenance, and transmission of this information is critical to our operations and business strategy. We face a number of risks relative to protecting our information, including loss of access, inappropriate disclosure, inappropriate modification, and the risk of our being unable to adequately monitor and modify our controls over our critical information.
We face a number of risks relative to protecting our information, including loss of access, inappropriate disclosure, inappropriate modification, and the risk of our being unable to adequately monitor and modify our controls over our critical information.
Even if we are successful in these proceedings, we may incur substantial costs, and the time and attention of our management and scientific personnel could be diverted in pursuing these proceedings, which could significantly harm our business and operating results. We may also not have sufficient resources to bring these actions to a successful conclusion.
Even if we are successful in these proceedings, we may incur substantial costs, and the time and attention of our management and scientific personnel could be diverted in pursuing these proceedings, which could significantly harm our business and operating results.
If we are found to infringe a third party’s intellectual property rights, we may have to pay monetary damages, lose valuable intellectual property rights or personnel, or be forced to cease developing, manufacturing or commercializing the infringing diagnostic test.
We may also not have sufficient resources to bring these actions to a successful conclusion. 43 If we are found to infringe a third party’s intellectual property rights, we may have to pay monetary damages, lose valuable intellectual property rights or personnel, or be forced to cease developing, manufacturing or commercializing the infringing diagnostic test.
The Health Information Technology for Economic and Clinical Health Act (“HITECH”) established certain health information security breach notification obligations that require covered entities to notify each individual whose “protected health information” is breached. We may incur significant compliance costs related to HIPAA and HITECH privacy regulations and varying state privacy regulations and varying state privacy and security laws.
HITECH established certain health information security breach notification obligations that require covered entities to notify each individual whose PHI is breached. 39 We may incur significant compliance costs related to HIPAA and HITECH privacy regulations and varying state privacy regulations and varying state privacy and security laws.
Similarly, the failure of private health insurers or other private third-party payers to properly process our payment claims in a timely manner could delay our receipt of payment for our diagnostic tests and services, which may have a material adverse effect on our cash flows. 34 Private health insurance company policies may deny coverage or limit the amount they will reimburse us for the performance of our diagnostic tests.
Similarly, the failure of private health insurers or other private third-party payers to properly process our payment claims in a timely manner could delay our receipt of payment for our diagnostic tests and services, which may have a material adverse effect on our cash flows.
Additionally, the occurrence of, or failure to remediate, a material weakness and any future material weaknesses in our internal control over financial reporting or determination that our disclosure controls and procedures are ineffective may have other consequences that could materially and adversely affect our business, including an adverse impact on the market price of our common stock, potential actions or investigations by the U.S.
The occurrence of, or failure to remediate, a material weakness in our internal control over financial reporting or determination that our disclosure controls and procedures are ineffective may have other consequences that could materially and adversely affect our business, including an adverse impact on the market price of our common stock, potential actions or investigations by the SEC or other regulatory authorities, shareholder lawsuits, a loss of investor confidence and damage to our reputation.
However, the Leahy-Smith Act and its implementation could make it more difficult to obtain patent protection for our inventions and increase the uncertainties and costs surrounding the prosecution of our or our collaboration partners’ patent applications and the enforcement or defense of our or our collaboration partners’ issued patents, all of which could harm our business, results of operations and financial condition. 36 Other companies or organizations may challenge our patent rights or may assert patent rights that prevent us from developing and commercializing our diagnostic tests.
The Leahy-Smith Act and its implementation may make it more difficult to obtain patent protection for our inventions and increase the uncertainties and costs surrounding the prosecution of our or our collaboration partners’ patent applications and the enforcement or defense of our or our collaboration partners’ issued patents, all of which could harm our business, results of operations and financial condition.
Under PAMA (as amended by the Further Consolidated Appropriations Act, 2020 and the Coronavirus Aid, Relief, and Economic Security Act, respectively) and its implementing regulations, clinical laboratories must report to CMS private payer rates for clinical diagnostic laboratory tests. Laboratories that fail to timely report the required payment information may be subject to substantial civil money penalties.
Under PAMA (as amended by the Further Consolidated Appropriations Act, 2020 and the Coronavirus Aid, Relief, and Economic Security Act, respectively) and its implementing regulations, clinical laboratories must report to the CMS, the administrator of CLIA, private payer rates for clinical diagnostic laboratory tests.
Similarly, if we assert trademark infringement claims, a court may determine that the marks we have asserted are invalid or unenforceable, or that the party against whom we have asserted trademark infringement has superior rights to the marks in question, in which case, we could ultimately be forced to cease use of such trademarks. 37 Even if we establish infringement, the court may decide not to grant an injunction against further infringing activity and instead award only monetary damages, which may or may not be an adequate remedy.
Similarly, if we assert trademark infringement claims, a court may determine that the marks we have asserted are invalid or unenforceable, or that the party against whom we have asserted trademark infringement has superior rights to the marks in question, in which case, we could ultimately be forced to cease use of such trademarks.
Coverage means that the test or assay is approved as a benefit for Medicare beneficiaries. If there is no coverage, neither the supplier nor any other party, such as a diagnostic laboratory, may receive reimbursement from Medicare for the service. Regional policies are directed by Medicare’s regional MACs.
If there is no coverage, neither the supplier nor any other party, such as a diagnostic laboratory, may receive reimbursement from Medicare for the service. Regional policies are directed by Medicare’s regional MACs. Reimbursement for our diagnostic testing may be negatively impacted by California MAC policies.
If we are unable to obtain and maintain sufficient third-party coverage and adequate reimbursement for a diagnostic test, its commercial success may be greatly hindered, and our financial condition and results of operations may be materially and adversely affected. 33 We may need to conduct additional studies in order to demonstrate the cost-effectiveness of our diagnostic tests to the satisfaction of our target customers and their third-party payers.
If we are unable to obtain and maintain sufficient third-party coverage and adequate reimbursement for a diagnostic test, its commercial success may be greatly hindered, and our financial condition and results of operations may be materially and adversely affected.
For laboratory tests that are designated as new advanced diagnostic laboratory tests initial payment rates will be based on the actual list charge for the laboratory test.
For certain clinical diagnostic laboratory tests that are not designated as advanced diagnostic laboratory tests, initial payment rates will be assigned by the cross-walk or gap-fill methodology. For laboratory tests that are designated as new advanced diagnostic laboratory tests initial payment rates will be based on the actual list charge for the laboratory test.
In addition to acquisition costs, operationally we will have to build out infrastructure for installing a new testing platform across multiple laboratory locations as well as support functions to help maintain these instrument systems in new customer labs, and we may also encounter unexpected technology issues in the process.
In addition to acquisition costs, operationally we will have to build out infrastructure for installing a new testing platform across multiple laboratory locations as well as support functions to help maintain these instrument systems in new customer labs, and we may also encounter unexpected technology issues in the process. 27 If our laboratory facilities become damaged or inoperable, or we are required to vacate any facility, our ability to provide services and pursue our research and development and commercialization efforts may be jeopardized.
If we fail to create and maintain suitable alliances, we may have to limit the size or scope of, or delay, one or more of our product development or research programs, or we will have to increase our expenditures and will need to obtain additional funding, which may be unavailable or available only on unfavorable terms.
If we fail to create and maintain suitable alliances, we may have to limit the size or scope of, or delay, one or more of our product development or research programs, or we will have to increase our expenditures and will need to obtain additional funding, which may be unavailable or available only on unfavorable terms. 29 If we are able to enter into development and marketing arrangements with diagnostic, pharmaceutical or medical device companies for our diagnostic tests, we may license product development, manufacturing, and marketing rights to the pharmaceutical or medical device company or to a joint venture company formed with the pharmaceutical or medical device company.
As a result, our revenues from the sale of our tests through such arrangements may be substantially less than the amount of revenues and gross profits that we might receive if we were to market our tests ourselves. 24 We may face technology transfer challenges and expenses in adding new tests to our portfolio and in expanding our reach into new geographical areas on new instrument platforms.
As a result, our revenues from the sale of our tests through such arrangements may be substantially less than the amount of revenues and gross profits that we might receive if we were to market our tests ourselves.
Delays or denials of the regulatory clearances or approvals may be encountered as a result of changes in regulatory agency policy, regulations, or laws. ● A diagnostic test that is cleared or approved for marketing may be subject to restrictions on use. ● The FDA can withdraw approval of an FDA regulated product if problems arise. 32 Clinical trial failures can occur at any stage of the testing and we may experience numerous unforeseen events during, or as a result of, the clinical trial process that could delay or prevent commercialization of our current or future diagnostic tests.
Delays or denials of the regulatory clearances or approvals may be encountered as a result of changes in regulatory agency policy, regulations, or laws. ● A diagnostic test that is cleared or approved for marketing may be subject to restrictions on use. ● The FDA can withdraw approval of an FDA regulated product if problems arise.
We also communicate PHI and other sensitive data through our various tools and platforms. In addition to storing and transmitting sensitive data that is subject to legal protections, these applications and data encompass a wide variety of business-critical information, including research and development information, commercial information, and business and financial information.
In addition to storing and transmitting sensitive data that is subject to legal protections, these applications and data encompass a wide variety of business-critical information, including research and development information, commercial information, and business and financial information. The secure processing, maintenance, and transmission of this information is critical to our operations and business strategy.
In recent years, however, the FDA has stated it intends to end its policy of general enforcement discretion and regulate certain LDTs as medical devices.
In recent years, however, the FDA has stated it intends to end its policy of general enforcement discretion and regulate certain LDTs as medical devices. 35 In September 2023, the FDA announced a proposed rule aimed at helping to ensure the safety and effectiveness of these tests.
Any future milestone payments and cost reimbursements from collaboration agreements could provide an important source of financing for our research and development programs, thereby facilitating the application of our technology to the development and commercialization of our diagnostic tests, but there are risks associated with entering into collaboration arrangements. 26 There is a risk that we could become dependent upon one or more collaborative arrangements for diagnostic test development or manufacturing or as a source of revenues from the sale of any diagnostic tests that may be developed by us alone or through one of the collaborative arrangements.
Any future milestone payments and cost reimbursements from collaboration agreements could provide an important source of financing for our research and development programs, thereby facilitating the application of our technology to the development and commercialization of our diagnostic tests, but there are risks associated with entering into collaboration arrangements.
Any patent applications that we file and any patents that we hold or later obtain could be challenged by third parties and declared invalid or infringing of third-party claims.
Other companies or organizations may challenge our patent rights or may assert patent rights that prevent us from developing and commercializing our diagnostic tests. Any patent applications that we file and any patents that we hold or later obtain could be challenged by third parties and declared invalid or infringing of third-party claims.
In that case, we may be required to obtain premarket clearance or approval prior to offering our tests, which would be time-consuming and costly and could result in interruptions and delays in our ability to sell or offer our tests. 25 There is a limited number of manufacturers of molecular diagnostic testing equipment and related chemical reagents necessary for the provision of our diagnostic tests.
In that case, we may be required to obtain premarket clearance or approval prior to offering our tests, which would be time-consuming and costly and could result in interruptions and delays in our ability to sell or offer our tests.
Risks Related to Intellectual Property ● We rely on patents and trade secrets, and our financial success will depend, in part, on our ability to obtain commercially valuable patent claims, protect our intellectual property rights and operate without infringing upon the proprietary rights of others. ● We may not be able to obtain patent protection for our diagnostic tests if our pending U.S. patent applications are found to be directed to unpatentable subject matter. ● Changes to the patent laws in the United States and other jurisdictions could diminish the value of patents in general, thereby impairing our ability to protect our diagnostic tests. ● Other companies or organizations may challenge our patent rights or may assert patent rights that prevent us from developing and commercializing our diagnostic tests. ● If we are unable to protect the confidentiality of our trade secrets, the value of our technology could be materially adversely affected, and our business would be harmed. ● We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time-consuming and unsuccessful. ● We may not be able to enforce our intellectual property rights throughout the world . ● If we are sued for infringing intellectual property rights of third parties, such litigation could be costly and time consuming and could prevent or delay us from developing or commercializing our diagnostic tests. ● Patent terms may be inadequate to protect our competitive position on our diagnostic tests for an adequate amount of time. 21 Risks Related to the COVID-19 Pandemic ● The recent COVID-19 global pandemic and the actions taken in response thereto could harm our business and our results of operations and financial condition could be adversely impacted thereby.
Summary - Risks Related to Intellectual Property ● We rely on patents and trade secrets, and our financial success will depend, in part, on our ability to obtain commercially valuable patent claims, protect our intellectual property rights and operate without infringing upon the proprietary rights of others. ● We may not be able to obtain patent protection for our diagnostic tests if our pending U.S. patent applications are found to be directed to unpatentable subject matter. ● Changes to the patent laws in the United States and other jurisdictions could diminish the value of patents in general, thereby impairing our ability to protect our diagnostic tests. ● Other companies or organizations may challenge our patent rights or may assert patent rights that prevent us from developing and commercializing our diagnostic tests. ● If we are unable to protect the confidentiality of our trade secrets, the value of our technology could be materially adversely affected, and our business would be harmed. ● We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time-consuming and unsuccessful. ● We may not be able to enforce our intellectual property rights throughout the world . ● If we are sued for infringing intellectual property rights of third parties, such litigation could be costly and time consuming and could prevent or delay us from developing or commercializing our diagnostic tests. ● Patent terms may be inadequate to protect our competitive position on our diagnostic tests for an adequate amount of time. 24 Summary - Risks Related to Our Common Stock ● We previously identified and remediated a material weakness in our internal control over financial reporting. ● Our recently implemented reverse stock split may decrease the liquidity of our common stock and result in higher transaction costs. ● The effective increase in the authorized number of shares of our common stock as a result of our reverse stock split could have anti-takeover implications and result in further dilution to our existing shareholders. ● Since we don’t pay dividends, our stock may not be a suitable investment for those needing dividend income. ● Our former parent company may sell its Oncocyte shares to raise capital to finance its operations.
We may also issue preferred stock having rights, preferences, and privileges senior to the rights of our common stock with respect to dividends, rights to share in distributions of our assets if we liquidate our company, or voting rights. Any preferred stock may also be convertible into common stock on terms that would be dilutive to holders of common stock.
The future issuance of any such additional common stock or other securities may create downward pressure on the trading price of our common stock. 45 We may also issue preferred stock having rights, preferences, and privileges senior to the rights of our common stock with respect to dividends, rights to share in distributions of our assets if we liquidate our company, or voting rights.
For example, in the United States, proving invalidity requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. 38 In addition, several of our employees have executed proprietary rights, non-disclosure and non-competition agreements, or similar agreements with their previous employers, who may allege these employees have used or disclosed intellectual property, including trade secrets or other proprietary information.
In addition, several of our employees have executed proprietary rights, non-disclosure and non-competition agreements, or similar agreements with their previous employers, who may allege these employees have used or disclosed intellectual property, including trade secrets or other proprietary information.
A failure to comply with any such quota requirement could result in fines from the California Secretary of State, and our reputation may be adversely affected. 30 Risks Related to Our Industry Our operations as a clinical laboratory in the United States are subject to oversight by CMS under CLIA, as well as certain state agencies, and our operation of clinical laboratories in any foreign jurisdictions are subject to similar regulatory oversight.
As such, the effects of inflation may adversely impact our results of operations, financial condition and cash flows. 34 Risks Related to Our Industry Our operations as a clinical laboratory in the United States are subject to oversight by CMS under CLIA, as well as certain state agencies, and our operation of clinical laboratories in any foreign jurisdictions are subject to similar regulatory oversight.
Our former parent company may sell its Oncocyte shares to raise capital to finance its operations. Prior to February 17, 2017, Oncocyte was a consolidated subsidiary of its former parent company Lineage Cell Therapeutics, Inc., formerly known as BioTime, Inc. (“Lineage”).
Any preferred stock may also be convertible into common stock on terms that would be dilutive to holders of common stock. Our former parent company may sell our shares to raise capital to finance its operations. Prior to February 17, 2017, we were a consolidated subsidiary of our former parent company Lineage Cell Therapeutics, Inc., formerly known as BioTime, Inc.
Our facilities and equipment could be harmed or rendered inoperable by natural or man-made disasters, including fire, flooding, hurricanes, tornadoes and power outages, which may render it difficult or impossible for us to perform our tests or provide laboratory services for some period of time.
Our facilities and equipment could be harmed or rendered inoperable by natural or man-made disasters, including earthquakes, power outages, wildfires, flooding, hurricanes, droughts and other extreme weather events and changing weather patterns, which are increasing in frequency due to the impacts of climate change, and may render it difficult or impossible for us to perform our tests for some period of time.
Broad market fluctuations, as well as industry factors and general economic and political conditions, may adversely affect the market price of our common stock. Because we do not pay dividends, our stock may not be a suitable investment for anyone who needs to earn dividend income. We do not pay cash dividends on our common stock.
Because we do not pay dividends, our stock may not be a suitable investment for anyone who needs to earn dividend income. We do not pay cash dividends on our common stock.
Certain payments to hospitals in connection with clinical studies, procurement of pharmaceuticals and other work have been deemed to be improper payments to government officials that have led to vigorous anti-bribery law enforcement actions and heavy fines in multiple jurisdictions, particularly in the U.S. and China. 29 It is not always possible to identify and deter violations, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations.
It is not always possible to identify and deter violations, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations.
We cannot predict whether future healthcare initiatives will be implemented at the federal or state level, or how any future legislation or regulation may affect us.
Changes in healthcare laws and policies may have a material adverse effect on our financial condition, results of operations and cash flows. We cannot predict whether future healthcare initiatives will be implemented at the federal or state level, or how any future legislation or regulation may affect us.
Any such litigation can result in substantial costs and diversion of management’s attention and resources and could harm our stock price, business results of operations and financial condition. As a result of these factors, holders of our common stock might be unable to sell their shares at or above the price they paid for such shares.
Any such litigation can result in substantial costs and diversion of management’s attention and resources and could harm our stock price, business results of operations and financial condition.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties Our principal executive and administrative offices are located in an office and laboratory facility of leased space in Irvine, California. The Irvine lease expires in September 2027. We also operate a CLIA-certified laboratory in Nashville, Tennessee and sublease laboratory space in Brisbane, California.
Biggest changeItem 2. Properties Our principal executive and administrative offices are located in Irvine, California, under a lease arrangement. The Irvine lease includes approximately 26,800 square feet of rentable space and expires in September 2027. On August 8, 2023, we entered into a sublease agreement with a subtenant, which subsequently became effective as of September 14, 2023.
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The lease of the Nashville, Tennessee CLIA laboratory space will expire in April 2024, and our subleased Brisbane CLIA laboratory space sublease will expire in March 2023.
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The sublease agreement is subject and subordinate to the Irvine lease. We operate a CLIA-certified laboratory and have additional office space in Nashville, Tennessee, under lease arrangements. The Nashville leases include 10,681 square feet of rentable space and expires in January 2027. We also have a research and development facility in Göttingen, Germany.
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See Note 7 to our consolidated financial statements included elsewhere in this Report for additional information regarding our lease arrangements and properties.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings From time to time, we may be involved in routine litigation incidental to the conduct of our business. We are not presently involved in any material litigation or proceedings. Item 4. Mine Safety Disclosures Not applicable 44 PART II
Biggest changeItem 3. Legal Proceedings From time to time, we may be involved in routine litigation incidental to the conduct of our business. We are not presently involved in any material pending litigation or proceedings. See Note 7 to our consolidated financial statements included elsewhere in this Report for additional information regarding commitments and contingencies. Item 4.
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Mine Safety Disclosures Not applicable. 46 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThis number does not include shareholders whose shares of Oncocyte common stock are held in “street name” in accounts with securities broker-dealers or other financial institutions or fiduciaries.
Biggest changeThis number does not include shareholders whose shares of our common stock are held in “street name” in accounts with securities broker-dealers or other financial institutions or fiduciaries. Recent Sales of Unregistered Securities On March 8, 2024, we issued to PCG Advisory, Inc. 12,000 shares of our common stock (the “PCG Shares”).
Dividends We have not declared or paid any cash dividends on our common stock. Any future decision to declare or pay dividends will be at the sole discretion of our Board of Directors. Holders As of March 22, 2023, we had approximately 309 holders of record of our common stock.
Dividends We have not declared or paid any cash dividends on our common stock. Any future decision to declare or pay dividends will be at the sole discretion of our Board of Directors. Holders As of April 3 , 2024, we had approximately 163 holders of record of our common stock.
Removed
Securities Authorized for Issuance under Equity Compensation Plans The following table shows certain information concerning the options outstanding and available for issuance under all of our compensation plans and agreements as of December 31, 2022 (in thousands, except weighted average exercise price): Plan Category Number of Shares to be Issued upon Exercise of Outstanding Options, Warrants and Rights (1) Weighted Average Exercise Price of the Outstanding Options, Warrants and Rights (1) Number of Shares Remaining Available for Future Issuance under Equity Compensation Plans (2) Oncocyte Stock Option Plans Approved by Shareholders 9,168 $ 2.96 10,804 (1) Includes both our 2010 Employee Stock Option Plan and our 2018 Equity Incentive Plan, as amended.
Added
The PCG Shares were issued without registration under the Securities Act in reliance on the exemption from registration under Section 4(a)(2). Repurchases None. Item 6. [RESERVED] Not applicable. 47
Removed
(2) All shares remaining available for future issuance are under our 2018 Equity Incentive Plan, as amended. Additional information concerning our 2010 Employee Stock Option Plan and our 2018 Equity Incentive Plan (as amended), and stock options may be found in Note 6 to the consolidated financial statements found elsewhere in this Report. Recent Sales of Unregistered Securities None.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeGoing concern assessment With the implementation of FASB’s standard on going concern, ASU No. 2014-15, we assess going concern uncertainty in our consolidated financial statements to determine if we have sufficient cash and cash equivalents on hand and working capital, including available loans or lines of credit, if any, to operate for a period of at least one year from the date our consolidated financial statements are issued, which is referred to as the “look-forward period” as defined by ASU No. 2014-15.
Biggest changeWe believe that of the significant accounting policies discussed in Note 2 to our consolidated financial statements included elsewhere in this Report, the following accounting policies involve a significant level of estimation uncertainty and require our most difficult, subjective or complex assumptions, judgments and estimates: ● Going Concern Assessment; ● Contingent Consideration Liabilities; ● Intangible Assets; ● Impairment of Long-Lived Assets; ● Revenue Recognition and Allowance for Credit Losses; ● Stock-Based Compensation; and ● Income Taxes. 56 Going Concern Assessment We assess going concern uncertainty in our consolidated financial statements to determine if we have sufficient cash and cash equivalents on hand and working capital, including available loans or lines of credit, if any, to operate for a period of at least one year from the date our consolidated financial statements are issued (the “look-forward period”).
For those SOWs, we recognize revenue over a period of time during which the work is performed using a formula that accounts for expended efforts, generally measured in labor hours, as a percentage of total estimated efforts for the completion of the SOW.
For those SOWs, we recognize revenue over a period during which the work is performed using a formula that accounts for expended efforts, generally measured in labor hours, as a percentage of total estimated efforts for the completion of the SOW.
We estimate the fair value of employee stock-based payment awards on the grant-date and recognize the resulting fair value over the requisite service period on a straight-line basis.
We estimate the fair value of stock-based payment awards on the grant date and recognize the resulting fair value over the requisite service period on a straight-line basis.
Management’s Discussion and Analysis of Financial Condition and Results of Operations The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide information necessary to understand our audited consolidated financial statements for the years ended December 31, 2022 and 2021, and highlight certain other information which, in the opinion of management, will enhance a reader’s understanding of our financial condition, changes in financial condition and results of operations.
Management’s Discussion and Analysis of Financial Condition and Results of Operations The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide information necessary to understand our audited consolidated financial statements for the years ended December 31, 2023 and 2022, and highlight certain other information which, in the opinion of management, will enhance a reader’s understanding of our financial condition, changes in financial condition and results of operations.
Pursuant to the Razor Stock Purchase Agreement Oncocyte agreed to sell to Dragon, 3,188,181 shares of common stock of Razor, which constitutes approximately 70% of the issued and outstanding equity interests of Razor on a fully-diluted basis, and transfer to Razor all of the assets and liabilities related to DetermaRx (the “Razor Sale Transaction”).
Pursuant to the Razor Stock Purchase Agreement we agreed to sell to Dragon, 3,188,181 shares of common stock of Razor, which constitutes approximately 70% of the issued and outstanding equity interests of Razor on a fully-diluted basis, and transfer to Razor all of the assets and liabilities related to DetermaRx (the “Razor Sale Transaction”).
The Razor Stock Purchase Agreement provides that following the closing of the transaction (the “Razor Closing”), Oncocyte will own 1,366,364 shares of common stock of Razor, which will constitute approximately 30% of the issued and outstanding equity interests of Razor on a fully-diluted basis. On February 16, 2023, Oncocyte completed the Razor Sale Transaction.
The Razor Stock Purchase Agreement provides that following the closing of the transaction (the “Razor Closing”), we will own 1,366,364 shares of common stock of Razor, which will constitute approximately 30% of the issued and outstanding equity interests of Razor on a fully-diluted basis. On February 16, 2023, we completed the Razor Sale Transaction.
See Note 3 to our consolidated financial statements included in this Report.
See Note 3 to our consolidated financial statements included elsewhere in this Report.
We are currently developing DetermaIO, a test with promising data supporting its potential to help identify patients likely to respond to checkpoint inhibitor drugs. This new class of drugs modulate the immune response and show activity in multiple solid tumor types including non-small cell lung cancer (NSCLC), and triple negative breast cancer (TNBC).
We are continuing to develop DetermaIO, a test with promising data supporting its potential to help identify patients likely to respond to checkpoint inhibitor drugs. This new class of drugs modulate the immune response and show activity in multiple solid tumor types including non-small cell lung cancer (NSCLC), and triple negative breast cancer (TNBC).
Changes in the fair value of the contingent consideration will be based on our reassessment of the key assumptions underlying the determination of this liability as changes in circumstances and conditions occur from the Insight acquisition date to the reporting period being presented, with the subsequent change in fair value recorded as part of our consolidated loss from operations for that period.
Changes in the fair value of the contingent consideration will be based on our reassessment of the key assumptions underlying the determination of this liability as changes in circumstances and conditions occur from the Insight and Chronix acquisition dates to the reporting period being presented, with the subsequent changes in fair value recorded as part of our consolidated loss from operations for that period.
A portion of our costs for leasing and operating our CLIA laboratories in California and Tennessee, and in Germany with Chronix, will also be included in research and development expenses to the extent allocated to the development of our diagnostic tests.
A portion of our costs for leasing and operating our CLIA laboratory in Tennessee, and in Germany with Chronix, will also be included in research and development expenses to the extent allocated to the development of our diagnostic tests.
Infrastructure expenses include depreciation of laboratory equipment; allocated rent costs; and leasehold improvements. 56 Cost of revenues for Pharma Services and licensing revenue varies depending on the nature, timing, and scope of customer projects.
Infrastructure expenses include depreciation of laboratory equipment, allocated rent costs and leasehold improvements. Cost of revenues for Pharma Services varies depending on the nature, timing, and scope of customer projects.
DetermaIO is presently available for research use through our Pharma Services operations but one of our goals is to complete development of that assay and to make it available for clinical use later this year. We also perform other assay development and clinical testing services for pharmaceutical and biotechnology companies through our Pharma Services operations.
DetermaIO is presently available for research use through our Pharma Services operations but one of our goals is to complete development of that assay and to make it available for clinical use later in 2024. We also perform other assay development and clinical testing services for pharmaceutical and biotechnology companies through our Pharma Services operations.
As of December 31, 2022, we will continue development of DetermaIO and VitaGraft . Our future research and development efforts and expenses will also depend on the amount of capital that we are able to raise to finance those activities and whether we acquire rights to any new diagnostic tests.
We will continue development of DetermaIO and VitaGraft. Our future research and development efforts and expenses will also depend on the amount of capital that we are able to raise to finance those activities and whether we acquire rights to any new diagnostic tests.
Our cash used in operating activities during 2022 does not include the following noncash items: $10.0 million in stock-based compensation; $31.0 million in gain from change in fair value of contingent consideration; $5.2 million in depreciation and amortization expenses; $18.7 million loss from goodwill impairment, $25.9 million loss from held for sale asset impairment, and $0.5 million in unrealized loss on marketable equity securities.
Our cash used in operating activities during 2022 did not include the following noncash items: $5.2 million in depreciation and amortization expenses, $10.0 million in stock-based compensation; $31.0 million in gain from change in fair value of contingent consideration; $18.7 million loss from goodwill impairment, $25.9 million loss from held for sale asset impairments, and $471,000 in unrealized losses on marketable equity securities.
The offering is intended to be priced ‘at-the market’ for purposes of complying with applicable NASDAQ Listing Rules. The aggregate gross proceeds from the offering were approximately $13.9 million before deducting offering expenses payable by the Company.
The offering was intended to be priced ‘at-the market’ for purposes of complying with applicable Nasdaq Listing Rules. The aggregate gross proceeds from the offering were approximately $13.9 million before deducting offering expenses payable by us.
Based on this assessment, as necessary or applicable, we make certain assumptions around implementing curtailments or delays in the nature and timing of programs and expenditures to the extent we deem probable those implementations can be achieved and we have the proper authority to execute them within the look-forward period in accordance with ASU No. 2014-15.
Based on this assessment, as necessary or applicable, we make certain assumptions around implementing curtailments or delays in the nature and timing of programs and expenditures to the extent we deem probable those implementations can be achieved and we have the proper authority to execute them within the look-forward period.
For all payers other than Medicare and payers subscribed to Medicare Advantage, Oncocyte must consider the novelty of the test, the uncertainty of receiving payment, or being subject to claims for a refund, from payers with whom it does not have a sufficient payment collection history or contractual reimbursement agreements.
For all payers other than Medicare, we must consider the novelty of the test, the uncertainty of receiving payment, or being subject to claims for a refund, from payers with whom it does not have a sufficient payment collection history or contractual reimbursement agreements.
Adverse clinical trial results, significant delays or inability to obtain local determination coverage (“LCD”) from the Centers for Medicare and Medicaid Services (“CMS”) for Medicare reimbursement for a diagnostic test, the inability to bring a diagnostic test to market and the introduction or advancement of competitors’ diagnostic tests could result in partial or full impairment of the related intangible assets.
Adverse clinical trial results, significant delays or inability to obtain LCD from the Centers for Medicare and Medicaid Services for Medicare reimbursement for a diagnostic test, the inability to bring a diagnostic test to market and the introduction or advancement of competitors’ diagnostic tests could result in partial or full impairment of the related intangible assets.
We establish an allowance for doubtful accounts based on the evaluation of the collectability of Pharma Services accounts receivables after considering a variety of factors, including the length of time receivables are past due, significant events that may impair the customer’s ability to pay, such as a bankruptcy filing or deterioration in the customer’s operating results or financial position, and historical experience.
We establish an allowance for credit losses based on the evaluation of the collectability of its Pharma Services accounts receivables after considering a variety of factors, including the length of time receivables are past due, significant events that may impair the customer’s ability to pay, such as a bankruptcy filing or deterioration in the customer’s operating results or financial position, reasonable and supportable forecast that affect the collectability of the reported amount, and historical experience.
Upon completion of the service to the customer in accordance with the SOW, we have the right to bill the customer for the agreed upon price (either on a per test or per deliverable basis) and we recognize the pharma service revenue at that time. We generally identify each sale of its pharma service offering as a single performance obligation.
Upon completion of the service to the customer in accordance with a Pharma Services Agreement, we have the right to bill the customer for the agreed upon price (either on a per test or per deliverable basis) and recognizes Pharma Service revenue at that time. Insight identifies each sale of its Pharma Service offering as a single performance obligation.
Our determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables.
We utilize the Black-Scholes option pricing model for determining the fair value of standard time-based stock options. Our determination of fair value of share-based payment awards on the date of grant using an option pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables.
On June 1, 2022, Oncocyte received net proceeds of approximately $4.8 million from the Series A Preferred Stock issued from the first tranche of the Series A Preferred Stock Offering.
On June 1, 2022, we received net proceeds of approximately $4.8 million from the Series A Redeemable Convertible Preferred Stock issued from the first tranche of the offering (see Note 8).
There is no assurance that we will be successful in developing new technology or diagnostic tests, or that any technology or diagnostic tests that we may develop will be proven safe and effective in diagnosis of cancer in humans or will be successfully commercialized.
There is no assurance that we will be successful in developing new technology or diagnostic tests, or that any technology or diagnostic tests that we may develop will be proven safe and effective in diagnosis of cancer in humans or will be successfully commercialized. Refer to “Item 1 – Business” for additional information.
For stock-based awards that vest only upon the attainment of one or more performance goals, compensation cost is recognized if and when we determine that it is probable that the performance condition or conditions will be, or have been, achieved. We utilize the Black-Scholes option pricing model for determining the fair value of stock options.
For stock-based awards that vest only upon the attainment of one or more performance goals, compensation cost is recognized if and when we determine that it is probable that the performance condition or conditions will be, or have been, achieved.
As the performance obligation under the SOW is satisfied, any amounts earned as revenue and billed to the customer are included in accounts receivable.
As performance obligations are satisfied under the Pharma Services Agreements, any amounts earned as revenue and billed to the customer are included in accounts receivable.
These variables include, but are not limited to, expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors.
These variables include, but are not limited to, expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. We estimate the expected volatility using our own stock price volatility for a period equal to the expected term of the options.
Income taxes We account for income taxes in accordance with ASC 740, Income Taxes , which prescribes the use of the asset and liability method, whereby deferred tax asset or liability account balances are calculated at the balance sheet date using current tax laws and rates in effect.
For additional information, refer to Note 9 to our consolidated financial statements included elsewhere in this Report. 59 Income Taxes We account for income taxes in accordance with ASC 740, Income Taxes , which prescribes the use of the asset and liability method, whereby deferred tax asset or liability account balances are calculated at the balance sheet date using current tax laws and rates in effect.
Although the fair value of employee stock options is determined in accordance with FASB guidance, the key inputs and assumptions may change as we develop our own company estimates, experience and key inputs including our expected term, and stock price volatility based on the trading history of our stock in the public market.
Key inputs and assumptions may change as we continue to develop our own company estimates, experience and key inputs including our expected term, and stock price volatility based on the trading history of our stock in the public market.
Our accounting for financing leases (previously referred to as “capital leases”) remained substantially unchanged. Impairment of long-lived assets We assess the impairment of long-lived assets, which consists primarily of long-lived intangible assets, machinery and equipment, whenever events or changes in circumstances indicate that such assets might be impaired and the carrying value may not be recoverable.
Impairment of Long-Lived Assets We assess the impairment of long-lived assets, which consists primarily of long-lived intangible assets, right-of-use assets, and machinery and equipment, whenever events or changes in circumstances indicate that such assets might be impaired and the carrying value may not be recoverable.
Cash provided by financing activities During 2022, net cash provided in financing activities was $35.8 million, primarily attributable to $32.4 million of net cash proceeds from the sale of shares of common stock, including $30,000 of net cash proceeds from at-the-market transactions, and $4.8 million of net cash proceeds from the sale of redeemable convertible Series A preferred shares, offset by repayments of principal on loans payable and financing lease obligations of $1.3 million.
During the year ended December 31, 2022, net cash provided in financing activities was $35.8 million, primarily attributable to $32.4 million of net cash proceeds from the sale of shares of common stock, and $4.8 million of net cash proceeds from the sale of redeemable convertible Series A preferred shares, partially offset by repayments of our Bank loan and financing lease obligations of $1.4 million.
During the period between completion or abandonment, the IPR&D assets will not be amortized but will be tested for impairment on an annual basis and between annual tests if we become aware of any events occurring or changes in circumstances that would indicate a reduction in the fair value of the IPR&D projects below their respective carrying amounts.
During the period between completion or abandonment, the IPR&D assets will not be amortized but will be tested for impairment on an annual basis and between annual tests if we become aware of any events occurring or changes in circumstances that would indicate a reduction in the fair value of the IPR&D projects below their respective carrying amounts. 57 During the first quarter of 2023, due to changes in management and our economic condition, management shifted our business strategy to direct efforts on fewer studies and to transition from tests that are LDTs to research use only sales.
Contingent consideration also includes additional future payments to selling shareholders based on achievement of components of earnings, such as “earn-out” provisions or percentage of future revenues, including royalties paid to the selling shareholders based on a percentage of revenues generated over their respective useful life. 48 The fair value of milestone-based contingent consideration was determined using a scenario analysis valuation method which incorporates our assumptions with respect to the likelihood of achievement of the milestones, as defined in the merger agreements, credit risk, timing of the contingent consideration payments and a risk-adjusted discount rate to estimate the present value of the expected payments, all of which require significant management judgment and assumptions.
The fair value of milestone-based contingent consideration was determined using a scenario analysis valuation method which incorporates our assumptions with respect to the likelihood of achievement of the milestones, as defined in the merger agreements, credit risk, timing of the contingent consideration payments and a risk-adjusted discount rate to estimate the present value of the expected payments, all of which require significant management judgment and assumptions.
Completion of the service and satisfaction of the performance obligation under a SOW is typically evidenced by access to the report or test made available to the customer or any other form or applicable manner of delivery defined in the SOW.
Chronix identifies the processing of test samples as a separate performance obligation (considered a series) within license agreements with customers. Completion of the service and satisfaction of the performance obligation is typically evidenced by access to the report or test made available to the customer or any other form or applicable manner of delivery defined in the Pharma Services Agreements.
While no monetary consideration was received for the sale of 70% of the equity interests of Razor, the transaction allows the Company to eliminate all development and commercialization costs with respect to DetermaRx.
While no monetary consideration was received for the sale of 70% of the equity interests of Razor, the transaction allowed us to eliminate all development and commercialization costs with respect to DetermaRx. Following the Razor Closing, we continue to own 1,366,364 shares of common stock of Razor.
The expected term of options granted is based on our own experience and, in part, based upon the “simplified method” provided under Staff Accounting Bulletin, Topic 14 , or SAB Topic 14, as necessary. The risk-free rate is based on the U.S. Treasury rates in effect during the corresponding period of grant.
The expected term of options granted is based on our own experience. The risk-free rate is based on the U.S. Treasury rates in effect during the corresponding period of grant.
The fair value of all contingent consideration after the acquisition date is reassessed by us as changes in circumstances and conditions occur, with the subsequent change in fair value recorded in our consolidated statements of operations.
Since the royalty-based contingent consideration payments are based on future revenues and linear payouts, management believes the use of the single scenario method is appropriate. The fair value of contingent consideration after the acquisition date is reassessed by us as changes in circumstances and conditions occur, with the subsequent change in fair value recorded in our consolidated statements of operations.
To meet the future cash payment obligations, we may have to utilize cash on hand that would otherwise be available to us for other business and operational purposes, which could cause us to delay or reduce activities in the development and commercialization of our cancer tests. 60 We will need to continue to raise additional capital to finance our operations, including the development and commercialization of our diagnostic tests, and making payments that may become due under our obligations to former Chronix shareholders and former Insight shareholders, until such time as we are able to generate sufficient revenues to cover our operating expenses.
We will need to continue to raise additional capital to finance our operations, including the development and commercialization of our diagnostic tests, and making payments that may become due under our obligations to former Chronix shareholders and former Insight shareholders, until such time as we are able to generate sufficient revenues to cover our operating expenses.
We have incurred operating losses and negative cash flows since inception and had an accumulated deficit of $260.7 million at December 31, 2022. We expect to continue to incur operating losses and negative cash flows for the near future.
At December 31, 2023, we had $9.4 million of cash and cash equivalents. We expect to continue to incur operating losses and negative cash flows for the near future.
We may also commence our own clinical trials of DetermaIO if we develop that diagnostic test to the point where we determine that its use as a clinical diagnostic appears to be feasible. 57 Sales and marketing expenses A summary of the main drivers of the change in sales and marketing expenses for the periods presented, is as follows: Year Ended December 31, 2022 2021 $ Change % Change Personnel-related expenses $ 592 $ 147 $ 445 303 % Share-based compensation 261 114 147 129 % Professional fees, legal, and outside services 219 286 (67 ) -23 % Facilities and insurance 43 - 43 100 % Other 17 5 12 240 % Total $ 1,132 $ 552 $ 580 105 % % of Net Revenue 118 % 25 % 93 % We expect to continue to incur sales and marketing expenses during the foreseeable future as we complete product development and begin commercialization efforts for DetermaIO as a clinical test.
We may commence clinical trials of DetermaIO if we develop that diagnostic test to the point where we determine that its use as a clinical diagnostic appears to be feasible. 52 Sales and Marketing Expenses A summary of the main drivers of the change in sales and marketing expenses is as follows: Years Ended December 31, 2023 2022 $ Change % Change (In thousands, except percentage change values) Personnel-related expenses $ 1,880 $ 592 $ 1,288 218 % Share-based compensation 241 261 (20 ) -8 % Facilities and insurance 202 43 159 370 % Professional fees, legal, and outside services 163 219 (56 ) -26 % Marketing, advertising and other 309 17 292 1718 % Total $ 2,795 $ 1,132 $ 1,663 147 % % of Net Revenue 186 % 118 % 68 % We expect to continue to incur sales and marketing expenses during the foreseeable future as we complete product development and begin commercialization efforts for DetermaIO as a clinical test.
We have added to our diagnostic test pipeline VitaGraft, a blood-based solid organ transplantation monitoring test, and DetermaCNI, a patented, blood-based test from Chronix for immunotherapy monitoring.
During 2021, we added to our diagnostic test pipeline VitaGraft, a blood-based solid organ transplantation monitoring test, and DetermaCNI, a patented, blood-based test from Chronix for immunotherapy monitoring. We successfully completed the technology transfer of VitaGraft to our laboratory in Nashville, Tennessee in the second quarter of 2022.
Razor Genomics Purchase Agreement On December 15, 2022, Oncocyte Corporation, a California corporation (“Oncocyte” or the “Company”), entered into a Stock Purchase Agreement (the “Razor Stock Purchase Agreement”) with Dragon Scientific, LLC, a Delaware limited liability company (“Dragon”), and Razor Genomics Inc., a Delaware corporation and wholly-owned subsidiary of Oncocyte (“Razor”).
See “Liquidity and Capital Resources” below for a discussion of our available capital resources, our need for future financing, and possible sources of capital. 48 Recent Developments Razor Genomics Purchase Agreement On December 15, 2022, we entered into a Stock Purchase Agreement (the “Razor Stock Purchase Agreement”) with Dragon Scientific, LLC, a Delaware limited liability company (“Dragon”), and Razor Genomics Inc., a Delaware corporation and our wholly-owned subsidiary (“Razor”).
Changes in operating assets and liabilities were approximately $2.0 million as an additional use of cash. Cash used in investing activities During the 2022, net cash used in investing activities from operations was $4.3 million, due to cash paid for construction in progress and purchase of furniture and equipment.
During the year ended December 31, 2022, net cash used in investing activities was $4.3 million, due to cash paid for construction in progress and purchase of furniture and equipment.
These Pharma Services are generally performed under individual scope of work (“SOW”) arrangements with specific deliverables defined by the customer. Pharma Services are generally performed on a time and materials basis.
Revenue Recognition and Allowance for Credit Losses Pharma Services revenue Pharma Services are generally performed under individual scope of work (“SOW”) arrangements or license agreements (together with SOW the “Pharma Services Agreements”) with specific deliverables defined by the customer. Pharma Services are performed on a (i) time and materials basis or (ii) per test completed basis.
Certain events or changes in circumstances may indicate that the recoverability of the carrying amount of long lived assets should be assessed. When such events or changes in circumstances are present, we estimate the future cash flows expected to result from the use of the asset (or asset group) and its eventual disposition.
When such events or changes in circumstances are present, we estimate the future cash flows expected to result from the use of the asset (or asset group) and its eventual disposition. If the sum of the expected undiscounted future cash flows is less than the carrying amount, we recognize an impairment based on the fair value of such assets.
General and administrative expenses A summary of the main drivers of the change in general and administrative expenses for the periods presented, is as follows: Year Ended December 31, 2022 2021 $ Change % Change Personnel-related expenses and board fees $ 7,155 $ 6,137 $ 1,018 17 % Share-based compensation 5,435 3,657 1,778 49 % Professional fees, legal, and outside services 4,299 6,214 (1,915 ) -31 % Facilities and insurance 2,696 3,197 (501 ) -16 % Severance – Chronix acquisition - 2,452 (2,452 ) -100 % Severance 1,480 - (1,480 ) - % Other 816 635 181 29 % Total $ 21,881 $ 22,292 $ (411 ) -2 % % of Net Revenue 2,284 % 1,014 % 1,270 % Change in fair value of contingent consideration We will pay contingent consideration if various payment milestones are triggered under the merger agreements through which we acquired Insight and Chronix.
General and Administrative Expenses A summary of the main drivers of the change in general and administrative expenses is as follows: Years Ended December 31, 2023 2022 $ Change % Change (In thousands, except percentage change values) Personnel-related expenses and board fees $ 3,461 $ 7,155 $ (3,694 ) -52 % Professional fees, legal, and outside services 3,117 4,299 (1,182 ) -27 % Facilities and insurance 2,435 2,696 (261 ) -10 % Share-based compensation 1,249 5,435 (4,186 ) -77 % Severance 441 1,480 (1,039 ) -70 % Other 479 816 (337 ) -41 % Total $ 11,182 $ 21,881 $ (10,699 ) -49 % % of Net Revenue 744 % 2284 % -1540 % Change in Fair Value of Contingent Consideration We will pay contingent consideration if various payment milestones are triggered under the merger agreements through which we acquired Insight and Chronix.
Changes in key assumptions can materially affect the estimated fair value of contingent consideration liabilities and, accordingly, the resulting gain or loss that we record in our consolidated financial statements. See Note 3 to our consolidated financial statements included elsewhere in this Report.
Changes in key assumptions can materially affect the estimated fair value of contingent consideration liabilities and, accordingly, the resulting gain or loss that we record in our consolidated financial statements. During the years ended December 31, 2023 and 2022, we recorded gains in fair value of contingent consideration of $5.8 million and $31.0 million, respectively.
On April 19, 2022, Oncocyte received net proceeds of approximately $32.4 million from the Underwritten Offering of 26,266,417 shares of common stock and 26,266,417 shares of April 2022 Warrants to purchase up to 13,133,208.5 shares of common stock. See Notes 1 and 15 for additional information about the April 2022 Offerings.
On April 19, 2022, Oncocyte received net proceeds of approximately $32.4 million from an underwritten offering of 1,313,320 shares of common stock and 1,313,320 shares of April 2022 warrants to purchase up to 656,660 shares of common stock (see Note 8).
We have hired a sales and marketing team. We also acquired a laboratory in Germany through our completed merger with Chronix and we will incur additional expenses resulting from our continued investment in Chronix. We are continuing to seek other opportunities to acquire ownership of or marketing rights to additional cancer tests.
We expect that our operating expenses will continue to increase if we successfully complete the development of DetermaIO and commercialize this test. We have hired a sales and marketing team. We also acquired a laboratory in Germany through our completed merger with Chronix and we will incur additional expenses resulting from our continued investment in Chronix.
Other than the partial release discussed above for the years ended December 31, 2022 and 2021, we established a full valuation allowance for all periods presented due to the uncertainty of realizing future tax benefits from our net operating loss carryforwards and other deferred tax assets.
A valuation allowance is provided when it is more-likely-than-not that some portion of the deferred tax assets will not be realized. We established a full valuation allowance for all periods presented due to the uncertainty of realizing future tax benefits from our net operating loss carry-forwards and other deferred tax assets.
Although Oncocyte bills a list price for all tests ordered and completed for all payer types, Oncocyte considers constraints on the variable consideration when recognizing revenue for DetermaRx. Because DetermaRx is a novel test and there are no current reimbursement arrangements with third-party payers other than Medicare, the transaction price represents variable consideration.
Because DetermaRx is a novel test and there are no current reimbursement arrangements with third-party payers other than Medicare, the transaction price represents variable consideration. Application of the constraint for variable consideration is an area that requires significant judgment.
We are currently unaware of any tax issues under review. See Note 8 to our consolidated financial statements included elsewhere in this Report. Revenue recognition Effective on January 1, 2021, we adopted the revenue recognition standard ASC Topic 606, Revenue from Contracts with Customers (ASC) 606.
We are currently unaware of any tax issues under review. Refer to Note 10 to our consolidated financial statements included elsewhere in this Report.
Net cash used in operating activities for the years ended December 31, 2022 and 2021 amounted to $45.6 million and $35.9 million, respectively, of which $18.6 million and $43.6 million represent loss from continuing operations respectively and $54.3 million and $20.5 million from discontinued operations respectively.
Consolidated net loss for the year ended December 31, 2023 was $27.8 million, of which $2.9 million was from discontinued operations, and our consolidated net cash used in operating activities amounted to $23.3 million.
Research and development expenses A summary of the main drivers of the change in research and development expenses for the periods presented, is as follows: Year Ended December 31, 2022 2021 $ Change % Change Personnel-related expenses $ 2,931 $ 1,918 $ 1,013 53 % Professional fees, legal, and outside services 1,334 1,129 205 18 % Laboratory supplies and expenses 1,369 746 623 84 % Clinical trials 9 96 (87 ) -91 % Share-based compensation 773 473 300 63 % Severance 21 233 (212 ) -91 % Depreciation 315 228 87 38 % Facilities and insurance 334 12 322 2683 % Other 215 200 15 8 % Total $ 7,301 $ 5,035 $ 2,266 45 % % of Net Revenue 762 % 229 % 533 % We expect to continue to incur a significant amount of research and development expenses during the foreseeable future.
Research and Development Expenses A summary of the main drivers of the change in research and development expenses is as follows: Years Ended December 31, 2023 2022 $ Change % Change (In thousands, except percentage change values) Personnel-related expenses $ 3,586 $ 2,931 $ 655 22 % Depreciation and amortization 1,264 315 949 301 % Share-based compensation 1,238 773 465 60 % Laboratory supplies and expenses 1,676 1,369 307 22 % Facilities and insurance 740 334 406 122 % Professional fees, legal, and outside services 515 1,334 (819 ) -61 % Severance 149 21 128 610 % Other 96 215 (119 ) -55 % Clinical trials 30 9 21 233 % Total $ 9,294 $ 7,301 $ 1,993 27 % % of Net Revenue 618 % 762 % -144 % We expect to continue to incur a significant amount of research and development expenses during the foreseeable future.
In addition to sales and marketing expenses, we will incur expenses from leasing and improving our new office and laboratory facilities in Nashville, Tennessee.
In addition to sales and marketing expenses, we will incur expenses from leasing and improving our offices and laboratory facilities in Nashville, Tennessee. During the third quarter of 2023, we entered into a sublease arrangement for our main office (see “Irvine Office Sublease Agreement” discussion above).
We are a precision diagnostics company focused on developing and commercializing proprietary tests in three areas: DetermaIO is a gene expression test that assesses the tumor microenvironment to predict response to immunotherapies, VitaGraft is a blood-based solid organ transplantation monitoring test and DetermaCNI is a blood-based monitoring tool for monitoring therapeutic efficacy in cancer patients.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risks described throughout this filing, particularly in “Risk Factors.” The following discussion should be read in conjunction with our consolidated financial statements and the related notes provided under “Item 8 - Financial Statements and Supplementary Data.” Overview We are a precision diagnostics company focused on developing and commercializing proprietary tests in three areas: VitaGraft is a blood-based solid organ transplantation monitoring test, DetermaIO is a gene expression test that assesses the tumor microenvironment to predict response to immunotherapies, and DetermaCNI is a blood-based monitoring tool for monitoring therapeutic efficacy in cancer patients.
The following table shows our revenues for the years ended December 31, 2022 and 2021 (in thousands, except percentage change values). 2022 2021 $ Change % Change Revenues from continuing operations $ 958 $ 2,198 (1,240 ) -56 % Revenues from discontinued operations $ 4,673 $ 5,529 (856 ) -15 % Total $ 5,631 $ 7,727 (2,096 ) -27 % Pharma Services are generally performed on a time and materials basis.
Revenues The following table shows our service revenues: Years Ended December 31, 2023 2022 $ Change % Change (In thousands, except percentage change values) Pharma Services $ 1,467 $ 958 $ 509 53 % Laboratory developed test services 36 - 36 100 % Total $ 1,503 $ 958 $ 545 57 % Pharma Services are generally performed on a time and materials basis.
Cash used in operating activities During the years ended December 31, 2022 and 2021, our total research and development expenses were $7.3 million and $5.0 million, respectively, our general and administrative expenses were $21.9 million and $22.2 million, respectively, and our sales and marketing expenses were $1.1 million and $0.6 million, respectively.
Cash Used in Operations During the year ended December 31, 2023, our total research and development expenses were $9.3 million, our sales and marketing expenses were $2.8 million, and our general and administrative expenses were $11.2 million. We also incurred $1.1 million in total cost of revenues, including $88,000 amortization of intangible expenses.
Changes in these subjective assumptions can materially affect the estimated value of equity grants and the stock-based compensation that we record in our consolidated financial statements. Leases We account for leases in accordance with ASC 842, Leases . We determine if an arrangement is a lease at inception.
Changes in these subjective assumptions can materially affect the estimated value of equity grants and the stock-based compensation that we record in our consolidated financial statements. During the years ended December 31, 2023 and 2022, we recognized total stock-based compensation of $2.8 million and $10.0 million, respectively.
Cost of revenues Cost of revenues generally consists of cost of materials, direct labor including benefits, bonus and stock-based compensation, equipment and infrastructure expenses, clinical sample related costs associated with performing Pharma Services and DetermaRx tests, and license fees due to third parties, and also includes amortization of acquired customer relationship intangible assets.
Refer to Note 2, “Revenue Recognition – Laboratory Developed Test Services,” to our consolidated financial statements included elsewhere in this Report for additional information. 51 Cost of Revenues Cost of revenues generally consists of cost of materials, direct labor including payroll, payroll taxes, bonus, benefit and stock-based compensation, equipment and infrastructure expenses, clinical sample costs associated with performing Pharma Services, and amortization of acquired intangible assets.
Contingent consideration liabilities ASC 805 requires that contingent consideration be estimated and recorded at fair value as of the acquisition date as part of the total consideration transferred.
For additional information, refer to Note 1 to our consolidated financial statements included elsewhere in this Report. Contingent Consideration Liabilities Contingent consideration is estimated and recorded at fair value as of the acquisition date as part of the total consideration transferred.
On April 3, 2023 the Company entered into an agreement with certain members of the Company’s board of directors, and several institutional and accredited investors, including Broadwood Capital, L.P., the Company’s largest shareholder, relating to their purchase of an aggregate of up to 45,562,425 shares of its common stock at an offering price of $0.3544 per share to board members and $0.30168 per share to the other investors participating in the offering.
(“Broadwood”), our largest shareholder, relating to their purchase of an aggregate of up to 2,278,121 shares of its common stock at an offering price of $7.08 per share to board members and $6.03 per share to the other investors participating in the offering (see Note 8).
Following the Razor Closing, Oncocyte continues to own 1,366,364 shares of common stock of Razor. 47 Critical Accounting Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”), requires management to make estimates and assumptions that affect the reported amounts in our consolidated financial statements and related notes.
Critical Accounting Estimates Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
We cannot assure that adequate financing will be available on favorable terms, if at all.
We cannot assure that adequate long-term financing will be available on favorable terms, if at all. See Note 1 and Note 8 to our consolidated financial statements included elsewhere in this Report for additional information about our going concern discussion and equity offerings, respectively.
Interest income is earned from money market funds we hold for capital preservation. Interest expense was incurred under our loan payable to the Silicon Valley Bank, and under financing lease obligations. Interest expense, net, reflects the interest expense incurred on our loans and financing obligations in excess of interest income earned from money market accounts.
Interest income is earned from money market funds we hold for capital preservation.
Removed
This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risks described throughout this filing, particularly in “Risk Factors.” Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Added
As of the fourth quarter of 2021, this test is currently available as part of an early access program with leaders in the immuno-oncology field. A kitted research product format of the underlying technology began proof-of-concept development in the first quarter of 2023.
Removed
We believe we have sufficient cash, cash equivalents, and marketable equity securities to carry out our current operations through at least twelve months from the issuance date of our consolidated financial statements included elsewhere in this Report. We expect that our operating expenses will continue to increase if we successfully complete the development of DetermaIO and commercialize this test.
Added
The assay is analytically and clinically validated in three major solid organ transplant types (kidney, liver and heart) by peer reviewed international publications. We received a positive coverage decision from MolDx for VitaGraft Kidney in August of 2023, and it became commercially available for ordering in January 2024 through our CLIA Laboratory in Nashville, Tennessee.
Removed
See “Liquidity and Capital Resources” for a discussion of our available capital resources, our need for future financing, and possible sources of capital. 46 Recent Developments Nasdaq Notice On August 9, 2022, the Company received the Nasdaq Notice indicating that Nasdaq has determined that the Company no longer meets the minimum bid price requirement of Nasdaq Listing Rule 5450(a)(1), as the minimum closing bid price for the Company’s common stock was less than $1.00 for the previous 30 consecutive business days.
Added
VitaGraft Kidney is now broadly available to transplant professionals upon request. In April 2024, we entered into an agreement to collaborate in the development and the commercialization of research use only and in vitro diagnostics kitted transplant products. See Note 14, “Subsequent Events,” to our consolidated financial statements included elsewhere in this Report for additional information.
Removed
The Notice provided that the Company may consider applying to transfer the listing of the Company’s common stock to The Nasdaq Capital Market, subject to the Company submitting an online transfer application, paying the requisite fee, satisfying such market’s continued listing requirement for the market value of publicly held shares and all other initial listing standards, with the exception of the bid price requirement, and providing written notice of its intention to cure the deficiency period during the additional compliance period.
Added
We are continuing to seek other opportunities to acquire ownership of or marketing rights to additional cancer tests.
Removed
Following a transfer to The Nasdaq Capital Market, under Nasdaq Listing Rule 5810(c)(3)(A)(ii), the Company may be eligible for an additional 180 calendar day compliance period. The Company applied on January 24, 2023 to transfer the listing of its common stock, no par value, from The Nasdaq Global Market to The Nasdaq Capital Market.
Added
For additional information, see Note 1 to our consolidated financial statements included elsewhere in this Report.
Removed
Upon receiving confirmation that Nasdaq had approved the Transfer, the Company’s common stock began trading on The Nasdaq Capital Market effective with the open of trading on February 7, 2023. The Company’s common stock continues to trade under the symbol “OCX”.
Added
Reverse Stock Split At a special meeting of our shareholders, held on July 24, 2023, our shareholders approved a proposal granting our Board of Directors the authority to exercise its discretion to amend our Articles of Incorporation, as currently in effect, to effect a reverse stock split of our outstanding shares of common stock at any time within one year after the date such shareholder approval was obtained at the special meeting and at any of certain specified reverse split ratios that were approved by our shareholders in connection therewith.
Removed
The Nasdaq Capital Market operates in substantially the same manner as The Nasdaq Global Market, with issuers listed on The Nasdaq Capital Market tier required to meet certain financial and corporate governance requirements to qualify for continued listing.
Added
On July 24, 2023, our Board of Directors approved the reverse stock split at a ratio of 1-for-20, and on that date, we filed a Certificate of Amendment of Articles of Incorporation with the Secretary State of the State of California to effect the reverse stock split.
Removed
On February 7, 2023, the Company received confirmation that Nasdaq has determined that the Company is eligible for an additional 180-calendar day period to regain compliance by meeting the minimum bid price requirement.
Added
Unless otherwise noted, all share and per share amounts set forth in this Report have been adjusted to reflect the impact of the reverse stock split.

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