UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________ to __________
Commission
file number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||
| The
|
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. ☒
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller
reporting company | |
| Emerging
growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒
The number of shares of common stock outstanding as of May 5, 2023 was .
ONCOCYTE CORPORATION
TABLE OF CONTENTS
| 2 |
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
This Report on Form 10-Q (“Report”) contains forward-looking statements that involve risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All statements other than statements of historical facts contained in this Report are forward-looking statements. In some cases, you can identify forward-looking statements by words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or the negative of these words or other comparable terminology.
Any forward-looking statements in this Report reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those discussed in this Report under Item 1 of the Notes to Condensed Consolidated Interim Financial Statements, under Risk Factors in this Report and those Risk Factors in Part I, Item 1A of our most recent Annual Report on Form 10-K as filed with the Securities and Exchange Commission. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.
The forward-looking statements in this Report also include, among other things, statements about:
| ● | the timing and potential achievement of future milestones; | |
| ● | the timing and our ability to obtain and maintain coverage and reimbursements from the Centers for Medicare and Medicaid Services and other third-party payers; | |
| ● | our plans to pursue research and development of diagnostic test; | |
| ● | the potential commercialization of our diagnostic tests currently in development; | |
| ● | the timing and success of future clinical trials and the period during which the results of the clinical trials will become available; | |
| ● | the potential receipt of revenue from future sales of our diagnostic tests or diagnostic tests in development; | |
| ● | our assumptions regarding obtaining reimbursement and reimbursement rates; | |
| ● | our estimates regarding future orders of tests and our ability to perform a projected number of tests; | |
| ● | our estimates and assumptions around patient populations, market size and price points for reimbursement for our diagnostic tests; | |
| ● | our estimates regarding future revenues and operating expenses, and future capital requirements; | |
| ● | our intellectual property position; | |
| ● | the uncertainties associated with the coronavirus (COVID-19) recent pandemic, including its possible effects on our operations and the demand for our diagnostic tests and Pharma Services; | |
| ● | our ability to efficiently and flexibly manage our business amid uncertainties related to COVID-19; | |
| ● | the impact of government laws and regulations; and | |
| ● | our competitive position. |
Unless the context otherwise requires, all references to “Oncocyte,” the “Company,” “we,” “us,” “our,” or similar words refer to Oncocyte Corporation, together with our consolidated subsidiaries.
The description or discussion, in Report, of any contract or agreement is a summary only and is qualified in all respects by reference to the full text of the applicable contract or agreement.
DetermaIO™, DetermaCNI™, and VitaGraft™ are trademarks of Oncocyte Corporation, regardless of whether the “TM” symbol accompanies the use of or reference to the applicable trademark in this Report.
| 3 |
PART 1—FINANCIAL INFORMATION
Item 1. Financial Statements
ONCOCYTE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts
receivable, net of allowance of $ | ||||||||
| Marketable equity securities | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Assets held for sale | ||||||||
| Current assets of discontinuing operations | ||||||||
| Total current assets | ||||||||
| NONCURRENT ASSETS | ||||||||
| Right-of-use and financing lease assets, net | ||||||||
| Machinery and equipment, net, and construction in progress | ||||||||
| Intangible assets, net | ||||||||
| Restricted cash | ||||||||
| Other noncurrent assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued compensation | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| Accrued severance from acquisition | ||||||||
| Accrued liabilities from acquisition | ||||||||
| Right-of-use and financing lease liabilities, current | ||||||||
| Current liabilities of discontinuing operations | ||||||||
| Total current liabilities | ||||||||
| NONCURRENT LIABILITIES | ||||||||
| Right-of-use and financing lease liabilities, noncurrent | ||||||||
| Contingent consideration liabilities | ||||||||
| TOTAL LIABILITIES | ||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| Series A Redeemable Convertible Preferred Stock, | ||||||||
| SHAREHOLDERS’ EQUITY | ||||||||
| Preferred
stock, | ||||||||
| Common
stock, | ||||||||
| Accumulated other comprehensive income | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total shareholders’ equity | ||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
| 4 |
ONCOCYTE CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| Net revenue | $ | $ | ||||||
| Cost of revenues | ||||||||
| Cost of revenues – amortization of acquired intangibles | ||||||||
| Gross margin | ||||||||
| Operating expenses: | ||||||||
| Research and development | ||||||||
| Sales and marketing | ||||||||
| General and administrative | ||||||||
| Change in fair value of contingent consideration | ( | ) | ( | ) | ||||
| Impairment loss from intangible assets | ||||||||
| Loss on disposal and held for sale assets | ||||||||
| Total operating (income) expenses | ( | ) | ||||||
| Income (loss) from operations | ( | ) | ||||||
| OTHER INCOME (EXPENSES), NET | ||||||||
| Interest expense, net | ( | ) | ( | ) | ||||
| Unrealized gain (loss) on marketable equity securities | ( | ) | ||||||
| Other income (expenses), net | ( | ) | ( | ) | ||||
| Total other income (expenses), net | ( | ) | ||||||
| INCOME (LOSS) BEFORE INCOME TAXES | ( | ) | ||||||
| Income tax benefit | ||||||||
| Income (loss) from continuing operations | ( | ) | ||||||
| Loss from discontinuing operations | ( | ) | ( | ) | ||||
| NET INCOME (LOSS) | ( | ) | ||||||
| NET INCOME (LOSS) FROM CONTINUING OPERATIONS ATTRIBUTABLE TO COMMON STOCKHOLDERS: BASIC | ( | ) | ||||||
| NET LOSS FROM DISCONTINUED OPERATIONS ATTRIBUTABLE TO COMMON STOCKHOLDERS: BASIC | ( | ) | ( | ) | ||||
| NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS: BASIC | ( | ) | ||||||
| NET INCOME (LOSS) FROM CONTINUING OPERATIONS ATTRIBUTABLE TO COMMON STOCKHOLDERS: DILUTED | ( | ) | ||||||
| NET LOSS FROM DISCONTINUED OPERATIONS ATTRIBUTABLE TO COMMON STOCKHOLDERS: DILUTED | ( | ) | ( | ) | ||||
| NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS: DILUTED | ( | ) | ||||||
| Net income (loss) from continuing operations attributable to common stockholders per share - basic | $ | $ | ( | ) | ||||
| Net loss from discontinued operations attributable to common stockholders per share - basic | $ | ( | ) | $ | ( | ) | ||
| Net income (loss) attributable to common stockholders per share - basic | $ | $ | ( | ) | ||||
| Net income (loss) from continuing operations attributable to common stockholders per share - diluted | $ | $ | ( | ) | ||||
| Net loss from discontinued operations attributable to common stockholders per share - diluted | $ | ( | ) | $ | ( | ) | ||
| Net income (loss) attributable to common stockholders per share - diluted | $ | $ | ( | ) | ||||
| Weighted average shares outstanding: basic | ||||||||
| Weighted average shares outstanding: diluted | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
| 5 |
ONCOCYTE CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| NET INCOME (LOSS) | $ | $ | ( | ) | ||||
| Foreign currency translation adjustments | ||||||||
| COMPREHENSIVE INCOME (LOSS) | $ | $ | ( | ) | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
| 6 |
ONCOCYTE CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands)
| Three Months Ended March 31, 2023 | ||||||||||||||||||||||||||||
| Series A Redeemable Convertible Preferred Stock | Common Stock | Accumulated Other Comprehensive | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Income | Deficit | Equity | ||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Net Income | - | - | ||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | ||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||
| Shares issued upon vesting of RSUs | - | |||||||||||||||||||||||||||
| Accretion of Series A convertible preferred stock to redemption value | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Three Months Ended March 31, 2022 | ||||||||||||||||||||||||||||
| Series A Redeemable Convertible Preferred Stock | Common Stock | Accumulated Other Comprehensive | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Income | Deficit | Equity | ||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Net Loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||
| Sale of common shares, including at-the-market transactions | ||||||||||||||||||||||||||||
| Financing costs paid to issue common shares, including at-the-market transactions | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
| 7 |
ONCOCYTE CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Depreciation expense | ||||||||
| Amortization of intangible assets | ||||||||
| Stock-based compensation | ||||||||
| Unrealized (gain) loss on marketable equity securities | ( | ) | ||||||
| Amortization of debt issuance costs | ||||||||
| Change in fair value of contingent consideration | ( | ) | ( | ) | ||||
| Impairment loss from intangible assets | ||||||||
| Loss on disposal of discontinued operations | ||||||||
| Loss on disposal and held for sale assets | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Prepaid expenses and other assets | ( | ) | ||||||
| Accounts payable and accrued liabilities | ( | ) | ( | ) | ||||
| Accrued severance and liabilities from Chronix Biomedical acquisition | ( | ) | ||||||
| Lease liabilities | ( | ) | ( | ) | ||||
| Assets held for sale | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Construction in progress and purchases of equipment | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from sale of common shares under at-the-market transactions | ||||||||
| Financing costs for at-the-market sales | ( | ) | ||||||
| Repayment of loan payable | ( | ) | ||||||
| Repayment of financing lease obligations | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ( | ) | ( | ) | ||||
| NET DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | ( | ) | ( | ) | ||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING | ||||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH, ENDING | ||||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
| Cash paid for interest | ||||||||
| SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING AND INVESTING ACTIVITIES | ||||||||
| Construction in progress, machinery and equipment purchases included in accounts payable, accrued liabilities and landlord liability | ||||||||
| See Note 10 for additional disclosures around leases | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
| 8 |
ONCOCYTE CORPORATION
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
1. Organization, Description of the Business and Liquidity
Oncocyte Corporation (“Oncocyte” or the “Company”), incorporated in 2009 in the state of California, is 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.
Oncocyte’s
first product for commercial release was a proprietary treatment stratification test called DetermaRx that identifies which patients
with early-stage non-small cell lung cancer may benefit from chemotherapy, resulting in a significantly higher, five-year survival rate.
Beginning in September 2019 through February 23, 2021, Oncocyte held a
On
December 15, 2022, 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. Pursuant to the Razor Stock Purchase Agreement,
Oncocyte agreed to sell to Dragon, shares of common stock of Razor, which constitutes approximately
Certain amounts in prior periods have been reclassified to reflect the impact of the discontinued operations treatment of Razor in order to conform to the current period presentation.
As a result of the divestiture of Razor, the Company has retrospectively revised the condensed consolidated statements of operations for the period ended March 31, 2022 and the condensed consolidated balance sheet as of March 31, 2022, to reflect the operations and cash flows of Razor as discontinued operations and the related assets and liabilities disposed. See Note 16 for additional information about assets held for sale and discontinued operations.
On
February 16, 2023, Oncocyte completed the Razor Sale Transaction (the “Razor Closing”). In connection with the Razor Closing,
Oncocyte transferred to Razor all of the assets and liabilities related to DetermaRx. While no monetary consideration was received for
the sale of
| 9 |
Liquidity
Oncocyte
has incurred operating losses and negative cash flows since inception and had an accumulated deficit of $
As
of March 31, 2023, Oncocyte had $
On
June 11, 2021, Oncocyte entered into an at-the-market sales agreement with BTIG, LLC as sales agent and/or principal (the “Agent”
or “BTIG”) pursuant to which Oncocyte may sell up to an aggregate of $
Between
July 1, 2021 and March 31, 2023, Oncocyte sold shares of common stock at an average offering price of $ per share, for
gross proceeds of approximately $
On
April 13, 2022, Oncocyte entered into a securities purchase agreement (the “Securities Purchase Agreement”) with
institutional accredited investors (the “Investors”), including Broadwood Partners, L.P. (“Broadwood”),
Oncocyte’s largest shareholder, in a registered direct offering of
shares of Series A Convertible Preferred Stock (the “Series A Preferred Stock”), which are convertible into a total of
shares of common stock, at a conversion price of $
Further,
on April 13, 2022, Oncocyte entered into an underwriting agreement (the “Underwriting Agreement”) with BTIG, LLC, as representative
of the underwriters named therein (the “Underwriters”), pursuant to which Oncocyte agreed to issue and sell to the Underwriters
an aggregate of shares of common stock, and warrants to purchase up to shares of common stock (“April
2022 Warrants”) (the “Underwritten Offering,” and collectively with the Series A Preferred Stock Offering, the “April
2022 Offerings”). The Underwritten Offering closed on April 19, 2022. Pursuant to the Underwritten Offering, Broadwood acquired
from us (i) shares of common stock, and (ii) April 2022 Warrants to purchase up to shares of common stock
at an exercise price of $
As of March 31, 2023, Oncocyte is completing clinical development and planning commercialization of DetermaIO, although DetermaIO is currently available for biopharma diagnostic development and research use only as a companion test in immunotherapy drug development to select patients for clinical trials; and the clinical launch of VitaGraft. While Oncocyte plans to primarily market its laboratory tests in the United States through its own sales force, it is also beginning to make marketing arrangements with distributors in other countries. In order to reduce capital needs and to expedite the commercialization of any new laboratory tests that may become available for clinical use, Oncocyte may also pursue marketing arrangements with other diagnostic companies through which Oncocyte might receive licensing fees and royalty on sales, or through which it might form a joint venture to market its tests and share in net revenues, in the United States or abroad.
Management believes that its cash, cash equivalents and marketable equity securities are sufficient to carry out operations through at least twelve months from the issuance date of the unaudited condensed consolidated interim financial statements included in this Report. However, the ability of the Company to continue as a going concern is dependent on the Company’s ability to implement or revise its current business plan, generate sufficient revenue and raise additional capital.
Due to the inherent uncertainty in predicting future revenues and certain variable costs, management plans to reduce cash flows beyond the nonrecurrence of one-time costs incurred during the three months ended March 31, 2023 that are not expected to repeat or repeat at the same level (i.e., Razor related carrying costs). Efforts to reduce cash flows include but are not limited to the following: (i) continue to re-evaluate investments in our fixed capital and infrastructure (ii) minimize the use of external consultants and contract resources; (iii) re-evaluate scope and timing of our clinical trial expenses, (iv) continue to optimize operating burn by materially deferring or limiting the Company’s spending on capital equipment.
In addition to general economic and capital market trends and conditions, Oncocyte’s ability to raise sufficient additional capital to finance its operations from time to time will depend on a number of factors specific to Oncocyte’s operations such as operating revenues and expenses, progress in development of, or in obtaining reimbursement coverage from Medicare for DetermaIO and other future laboratory tests that Oncocyte may develop or acquire. See “Risk Factors”.
| 10 |
The unavailability or inadequacy of financing or revenues to meet future capital needs could force Oncocyte to modify, curtail, delay, or suspend some or all aspects of planned operations. Sales of additional equity securities could result in the dilution of the interests of its shareholders. Oncocyte cannot assure that adequate financing will be available on favorable terms, if at all.
2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of presentation
The unaudited condensed consolidated interim financial statements presented herein, and discussed below, have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. In accordance with those rules and regulations, certain information and footnote disclosures normally included in comprehensive consolidated financial statements have been condensed or omitted. The condensed consolidated balance sheets as of December 31, 2022 was derived from the audited consolidated financial statements at that date. These unaudited condensed consolidated interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in Oncocyte’s Annual Report on Form 10-K for the year ended December 31, 2022. The unaudited condensed consolidated interim financial statements presented herein as of March 31, 2023 is not representative of the full fiscal year or any future periods.
Principles of consolidation
On January 31, 2020 (the “Insight Merger Date”), Oncocyte completed its acquisition of Insight Genetics, Inc. (“Insight”) through a merger with a newly incorporated wholly owned subsidiary of Oncocyte (the “Insight Merger”) under the terms of an Agreement and Plan of Merger (the “Insight Merger Agreement”). On the Insight Merger Date Oncocyte began consolidating Insight’s operations and results with Oncocyte’s operations and results (see Note 3). On February 24, 2021, with the acquisition of the remaining equity interests in Razor, Razor became a wholly owned subsidiary of Oncocyte, and on that date Oncocyte began consolidating Razor’s results with Oncocyte’s operations and results (see Note 3). On April 15, 2021 (the “Chronix Merger Date”), with the acquisition of Chronix Biomedical, Inc. (“Chronix”), pursuant to an Agreement and Plan of Merger dated February 2, 2021, amended February 23, 2021, and amended and restated as of April 15, 2021 (as amended and restated, the “Chronix Merger Agreement”), Chronix became a wholly owned subsidiary of Oncocyte. On the Chronix Merger Date, Oncocyte began consolidating Chronix’s operations and results with Oncocyte’s operations and results (see Note 3).
We have reflected the operations of Razor as discontinued operations for all periods presented. See Note 16 for further information. Unless otherwise noted, amounts and disclosures throughout these Notes to unaudited condensed consolidated interim financial statements relate solely to continuing operations and exclude all discontinued operations.
The accompanying unaudited condensed consolidated interim financial statements, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of Oncocyte’s financial condition and results of operations. The unaudited condensed consolidated results of operations are not necessarily indicative of the results to be expected for any other interim period or for the entire year. All material intercompany accounts and transactions have been eliminated in consolidation.
Use of estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and contingent assets and liabilities, at the date of the unaudited condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates estimates which are subject to significant judgment, including, but not limited to, valuation methods used, assumptions requiring the use of judgment to prepare financial projections, timing of potential commercialization of acquired in-process intangible assets, applicable discount rates, probabilities of the likelihood of multiple outcomes of certain events related to contingent consideration, comparable companies or transactions, determination of fair value of the assets acquired and liabilities assumed including those relating to contingent consideration, assumptions related to going concern assessments, allocation of direct and indirect expenses, useful lives associated with long-lived intangible assets, key assumptions in operating and financing leases including incremental borrowing rates, loss contingencies, valuation allowances related to deferred income taxes, and assumptions used to value debt and stock-based awards and other equity instruments. Actual results may differ materially from those estimates.
| 11 |
Similarly, Oncocyte assessed certain accounting matters that generally require consideration of forecasted financial information. The accounting matters assessed included, but were not limited to, Oncocyte’s equity investments, the carrying value of goodwill, going concern assessment, acquired in-process intangible assets and other long-lived assets. Those assessments as well as other estimates referenced above were made in the context of information reasonably available to Oncocyte.
Business combinations and fair value measurements
Oncocyte accounts for business combinations in accordance with ASC 805, which requires the purchase consideration transferred to be measured at fair value on the acquisition date in accordance with ASC 820, Fair Value Measurement. ASC 820 establishes a single authoritative definition of fair value, sets out a framework for measuring fair value and expands on required disclosures about fair value measurement. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. ASC 820 describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following:
● Level 1 – Quoted prices in active markets for identical assets and liabilities.
● Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted market prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
● Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
When a part of the purchase consideration consists of shares of Oncocyte common stock, Oncocyte calculates the purchase price attributable to those shares, a Level 1 security, by determining the fair value of those shares as of the acquisition date based on prices quoted on the principal national securities exchange on which the shares traded. Oncocyte recognizes estimated fair values of the tangible assets and identifiable intangible assets acquired, including in-process research and development, and liabilities assumed, including any contingent consideration, as of the acquisition date. Goodwill is recognized as any amount of the fair value of the tangible and identifiable intangible assets acquired and liabilities assumed in excess of the consideration transferred. ASC 805 precludes the recognition of an assembled workforce as an asset, effectively subsuming any assembled workforce value into goodwill.
| 12 |
In determining fair value, Oncocyte utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, and also considers counterparty credit risk in its assessment of fair value. For the periods presented, Oncocyte has no financial assets or liabilities recorded at fair value on a recurring basis, except for money market funds and marketable equity securities of Lineage and AgeX common stock held by Oncocyte described below. These assets are measured at fair value using the period-end quoted market prices as a Level 1 input. Oncocyte also has certain contingent consideration liabilities which are carried at fair value based on Level 3 inputs (see Note 3).
The following table presents the Company’s assets and liabilities, measured and recognized at fair value on a recurring basis, classified under the appropriate level of the fair value hierarchy as of March 31, 2023 (in thousands):
| As of March 31, 2023 | ||||||||||||||||
| Total carrying and estimated fair value | Quated prices in active markets (Level 1) | Significant other observable inputs (Level 2) | Significant other observable inputs (Level 3) | |||||||||||||
| Assets: | ||||||||||||||||
| Marketable equity securities | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| Liabilities: | ||||||||||||||||
| Contingent consideration liabilities | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
The following table presents the Company’s assets and liabilities, measured and recognized at fair value on a recurring basis, classified under the appropriate level of the fair value hierarchy as of December 31, 2022 (in thousands):
| As of December 31, 2022 | ||||||||||||||||
| Total carrying and estimated fair value | Quated prices in active markets (Level 1) | Significant other observable inputs (Level 2) | Significant other observable inputs (Level 3) | |||||||||||||
| Assets: | ||||||||||||||||
| Marketable equity securities | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| Liabilities: | ||||||||||||||||
| Contingent consideration liabilities | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
The carrying amounts of prepaid expenses and other current assets, accounts payable, accrued expenses and other current liabilities approximate fair values because of the short-term nature of these items.
| 13 |
Cash, cash equivalents, and restricted cash
The Company’s reconciliation of cash and cash equivalents, and restricted cash reported within the unaudited condensed consolidated balance sheets that sum to the total of the same amounts shown in the unaudited condensed consolidated statements of cash flows were as follows (in thousands):
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Cash from discontinuing operations | ||||||||
| Cash, cash equivalents and restricted cash shown in the statements of cash flows | $ | $ | ||||||
Assets Held for Sale and Discontinued Operations
As of March 31, 2023, the Company classified laboratory equipment previously presented in machinery and equipment as held for sale in current assets, in the unaudited condensed consolidated balance sheet, as all the criteria of ASC subtopic 360-10, Property, Plant, and Equipment (“ASC 360-10”) have been met and the transaction was qualified as assets held for sale.
During the three months ended March 31, 2023, the Company entered into
various agreements to sell laboratory equipment for an aggregate amount of $
Assets and liabilities are classified as held for sale when all of the following criteria for a plan of sale have been met: (1) management, having the authority to approve the action, commits to a plan to sell the assets; (2) the assets are available for immediate sale, in their present condition, subject only to terms that are usual and customary for sales of such assets; (3) an active program to locate a buyer and other actions required to complete the plan to sell the assets have been initiated; (4) the sale of the assets is probable and is expected to be completed within one year; (5) the assets are being actively marketed for a price that is reasonable in relation to their current fair value; and (6) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or the plan will be withdrawn. When all of these criteria have been met, the assets and liabilities are classified as held for sale in the unaudited condensed consolidated balance sheet. Assets classified as held for sale are reported at the lower of their carrying value or fair value less costs to sell. Depreciation and amortization of assets ceases upon designation as held for sale.
Discontinued operations comprise activities that were disposed of or discontinued at the end of the period, represent a separate major line of business that can be clearly distinguished for operational and financial reporting purposes and represent a strategic business shift having a major effect on the Company’s operations and financial results according to Accounting Standard Codification (“ASC”) Topic 205, Presentation of Financial Statements.
Additional details surrounding the Company’s assets and liabilities held for sale and discontinued operations are included in Note 16.
Goodwill and intangible assets
In accordance with ASC 350, Intangibles – Goodwill and Other, in-process research and development (“IPR&D”) projects acquired in a business combination that are not complete as of the acquisition date are capitalized and accounted for as indefinite-lived intangible assets until completion or abandonment of the related research and development efforts. Upon successful completion of the project, the capitalized amount is amortized over its estimated useful life. If a project is abandoned, all remaining capitalized amounts are written off immediately. Oncocyte considers various factors and risks for potential impairment of IPR&D assets, including the current legal and regulatory environment and the competitive landscape. 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. Consequently, the eventual realized value of the IPR&D project may vary from its fair value at the date of acquisition, and IPR&D impairment charges may occur in future periods. 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 Oncocyte becomes 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 (see Notes 3 and 4).
| 14 |
Goodwill represents the excess of the purchase price over the fair value of net identifiable assets and liabilities. Goodwill, similar to IPR&D, is not amortized but is tested for impairment at least annually, or if circumstances indicate its value may no longer be recoverable. Qualitative factors considered in this assessment include industry and market conditions, overall financial performance, and other relevant events and factors affecting Oncocyte’s business. Based on the qualitative assessment, if it is determined that the fair value of goodwill is more likely than not to be less than its carrying amount, the fair value of a reporting unit will be calculated and compared with its carrying amount and an impairment charge will be recognized for the amount that the carrying value exceeds the fair value. Oncocyte continues to operate in one segment and considered to be the sole reporting unit and, therefore, goodwill is tested for impairment at the enterprise level.
Oncocyte does not have intangible assets with indefinite useful lives other than goodwill and the acquired IPR&D discussed in Notes 3 and 4. As of December 31, 2022, goodwill has been fully impaired. As of March 31, 2023, acquired IPR&D have been impaired.
Long-lived intangible assets
Long-lived
intangible assets, consisting primarily of acquired customer relationships, are stated at acquired cost, less accumulated amortization.
Amortization expense is computed using the straight-line method over the estimated useful life of
Contingent consideration liabilities
Certain of Oncocyte’s asset and business acquisitions involve the potential for future payment of consideration to third-parties and former selling shareholders in amounts determined as a percentage of future net revenues generated, or upon attainment of revenue milestones, from Pharma Services or laboratory tests, as applicable, or annual minimum royalties to certain licensors, as provided in the applicable agreements. The fair value of such liabilities is determined using unobservable inputs. These inputs include the estimated amount and timing of projected cash flows and the risk-adjusted discount rate used to present value the cash flows (see Notes 3 and 4). These obligations are referred to as contingent consideration.
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. Contingent consideration is an obligation of the acquirer to transfer additional assets or equity interests to the selling shareholders in the future if certain future events occur or conditions are met, such as the attainment of product development milestones. 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 certain revenues generated.
The fair value of contingent consideration after the acquisition date is reassessed by Oncocyte as changes in circumstances and conditions occur, with the subsequent change in fair value recorded in the condensed consolidated statements of operations. Changes in key assumptions can materially affect the estimated fair value of contingent consideration liabilities and, accordingly, the resulting gain or loss that Oncocyte records in its unaudited condensed consolidated interim financial statements. See Notes 3 and 4 for a full discussion of these liabilities.
| 15 |
Investments in capital stock of privately held companies
Oncocyte evaluates whether investments held in common stock of other companies require consolidation of the company under, first, the variable interest entity (“VIE”) model, and then under the voting interest model in accordance with accounting guidance for consolidations under Accounting Standards Codification (“ASC”) 810-10. If consolidation of the entity is not required under either the VIE model or the voting interest model, Oncocyte determines whether the equity method of accounting should be applied in accordance with ASC 323, Investments – Equity Method and Joint Ventures. The equity method applies to investments in common stock or in-substance common stock if Oncocyte exercises significant influence over, but does not control, the entity, where significant influence is typically represented by ownership of 20% or more, but less than majority ownership, of the voting interests of a company.
Oncocyte initially records equity method investments at fair value on the date of the acquisition with subsequent adjustments to the investment balance based on Oncocyte’s pro rata share of earnings or losses from the investment.
From February 24, 2021, the date of Oncocyte’s acquisition of the remaining interests in Razor, through February 16, 2023 the date of its disposition, Razor entity’s financial statements have been consolidated with Oncocyte. See Notes 3, 4, and 16 for additional information.
Impairment of long-lived assets
Oncocyte assesses the impairment of long-lived assets whenever events or changes in circumstances indicate that such assets might be impaired and the carrying value may not be recoverable. Oncocyte’s long-lived assets consist primarily of intangible assets, right-of-use assets for operating leases, customer relationships, and machinery and equipment. If events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and the expected undiscounted future cash flows attributable to the asset are less than the carrying amount of the asset, an impairment loss, equal to the excess of the carrying value of the asset over its fair value, is recorded. See Notes 3, 4, and 16 for additional information with respect to impairments of long-lived assets. See Note 16 for disclosure of machinery and equipment impairment.
Revenue recognition
Pursuant to ASC 606, revenues are recognized when control of services performed is transferred to customers, in an amount that reflects the consideration Oncocyte expects to be entitled to in exchange for those services. ASC 606 provides for a five-step model that includes:
(i) identifying the contract with a customer,
(ii) identifying the performance obligations in the contract,
(iii) determining the transaction price,
(iv) allocating the transaction price to the performance obligations, and
(v) recognizing revenue when, or as, an entity satisfies a performance obligation.
Oncocyte determines transaction prices based on the amount of consideration we expect to receive for transferring the promised goods or services in the contract. Consideration may be fixed, variable, or a combination of both. The Company considers any constraints on the variable consideration and includes in the transaction price variable consideration to the extent it is deemed probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
| 16 |
DetermaRx testing revenue
Prior to the Razor Sale Transaction, Oncocyte generated revenue from performing DetermaRx tests on clinical samples through orders received from physicians, hospitals, and other healthcare providers. In determining whether all the revenue recognition criteria (i) through (v) above are met with respect to DetermaRx tests, each test result is considered a single performance obligation and is generally considered complete when the test result is delivered or made available to the prescribing physician electronically, and, as such, there are no shipping or handling fees incurred by Oncocyte or billed to customers. Although Oncocyte has billed 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. Application of the constraint for variable consideration is an area that requires significant judgment. For all payers other than Medicare, 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. Accordingly, for those payers, Oncocyte has recognized revenue upon payment because it has had insufficient history to reliably estimate payment patterns or has had contractual reimbursement arrangements, or both, in place.
As
of March 31, 2023, Oncocyte had accounts receivable of $
We
maintain an allowance for doubtful accounts at an amount we estimate to be sufficient to provide adequate protection against losses
resulting from extending credit to our customers. We base this allowance, in the aggregate, on historical collection experience, age
of receivables and general economic conditions. Our bad debts have not been material and have been within management expectations.
During the first quarter of 2023, the Company adopted Accounting Standards Update (“ASU”) No. 2016-13, Financial
Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and subsequent amendments to the
initial guidance under ASU 2018-19, ASU 2019-04, ASU 2019-05 and ASU 2019-10, which amends the current approach to estimate credit
losses on certain financial assets, including trade and other receivables. Adoption of this standard did not have a material impact
on the Company’s consolidated financial statements and related disclosures. As of March 31, 2023 and December 31, 2022, we had
a bad debt allowance of $
Pharma services revenue
Revenues recognized include Pharma Services performed by Oncocyte’s Insight and Chronix subsidiaries for its pharmaceutical customers, including testing for biomarker discovery, assay design and development, clinical trial support, and a broad spectrum of biomarker tests. These 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. Upon completion of the service to the customer in accordance with a Pharma Services Agreement, Oncocyte has 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. 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. However, for certain SOWs under which work is performed pursuant to the customer’s highly customized specifications, Oncocyte has the enforceable right to bill the customer for work completed, rather than upon completion of the SOW. For those SOWs, Oncocyte recognizes 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. 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. Any revenues earned but not yet billed to the customer as of the date of Oncocyte’s condensed consolidated financial statements are recorded as contract assets and are included in prepaids and other current assets as of the financial statement date. Amounts recorded in contract assets are reclassified to accounts receivable in Oncocyte’s condensed consolidated financial statements when the customer is invoiced according to the billing schedule in the contract.
| 17 |
Oncocyte establishes an allowance for doubtful accounts 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. If circumstances related to customers change, estimates of the recoverability of receivables would be further adjusted. Oncocyte continuously monitors collections and payments from customers and maintains a provision for estimated credit losses and uncollectible accounts, if any, based upon its historical experience and any specific customer collection issues that have been identified. Amounts determined to be uncollectible are written off against the allowance for doubtful accounts. As of March 31, 2023, Oncocyte has not recorded any losses or allowance for doubtful accounts on its account receivables from Pharma Services.
As
of March 31, 2023, Oncocyte had accounts receivable from Pharma Services customers of $
Licensing revenue
Revenues recognized includes licensing revenue derived from agreements with customers for exclusive rights to market Oncocyte’s proprietary testing technology. Under the agreements, Oncocyte grants exclusive rights to certain trademarks and technology of Oncocyte for the purpose of marketing Oncocyte’s tests within a defined geographic territory. A license agreement may specify milestone deliverables or performance obligations, for which Oncocyte recognizes revenue when its licensee confirms the completion of Oncocyte’s performance obligation. A licensing agreement may also include ongoing sales support from Oncocyte and typically includes non-refundable licensing fees and per-test Pharma Services revenues discussed above, for which Oncocyte treats the licensing of the technology, trademarks, and ongoing support as a single performance obligation satisfied by the passage of time over the term of the agreement.
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 DetermaRx tests and Pharma Services, providing deliverables according to our licensing agreements, license fees due to third parties, and amortization of acquired intangible assets such as the Razor asset and customer relationship intangible assets. Infrastructure expenses include depreciation of laboratory equipment, allocated rent costs, leasehold improvements, and allocated information technology costs for operations at Oncocyte’s CLIA laboratories in California and Tennessee. Costs associated with generating the revenues are recorded as the tests or services are performed regardless of whether revenue was recognized. Royalties or revenue share payments for licensed technology calculated as a percentage of revenues generated using the associated technology are recorded as expenses at the time the related revenues are recognized.
Research and development expenses
Research and development expenses are comprised of costs incurred to develop technology, which include salaries and benefits (including stock-based compensation), laboratory expenses (including reagents and supplies used in research and development laboratory work), infrastructure expenses (including allocated facility occupancy costs), and contract services and other outside costs. Indirect research and development expenses are allocated primarily based on headcount, as applicable, and include rent and utilities, common area maintenance, telecommunications, property taxes, and insurance. Research and development costs are expensed as incurred.
Sales and marketing expenses
Sales and marketing expenses consist primarily of personnel costs and related benefits, including stock-based compensation, trade show expenses, branding and positioning expenses, and consulting fees. Sales and marketing expenses also include indirect expenses for applicable overhead allocated based on headcount, and include allocated costs for rent and utilities, common area maintenance, telecommunications, property taxes, and insurance.
| 18 |
General and administrative expenses
General and administrative expenses consist primarily of compensation and related benefits (including stock-based compensation) for executive and corporate personnel, professional and consulting fees, rent and utilities, common area maintenance, telecommunications, property taxes, and insurance.
Basic loss per share is computed by dividing the net loss applicable to common stockholders after deducting cumulative unpaid dividends and accretion of the preferred stock, by the weighted average number of shares of common stock outstanding during the year. Diluted loss per share is computed by dividing the net loss applicable to common stockholders after deducting cumulative unpaid dividends and accretion of the preferred stock, by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued, using the treasury stock method or the if-converted method, or the two-class method for participating securities, whichever is more dilutive. Potential common shares are excluded from the computation if their effect is antidilutive.
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| Numerator: | ||||||||
| Net income (loss) from continuing operations attributable to Oncocyte Corporation | $ | $ | ( | ) | ||||
| Accretion of Series A redeemable convertible preferred stock | ( | ) | ||||||
| Undistributed earnings from continuing operations allocated to participating securities | ( | ) | ||||||
| Net income (loss) from continuing operations attributable to common stockholders - basic | ( | ) | ||||||
| Add: undistributed earnings from continuing operations allocated to participating securities | ||||||||
| Reallocation of undistributed earnings from continuing operations to participating securities | ( | ) | ||||||
| Net income (loss) from continuing operations attributable to common stockholders - diluted | ( | ) | ||||||
| Net loss from discontinued operations attributable to Oncocyte Corporation | ( | ) | ( | ) | ||||
| Undistributed losses from discontinued operations allocated to participating securities | ||||||||
| Net loss from discontinued operations attributable to common stockholders - basic | ( | ) | ( | ) | ||||
| Add: undistributed losses from discontinued operations allocated to participating securities | ( | ) | ||||||
| Reallocation of undistributed losses from discontinued operations to participating securities | ||||||||
| Net loss from discontinued operations attributable to common stockholders - diluted | ( | ) | ( | ) | ||||
| Net income (loss) attributable to common stockholders - basic | ( | ) | ||||||
| Add: undistributed earnings allocated to participating securities | ||||||||
| Reallocation of undistributed earnings to participating securities | ( | ) | ||||||
| Net income (loss) attributable to common stockholders - diluted | $ | $ | ( | ) | ||||
| Denominator: | ||||||||
| Weighted average common shares outstanding - basic | ||||||||
| Dilutive potential common shares: | ||||||||
| Restricted stock units | ||||||||
| Weighted average common shares outstanding - diluted | ||||||||
| Net income (loss) from continuing operations attributable to common stockholders per share - basic | $ | $ | ( | ) | ||||
| Net loss from discontinued operations attributable to common stockholders per share - basic | $ | ( | ) | $ | ( | ) | ||
| Net income (loss) attributable to common stockholders per share - basic | $ | $ | ( | ) | ||||
| Net income (loss) from continuing operations attributable to common stockholders per share - diluted | $ | $ | ( | ) | ||||
| Net loss from discontinuing operations attributable to common stockholders per share - diluted | $ | ( | ) | $ | ( | ) | ||
| Net income (loss) attributable to common stockholders per share - diluted | $ | $ | ( | ) | ||||
| Anti-dilutive potential common shares excluded from the computation of diluted net loss per common share: | ||||||||
| Stock options | ||||||||
| RSUs | ||||||||
| Warrants | ||||||||
| Total | ||||||||
| 19 |
Leases
Oncocyte accounts for leases in accordance with ASC 842, Leases. Oncocyte determines if an arrangement is a lease at inception. Leases are classified as either financing or operating, with classification affecting the pattern of expense recognition in the condensed consolidated statements of operations. Under the available practical expedients for the adoption of ASC 842, Oncocyte accounts for the lease and non-lease components as a single lease component. Oncocyte recognizes right-of-use (“ROU”) assets and lease liabilities for leases with terms greater than twelve months in the condensed consolidated balance sheet. ROU assets represent the right to use an underlying asset during the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most leases do not provide an implicit rate, Oncocyte uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Oncocyte uses the implicit rate when it is readily determinable. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that Oncocyte will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Operating leases are included as right-of-use assets in machinery and equipment, and ROU lease liabilities, current and long-term, in the condensed consolidated balance sheets. Financing leases are included in machinery and equipment, and in financing lease liabilities, current and long-term, in the condensed consolidated balance sheets. Oncocyte discloses the amortization of our ROU assets and operating lease payments as a net amount, “Amortization of right-of-use assets and liabilities”, on the condensed consolidated statements of cash flows. Based on the available practical expedients under the standard, Oncocyte elected not to capitalize leases that have terms of twelve months or less.
During prior years, Oncocyte entered into various operating leases and an embedded operating lease in accordance with ASC 842 discussed in Note 10. Oncocyte’s accounting for financing leases remained substantially unchanged.
Oncocyte accounts for the shares of Lineage and AgeX common stock it holds as marketable equity securities in accordance with ASC 320-10-25, Investments – Debt and Equity Securities, as amended by Accounting Standards Update (“ASU”) 2016-01, Financial Instruments–Overall: Recognition and Measurement of Financial Assets and Financial Liabilities, as the shares have a readily determinable fair value quoted on the NYSE American and are held principally to meet future working capital purposes, as necessary. The securities are measured at fair value, with related gains and losses in the value of such securities recorded in the condensed consolidated statements of operations in other income (expense), and are reported as current assets on the condensed consolidated balance sheets based on the closing trading price of the security as of the date being presented.
As
of March 31, 2023 and December 31, 2022, Oncocyte held and shares of common stock of Lineage and AgeX, respectively, as
marketable equity securities with a fair market value of $
Recent accounting pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and subsequent amendments to the initial guidance under ASU 2018-19, ASU 2019-04, ASU 2019-05 and ASU 2019-10, which amends the current approach to estimate credit losses on certain financial assets, including trade and other receivables. Generally, this amendment requires entities to establish a valuation allowance for the expected lifetime losses of these certain financial assets. Upon the initial recognition of such assets, which will be based on, among other things, historical information, current conditions, and reasonable supportable forecasts. Subsequent changes in the valuation allowance are recorded in current earnings and reversal of previous losses are permitted. Previously, U.S. GAAP required entities to write down credit losses only when losses are probable and loss reversals are not permitted. The Company adopted this ASU in the first quarter of 2023. Adoption of this standard did not have a material impact on the Company’s consolidated financial statements and related disclosures.
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, to provide specific guidance to eliminate diversity in practice on how to recognize and measure acquired contract assets and contract liabilities from revenue contracts from customers in a business combination consistent with revenue contracts with customers not acquired in an acquisition. The amendments in this update provide that the acquirer should consider the terms of the acquired contracts, such as timing of payment, identify each performance obligation in the contracts, and allocate the total transaction price to each identified performance obligation on a relative standalone selling price basis as of contract inception (that is, the date the acquiree entered into the contracts) or contract modification to determine what should be recorded at the acquisition date. These amendments are effective for the Company beginning with fiscal year 2023. The impact of the adoption of the amendments in this update will depend on the magnitude of any customer contracts assumed in a business combination in 2023 and beyond.
COVID-19 impact and related risks
The Company is subject to risks and uncertainties as a result of the recent COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on the Company’s business is highly uncertain and difficult to predict, as the responses that the Company, other businesses and governments are taking continue to evolve. Furthermore, capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it is possible that it could cause a local and/or global economic slowdown or recession. Policymakers around the globe have responded with fiscal policy actions to support the healthcare industry and economy as a whole. The magnitude and overall effectiveness of these actions remain uncertain.
In addition, the Company’s Pharma Services have been affected by, and may continue to be affected by, the COVID-19 pandemic.
| 20 |
It is possible that impacts of COVID-19 on Oncocyte’s operations or its access to capital could prevent Oncocyte from complying, or could result in a material noncompliance, with one or more obligations or covenants under material agreements to which Oncocyte is a party, with the result that Oncocyte would be in material breach of the applicable obligation, covenant, or agreement. Any such material breach could cause Oncocyte to incur material financial liabilities or an acceleration of the date for paying a financial obligation to the other party to the applicable agreement, or could cause Oncocyte to lose material contractual rights, such as rights to use leased equipment or laboratory or office space, or rights to use licensed patents or other intellectual property, the use of which is material to Oncocyte’s business. Similarly, it is possible that impacts of COVID-19 on the business, operations, or financial condition of any third party with whom Oncocyte has a contractual relationship could cause the third party to be unable to perform its contractual obligations to Oncocyte, resulting in Oncocyte’s loss of the benefits of a contract that could be material to Oncocyte’s business.
The full extent to which the COVID-19 pandemic and the various responses to it might impact Oncocytes’ business, operations and financial results will depend on numerous evolving factors that are not subject to accurate prediction and that are beyond Oncocyte’s control.
3. Business Combinations
Acquisition of Insight Genetics, Inc.
On January 31, 2020, the Insight Merger Date, Oncocyte completed its acquisition of Insight pursuant to the Insight Merger Agreement.
Contingent consideration is an obligation of the acquirer to transfer additional assets or equity interests to the selling shareholders in the future if certain future events occur or conditions are met, such as the attainment of product development milestones. 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 from DetermaIO and Insight Pharma Services over their respective useful life. Accordingly, Oncocyte determined there are two types of contingent consideration in connection with the Insight Merger, the Milestone Contingent Consideration and the Royalty Contingent Consideration discussed below, which are collectively referred to as the “Contingent Consideration”.
There are three milestones comprising the Milestone Contingent Consideration, collectively referred to as the Milestones, in connection with the Insight Merger which Oncocyte valued and recorded as part of Contingent Consideration as of the Insight Merger Date (see table below), which consist of (i) a payment for clinical trial completion and related data publication (“Milestone 1”), (ii) a payment for an affirmative final local coverage determination from CMS for a specified lung cancer test (“Milestone 2”), and (iii) a payment for achieving specified CMS reimbursement milestones (“Milestone 3”). If achieved, any respective Milestone will be paid at the contractual value shown below, with the payment made either in cash or in shares of Oncocyte common stock as determined by Oncocyte. There can be no assurance that any of the Milestones will be achieved.
| 21 |
The following table shows the Insight Merger Date contractual payment amounts, as applicable, and the corresponding fair value of each respective Contingent Consideration liability (in thousands):
| Fair | ||||||||
| Contractual | Value on the | |||||||
| Value | Merger Date | |||||||
| Milestone 1 | $ | $ | ||||||
| Milestone 2 | ||||||||
| Milestone 3 (a) | ||||||||
| Royalty 1 (b) | See(b) | |||||||
| Royalty 2 (b) | See(b) | |||||||
| Total | $ | $ | ||||||
| (a) | |
| (b) |
The
fair value of the Contingent Consideration after the Insight Merger Date is reassessed by Oncocyte as changes in circumstances and conditions
occur, with the subsequent change in fair value recorded in Oncocyte’s condensed consolidated statements of operations. As of March
31, 2023, based on Oncocyte’s reassessment of the significant assumptions noted above, there was a decrease of approximately $
| 22 |
The following tables reflect the activity for Oncocyte’s Contingent Consideration for the three months ended March 31, 2023 and 2022, measured at fair value using Level 3 inputs (in thousands):
| Fair Value | ||||
| Balance at December 31, 2021 | $ | |||
| Change in estimated fair value | ||||
| Balance at March 31, 2022 | $ | |||
| Fair Value | ||||
| Balance at December 31, 2022 | $ | |||
| Change in estimated fair value | ( | ) | ||
| Balance at March 31, 2023 | $ | |||
Contingent consideration is not deductible for tax purposes, even if paid; therefore, no deferred tax assets related to the Contingent Consideration were recorded.
Asset acquisition of Razor Genomics, Inc.
On December 31, 2019, Oncocyte completed the purchase of
On February 24, 2021, Oncocyte completed the purchase of all the issued and outstanding shares of common stock of Razor. As a result of Oncocyte is the sole shareholder of Razor.
On
December 15, 2022, the Company entered into the Razor Stock Purchase Agreement in which the Company agreed to sell approximately
Development Agreement
Under
the Development Agreement, Razor reserved as a “Clinical Trial Expense Reserve” $
The Development Agreement was terminated on February 16, 2023 in connection with the Razor Stock Purchase Agreement. See Note 16 for more details regarding the Razor Stock Purchase Agreement.
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Sublicense Agreement
Under the Sublicense Agreement, Razor granted to Oncocyte an exclusive worldwide sublicense under certain patent rights applicable to DetermaRx in the field of use covered by the applicable license held by Razor for purposes of commercialization and development of DetermaRx.
The Sublicense Agreement was terminated on February 16, 2023 in connection with the Razor Stock Purchase Agreement. See Notes 16 for more details regarding the Razor Stock Purchase Agreement.
Acquisition of Chronix Biomedical, Inc.
On April 15, 2021, the Chronix Merger Date, Oncocyte completed its acquisition of Chronix pursuant the Chronix Merger Agreement.
Contingent Consideration
As
additional consideration for holders of certain classes and series of Chronix capital stock, the Chronix Merger Agreement originally
required Oncocyte to pay “Chronix Contingent Consideration” consisting of (i) “Chronix Milestone Payments” of
up to $
On
February 8, 2023, the Company and equity holder representative entered into Amendment No. 1 to the Merger Agreement (the “Chronix
Amendment”), pursuant to which the parties agreed that (i) Chronix’s equity holders will be paid earnout consideration of
The
fair value of the Chronix Contingent Consideration after the Chronix Merger Date is reassessed by Oncocyte as changes in circumstances
and conditions occur, with the subsequent change in fair value recorded in Oncocyte’s condensed consolidated statements of operations.
As of March 31, 2023, based on Oncocyte’s reassessment of the significant assumptions noted above, there was a decrease of approximately
$
| 24 |
The following tables reflect the activity for Oncocyte’s Contingent Consideration for the three months ended March 31, 2023 and March 31, 2022, measured at fair value using Level 3 inputs (in thousands):
| Fair Value | ||||
| Balance at December 31, 2021 | $ | |||
| Change in estimated fair value | ( | ) | ||
| Balance at March 31, 2022 | $ | |||
| Fair Value | ||||
| Balance at December 31, 2022 | $ | |||
| Change in estimated fair value | ( | ) | ||
| Balance at March 31, 2023 | $ | |||
Goodwill
- Goodwill is calculated as the difference between the acquisition date fair value of the Aggregate Chronix Merger Consideration
transferred and the values assigned to the assets acquired and liabilities assumed. Goodwill also includes the $
None of the goodwill recognized is expected to be deductible for income tax purposes. Goodwill is not amortized but is tested for impairment at least annually, or more frequently if circumstances indicate potential impairment. During 2022, the Company identified circumstances that could indicate a potential impairment and after a valuation of the Company’s assets and liabilities was performed, management concluded that goodwill was impaired as of December 31, 2022. (see Notes 2 and 4).
4. Intangible Assets, net
As part of the Insight and Chronix acquisitions, which were accounted for as business combinations under ASC 805, completed on January 31, 2020, and April 15, 2021, respectively, the Company has acquired in process research and development (“IPR&D”) and customer relationships.
During the first quarter of 2023, due to changes in management and the economic condition of the Company, management shifted the Company’s business strategy to direct efforts on fewer studies and to transition from test that are laboratory developed tests (“LDT”) to research use only (“RUO”) sales. Due to the change in strategy, the Company’s long range plan forecasts were updated and anticipated future benefits derived from the Company’s assets. The change in strategy represent a significant indicator for change in value of the Company’s long lived assets.
The
original IPR&D balance was reassessed based on the updated long range plan (“LRP”), using the multiple period excess
earnings method (“MPEEM”) approach, the results of the valuation noted that the carrying value of the DetermaIO related IPR&D
intangible assets was greater than the fair market value, whereas the CNI and VitaGraft related IPR&D intangible assets carrying
value was lower than the fair market value. Accordingly, the Company recorded an impairment of approximately $
At March 31, 2023 and December 31, 2022, intangible assets, net, consisted of the following (in thousands):
| March 31, 2023 | December 31, 2022 | |||||||
| Intangible assets: | ||||||||
| Acquired IPR&D - DetermaIOTM (1) | $ | $ | ||||||
| Acquired IPR&D - DetermaCNI™ and VitaGraft™ (2) | ||||||||
| Intangible assets subject to amortization: | ||||||||
| Acquired intangible assets - customer relationship | ||||||||
| Total intangible assets | ||||||||
| Accumulated amortization - customer relationship(3) | ( | ) | ( | ) | ||||
| Intangible assets, net | $ | $ | ||||||
| (1) | |
| (2) | |
| (3) |
| 25 |
Future amortization expense of intangible assets subject to amortization is expected to be the following (in thousands):
| Amortization | ||||
| Year ending December 31, | ||||
| 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| $ | ||||
5. Shareholders’ Equity
Series A Redeemable Convertible Preferred Stock
On
April 13, 2022, the Company entered into the Securities Purchase Agreement with the Investors in a registered direct offering of
shares of the Company’s Series A Preferred Stock, which shares of Series A Preferred Stock are convertible into a total of
shares of common stock, at a conversion price of $
The
Series A Preferred Stock is convertible into shares of the Company’s common stock at any time at the holder’s option. The
conversion price will be subject to customary anti-dilution adjustments for matters such as stock splits, stock dividends and other distributions
on our common stock, and recapitalizations.
In the event of the Company’s liquidation, dissolution, or winding up, holders of Series A Preferred Stock will receive a payment equal to the stated value of the Series A Preferred Stock plus accrued but unpaid dividends and any other amounts that may have become payable on the Series A Preferred Stock due to any failure or delay that may have occurred in issuing shares of common stock upon conversion of a portion of the Series A Preferred Stock, before any distribution or payment to the holders of common stock or any of our other junior equity.
| 26 |
ONCOCYTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Shares
of Series A Preferred Stock will generally have no voting rights, except as required by law and except that the consent of holders of
a majority of the outstanding Series A Preferred Stock will be required to amend any provision of our certificate of incorporation that
would have a materially adverse effect on the rights of the holders of the Series A Preferred Stock. Additionally, as long as any shares
of Series A Preferred Stock remain outstanding, unless the holders of at least
Shares
of Series A Preferred Stock will be entitled to receive cumulative dividends at a rate per share (as a percentage of stated value) of
The
Company is required to redeem, for cash, the shares of Series A Preferred Stock on the earlier to occur of (1) April 8, 2024, (2) the
commencement of certain a voluntary or involuntary bankruptcy, receivership, or similar proceedings against the Company or its assets,
(3) a Change of Control Transaction (as defined herein) and (4) at the election and upon notice of
As of March 31, 2023, Oncocyte had shares issued and outstanding. The future right or obligation associated with the Series A Preferred Stock to be issued in the second closing was written off in the prior year since the second closing was not completed.
Common Stock
As
of March 31, 2023 and December 31, 2022, Oncocyte has shares of common stock,
On
April 5, 2023, the Company redeemed shares of the Series A Preferred Stock for approximately $
Common Stock Purchase Warrants
As
of March 31, 2023, Oncocyte had an aggregate of
| 27 |
ONCOCYTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Oncocyte has considered the guidance in ASC 815-40, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, which states that contracts that require or may require the issuer to settle the contract for cash are liabilities recorded at fair value, irrespective of the likelihood of the transaction occurring that triggers the net cash settlement feature. This liability classification guidance also applies to financial instruments that may require cash or other form of settlement for transactions outside of the company’s control and, in which the form of consideration to the warrant holder may not be the same as to all other shareholders in connection with the transaction. However, if a transaction is not within the company’s control but the holder of the financial instrument can solely receive the same type or form of consideration as is being offered to all the shareholders in the transaction, then equity classification of the financial instrument is not precluded, if all other applicable equity classification criteria are met. Based on the above guidance and, among other factors, the fact that the warrants cannot be cash settled under any circumstance but require share settlement, all of the outstanding warrants meet the equity classification criteria and have been classified as equity.
Oncocyte had a 2010 Stock Option Plan (the “2010 Plan”) under which shares of common stock were authorized for the grant of stock options or the sale of restricted stock. On August 27, 2018, Oncocyte shareholders approved a new Equity Incentive Plan (the “2018 Incentive Plan”) to replace the 2010 Plan. In adopting the 2018 Incentive Plan, Oncocyte terminated the 2010 Plan and will not grant any additional stock options or sell any stock under restricted stock purchase agreements under the 2010 Plan; however, stock options issued under the 2010 Plan will continue in effect in accordance with their terms and the terms of the 2010 Plan until the exercise or expiration of the individual options.
During the year ended December 31, 2022, the Company awarded executive share-based payment awards under the 2018 Plan to certain executive officers and employees with time-based, market-based and performance-based vesting conditions (“2022 equity awards”).
The fair value of the 2022 equity awards with performance-based vesting condition was estimated using the Black-Scholes option-pricing model assuming that performance goals will be achieved. If such performance conditions are not met, no compensation cost is recognized and any recognized compensation cost is reversed. The probability of 2022 equity awards performance-based vesting conditions will be evaluated each reporting period and the Company will true-up the amount of cumulative cost recognized for the 2022 performance-based awards at each reporting period based on the most up-to-date probability estimates. The Company will recognize the compensation expense for 2022 performance-based awards expected to vest on a straight-line basis over the respective service period for each separately vesting tranche.
The fair value of the 2022 equity awards with market-based vesting condition was estimated using the Monte Carlo simulation model. Assumptions and estimates utilized in the model include the risk-free interest rate, dividend yield, expected stock volatility and the estimated period to achievement of the performance and market conditions, which are subject to the achievement of the market-based goals established by the Company and the continued employment of the participant. These awards vest only to the extent that the market-based conditions are satisfied as specified in the vesting conditions. Unlike the performance-based awards, the grant date fair value and associated compensation cost of the market-based awards reflect the probability of the market condition being achieved, and the Company will recognize this compensation cost regardless of the actual achievement of the market condition. Assumptions utilized in connection with the Monte Carlo valuation technique included: estimated risk-free interest rate of percent; term of years; expected volatility of percent; and expected dividend yield of percent. The risk-free interest rate was determined based on the yields available on U.S. Treasury zero-coupon issues. The expected stock price volatility was determined using historical volatility. The expected dividend yield was based on expectations regarding dividend payments. The total grant date fair value of the market-based awards was $.
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In May 2022, the Company approved amendments to vesting conditions of performance-based and market-based awards of certain executive officers and employees. The performance-based awards were modified such that the stock awards will be eligible to vest as follows: (i) will vest on December 31, 2023 if the Company achieves LCD reimbursement for VitaGraft (formerly TheraSureTM Transplant Monitor) for one organ no later than December 31, 2022 and (ii) will vest on December 31, 2023 if DetermaIO or DetermaCNI (formerly TheraSure - CNI Monitor) submission for LCD is completed no later than December 31, 2022. Additional performance-based restricted stock unit (“RSU”) awards were modified to be eligible to vest upon the achievement by . The market-based RSU awards were modified such that the awards will be eligible to vest upon the achievement of product commercial launch minimum, target, and maximum goals as follows: (i) 1 laboratory test product in the US; (ii) 2 laboratory test products in US, and (iii) 3 laboratory test products in the US, respectively.
In
accordance with ASC 718, the Company calculated the fair value of the market-based awards on the date of modification, noting an increase
in the fair value of approximately $
| Risk-free interest rates | % | |||
| Expected term (in years) | ||||
| Volatility | % | |||
| Grant date fair value of awards granted during the period | $ |
In July 2022, the Company approved amendments to vesting conditions of performance-based awards of certain executive officers and employees. Certain performance-based awards were modified such that the stock awards will be eligible to vest as follows: (i) fifty percent () of the options will vest on December 31, 2023 (the “Vesting Date”), subject to Continuous Service through the Vesting Date, if local coverage determination is issued and priced for VitaGraft (Transplant) with respect to one organ no later than December 31, 2022; and (ii) fifty percent () of the options will vest on the Vesting Date, subject to Continuous Service through the Vesting Date, if the Company submits a local coverage determination request for DetermaIO or DetermaCNI no later than December 31, 2022. Additional performance-based stock awards were modified to be eligible to vest upon . These same awards contained budget performance goals which were modified to be eligible to vest upon the achievement of performance minimum, target, and maximum goals of (i) complete fiscal year 2022 with sufficient cash to continue operations for 12 months; (ii) complete fiscal year 2022 with sufficient cash to continue operations for 15 months; and (iii) complete fiscal year 2022 with sufficient cash to continue operations for 16 months, respectively.
As of December 31, 2022, of the performance-based were forfeited since the Company did not achieve LCD reimbursement for VitaGraft. .
During the year ended December 31, 2022, the Company accelerated the vesting of certain equity awards in accordance with the 2018 Incentive Plan after the departure of officers of the Company and the adoption of the workforce reduction plan. Due to the acceleration of such awards all associated unrecognized compensation was accelerated and recognized in full.
| Shares | Number | Weighted | ||||||||||
| Available | of Options | Average | ||||||||||
| Options | for Grant | Outstanding | Exercise Price | |||||||||
| Balance at December 31, 2022 | $ | |||||||||||
| Options exercised | $ | |||||||||||
| Options forfeited, canceled and expired | $ | |||||||||||
| Balance at March 31, 2023 | $ | |||||||||||
| Exercisable at March 31, 2023 | $ | |||||||||||
As of March 31, 2023, shares of common stock were reserved under the 2018 Incentive Plan for the grant of stock options or the sale of restricted stock or for the settlement of RSUs. Oncocyte may also grant stock appreciation rights under the 2018 Incentive Plan.
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| Shares | Number | Number | Weighted | |||||||||||||
| Available | of Options | of RSUs | Average | |||||||||||||
| for Grant | Outstanding | Outstanding | Exercise Price | |||||||||||||
| Balance at December 31, 2022 | $ | |||||||||||||||
| RSUs vested | ( | ) | $ | |||||||||||||
| RSUs granted | $ | |||||||||||||||
| Performance RSUs granted | $ | |||||||||||||||
| Performance RSUs vested | $ | |||||||||||||||
| Options granted | ( | ) | $ | |||||||||||||
| Options exercised | $ | |||||||||||||||
| Options forfeited/cancelled | ( | ) | $ | |||||||||||||
| RSUs forfeited/cancelled | $ | |||||||||||||||
| Balance at March 31, 2023 | $ | |||||||||||||||
| Options exercisable at March 31, 2023 | $ | |||||||||||||||
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| Cost of revenues | $ | $ | ||||||
| Research and development | ||||||||
| Sales and marketing | ||||||||
| General and administrative | ||||||||
| Discontinuing operations | ||||||||
| Total stock-based compensation expense | $ | $ | ||||||
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| Expected life (in years) | ||||||||
| Risk-free interest rates | % | % | ||||||
| Volatility | % | % | ||||||
| Dividend yield | % | % | ||||||
The determination of stock-based compensation is inherently uncertain and subjective and involves the application of valuation models and assumptions requiring the use of judgment. If Oncocyte had made different assumptions, its stock-based compensation expense and net income (loss) for the three months ended March 31, 2023, and 2022 may have been significantly different.
Oncocyte does not recognize deferred income taxes for incentive stock option compensation expense and records a tax deduction only when a disqualified disposition has occurred.
| 30 |
7. Disaggregation of Revenues and Concentration Risk
The following table presents the percentage of consolidated revenues generated by unaffiliated customers that individually represent greater than ten percent of consolidated revenues:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| Pharma services - Company A | % | % | ||||||
| Pharma services - Company B | % | * | ||||||
| Discontinued operations - DetermaRx | % | % | ||||||
| * |
The following table presents the percentage of consolidated revenues by products or services classes:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| Pharma Services | % | % | ||||||
| Discontinuing operations | % | % | ||||||
| Total | % | % | ||||||
The following table presents the percentage of consolidated revenues attributable to geographical locations:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| United States – Pharma Services | % | % | ||||||
| Outside of the United States – Pharma Services | % | % | ||||||
| Outside of the United States – Licensing | % | % | ||||||
| Discontinuing operations – Outside of the United States – Licensing | % | % | ||||||
| Discontinuing operations – United States – DetermaRx | % | % | ||||||
| Total | % | % | ||||||
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8. Income Taxes
The provision for income taxes for interim periods is determined using an estimated annual effective tax rate in accordance with ASC 740-270, Income Taxes, Interim Reporting. The effective tax rate may be subject to fluctuations during the year as new information is obtained, which may affect the assumptions used to estimate the annual effective tax rate, including factors such as valuation allowances against deferred tax assets, the recognition or de-recognition of tax benefits related to uncertain tax positions, if any, and changes in or the interpretation of tax laws in jurisdictions where Oncocyte conducts business.
Oncocyte did not record any provision or benefit for income taxes for the three months ended March 31, 2023 and 2022, as Oncocyte had a full valuation allowance for the periods presented.
A valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized. Oncocyte established a full valuation allowance for all periods presented due to the uncertainty of realizing future tax benefits from its net operating loss carry-forwards and other deferred tax assets.
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9. Right-of-use assets, machinery and equipment, net, and construction in progress
As of March 31, 2023 and December 31, 2022, right-of-use assets, machinery and equipment, net, and construction in progress were as follows (in thousands):
| March
31, 2023 (unaudited) | December 31, 2022 | |||||||
| (1) | ||||||||
| Machinery and equipment | ||||||||
| Accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Right-of-use assets, machinery and equipment, net | ||||||||
| Construction in progress | ||||||||
| Right-of-use assets, machinery and equipment, net, and construction in progress from continuing operations | ||||||||
| Right-of-use assets, machinery and equipment, net, and construction in progress from discontinuing operations | ||||||||
| Right-of-use assets, machinery and equipment, net, and construction in progress | ||||||||
| (1) |
Depreciation
expense amounted to $
10. Commitments and Contingencies
Oncocyte has certain commitments other than discussed in Note 3.
Office Lease Agreement
On
December 23, 2019, Oncocyte entered into an Office Lease Agreement (the “Irvine Lease”) of a building containing approximately
The Irvine Lease has an initial term of 89 calendar months (the “Term”), which commenced on June 1, 2020 (the “Commencement Date”). Oncocyte has an option to extend the Term for a period of five years (the “Extended Term”).
Oncocyte
will pay base monthly rent in the amount of $
If Oncocyte exercises its option to extend the Term, the initial base monthly rent during the Extended Term will be the greater of the base monthly rent in effect during the last year of the Term or the prevailing market rate. The prevailing market rate will be determined based on annual rental rates per square foot for comparable space in the area where the Premises are located. If Oncocyte does not agree with the prevailing market rate proposed by the lessor, the rate may be determined through an appraisal process. The base monthly rent during the Extended Term shall be subject to the same annual rent adjustment as applicable for base monthly rent during the Term.
In addition to base monthly rent, Oncocyte will pay in monthly installments (a) all costs and expenses, other than certain excluded expenses, incurred by the lessor in each calendar year in connection with operating, maintaining, repairing (including replacements if repairs are not feasible or would not be effective) and managing the Premises and the building in which the Premises are located (“Expenses”), and (b) all real estate taxes and assessments on the Premises and the building in which the Premises are located, all personal property taxes for property that is owned by lessor and used in connection with the operation, maintenance and repair of the Premises, and costs and fees incurred in connection with seeking reductions in such tax liabilities (“Taxes”). Subject to certain exceptions, Expenses shall not be increased by more than 4% annually on a cumulative, compounded basis.
| 33 |
Oncocyte
was entitled to an abatement of its obligations to pay Expenses and Taxes while constructing improvements to the Premises constituting
“Tenant’s Work” under the Irvine Lease prior to the Commencement Date, except that Oncocyte was obligated to pay
The
lessor provided Oncocyte with a “Tenant Improvement Allowance” in the amount of $
Oncocyte
has provided the lessor with a security deposit in the amount of $
To obtain the letter of credit, Oncocyte has provided the issuing bank with a restricted cash deposit that the bank will hold to cover its obligation to pay any draws on the letter of credit by the lessor. The restricted cash may not be used for any other purpose.
On
August 27, 2021, Oncocyte entered into a lease agreement to add an additional suite to its Nashville office space, containing approximately
The Irvine Lease is an operating lease under ASC 842 included in the tables below. The tables below provide the amounts recorded in connection with the application of ASC 842 as of, and during, the three months ended March 31, 2023, for Oncocyte’s operating and financing leases (see Note 2).
Under the Laboratory Agreement discussed in Note 3 (which expired on September 29, 2021), Oncocyte assumed all of Razor’s Laboratory Agreement payment obligations. Although Oncocyte is not a party to any lease agreement with Razor or Encore, under the terms of the Laboratory Agreement, Oncocyte received the landlord’s consent for the use of the laboratory at Razor’s Brisbane, California location (the “Brisbane Facility”) under the terms of a sublease to which Encore is the sublessee. The sublease expired on March 31, 2023 (the “Brisbane Lease”). The laboratory fee payments to Encore include both laboratory services and the use of the Brisbane Facility. Under the provisions of the Laboratory Agreement, if Oncocyte terminates the Laboratory Agreement prior to the expiration of the Brisbane Lease, Oncocyte shall assume the costs related to the subletting or early termination of the Brisbane Lease. The Laboratory Agreement terminated on March 31, 2023. Oncocyte determined that the Laboratory Agreement contains an embedded operating lease for the Brisbane Facility and Oncocyte allocated the aggregate payments to this lease component for purposes of calculating the net present value of the right-of-use asset and liability as of the inception of the Laboratory Agreement in accordance with ASC 842, as shown in the table below.
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Financing lease
As
of March 31, 2023, Oncocyte has one financing lease remaining through December 2023 for certain laboratory equipment with aggregate remaining
payments of $
Operating and Financing leases
The following table presents supplemental cash flow information related to operating and financing leases for the three months ended March 31, 2023 and 2022 (in thousands):
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash paid for amounts included in the measurement of financing lease liabilities: | ||||||||
| Operating cash flows from operating leases | $ | $ | ||||||
| Operating cash flows from financing leases | $ | $ | ||||||
| Financing cash flows from financing leases | $ | $ | ||||||
The following table presents supplemental balance sheets information related to operating and financing leases as of March 31, 2023 and March 31, 2022 (in thousands, except lease term and discount rate):
| March 31, 2023 | March 31, 2022 | |||||||
| Operating lease | ||||||||
| Right-of-use assets, net | $ | $ | ||||||
| Right-of-use lease liabilities, current | $ | $ | ||||||
| Right-of-use lease liabilities, noncurrent | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
| Financing lease | ||||||||
| Machinery and equipment | $ | $ | ||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Machinery and equipment, net | $ | $ | ||||||
| Current liabilities | $ | $ | ||||||
| Noncurrent liabilities | ||||||||
| Total financing lease liabilities | $ | $ | ||||||
| Weighted average remaining lease term | ||||||||
| Operating lease | ||||||||
| Financing lease | ||||||||
| Weighted average discount rate | ||||||||
| Operating lease | % | % | ||||||
| Financing lease | % | % | ||||||
| 35 |
Future minimum lease commitments are as follows (in thousands):
| Operating | Financing | ||||||||
| Leases | Leases | ||||||||
| Year Ending December 31, | |||||||||
| 2023 | $ | $ | |||||||
| 2024 | |||||||||
| 2025 | |||||||||
| 2026 | |||||||||
| 2027 | |||||||||
| Total minimum lease payments | $ | $ | |||||||
| Less amounts representing interest | ( | ) | ( | ) | |||||
| Present value of net minimum lease payments | $ | $ | |||||||
Litigation – General
Oncocyte will be subject to various claims and contingencies in the ordinary course of its business, including those related to litigation, business transactions, employee-related matters, and other matters. When Oncocyte is aware of a claim or potential claim, it assesses the likelihood of any loss or exposure. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, Oncocyte will record a liability for the loss. If the loss is not probable or the amount of the loss cannot be reasonably estimated, Oncocyte discloses the claim if the likelihood of a potential loss is reasonably possible and the amount involved could be material.
Tax Filings
Oncocyte tax filings are subject to audit by taxing authorities in jurisdictions where it conducts business. These audits may result in assessments of additional taxes that are subsequently resolved with the authorities or potentially through the courts. Management believes Oncocyte has adequately provided for any ultimate amounts that are likely to result from these audits; however, final assessments, if any, could be significantly different than the amounts recorded in the unaudited condensed consolidated interim financial statements.
Employment Contracts
Oncocyte
has entered into employment and severance benefit contracts with certain executive officers. Under the provisions of the contracts, Oncocyte
may be required to incur severance obligations for matters relating to changes in control, as defined, and certain terminations of executives.
As of March 31, 2023, Oncocyte accrued approximately $
| 36 |
Indemnification
In the normal course of business, Oncocyte may provide indemnification of varying scope under Oncocyte’s agreements with other companies or consultants, typically Oncocyte’s clinical research organizations, investigators, clinical sites, suppliers and others. Pursuant to these agreements, Oncocyte will generally agree to indemnify, hold harmless, and reimburse the indemnified parties for losses and expenses suffered or incurred by the indemnified parties arising from claims of third parties in connection with the use or testing of Oncocyte’s diagnostic tests. Indemnification provisions could also cover third party infringement claims with respect to patent rights, copyrights, or other intellectual property pertaining to Oncocyte’s diagnostic tests. Oncocyte’s office and laboratory facility leases also will generally contain indemnification obligations, including obligations for indemnification of the lessor for environmental law matters and injuries to persons or property of others, arising from Oncocyte’s use or occupancy of the leased property. The term of these indemnification agreements will generally continue in effect after the termination or expiration of the particular research, development, services, lease, or license agreement to which they relate. The Purchase Agreement also contains provisions under which Oncocyte has agreed to indemnify Razor and Encore from losses and expenses resulting from breaches or inaccuracy of Oncocyte’s representations and warranties and breaches or nonfulfillment of Oncocyte’s covenants, agreements, and obligations under the Purchase Agreement. Oncocyte periodically enters into underwriting and securities sales agreements with broker-dealers in connection with the offer and sale of Oncocyte securities. The terms of those underwriting and securities sales agreements include indemnification provisions pursuant to which Oncocyte agrees to indemnify the broker-dealers from certain liabilities, including liabilities arising under the Securities Act, in connection with the offer and sale of Oncocyte securities. The potential future payments Oncocyte could be required to make under these indemnification agreements will generally not be subject to any specified maximum amounts. Historically, Oncocyte has not been subject to any claims or demands for indemnification. Oncocyte also maintains various liability insurance policies that limit Oncocyte’s financial exposure. As a result, Oncocyte management believes that the fair value of these indemnification agreements is minimal. Accordingly, Oncocyte has not recorded any liabilities for these agreements as of March 31, 2023 and December 31, 2022.
11. Workforce Reduction
In August 2022, the Company initiated a workforce reduction plan to strategically realign its operations and implement cost reduction programs to prioritize near term revenue generators and to manage and preserve cash. In connection with the reduction, the Company eliminated 14 positions, implemented tighter expense controls, and ceased non-core activities.
Further,
on December 16, 2022, Oncocyte initiated an additional reduction in work force involving over 40% of its full-time employees. The transition
began on December 16, 2022 and was completed in February 2023. As of December 31, 2022, the Company incurred an aggregate of $
On April 12, 2023, Oncocyte announced a reduction in force involving approximately
20% of its workforce (the “April 2023 Reduction”), which management believes will extend Oncocyte’s cash runway in 2024.
In connection with the April 2023 Reduction, we estimate that we will incur charges of approximately $
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12. Related Party Transactions
Financing Transactions
On April 13, 2022, Oncocyte entered into the Securities Purchase Agreement with Investors, including Broadwood and John Peter Gutfreund, a director of Oncocyte, for the Series A Preferred Stock Offering. Each of Broadwood and Mr. Gutfreund has a direct material interest in the Series A Preferred Stock Offering and agreed to purchase and shares, respectively, in the Series A Preferred Stock Offering and on the same terms as other investors. Additionally, Halle Capital Management, L.P. received $ from the Company as reimbursement for its legal fees and expenses. Mr. Gutfreund is the Managing Partner of Halle Capital Management, L.P. See Note 15 for additional information about the Series A Preferred Stock Offering.
Further,
on April 13, 2022, Oncocyte entered into the Underwriting Agreement with the Underwriters for the Underwritten Offering. Pursuant to
the Underwritten Offering, Broadwood acquired from us (i) shares of common stock, and (ii)
On
April 3, 2023, Oncocyte entered into a securities purchase agreement (the “2023 Securities Purchase Agreement”) with certain
investors, including Broadwood, Pura Vida and entities affiliated with AWM, and certain directors, including Andrew Arno and John Peter
Gutfreund (and certain of their affiliated parties), which provides for the sale and issuance by the Company of an aggregate of
shares of common stock at an offering price of:
On
April 5, 2023, Oncocyte redeemed all of the shares of Series A Preferred Stock held by Mr. Gutfreund for $
Company Employee(s)
The Company employs the son of Andrew Arno, Chairman of the Board as its Senior Manager, Investor Relations, Corporate Planning & Development. As of March 31, 2023, the total compensation paid by the Company to Mr. Arno’s son since January 1, 2022 is approximately $.
13. Loan Payable to Silicon Valley Bank
Amended Loan Agreement
On October 17, 2019, Oncocyte entered into a First Amendment to Loan and Security Agreement (the “Amended Loan Agreement”) with Silicon Valley Bank (“the Bank”) pursuant to which Oncocyte obtained a new $ million secured credit facility (“Tranche 1”), a portion of which was used to repay the remaining balance of approximately $ on outstanding loans from the Bank, plus a final payment of $, under the February 21, 2017 Loan Agreement. The credit line under the Amended Loan Agreement may be increased by an additional $ million (“Tranche 2”) if Oncocyte obtains at least $ million of additional equity capital, as was the case with the original Loan Agreement, and a positive final coverage determination is received from CMS for DetermaRx at a specified minimum price point per test (the “Tranche 2 Milestone”), and Oncocyte is not in default under the Amended Loan Agreement. As of March 31, 2023, Oncocyte had satisfied the Tranche 2 Milestone and was eligible to borrow the $ million Tranche 2 funds. However, Oncocyte has not yet borrowed any funds under Tranche 2.
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Payments
of interest only on the principal balance were due monthly from the draw date through March 31, 2020, followed by 24 monthly payments
of principal and interest, but the Bank has agreed to a deferral of principal payments, as discussed below. The outstanding principal
balance of the loan will bear interest at a stated floating annual interest equal to the greater of (a) the prime rate or (b)
On
April 2, 2020, as part of the Bank’s COVID-19 pandemic relief program, Oncocyte and the Bank entered into a Loan Deferral Agreement
(“Loan Deferral”) with respect to the Amended Loan Agreement.
At
maturity of the loan, Oncocyte agreed to pay the Bank an additional final payment fee of $
Bank Warrants
In
2017, in connection with the Loan Agreement, Oncocyte issued common stock purchase warrants to the Bank (the “2017 Bank Warrants”)
entitling the Bank to purchase shares of Oncocyte common stock in tranches related to the loan tranches under the Loan Agreement. In
conjunction with the availability of the loan, the Bank was issued warrants to purchase
On
October 17, 2019, in conjunction with Tranche 1 becoming available under the Amended Loan Agreement, Oncocyte issued a common stock purchase
warrant to the Bank (the “2019 Bank Warrant”) entitling the Bank to purchase
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14. Co-Development Agreement with Life Technologies Corporation
On January 13, 2022, Oncocyte entered into a Collaboration Agreement (the “LTC Agreement”) with Life Technologies Corporation, a Delaware corporation and subsidiary of Thermo Fisher Scientific (“LTC” and together with Oncocyte, the “Parties” or individually, a “Party”), in order to partner in the development and collaborate in the commercialization of Thermo Fisher Scientific’s existing Oncomine Comprehensive Assay Plus (“OCA Plus”) and Oncocyte’s DetermaIO assay for use with LTC’s Ion TorrentTM GenexusTM Integrated Sequencer and LTC’s Ion TorrentTM GenexusTM Purification System (“Genexus system”) in order to obtain in vitro diagnostic (“IVD”) regulatory approval. On February 7, 2023, Oncocyte entered into a Termination Agreement (the “Termination Agreement”) with LTC, pursuant to which the parties terminated the LTC Agreement.
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ONCOCYTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As
of March 31, 2023, Oncocyte was responsible for reimbursing LTC for $
15. April 2022 Offerings
Series A Preferred Stock Offering
On
April 13, 2022, Oncocyte entered into the Securities Purchase Agreement with Investors, including Broadwood, in a registered direct
offering of
shares of our Series A Preferred Stock, which shares of Series A Preferred Stock are convertible into a total of
shares of our common stock, at a conversion price of $
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ONCOCYTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The
Series A Preferred Stock is convertible into shares of common stock at any time at the holder’s option. The conversion price will
be subject to customary anti-dilution adjustments for matters such as stock splits, stock dividends and other distributions on common
stock, and recapitalizations.
In the event of the Company’s liquidation, dissolution, or winding up, holders of Series A Preferred Stock will receive a payment equal to the stated value of the Series A Preferred Stock plus accrued but unpaid dividends and any other amounts that may have become payable on the Series A Preferred Stock due to any failure or delay that may have occurred in issuing shares of common stock upon conversion of a portion of the Series A Preferred Stock, before any distribution or payment to the holders of common stock or any of Oncocyte’s other junior equity.
Shares
of Series A Preferred Stock generally has no voting rights, except as required by law and except that the consent of holders of a majority
of the outstanding Series A Preferred Stock will be required to amend any provision of our certificate of incorporation that would have
a materially adverse effect on the rights of the holders of the Series A Preferred Stock. Additionally, as long as any shares of Series
A Preferred Stock remain outstanding, unless the holders of at least
Shares of Series A Preferred Stock will be entitled to receive cumulative dividends at a rate per share (as a percentage of stated value) of 6% per annum, payable quarterly in cash or, at our option, by accreting such dividends to the stated value.
The
Company is required to redeem, for cash, the shares of Series A Preferred Stock on the earlier to occur of (1) April 8, 2024, (2) the
commencement of certain a voluntary or involuntary bankruptcy, receivership, or similar proceedings against us or our assets, (3) a Change
of Control Transaction (as defined herein) and (4) at the election and upon notice of 51% in interest of the holders, if the Company
fails to meet the Cash Minimum Requirement. A “Change of Control Transaction” means the occurrence of any of (a) an acquisition
by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective
control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of
The issuance and sale of the Series A Preferred Stock was completed pursuant to the Company’s effective shelf registration statement on Form S-3 (Registration No. 333-256650), filed with the Securities and Exchange Commission on May 28, 2021 and declared effective by the SEC on June 8, 2021, and an accompanying prospectus dated June 8, 2021 as supplemented by a prospectus supplement dated April 13, 2022.
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ONCOCYTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The
Series A Preferred Stock dividend for all issued and outstanding shares is set at
As of March 31, 2023, Oncocyte had shares issued and outstanding. The future right or obligation associated with the Series A Preferred Stock to be issued in the second closing was written off since the second closing was not received as of March 31, 2023.
Underwritten Offering
On
April 13, 2022, Oncocyte entered into the Underwriting Agreement with the Underwriters, pursuant to which the Company agreed to issue
and sell to the Underwriters an aggregate of shares of common stock and
Under
the terms of the Underwriting Agreement, the Company also granted to the Underwriters an over-allotment option, exercisable in whole
or in part at any time for a period of 30 days from the date of the Underwriting Agreement, to purchase up to an additional
shares of common stock and
The
Company received net proceeds of approximately $
The Underwritten Offering was made pursuant to the Company’s effective “shelf” registration statement on Form S-3 (Registration No. 333-256650) filed with the Securities and Exchange Commission on May 28, 2021 and declared effective by the SEC on June 8, 2021, and an accompanying prospectus dated June 8, 2021 as supplemented by a prospectus supplement dated April 13, 2022.
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16. Assets Held for Sale and Discontinued Operations
Razor Disposal
On
December 15, 2022, the Company entered into the Razor Stock Purchase Agreement with Dragon and Razor. Pursuant to the Razor Stock Purchase
Agreement, Oncocyte agreed to sell, and Dragon agreed to purchase, shares of common stock of Razor, which constitutes approximately
In
addition to the transfer of
During
the quarter ended March 31, 2023, the Company recorded the final adjustment related to the disposal, including final working capital
adjustments, and recorded a loss of $
Laboratory equipment sold and held for sale
On
January 31, 2023, the Company entered into an agreement to sell laboratory equipment for $
In
March 2023, the Company entered into an agreement to auction equipment for $
On
March 31, 2023, the Company entered into an agreement to sell laboratory equipment for $
The Company classified its results of operations as discontinued operations for all periods presented in the accompanying unaudited condensed consolidated statements of operations. We have retrospectively adjusted the amounts reported for the quarter ended March 31, 2022, in the following table to give effect to such reporting of discontinued operations. For the quarter ended March 31, 2023, discontinued operations reflect operating results of Razor up to the closing of the sale, while discontinued operations during the quarter ended March 31, 2022 reflect the operating result of Razor for the entire quarter.
The Company’s unaudited condensed consolidated balance sheets and consolidated statements of operations report discontinued operations separate from continuing operations. Our unaudited condensed consolidated statements of comprehensive income (loss), statements of shareholders’ equity and statements of cash flows combined continuing and discontinued operations. A summary of financial information related to the Company’s discontinued operations is as follows.
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ONCOCYTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table represents the results of the discontinued operation of Razor (in thousands):
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| Net revenue | $ | $ | ||||||
| Cost of revenues | ||||||||
| Research and development | ||||||||
| Sales and marketing | ||||||||
| General and administrative | ||||||||
| Loss from discontinued operations | ||||||||
| Net loss from discontinued operations | $ | ( | ) | $ | ( | ) | ||
The following table represents the carrying amounts of the held for sale related assets and liabilities as of March 31, 2023 and carrying amounts of the held for sale related assets and liabilities of discontinued operations as of December 31, 2022 (in thousands):
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Machinery and equipment, net, and construction in progress | ||||||||
| Intangible assets, net | ||||||||
| Impairment of held for sale assets | ( | ) | ||||||
| Assets held for sale | ||||||||
| TOTAL ASSETS | ||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued compensation | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| TOTAL LIABILITIES | ||||||||
The following table summarizes cash used related to Razor as of and for the three months ended March 31, 2023 and 2022 (in thousands):
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net cash used in operating activities | $ | ( | ) | $ | ( | ) | ||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Net cash used in investing activities | $ | $ | ( | ) | ||||
17. Subsequent Events
Registered Direct Offering
On
April 3, 2023, Oncocyte entered into an agreement with certain members of the Company’s board of directors, and several institutional
and accredited investors, including Broadwood, the Company’s largest shareholder, and certain members of the Company’s
board of directors (and certain of their affiliated parties), relating to their purchase of an aggregate of up to shares of
its common stock at an offering price of $ per share to board members and $ per share to the other investors participating
in the offering. 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 $
Workforce Reduction
On
April 12, 2023, Oncocyte announced the April 2023 Reduction involving approximately 20% of its workforce, which management believes will extend Oncocyte’s cash runway in 2024. In connection with the April 2023 Reduction,
we estimate that we will incur charges of approximately $
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The matters addressed in this Item 2 that are not historical information constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, including statements about any of the following: uncertainties associated with the recent coronavirus (COVID-19) pandemic, including its possible effects on our operations, the demand for our diagnostic tests and other laboratory tests and Pharma Services, and our ability to raise capital to finance our operations; our ability to efficiently and flexibly manage our business amid uncertainties related to COVID-19; any projections of earnings, revenue, cash, effective tax rate, use of net operating losses, or any other financial items; the plans, strategies and objectives of management for future operations or prospects for achieving such plans, and any statements of assumptions underlying any of the foregoing. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” “seeks,” “estimates,” and similar expressions are intended to identify forward-looking statements. While Oncocyte may elect to update forward-looking statements in the future, it specifically disclaims any obligation to do so, even if the Oncocyte estimates change and readers should not rely on those forward-looking statements as representing Oncocyte views as of any date subsequent to the date of the filing of this Quarterly Report. Although we believe that the expectations reflected in these forward-looking statements are reasonable, such statements are inherently subject to risks and Oncocyte can give no assurances that its expectations will prove to be correct. Actual results could differ materially from those described in this report because of numerous factors, many of which are beyond the control of Oncocyte. A number of important factors could cause the results of the company to differ materially from those indicated by such forward-looking statements, including those detailed under the heading “Risk Factors” in our Form 10-K for the year ended December 31, 2022, and our other reports filed with the SEC from time to time.
The following discussion should be read in conjunction with Oncocyte’s unaudited condensed consolidated interim financial statements and the related notes provided under “Item 1- Financial Statements” above.
Recent Developments
Registered Direct Offering
On April 3, 2023, Oncocyte entered into an agreement with certain members of the Company’s board of directors, and several institutional and accredited investors, including Broadwood, the Company’s largest shareholder, and certain members of the Company’s board of directors (and certain of their affiliated parties), 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. 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. The Company used approximately $1.1 million of the net proceeds to immediately redeem an aggregate of 1,064 shares of its Series A Preferred Stock and may thereafter elect to redeem additional shares.
Workforce Reduction
On April 12, 2023, Oncocyte announced the April 2023 Reduction involving approximately 20% of its workforce, which management believes will extend Oncocyte’s cash runway in 2024. In connection with the April 2023 Reduction, we estimate that we will incur charges of approximately $0.3 million related to employee severance and benefits costs in the second quarter of 2023.
Critical Accounting Policies and Estimates
This Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses and analyzes data in our unaudited condensed consolidated interim financial statements, which we have prepared in accordance with U.S. generally accepted accounting principles. Preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Senior management has discussed the development, selection and disclosure of these estimates with the Audit Committee of our Board of Directors. Actual conditions may differ from our assumptions and actual results may differ from our estimates.
An accounting policy is deemed critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate are reasonably likely to occur, that could materially impact the financial statements. Management believes that there have been no significant changes during the three months ended March 31, 2023 to the matters that we disclosed as our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2022, except as disclosed in Note 2 to our unaudited condensed consolidated interim financial statements included elsewhere in this Report.
For a summary of our critical accounting policies and estimates, refer to Management’s Discussion and Analysis section of our Annual Report on Form 10-K for the year ended December 31, 2022, which we filed with the Securities and Exchange Commission, or SEC, or our Annual Report. There have been no material changes to our critical accounting policies and estimates during the three months ended March 31, 2023.
Results of Operations
The recent global outbreak of COVID-19, and the various attempts throughout the world to contain it, have created significant financial volatility, economic uncertainty, and changes to the way Oncocyte conducts certain aspects of its operations. The COVID-19 pandemic has had, and may continue to have, significant effects on our operations, ability to generate revenues, and financing activities. In response to government directives and guidelines, health care advisories and employee and other concerns, a number of our employees have had to work remotely from home and those on site have had to follow our social distance guidelines, which could impact their productivity. Although employee absenteeism due to COVID-19 illness has not had an adverse impact on our operations as of the date of this Report, we face the risk of losing, at least temporarily, the services of employees if they become ill.
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The consequences of the COVID-19 pandemic have led to uncertainties related to our growth and our ability to forecast the demand for our diagnostic testing and Pharma Services and resulting revenues, as we have not had time to establish a base of customers, revenues or other relevant trends prior to the outbreak of COVID-19. . Resurgences in COVID-19 cases could cause additional deferrals of lung cancer surgeries during the course of the pandemic.
During the COVID-19 pandemic, we have not been, and may not be, able to maintain our preferred level of physician or customer outreach and marketing of our diagnostic testing and Pharma Services, which could negatively impact our potential new customers’ interest in our tests and services. Even if government and other COVID-19 related restrictions are relaxed and lung cancer surgeries are performed at or close to pre-pandemic levels, any growth and anticipated adoption of our diagnostic tests may not occur. Although we have not yet experienced COVID-19 related supply chain disruptions impacting our testing capacity, if the vendors of equipment and reagents used in our diagnostic laboratories experience supply, operational, or financial disruptions due to the COVID-19 pandemic, we could experience supply constraints in the future that could cause increased costs or delays in performing Pharma Services and in continuing the development of new diagnostic tests.
The full extent to which the COVID-19 pandemic and the various responses might impact our business, operations and financial results will depend on numerous evolving factors that we will not be able to accurately predict, including: the duration and scope of the pandemic; governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic; the availability and cost to access COVID-19 tests, vaccines and therapies; the effect on our potential customers and their demand for our diagnostic testing and Pharma Services; the effect on our suppliers and their ability to provide the necessary equipment and materials to support our tests and services; disruptions or restrictions on our employees’ ability to work and travel; interruptions or restrictions related to the distribution of our tests in foreign markets, including impacts on logistics of shipping and receiving patient samples; and any stoppages, disruptions or increased costs associated with development, production and marketing of our diagnostic tests. In addition to the direct impacts to our business operations, the global economy is likely to continue to be significantly weakened as a result of actions taken in response to the COVID-19 pandemic and to the extent that such a weakened global economy impacts customers’ ability or willingness to purchase and pay for our tests, our business and results of operation could be negatively impacted. Due to the uncertain scope and duration of the COVID-19 pandemic and uncertain timing of any recovery or normalization, we are currently unable to estimate the resulting impacts on our operations and financial results. We will continue to actively monitor the issues raised by the COVID-19 pandemic and may take further actions that alter our operations, as may be required by federal, state, local or foreign authorities, or that we determine are in the best interests of our employees, our customers, and our shareholders.
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Operating Summary for the Three Months ended March 31, 2023 and 2022 (amounts in thousands, except percentage changes)
| Three Months Ended | ||||||||||||||||
| March 31, | ||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| Revenues | $ | 297 | $ | 380 | (83 | ) | -22 | % | ||||||||
| Cost of revenues | 287 | 133 | 154 | 116 | % | |||||||||||
| Research and development expenses | 2,127 | 2,007 | 120 | 6 | % | |||||||||||
| Sales and marketing expenses | 695 | 266 | 429 | 161 | % | |||||||||||
| General and administrative expenses | 3,412 | 5,647 | (2,235 | ) | -40 | % | ||||||||||
| Change in fair value of contingent consideration | (18,307 | ) | (4,656 | ) | (13,651 | ) | 293 | % | ||||||||
| Impairment loss from intangible assets | 4,950 | 0 | 4,950 | 100 | % | |||||||||||
| Loss on disposal and held for sale assets | 1,283 | 0 | 1,335 | 100 | % | |||||||||||
| Income (loss) from operations | 5,850 | (3,017 | ) | 8,815 | -292 | % | ||||||||||
| Other income (expense) | 109 | (396 | ) | 557 | -141 | % | ||||||||||
| Income (loss) before income taxes | 5,959 | (3,413 | ) | 9,372 | -275 | % | ||||||||||
| Income (loss) from continuing operations | 5,959 | (3,413 | ) | 9,372 | -275 | % | ||||||||||
| Loss from discontinued operations | (2,926 | ) | (6,878 | ) | 3,952 | -57 | % | |||||||||
| Net income (loss) | $ | 3,033 | $ | (10,291 | ) | 13,324 | -129 | % | ||||||||
Results of Operations – Three Months Ended March 31, 2023 Compared with the Three Months Ended March 31, 2022
Revenues from continuing operations decreased by $83,000 to $0.3 million for the three months ended March 31, 2023, as compared to $0.4 million in the comparable prior year quarter, due to increased revenues in pharma services.
Income before income taxes was $4.3 million for the three months ended March 31, 2023, and a loss before income taxes of $3.4 million for the three months ended March 31, 2022. Net change before income taxes was comprised primarily of the changes in operating expenses and other income and expenses from continuing operations as follows:
● Pharma Services revenue decreased by $0.1 million due to a decreased number of contracts performed during the period. Licensing revenue decreased by $0.1 million primarily due to end of Burning Rock revenues during the prior year.
● Cost of revenue and amortization of acquired intangibles increased $0.2 million to $0.3 million primarily due to increased labor and allocated overhead associated with performing our Pharma Services, as well as noncash amortization of acquired intangible assets such as our customer relationship intangible assets acquired as part of the Insight merger.
● Research and development expenses increased $0.1 million to $2.1 million, primarily due to continued development of DetermaIO, VitaGraft (formerly TheraSureTM Transplant Monitor), and DetermaCNI (formerly TheraSureTM - CNI Monitor).
● Sales and marketing expenses increased $0.4 million to $0.7 million primarily attributable to continued ramp in sales and marketing activities related to the transplant business, as well as support the commercialization efforts within oncology.
● General and administrative expenses decreased $2.2 million to $3.4 million, primarily due to increased consulting, and personnel expenses.
● Change in fair value of contingent considerations increased by $13.7 million, from a gain of $4.7 million to a gain of $18.3 million, due to changes in discount rates and revised estimates on the timing of possible future payouts.
● Other income was $0.2 million for the three months ended March 31, 2023 compared to an expense of $0.4 million for the three months ended March 31, 2022, change primarily due to unrealized gain and loss on marketable equity securities.
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Revenues (amounts in thousands, except percentage changes)
As a result of the classification of the Company’s Razor’s operations to discontinued operations, all revenue derived from DetermaRx has been classified as discontinued operations. The remaining revenue for the periods presented below are derived from Pharma Services generated primarily by our wholly owned subsidiary, Insight.
The following table shows our revenues for the three months ended March 31, 2023 and 2022 (in thousands, except percentage change values).
| Three Months Ended | ||||||||||||||||
| March 31, | ||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| Revenues from continuing operations | $ | 297 | $ | 380 | (83 | ) | -22 | % | ||||||||
| Revenues from discontinuing operations | $ | 421 | $ | 1,044 | (623 | ) | -60 | % | ||||||||
| Total | $ | 718 | $ | 1,424 | (706 | ) | -50 | % | ||||||||
Pharma Services are generally performed on a time and materials basis. Upon our completion of the service to the customer in accordance with the contract, we have the right to bill the customer for the agreed upon price (either on a per test or per deliverable basis) and recognize the Pharma Services revenue at that time, on an accrual basis.
Pharma Services revenues are generated under discrete agreements for particular customer projects that generally expire with the completion or termination of the customer’s project. Accordingly, different customers may account for greater or lesser portions of Pharma Services during different accounting periods, and Pharma Services revenues may exhibit a larger variance from accounting period to accounting period than other revenues such as DetermaRx testing revenues.
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. 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.
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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 (amounts in thousands, except percentage changes):
| Three Months Ended | ||||||||||||||||
| March 31, | ||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| Personnel-related expenses | $ | 923 | $ | 815 | $ | 108 | 13 | % | ||||||||
| Depreciation | 363 | 66 | 297 | 451 | % | |||||||||||
| Share-based compensation | 323 | 180 | 143 | 80 | % | |||||||||||
| Laboratory supplies and expenses | 242 | 353 | (111 | ) | -31 | % | ||||||||||
| Facilities and insurance | 138 | 105 | 33 | 31 | % | |||||||||||
| Professional fees, legal, and outside services | 103 | 274 | (171 | ) | -62 | % | ||||||||||
| Clinical trials | 23 | 182 | (159 | ) | -87 | % | ||||||||||
| Other | 12 | 31 | (19 | ) | -61 | % | ||||||||||
| Total | $ | 2,127 | $ | 2,007 | $ | 121 | 6 | % | ||||||||
| % of Net Revenue | 716 | % | 528 | % | 188 | % | ||||||||||
We expect to continue to incur a significant amount of research and development expenses during the foreseeable future. As of March 31, 2023 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. 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.
The recent COVID-19 global pandemic has negatively impacted, and may continue to negatively impact, clinical trials of immunotherapies by pharma companies that may use DetermaIO in selecting patients for their trials. 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.
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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 (amounts in thousands, except percentage changes):
| Three Months Ended | ||||||||||||||||
| March 31, | ||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| Personnel-related expenses | $ | 429 | $ | 139 | $ | 290 | 209 | % | ||||||||
| Professional fees, legal, and outside services | 94 | 87 | 7 | 8 | % | |||||||||||
| Share-based compensation | 77 | 33 | 44 | 133 | % | |||||||||||
| Facilities and insurance | 51 | 2 | 49 | 2450 | % | |||||||||||
| Marketing & Advertising | 20 | - | 20 | 100 | % | |||||||||||
| Other | 24 | 5 | 19 | 380 | % | |||||||||||
| Total | $ | 695 | $ | 266 | $ | 429 | 161 | % | ||||||||
| % of Net Revenue | 234 | % | 70 | % | 164 | % | ||||||||||
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. Sales and marketing expenses will also increase if we successfully develop and begin commercializing DetermaCNI, and VitaGraft, or if we acquire and commercialize other diagnostic tests. Our commercialization efforts and expenses will also depend on the amount of capital that we are able to raise to finance commercialization of our tests. Our future expenditures on sales and marketing will also depend on the amount of revenue that those efforts are likely to generate. Because physicians are more likely to prescribe a test for their patients if the cost is covered by Medicare or health insurance, demand for our diagnostic and other tests and our expenditures on sales and marketing are likely to increase if our diagnostic or other tests qualify for reimbursement by Medicare or private health insurance companies.
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 (amounts in thousands, except percentage changes):
| Three Months Ended | ||||||||||||||||
| March 31, | ||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| Personnel-related expenses and board fees | $ | 1,191 | $ | 2,337 | $ | (1,146 | ) | -49 | % | |||||||
| Share-based compensation | 407 | 1,180 | (773 | ) | -66 | % | ||||||||||
| Professional fees, legal, and outside services | 1,017 | 1,270 | (253 | ) | -20 | % | ||||||||||
| Facilities and insurance | 673 | 698 | (25 | ) | -4 | % | ||||||||||
| Other | 124 | 162 | (38 | ) | -23 | % | ||||||||||
| Total | $ | 3,412 | $ | 5,647 | $ | (2,235 | ) | -40 | % | |||||||
| % of Net Revenue | 1149 | % | 1486 | % | -337 | % | ||||||||||
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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. See Note 3 to our unaudited condensed consolidated interim financial statements included in this Report. 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 change in fair value recorded as part of our consolidated loss from operations for that period. For the three months ended March 31, 2023, we recorded a gain of approximately $18.3 million related to the decrease in the fair value of contingent consideration primarily attributable to change in discount rates and a revised estimate of the timing of the possible future payouts.
Other income and expenses, net
Other income and expenses, net, is primarily comprised of interest income and interest expenses, net, unrealized gains and losses on Lineage and AgeX marketable equity securities we hold, and change in fair value of Series A redeemable convertible preferred stock second closing tranche obligation. 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.
Income taxes
Oncocyte did not record any provision or benefit for income taxes for the three months ended March 31, 2022 and March 31, 2023, as Oncocyte had a full valuation allowance for the periods presented.
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.
Liquidity and Capital Resources
Since formation, we have financed our operations primarily through the sale of our common stock, preferred stock and warrants. We have incurred operating losses and negative cash flows since inception and had an accumulated deficit of $257.6 million at March 31, 2023. We expect to continue to incur operating losses and negative cash flows for the near future.
At March 31, 2023, we had $11.8 million of cash and cash equivalents, and held shares of Lineage and AgeX common stock as marketable equity securities valued at $0.6 million. In 2022, we raised approximately $30,000 in net cash proceeds through sales of shares of our common stock through the ATM Offering. On June 1, 2022, Oncocyte received net proceeds of approximately $4.9 million from the Series A Preferred Stock issued from the first tranche of the Series A Preferred Stock Offering. On April 19, 2022, Oncocyte received net proceeds of approximately $32.8 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 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, 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. 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 Company used approximately $1.1 million of the net proceeds to immediately redeem an aggregate of 1,064 shares of its Series A Preferred Stock and may thereafter elect to redeem additional shares.
Although it is difficult to predict the Company’s liquidity requirements, based upon the Company’s current operating plan, management believe that it will have sufficient cash to meet its projected operating requirements for at least the next 12 months following the issuance of the condensed consolidated financial statements. The Company anticipates that it will continue to incur net losses for the foreseeable future as it continues the development its various programs and incurs additional costs associated with being a public company.
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We expect that our operating expenses will remain flat as we continue to manage our available cash. Although we intend to market our diagnostic tests in the United States through our own sales force, we are also beginning to make marketing arrangements with distributors in other countries. We may also explore a range of other commercialization options in order to enter overseas markets and to reduce our capital needs and expenditures, and the risks associated the timelines and uncertainty for attaining the Medicare reimbursement approvals that will be essential for the successful commercialization of additional cancer diagnostic tests. Those alternative arrangements could include marketing arrangements with other diagnostic companies through which we might receive a licensing fee and royalty on sales, or through which we might form a joint venture to market one or more tests and share in net revenues, in the United States or abroad.
In addition to sales and marketing expenses, we will incur expenses from leasing and improving our new office and laboratory facilities in Nashville, Tennessee.
We may need to meet significant cash payment or stock obligations to former Insight and Chronix shareholders in connection with our acquisition of those companies, as disclosed in Note 3 to the unaudited condensed consolidated interim financial statements included elsewhere in this Report. 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.
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. Delays in the development of DetermaIO, or obtaining reimbursement coverage from Medicare for that diagnostic test and for the other diagnostic tests that we may develop or acquire, could prevent us from raising sufficient additional capital to finance the completion of development and commercial launch of those tests. Investors may be reluctant to provide us with capital until our tests are approved for reimbursement by Medicare or reimbursement by private healthcare insurers or healthcare providers, or until we begin generating significant amounts of revenue from performing those tests. The unavailability or inadequacy of financing or revenues to meet future capital needs could force us to modify, curtail, delay, or suspend some or all aspects of our planned operations. Sales of additional equity securities could result in the dilution of the interests of our shareholders. We cannot assure that adequate financing will be available on favorable terms, if at all.
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Cash used in operations
During the three months ended March 31, 2023, our total research and development expenses from continuing operations were $2.1 million, our sales and marketing expenses were $0.7 million, and our general and administrative expenses were $3.4 million. We also incurred $0.3 million in cost of revenues, including $22,000 amortization of intangible expenses, in the first three months of 2023. Net income for the three months ended March 31, 2023 amounted to $3.0 million and net cash used in operating activities amounted to $9.7 million. Our cash used in operating activities during the three months ended March 31, 2023 does not include the following noncash items: $0.8 million in stock-based compensation; $18.3 million in gain from change in fair value of contingent consideration; $4.95 million loss from intangible asset impairment; $1.3 million loss on disposal and held for sale assets; $0.5 million in depreciation and amortization expenses; and $0.1 million in unrealized gain on marketable equity securities. Changes in operating assets and liabilities were approximately $2.0 million as an additional use of cash.
Cash provided by financing activities
During the three months ended March 31, 2023, net cash used in financing activities was $28,000, attributable to repayments of principal on financing lease obligations.
Off-Balance Sheet Arrangements
As of March 31, 2023 and December 31, 2022, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Under SEC rules and regulations, as a smaller reporting company, we are not required to provide the information required by this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
It is management’s responsibility to establish and maintain adequate internal control over all financial reporting pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 (“Exchange Act”). Our management, including our principal executive officer and principal financial officer, have reviewed and evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Following this review and evaluation, the principal executive officer and principal financial officer determined that our disclosure controls and procedures were not effective as of March 31, 2023 as a result of the material weaknesses discussed below, to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to management, including our principal executive officer, and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Previously Identified Material Weaknesses in Internal Control over Financial Reporting
In connection with the audit as of and for the year ended December 31, 2022, we previously identified material weaknesses in our internal control over financial reporting. The material weaknesses were related to design and maintain effective controls to address the initial application of complex accounting standards and accounting treatment of non-routine, unusual or complex events and transactions.
In response to the material weaknesses, management completed the following remediation actions:
| ● | We continue to design and implement controls to address the identification, accounting for, and review of non-routine, unusual or complex and initial applications of complex accounting standards, including the continued engagement of external consultants to provide support and to assist us in our evaluation of such transactions. |
Changes in Internal Controls
There were no changes in our internal control over financial reporting that occurred during the period covered by this Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting despite the fact that a number of our employees are working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.
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PART II - OTHER INFORMATION
Item 1. 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, and to our knowledge no such litigation or proceedings are contemplated.
Item 1A. Risk Factors
Our business, financial condition, results of operations and future growth prospects are subject to various risks, including those described in Item 1A “Risk Factors” of our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on April 12, 2023 (the “2022 Form 10-K”), which we encourage you to review. There have been no material changes from the risk factors disclosed in the 2022 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Default Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
| 55 |
Item 6. Exhibits
| Exhibit Numbers | Exhibit Description | |
| 31.1* | Certification of Joshua Riggs, President and Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2022 | |
| 31.2* | Certification of Anish John, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2022 | |
| 32.1** | Certifications of Joshua Riggs, President and Chief Financial Officer, and Anish John, Chief Financial Officer, pursuant to U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2022 | |
| 101* | Interactive Data Files | |
| 101.INS* | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) | |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema | |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase | |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Document | |
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase | |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase | |
| 104* | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
* Filed herewith
** This certification is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the registrant specifically incorporates it by reference.
| 56 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| ONCOCYTE CORPORATION | |
| Date: May 12, 2023 | /s/ Joshua Riggs |
| Joshua Riggs | |
President and Chief Executive Officer (Principal Executive Officer) | |
| Date: May 12, 2023 | /s/ Anish John |
| Anish John | |
Chief Financial Officer (Principal Financial Officer) |
| 57 |
Exhibit 31.1
CERTIFICATIONS
I, Joshua Riggs, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Oncocyte Corporation; | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this periodic report is being prepared; | |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): | |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. | |
Date: May 12, 2023
| /s/ Joshua Riggs | |
| Joshua Riggs | |
President and Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATIONS
I, Anish John, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Oncocyte Corporation; | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this periodic report is being prepared; | |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): | |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. | |
Date: May 12, 2023
| /s/ Anish John | |
| Anish John | |
Chief Financial Officer (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Oncocyte Corporation (the “Company”) for the quarter ended March 31, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Joshua Riggs, President and Chief Executive Officer, and Anish John, Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: May 12, 2023
| /s/ Joshua Riggs | |
| Joshua Riggs | |
President and Chief Executive Officer (Principal Executive Officer) |
|
| /s/ Anish John | |
| Anish John | |
Chief Financial Officer (Principal Financial Officer) |
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($) $ / shares in Thousands, $ in Thousands |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Accounts receivable, allowance for credit loss | $ 172 | $ 154 |
| Preferred stock no par value | $ 0 | $ 0 |
| Preferred stock, shares authorized | 5,000,000 | 5,000,000 |
| Preferred stock, shares issued | 0 | 0 |
| Preferred stock, shares outstanding | 0 | 0 |
| Common stock, no par value | $ 0 | $ 0 |
| Common stock, shares authorized | 230,000,000 | 230,000,000 |
| Common stock, shares issued | 119,278,821 | 118,643,821 |
| Common stock, shares outstanding | 119,278,821 | 118,643,821 |
| Series A Redeemable Convertible Preferred Stock [Member] | ||
| Temporary equity, par value | $ 0 | $ 0 |
| Temporary equity, stated par value | $ 1,000 | $ 1,000 |
| Temporary equity, shares issued | 5,882.4 | 6,000 |
| Temporary equity, shares outstanding | 5,882.4 | 6,000 |
| Temporary equity, liquidation preference | $ 6,182 | $ 6,091 |
Condensed Consolidated Statements of Comprehensive Loss (Unaudited) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Income Statement [Abstract] | ||
| NET INCOME (LOSS) | $ 3,033 | $ (10,291) |
| Foreign currency translation adjustments | 4 | 1 |
| COMPREHENSIVE INCOME (LOSS) | $ 3,037 | $ (10,290) |
Organization, Description of the Business and Liquidity |
3 Months Ended |
|---|---|
Mar. 31, 2023 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| Organization, Description of the Business and Liquidity | 1. Organization, Description of the Business and Liquidity
Oncocyte Corporation (“Oncocyte” or the “Company”), incorporated in 2009 in the state of California, is 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.
Oncocyte’s first product for commercial release was a proprietary treatment stratification test called DetermaRx that identifies which patients with early-stage non-small cell lung cancer may benefit from chemotherapy, resulting in a significantly higher, five-year survival rate. Beginning in September 2019 through February 23, 2021, Oncocyte held a 25% equity interest in Razor Genomics, Inc. (“Razor”), a privately held company, that has developed and licensed to Oncocyte the lung cancer treatment stratification laboratory test that Oncocyte is commercializing as DetermaRx. On February 24, 2021, Oncocyte completed the purchase of all the remaining issued and outstanding shares of common stock of Razor. As a result of the purchase of the Razor common stock, Oncocyte became the sole shareholder of Razor.
On December 15, 2022, 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. Pursuant to the Razor Stock Purchase Agreement, Oncocyte agreed to sell to Dragon, 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”).
Certain amounts in prior periods have been reclassified to reflect the impact of the discontinued operations treatment of Razor in order to conform to the current period presentation.
As a result of the divestiture of Razor, the Company has retrospectively revised the condensed consolidated statements of operations for the period ended March 31, 2022 and the condensed consolidated balance sheet as of March 31, 2022, to reflect the operations and cash flows of Razor as discontinued operations and the related assets and liabilities disposed. See Note 16 for additional information about assets held for sale and discontinued operations.
On February 16, 2023, Oncocyte completed the Razor Sale Transaction (the “Razor Closing”). In connection with the Razor Closing, Oncocyte transferred to Razor all of the assets and liabilities related to DetermaRx. 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. Following the Razor Closing, Oncocyte continues to own shares of common stock of Razor, which constitutes approximately 30% of the issued and outstanding equity interests of Razor on a fully-diluted basis. See Note 16 for a full discussion of the Razor Sale Transaction.
Liquidity
Oncocyte has incurred operating losses and negative cash flows since inception and had an accumulated deficit of $257.6 million as of March 31, 2023. Oncocyte expects to continue to incur operating losses and negative cash flows for the foreseeable future. Oncocyte did not generate revenues from its operations prior to the first quarter of 2020, and revenues since that period through the issuance of this quarterly filing were not sufficient to cover Oncocyte’s operating expenses. Since its formation, Oncocyte has financed its operations primarily through the sale of shares of its common stock, convertible preferred stock and warrants to acquire common stock.
As of March 31, 2023, Oncocyte had $11.8 million of cash and cash equivalents and held shares of Lineage Cell Therapeutics, Inc. (“Lineage”) and AgeX Therapeutics, Inc. (“AgeX”) common stock as marketable equity securities with a combined fair market value of $0.6 million.
On June 11, 2021, Oncocyte entered into an at-the-market sales agreement with BTIG, LLC as sales agent and/or principal (the “Agent” or “BTIG”) pursuant to which Oncocyte may sell up to an aggregate of $50,000,000 of shares of Oncocyte common stock from time to time through the Agent (the “ATM Offering”).
Between July 1, 2021 and March 31, 2023, Oncocyte sold shares of common stock at an average offering price of $ per share, for gross proceeds of approximately $6.27 million through the ATM Offering. Oncocyte will need to raise additional capital to finance its operations, including the development and commercialization of its cancer diagnostic and other tests, until such time as it is able to generate sufficient revenues from the commercialization of one or more of its laboratory tests and other tests, and performing Pharma Services to cover its operating expenses.
On April 13, 2022, Oncocyte entered into a securities purchase agreement (the “Securities Purchase Agreement”) with institutional accredited investors (the “Investors”), including Broadwood Partners, L.P. (“Broadwood”), Oncocyte’s largest shareholder, in a registered direct offering of shares of Series A Convertible Preferred Stock (the “Series A Preferred Stock”), which are convertible into a total of shares of common stock, at a conversion price of $1.53 (the “Series A Preferred Stock Offering”). The purchase price of each share of Series A Preferred Stock was $850, which included an original issue discount to the stated value of $ per share. The Securities Purchase Agreement provides that the closing of the Series A Preferred Stock Offering will occur, subject to the satisfactory of certain closing conditions, in two equal tranches of $ each for aggregate gross proceeds from both closings of $10,000,000. The first closing occurred on June 1, 2022, and Oncocyte received net proceeds of approximately $ million from the Series A Preferred Stock issued from the first tranche. The second closing would occur, subject to the satisfactory of certain closing conditions (including but not limited to a requirement that the Company has not received, in the 12 months preceding the second closing, a notice from The Nasdaq Stock Market LLC (“Nasdaq”) that the Company is not in compliance with the listing and maintenance and listing requirements of Nasdaq), on the earlier of (a) the second trading day following the date that Oncocyte receives notice from an Investor to accelerate the second closing and (b) a date selected by Oncocyte on or after October 8, 2022 and on or prior to March 8, 2023 (the “Outside Date”). On August 9, 2022, Oncocyte received a letter from Nasdaq indicating that the Company no longer meets the minimum bid price requirement of Nasdaq Listing Rule 5450(a)(1) of the Nasdaq continued listing requirements. As a result, no additional proceeds were received from the second closing of the Securities Purchase Agreement prior to the Outside Date. See Note 15 for additional information about the Series A Preferred Stock Offering.
Further, on April 13, 2022, Oncocyte entered into an underwriting agreement (the “Underwriting Agreement”) with BTIG, LLC, as representative of the underwriters named therein (the “Underwriters”), pursuant to which Oncocyte agreed to issue and sell to the Underwriters an aggregate of shares of common stock, and warrants to purchase up to shares of common stock (“April 2022 Warrants”) (the “Underwritten Offering,” and collectively with the Series A Preferred Stock Offering, the “April 2022 Offerings”). The Underwritten Offering closed on April 19, 2022. Pursuant to the Underwritten Offering, Broadwood acquired from us (i) shares of common stock, and (ii) April 2022 Warrants to purchase up to shares of common stock at an exercise price of $1.53 per share. Pura Vida acquired from us (i) shares of common stock, and (ii) April 2022 Warrants to purchase up to shares of common stock. On April 19, 2022, Oncocyte received net proceeds of approximately $32.8 million from the Underwritten Offering of shares of common stock and April 2022 Warrants to purchase up to shares of common stock. See Note 15 for additional information about the Underwritten Offering.
As of March 31, 2023, Oncocyte is completing clinical development and planning commercialization of DetermaIO, although DetermaIO is currently available for biopharma diagnostic development and research use only as a companion test in immunotherapy drug development to select patients for clinical trials; and the clinical launch of VitaGraft. While Oncocyte plans to primarily market its laboratory tests in the United States through its own sales force, it is also beginning to make marketing arrangements with distributors in other countries. In order to reduce capital needs and to expedite the commercialization of any new laboratory tests that may become available for clinical use, Oncocyte may also pursue marketing arrangements with other diagnostic companies through which Oncocyte might receive licensing fees and royalty on sales, or through which it might form a joint venture to market its tests and share in net revenues, in the United States or abroad.
Management believes that its cash, cash equivalents and marketable equity securities are sufficient to carry out operations through at least twelve months from the issuance date of the unaudited condensed consolidated interim financial statements included in this Report. However, the ability of the Company to continue as a going concern is dependent on the Company’s ability to implement or revise its current business plan, generate sufficient revenue and raise additional capital.
Due to the inherent uncertainty in predicting future revenues and certain variable costs, management plans to reduce cash flows beyond the nonrecurrence of one-time costs incurred during the three months ended March 31, 2023 that are not expected to repeat or repeat at the same level (i.e., Razor related carrying costs). Efforts to reduce cash flows include but are not limited to the following: (i) continue to re-evaluate investments in our fixed capital and infrastructure (ii) minimize the use of external consultants and contract resources; (iii) re-evaluate scope and timing of our clinical trial expenses, (iv) continue to optimize operating burn by materially deferring or limiting the Company’s spending on capital equipment.
In addition to general economic and capital market trends and conditions, Oncocyte’s ability to raise sufficient additional capital to finance its operations from time to time will depend on a number of factors specific to Oncocyte’s operations such as operating revenues and expenses, progress in development of, or in obtaining reimbursement coverage from Medicare for DetermaIO and other future laboratory tests that Oncocyte may develop or acquire. See “Risk Factors”.
The unavailability or inadequacy of financing or revenues to meet future capital needs could force Oncocyte to modify, curtail, delay, or suspend some or all aspects of planned operations. Sales of additional equity securities could result in the dilution of the interests of its shareholders. Oncocyte cannot assure that adequate financing will be available on favorable terms, if at all.
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Basis of Presentation and Summary of Significant Accounting Policies |
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| Basis of Presentation and Summary of Significant Accounting Policies | 2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of presentation
The unaudited condensed consolidated interim financial statements presented herein, and discussed below, have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. In accordance with those rules and regulations, certain information and footnote disclosures normally included in comprehensive consolidated financial statements have been condensed or omitted. The condensed consolidated balance sheets as of December 31, 2022 was derived from the audited consolidated financial statements at that date. These unaudited condensed consolidated interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in Oncocyte’s Annual Report on Form 10-K for the year ended December 31, 2022. The unaudited condensed consolidated interim financial statements presented herein as of March 31, 2023 is not representative of the full fiscal year or any future periods.
Principles of consolidation
On January 31, 2020 (the “Insight Merger Date”), Oncocyte completed its acquisition of Insight Genetics, Inc. (“Insight”) through a merger with a newly incorporated wholly owned subsidiary of Oncocyte (the “Insight Merger”) under the terms of an Agreement and Plan of Merger (the “Insight Merger Agreement”). On the Insight Merger Date Oncocyte began consolidating Insight’s operations and results with Oncocyte’s operations and results (see Note 3). On February 24, 2021, with the acquisition of the remaining equity interests in Razor, Razor became a wholly owned subsidiary of Oncocyte, and on that date Oncocyte began consolidating Razor’s results with Oncocyte’s operations and results (see Note 3). On April 15, 2021 (the “Chronix Merger Date”), with the acquisition of Chronix Biomedical, Inc. (“Chronix”), pursuant to an Agreement and Plan of Merger dated February 2, 2021, amended February 23, 2021, and amended and restated as of April 15, 2021 (as amended and restated, the “Chronix Merger Agreement”), Chronix became a wholly owned subsidiary of Oncocyte. On the Chronix Merger Date, Oncocyte began consolidating Chronix’s operations and results with Oncocyte’s operations and results (see Note 3).
We have reflected the operations of Razor as discontinued operations for all periods presented. See Note 16 for further information. Unless otherwise noted, amounts and disclosures throughout these Notes to unaudited condensed consolidated interim financial statements relate solely to continuing operations and exclude all discontinued operations.
The accompanying unaudited condensed consolidated interim financial statements, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of Oncocyte’s financial condition and results of operations. The unaudited condensed consolidated results of operations are not necessarily indicative of the results to be expected for any other interim period or for the entire year. All material intercompany accounts and transactions have been eliminated in consolidation.
Use of estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and contingent assets and liabilities, at the date of the unaudited condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates estimates which are subject to significant judgment, including, but not limited to, valuation methods used, assumptions requiring the use of judgment to prepare financial projections, timing of potential commercialization of acquired in-process intangible assets, applicable discount rates, probabilities of the likelihood of multiple outcomes of certain events related to contingent consideration, comparable companies or transactions, determination of fair value of the assets acquired and liabilities assumed including those relating to contingent consideration, assumptions related to going concern assessments, allocation of direct and indirect expenses, useful lives associated with long-lived intangible assets, key assumptions in operating and financing leases including incremental borrowing rates, loss contingencies, valuation allowances related to deferred income taxes, and assumptions used to value debt and stock-based awards and other equity instruments. Actual results may differ materially from those estimates.
Similarly, Oncocyte assessed certain accounting matters that generally require consideration of forecasted financial information. The accounting matters assessed included, but were not limited to, Oncocyte’s equity investments, the carrying value of goodwill, going concern assessment, acquired in-process intangible assets and other long-lived assets. Those assessments as well as other estimates referenced above were made in the context of information reasonably available to Oncocyte.
Business combinations and fair value measurements
Oncocyte accounts for business combinations in accordance with ASC 805, which requires the purchase consideration transferred to be measured at fair value on the acquisition date in accordance with ASC 820, Fair Value Measurement. ASC 820 establishes a single authoritative definition of fair value, sets out a framework for measuring fair value and expands on required disclosures about fair value measurement. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. ASC 820 describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following:
● Level 1 – Quoted prices in active markets for identical assets and liabilities.
● Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted market prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
● Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
When a part of the purchase consideration consists of shares of Oncocyte common stock, Oncocyte calculates the purchase price attributable to those shares, a Level 1 security, by determining the fair value of those shares as of the acquisition date based on prices quoted on the principal national securities exchange on which the shares traded. Oncocyte recognizes estimated fair values of the tangible assets and identifiable intangible assets acquired, including in-process research and development, and liabilities assumed, including any contingent consideration, as of the acquisition date. Goodwill is recognized as any amount of the fair value of the tangible and identifiable intangible assets acquired and liabilities assumed in excess of the consideration transferred. ASC 805 precludes the recognition of an assembled workforce as an asset, effectively subsuming any assembled workforce value into goodwill.
In determining fair value, Oncocyte utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, and also considers counterparty credit risk in its assessment of fair value. For the periods presented, Oncocyte has no financial assets or liabilities recorded at fair value on a recurring basis, except for money market funds and marketable equity securities of Lineage and AgeX common stock held by Oncocyte described below. These assets are measured at fair value using the period-end quoted market prices as a Level 1 input. Oncocyte also has certain contingent consideration liabilities which are carried at fair value based on Level 3 inputs (see Note 3).
The following table presents the Company’s assets and liabilities, measured and recognized at fair value on a recurring basis, classified under the appropriate level of the fair value hierarchy as of March 31, 2023 (in thousands):
The following table presents the Company’s assets and liabilities, measured and recognized at fair value on a recurring basis, classified under the appropriate level of the fair value hierarchy as of December 31, 2022 (in thousands):
The carrying amounts of prepaid expenses and other current assets, accounts payable, accrued expenses and other current liabilities approximate fair values because of the short-term nature of these items.
Cash, cash equivalents, and restricted cash
The Company’s reconciliation of cash and cash equivalents, and restricted cash reported within the unaudited condensed consolidated balance sheets that sum to the total of the same amounts shown in the unaudited condensed consolidated statements of cash flows were as follows (in thousands):
Assets Held for Sale and Discontinued Operations
As of March 31, 2023, the Company classified laboratory equipment previously presented in machinery and equipment as held for sale in current assets, in the unaudited condensed consolidated balance sheet, as all the criteria of ASC subtopic 360-10, Property, Plant, and Equipment (“ASC 360-10”) have been met and the transaction was qualified as assets held for sale.
During the three months ended March 31, 2023, the Company entered into various agreements to sell laboratory equipment for an aggregate amount of $0.6 million. As a result, the Company classified the equipment as held for sale as current assets, in the unaudited condensed consolidated balance sheet, as all the criteria of ASC subtopic 360-10, Property, Plant, and Equipment (“ASC 360-10”) have been met and the transaction was qualified as assets held for sale. The equipment was written down to its fair value, less cost to sell, to $0.4 million in the unaudited condensed consolidated balance sheet. As a result of the expected sale, the Company recorded an impairment loss of $1.3 million on held-for-sale assets, in the unaudited condensed consolidated statement of operations. A portion of the held for sale equipment of $0.2 million was sold on April 20, 2023. See Note 17 for further discussion.
Assets and liabilities are classified as held for sale when all of the following criteria for a plan of sale have been met: (1) management, having the authority to approve the action, commits to a plan to sell the assets; (2) the assets are available for immediate sale, in their present condition, subject only to terms that are usual and customary for sales of such assets; (3) an active program to locate a buyer and other actions required to complete the plan to sell the assets have been initiated; (4) the sale of the assets is probable and is expected to be completed within one year; (5) the assets are being actively marketed for a price that is reasonable in relation to their current fair value; and (6) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or the plan will be withdrawn. When all of these criteria have been met, the assets and liabilities are classified as held for sale in the unaudited condensed consolidated balance sheet. Assets classified as held for sale are reported at the lower of their carrying value or fair value less costs to sell. Depreciation and amortization of assets ceases upon designation as held for sale.
Discontinued operations comprise activities that were disposed of or discontinued at the end of the period, represent a separate major line of business that can be clearly distinguished for operational and financial reporting purposes and represent a strategic business shift having a major effect on the Company’s operations and financial results according to Accounting Standard Codification (“ASC”) Topic 205, Presentation of Financial Statements.
Additional details surrounding the Company’s assets and liabilities held for sale and discontinued operations are included in Note 16.
Goodwill and intangible assets
In accordance with ASC 350, Intangibles – Goodwill and Other, in-process research and development (“IPR&D”) projects acquired in a business combination that are not complete as of the acquisition date are capitalized and accounted for as indefinite-lived intangible assets until completion or abandonment of the related research and development efforts. Upon successful completion of the project, the capitalized amount is amortized over its estimated useful life. If a project is abandoned, all remaining capitalized amounts are written off immediately. Oncocyte considers various factors and risks for potential impairment of IPR&D assets, including the current legal and regulatory environment and the competitive landscape. 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. Consequently, the eventual realized value of the IPR&D project may vary from its fair value at the date of acquisition, and IPR&D impairment charges may occur in future periods. 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 Oncocyte becomes 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 (see Notes 3 and 4).
Goodwill represents the excess of the purchase price over the fair value of net identifiable assets and liabilities. Goodwill, similar to IPR&D, is not amortized but is tested for impairment at least annually, or if circumstances indicate its value may no longer be recoverable. Qualitative factors considered in this assessment include industry and market conditions, overall financial performance, and other relevant events and factors affecting Oncocyte’s business. Based on the qualitative assessment, if it is determined that the fair value of goodwill is more likely than not to be less than its carrying amount, the fair value of a reporting unit will be calculated and compared with its carrying amount and an impairment charge will be recognized for the amount that the carrying value exceeds the fair value. Oncocyte continues to operate in one segment and considered to be the sole reporting unit and, therefore, goodwill is tested for impairment at the enterprise level.
Oncocyte does not have intangible assets with indefinite useful lives other than goodwill and the acquired IPR&D discussed in Notes 3 and 4. As of December 31, 2022, goodwill has been fully impaired. As of March 31, 2023, acquired IPR&D have been impaired.
Long-lived intangible assets
Long-lived intangible assets, consisting primarily of acquired customer relationships, are stated at acquired cost, less accumulated amortization. Amortization expense is computed using the straight-line method over the estimated useful life of 5 years (see Notes 3 and 4).
Contingent consideration liabilities
Certain of Oncocyte’s asset and business acquisitions involve the potential for future payment of consideration to third-parties and former selling shareholders in amounts determined as a percentage of future net revenues generated, or upon attainment of revenue milestones, from Pharma Services or laboratory tests, as applicable, or annual minimum royalties to certain licensors, as provided in the applicable agreements. The fair value of such liabilities is determined using unobservable inputs. These inputs include the estimated amount and timing of projected cash flows and the risk-adjusted discount rate used to present value the cash flows (see Notes 3 and 4). These obligations are referred to as contingent consideration.
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. Contingent consideration is an obligation of the acquirer to transfer additional assets or equity interests to the selling shareholders in the future if certain future events occur or conditions are met, such as the attainment of product development milestones. 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 certain revenues generated.
The fair value of contingent consideration after the acquisition date is reassessed by Oncocyte as changes in circumstances and conditions occur, with the subsequent change in fair value recorded in the condensed consolidated statements of operations. Changes in key assumptions can materially affect the estimated fair value of contingent consideration liabilities and, accordingly, the resulting gain or loss that Oncocyte records in its unaudited condensed consolidated interim financial statements. See Notes 3 and 4 for a full discussion of these liabilities.
Investments in capital stock of privately held companies
Oncocyte evaluates whether investments held in common stock of other companies require consolidation of the company under, first, the variable interest entity (“VIE”) model, and then under the voting interest model in accordance with accounting guidance for consolidations under Accounting Standards Codification (“ASC”) 810-10. If consolidation of the entity is not required under either the VIE model or the voting interest model, Oncocyte determines whether the equity method of accounting should be applied in accordance with ASC 323, Investments – Equity Method and Joint Ventures. The equity method applies to investments in common stock or in-substance common stock if Oncocyte exercises significant influence over, but does not control, the entity, where significant influence is typically represented by ownership of 20% or more, but less than majority ownership, of the voting interests of a company.
Oncocyte initially records equity method investments at fair value on the date of the acquisition with subsequent adjustments to the investment balance based on Oncocyte’s pro rata share of earnings or losses from the investment.
From February 24, 2021, the date of Oncocyte’s acquisition of the remaining interests in Razor, through February 16, 2023 the date of its disposition, Razor entity’s financial statements have been consolidated with Oncocyte. See Notes 3, 4, and 16 for additional information.
Impairment of long-lived assets
Oncocyte assesses the impairment of long-lived assets whenever events or changes in circumstances indicate that such assets might be impaired and the carrying value may not be recoverable. Oncocyte’s long-lived assets consist primarily of intangible assets, right-of-use assets for operating leases, customer relationships, and machinery and equipment. If events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and the expected undiscounted future cash flows attributable to the asset are less than the carrying amount of the asset, an impairment loss, equal to the excess of the carrying value of the asset over its fair value, is recorded. See Notes 3, 4, and 16 for additional information with respect to impairments of long-lived assets. See Note 16 for disclosure of machinery and equipment impairment.
Revenue recognition
Pursuant to ASC 606, revenues are recognized when control of services performed is transferred to customers, in an amount that reflects the consideration Oncocyte expects to be entitled to in exchange for those services. ASC 606 provides for a five-step model that includes:
(i) identifying the contract with a customer, (ii) identifying the performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to the performance obligations, and (v) recognizing revenue when, or as, an entity satisfies a performance obligation.
Oncocyte determines transaction prices based on the amount of consideration we expect to receive for transferring the promised goods or services in the contract. Consideration may be fixed, variable, or a combination of both. The Company considers any constraints on the variable consideration and includes in the transaction price variable consideration to the extent it is deemed probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
DetermaRx testing revenue
Prior to the Razor Sale Transaction, Oncocyte generated revenue from performing DetermaRx tests on clinical samples through orders received from physicians, hospitals, and other healthcare providers. In determining whether all the revenue recognition criteria (i) through (v) above are met with respect to DetermaRx tests, each test result is considered a single performance obligation and is generally considered complete when the test result is delivered or made available to the prescribing physician electronically, and, as such, there are no shipping or handling fees incurred by Oncocyte or billed to customers. Although Oncocyte has billed 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. Application of the constraint for variable consideration is an area that requires significant judgment. For all payers other than Medicare, 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. Accordingly, for those payers, Oncocyte has recognized revenue upon payment because it has had insufficient history to reliably estimate payment patterns or has had contractual reimbursement arrangements, or both, in place.
As of March 31, 2023, Oncocyte had accounts receivable of $1.8 million from Medicare and Medicare Advantage covered DetermaRx tests (see Note 7).
We maintain an allowance for doubtful accounts at an amount we estimate to be sufficient to provide adequate protection against losses resulting from extending credit to our customers. We base this allowance, in the aggregate, on historical collection experience, age of receivables and general economic conditions. Our bad debts have not been material and have been within management expectations. During the first quarter of 2023, the Company adopted Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and subsequent amendments to the initial guidance under ASU 2018-19, ASU 2019-04, ASU 2019-05 and ASU 2019-10, which amends the current approach to estimate credit losses on certain financial assets, including trade and other receivables. Adoption of this standard did not have a material impact on the Company’s consolidated financial statements and related disclosures. As of March 31, 2023 and December 31, 2022, we had a bad debt allowance of $0.2 million.
Pharma services revenue
Revenues recognized include Pharma Services performed by Oncocyte’s Insight and Chronix subsidiaries for its pharmaceutical customers, including testing for biomarker discovery, assay design and development, clinical trial support, and a broad spectrum of biomarker tests. These 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. Upon completion of the service to the customer in accordance with a Pharma Services Agreement, Oncocyte has 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. 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. However, for certain SOWs under which work is performed pursuant to the customer’s highly customized specifications, Oncocyte has the enforceable right to bill the customer for work completed, rather than upon completion of the SOW. For those SOWs, Oncocyte recognizes 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. 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. Any revenues earned but not yet billed to the customer as of the date of Oncocyte’s condensed consolidated financial statements are recorded as contract assets and are included in prepaids and other current assets as of the financial statement date. Amounts recorded in contract assets are reclassified to accounts receivable in Oncocyte’s condensed consolidated financial statements when the customer is invoiced according to the billing schedule in the contract.
Oncocyte establishes an allowance for doubtful accounts 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. If circumstances related to customers change, estimates of the recoverability of receivables would be further adjusted. Oncocyte continuously monitors collections and payments from customers and maintains a provision for estimated credit losses and uncollectible accounts, if any, based upon its historical experience and any specific customer collection issues that have been identified. Amounts determined to be uncollectible are written off against the allowance for doubtful accounts. As of March 31, 2023, Oncocyte has not recorded any losses or allowance for doubtful accounts on its account receivables from Pharma Services.
As of March 31, 2023, Oncocyte had accounts receivable from Pharma Services customers of $0.2 million, as compared to $0.3 million as of December 31, 2022 (see Note 7). As of March 31, 2023 and December 31, 2022, we have not reserved a bad debt allowance for Pharma Services accounts receivables.
Licensing revenue
Revenues recognized includes licensing revenue derived from agreements with customers for exclusive rights to market Oncocyte’s proprietary testing technology. Under the agreements, Oncocyte grants exclusive rights to certain trademarks and technology of Oncocyte for the purpose of marketing Oncocyte’s tests within a defined geographic territory. A license agreement may specify milestone deliverables or performance obligations, for which Oncocyte recognizes revenue when its licensee confirms the completion of Oncocyte’s performance obligation. A licensing agreement may also include ongoing sales support from Oncocyte and typically includes non-refundable licensing fees and per-test Pharma Services revenues discussed above, for which Oncocyte treats the licensing of the technology, trademarks, and ongoing support as a single performance obligation satisfied by the passage of time over the term of the agreement.
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 DetermaRx tests and Pharma Services, providing deliverables according to our licensing agreements, license fees due to third parties, and amortization of acquired intangible assets such as the Razor asset and customer relationship intangible assets. Infrastructure expenses include depreciation of laboratory equipment, allocated rent costs, leasehold improvements, and allocated information technology costs for operations at Oncocyte’s CLIA laboratories in California and Tennessee. Costs associated with generating the revenues are recorded as the tests or services are performed regardless of whether revenue was recognized. Royalties or revenue share payments for licensed technology calculated as a percentage of revenues generated using the associated technology are recorded as expenses at the time the related revenues are recognized.
Research and development expenses
Research and development expenses are comprised of costs incurred to develop technology, which include salaries and benefits (including stock-based compensation), laboratory expenses (including reagents and supplies used in research and development laboratory work), infrastructure expenses (including allocated facility occupancy costs), and contract services and other outside costs. Indirect research and development expenses are allocated primarily based on headcount, as applicable, and include rent and utilities, common area maintenance, telecommunications, property taxes, and insurance. Research and development costs are expensed as incurred.
Sales and marketing expenses
Sales and marketing expenses consist primarily of personnel costs and related benefits, including stock-based compensation, trade show expenses, branding and positioning expenses, and consulting fees. Sales and marketing expenses also include indirect expenses for applicable overhead allocated based on headcount, and include allocated costs for rent and utilities, common area maintenance, telecommunications, property taxes, and insurance.
General and administrative expenses
General and administrative expenses consist primarily of compensation and related benefits (including stock-based compensation) for executive and corporate personnel, professional and consulting fees, rent and utilities, common area maintenance, telecommunications, property taxes, and insurance.
Basic loss per share is computed by dividing the net loss applicable to common stockholders after deducting cumulative unpaid dividends and accretion of the preferred stock, by the weighted average number of shares of common stock outstanding during the year. Diluted loss per share is computed by dividing the net loss applicable to common stockholders after deducting cumulative unpaid dividends and accretion of the preferred stock, by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued, using the treasury stock method or the if-converted method, or the two-class method for participating securities, whichever is more dilutive. Potential common shares are excluded from the computation if their effect is antidilutive.
Leases
Oncocyte accounts for leases in accordance with ASC 842, Leases. Oncocyte determines if an arrangement is a lease at inception. Leases are classified as either financing or operating, with classification affecting the pattern of expense recognition in the condensed consolidated statements of operations. Under the available practical expedients for the adoption of ASC 842, Oncocyte accounts for the lease and non-lease components as a single lease component. Oncocyte recognizes right-of-use (“ROU”) assets and lease liabilities for leases with terms greater than twelve months in the condensed consolidated balance sheet. ROU assets represent the right to use an underlying asset during the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most leases do not provide an implicit rate, Oncocyte uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Oncocyte uses the implicit rate when it is readily determinable. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that Oncocyte will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Operating leases are included as right-of-use assets in machinery and equipment, and ROU lease liabilities, current and long-term, in the condensed consolidated balance sheets. Financing leases are included in machinery and equipment, and in financing lease liabilities, current and long-term, in the condensed consolidated balance sheets. Oncocyte discloses the amortization of our ROU assets and operating lease payments as a net amount, “Amortization of right-of-use assets and liabilities”, on the condensed consolidated statements of cash flows. Based on the available practical expedients under the standard, Oncocyte elected not to capitalize leases that have terms of twelve months or less.
During prior years, Oncocyte entered into various operating leases and an embedded operating lease in accordance with ASC 842 discussed in Note 10. Oncocyte’s accounting for financing leases remained substantially unchanged.
Oncocyte accounts for the shares of Lineage and AgeX common stock it holds as marketable equity securities in accordance with ASC 320-10-25, Investments – Debt and Equity Securities, as amended by Accounting Standards Update (“ASU”) 2016-01, Financial Instruments–Overall: Recognition and Measurement of Financial Assets and Financial Liabilities, as the shares have a readily determinable fair value quoted on the NYSE American and are held principally to meet future working capital purposes, as necessary. The securities are measured at fair value, with related gains and losses in the value of such securities recorded in the condensed consolidated statements of operations in other income (expense), and are reported as current assets on the condensed consolidated balance sheets based on the closing trading price of the security as of the date being presented.
As of March 31, 2023 and December 31, 2022, Oncocyte held and shares of common stock of Lineage and AgeX, respectively, as marketable equity securities with a fair market value of $0.5 million and $23,000, respectively.
Recent accounting pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and subsequent amendments to the initial guidance under ASU 2018-19, ASU 2019-04, ASU 2019-05 and ASU 2019-10, which amends the current approach to estimate credit losses on certain financial assets, including trade and other receivables. Generally, this amendment requires entities to establish a valuation allowance for the expected lifetime losses of these certain financial assets. Upon the initial recognition of such assets, which will be based on, among other things, historical information, current conditions, and reasonable supportable forecasts. Subsequent changes in the valuation allowance are recorded in current earnings and reversal of previous losses are permitted. Previously, U.S. GAAP required entities to write down credit losses only when losses are probable and loss reversals are not permitted. The Company adopted this ASU in the first quarter of 2023. Adoption of this standard did not have a material impact on the Company’s consolidated financial statements and related disclosures.
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, to provide specific guidance to eliminate diversity in practice on how to recognize and measure acquired contract assets and contract liabilities from revenue contracts from customers in a business combination consistent with revenue contracts with customers not acquired in an acquisition. The amendments in this update provide that the acquirer should consider the terms of the acquired contracts, such as timing of payment, identify each performance obligation in the contracts, and allocate the total transaction price to each identified performance obligation on a relative standalone selling price basis as of contract inception (that is, the date the acquiree entered into the contracts) or contract modification to determine what should be recorded at the acquisition date. These amendments are effective for the Company beginning with fiscal year 2023. The impact of the adoption of the amendments in this update will depend on the magnitude of any customer contracts assumed in a business combination in 2023 and beyond.
COVID-19 impact and related risks
The Company is subject to risks and uncertainties as a result of the recent COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on the Company’s business is highly uncertain and difficult to predict, as the responses that the Company, other businesses and governments are taking continue to evolve. Furthermore, capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it is possible that it could cause a local and/or global economic slowdown or recession. Policymakers around the globe have responded with fiscal policy actions to support the healthcare industry and economy as a whole. The magnitude and overall effectiveness of these actions remain uncertain.
In addition, the Company’s Pharma Services have been affected by, and may continue to be affected by, the COVID-19 pandemic.
It is possible that impacts of COVID-19 on Oncocyte’s operations or its access to capital could prevent Oncocyte from complying, or could result in a material noncompliance, with one or more obligations or covenants under material agreements to which Oncocyte is a party, with the result that Oncocyte would be in material breach of the applicable obligation, covenant, or agreement. Any such material breach could cause Oncocyte to incur material financial liabilities or an acceleration of the date for paying a financial obligation to the other party to the applicable agreement, or could cause Oncocyte to lose material contractual rights, such as rights to use leased equipment or laboratory or office space, or rights to use licensed patents or other intellectual property, the use of which is material to Oncocyte’s business. Similarly, it is possible that impacts of COVID-19 on the business, operations, or financial condition of any third party with whom Oncocyte has a contractual relationship could cause the third party to be unable to perform its contractual obligations to Oncocyte, resulting in Oncocyte’s loss of the benefits of a contract that could be material to Oncocyte’s business.
The full extent to which the COVID-19 pandemic and the various responses to it might impact Oncocytes’ business, operations and financial results will depend on numerous evolving factors that are not subject to accurate prediction and that are beyond Oncocyte’s control.
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| Business Combinations | 3. Business Combinations
Acquisition of Insight Genetics, Inc.
On January 31, 2020, the Insight Merger Date, Oncocyte completed its acquisition of Insight pursuant to the Insight Merger Agreement.
Contingent consideration is an obligation of the acquirer to transfer additional assets or equity interests to the selling shareholders in the future if certain future events occur or conditions are met, such as the attainment of product development milestones. 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 from DetermaIO and Insight Pharma Services over their respective useful life. Accordingly, Oncocyte determined there are two types of contingent consideration in connection with the Insight Merger, the Milestone Contingent Consideration and the Royalty Contingent Consideration discussed below, which are collectively referred to as the “Contingent Consideration”.
There are three milestones comprising the Milestone Contingent Consideration, collectively referred to as the Milestones, in connection with the Insight Merger which Oncocyte valued and recorded as part of Contingent Consideration as of the Insight Merger Date (see table below), which consist of (i) a payment for clinical trial completion and related data publication (“Milestone 1”), (ii) a payment for an affirmative final local coverage determination from CMS for a specified lung cancer test (“Milestone 2”), and (iii) a payment for achieving specified CMS reimbursement milestones (“Milestone 3”). If achieved, any respective Milestone will be paid at the contractual value shown below, with the payment made either in cash or in shares of Oncocyte common stock as determined by Oncocyte. There can be no assurance that any of the Milestones will be achieved.
The following table shows the Insight Merger Date contractual payment amounts, as applicable, and the corresponding fair value of each respective Contingent Consideration liability (in thousands):
The fair value of the Contingent Consideration after the Insight Merger Date is reassessed by Oncocyte as changes in circumstances and conditions occur, with the subsequent change in fair value recorded in Oncocyte’s condensed consolidated statements of operations. As of March 31, 2023, based on Oncocyte’s reassessment of the significant assumptions noted above, there was a decrease of approximately $2.2 million to the fair value of the Contingent Consideration primarily attributable to revised estimates of the timing of the possible future payouts and, accordingly, this decrease was recorded as change in fair value of contingent consideration in the unaudited condensed consolidated statements of operations for the three months ended March 31, 2023.
The following tables reflect the activity for Oncocyte’s Contingent Consideration for the three months ended March 31, 2023 and 2022, measured at fair value using Level 3 inputs (in thousands):
Contingent consideration is not deductible for tax purposes, even if paid; therefore, no deferred tax assets related to the Contingent Consideration were recorded.
Asset acquisition of Razor Genomics, Inc.
On December 31, 2019, Oncocyte completed the purchase of 25% of the outstanding equity of Razor. Oncocyte also entered certain agreements with Razor and Encore, including a Sublicense and Distribution Agreement (the “Sublicense Agreement”), a Development Agreement (the “Development Agreement”), and an amendment to a Laboratory Services Agreement (the “Laboratory Agreement”) pursuant to which Oncocyte became a party to that agreement.
On February 24, 2021, Oncocyte completed the purchase of all the issued and outstanding shares of common stock of Razor. As a result of Oncocyte is the sole shareholder of Razor.
On December 15, 2022, the Company entered into the Razor Stock Purchase Agreement in which the Company agreed to sell approximately 70% of the issued and outstanding equity interest of Razor on a fully-diluted basis. On February 16, 2023, the sale of Razor was completed. See Note 16 for additional information.
Development Agreement
Under the Development Agreement, Razor reserved as a “Clinical Trial Expense Reserve” $4.0 million of the proceeds it received at the Initial Closing from the sale of the Razor Preferred Stock to Oncocyte, to fund Razor’s share of costs incurred in connection with a clinical trial of DetermaRx for purposes of promoting commercialization (“Clinical Trial”).
The Development Agreement was terminated on February 16, 2023 in connection with the Razor Stock Purchase Agreement. See Note 16 for more details regarding the Razor Stock Purchase Agreement.
Sublicense Agreement
Under the Sublicense Agreement, Razor granted to Oncocyte an exclusive worldwide sublicense under certain patent rights applicable to DetermaRx in the field of use covered by the applicable license held by Razor for purposes of commercialization and development of DetermaRx.
The Sublicense Agreement was terminated on February 16, 2023 in connection with the Razor Stock Purchase Agreement. See Notes 16 for more details regarding the Razor Stock Purchase Agreement.
Acquisition of Chronix Biomedical, Inc.
On April 15, 2021, the Chronix Merger Date, Oncocyte completed its acquisition of Chronix pursuant the Chronix Merger Agreement.
Contingent Consideration
As additional consideration for holders of certain classes and series of Chronix capital stock, the Chronix Merger Agreement originally required Oncocyte to pay “Chronix Contingent Consideration” consisting of (i) “Chronix Milestone Payments” of up to $14 million in any combination of cash or Oncocyte common stock if certain milestones specified in the Chronix Merger Agreement are achieved, (ii) “Royalty Payments” of up to 15% of net collections for sales of specified tests and products during the five-to-ten year earnout periods, and (iii) “Transplant Sale Payments” of up to 75% of net collections from the sale or license to a third party of Chronix’s patents for use in transplantation medicine during a seven-year earnout period.
On February 8, 2023, the Company and equity holder representative entered into Amendment No. 1 to the Merger Agreement (the “Chronix Amendment”), pursuant to which the parties agreed that (i) Chronix’s equity holders will be paid earnout consideration of 10% of net collections for sales of specified tests and products, until the expiration of intellectual property related to such tests and products, (ii) Chronix’s equity holders will be paid 5% of the gross proceeds received from any sale of all or substantially all of the rights, titles, and interests in and to Chronix’s patents for use in transplantation medicine to such third party, and (iii) the Chronix Milestone Payments, 15% Royalty Payments and Sale Payment obligations were eliminated.
The fair value of the Chronix Contingent Consideration after the Chronix Merger Date is reassessed by Oncocyte as changes in circumstances and conditions occur, with the subsequent change in fair value recorded in Oncocyte’s condensed consolidated statements of operations. As of March 31, 2023, based on Oncocyte’s reassessment of the significant assumptions noted above, there was a decrease of approximately $16.1 million to the fair value of the Contingent Consideration primarily attributable to revised estimates of the timing of the possible future payouts and, accordingly, this decrease was recorded as a change in fair value of contingent consideration in the unaudited condensed consolidated statements of operations for the three months ended March 31, 2023.
The following tables reflect the activity for Oncocyte’s Contingent Consideration for the three months ended March 31, 2023 and March 31, 2022, measured at fair value using Level 3 inputs (in thousands):
Goodwill - Goodwill is calculated as the difference between the acquisition date fair value of the Aggregate Chronix Merger Consideration transferred and the values assigned to the assets acquired and liabilities assumed. Goodwill also includes the $2.2 million of net deferred tax liabilities recorded principally related to the VitaGraft discussed above. Oncocyte recognized approximately $9.5 million of goodwill related to the Chronix acquisition.
None of the goodwill recognized is expected to be deductible for income tax purposes. Goodwill is not amortized but is tested for impairment at least annually, or more frequently if circumstances indicate potential impairment. During 2022, the Company identified circumstances that could indicate a potential impairment and after a valuation of the Company’s assets and liabilities was performed, management concluded that goodwill was impaired as of December 31, 2022. (see Notes 2 and 4).
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Intangible Assets, net |
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| Intangible Assets, net | 4. Intangible Assets, net
As part of the Insight and Chronix acquisitions, which were accounted for as business combinations under ASC 805, completed on January 31, 2020, and April 15, 2021, respectively, the Company has acquired in process research and development (“IPR&D”) and customer relationships.
During the first quarter of 2023, due to changes in management and the economic condition of the Company, management shifted the Company’s business strategy to direct efforts on fewer studies and to transition from test that are laboratory developed tests (“LDT”) to research use only (“RUO”) sales. Due to the change in strategy, the Company’s long range plan forecasts were updated and anticipated future benefits derived from the Company’s assets. The change in strategy represent a significant indicator for change in value of the Company’s long lived assets.
The original IPR&D balance was reassessed based on the updated long range plan (“LRP”), using the multiple period excess earnings method (“MPEEM”) approach, the results of the valuation noted that the carrying value of the DetermaIO related IPR&D intangible assets was greater than the fair market value, whereas the CNI and VitaGraft related IPR&D intangible assets carrying value was lower than the fair market value. Accordingly, the Company recorded an impairment of approximately $5.0 million as of March 31, 2023.
At March 31, 2023 and December 31, 2022, intangible assets, net, consisted of the following (in thousands):
Future amortization expense of intangible assets subject to amortization is expected to be the following (in thousands):
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Shareholders’ Equity |
3 Months Ended |
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| Equity [Abstract] | |
| Shareholders’ Equity | 5. Shareholders’ Equity
Series A Redeemable Convertible Preferred Stock
On April 13, 2022, the Company entered into the Securities Purchase Agreement with the Investors in a registered direct offering of shares of the Company’s Series A Preferred Stock, which shares of Series A Preferred Stock are convertible into a total of shares of common stock, at a conversion price of $1.53. The purchase price of each share of Series A Preferred Stock was $850, which included an original issue discount to the stated value of $ per share. The rights, preferences and privileges of the Series A Preferred Stock are set forth in the Company’s Certificate of Determination, which the Company filed with the Secretary of State of the State of California. The Securities Purchase Agreement provides that the closing of the Series A Preferred Stock Offering will occur, subject to the satisfactory of certain closing conditions, in two equal tranches of $ each for aggregate gross proceeds from both closings of $10,000,000. The first closing occurred on June 1, 2022, and Oncocyte received net proceeds of approximately $4.9 million from the Series A Preferred Stock issued from the first tranche. The second closing would occur, subject to the satisfactory of certain closing conditions (including but not limited to a requirement that the Company has not received, in the 12 months preceding the second closing, a notice from Nasdaq that the Company is not in compliance with the listing and maintenance and listing requirements of Nasdaq), on the earlier of (a) the second trading day following the date that Oncocyte receives notice from an Investor to accelerate the second closing and (b) a date selected by Oncocyte on or after October 8, 2022 and on or prior to March 8, 2023, the Outside Date. On August 9, 2022, Oncocyte received a letter from Nasdaq indicating that the Company no longer meets the minimum bid price requirement of Nasdaq Listing Rule 5450(a)(1) of the Nasdaq continued listing requirements. As a result, no additional proceeds were received from the second closing of the Securities Purchase Agreement prior to the Outside Date.
The Series A Preferred Stock is convertible into shares of the Company’s common stock at any time at the holder’s option. The conversion price will be subject to customary anti-dilution adjustments for matters such as stock splits, stock dividends and other distributions on our common stock, and recapitalizations. A holder is prohibited from converting shares of Series A Preferred Stock into shares of common stock if, as a result of such conversion, the holder, together with its affiliates, would own more than 4.99% of the shares of our common stock then issued and outstanding (provided a holder may elect, at the first closing, to increase such beneficial ownership limitation solely as to itself up to 19.99% of the number of shares of our common stock outstanding immediately after giving effect to the conversion, provided further that following the receipt of shareholder approval required by applicable Nasdaq rules with respect to the issuance of common stock that would exceed the beneficial ownership limitation, such beneficial ownership limitation will no longer apply to the holder if the holder notified the Company that the holder wishes the Company to seek such shareholder approval). On July 15, 2022, the Company received such shareholder approval to remove the beneficial ownership limitation with respect to the Series A Preferred Stock held by Broadwood. The Company may force the conversion of up to one-third of the shares of Series A Preferred Stock originally issued, subject to customary equity conditions, if the daily volume weighted average price of our common stock for 20 out of 30 trading days exceeds 140% of the conversion price and on 20 out of the same 30 trading days the daily trading volume equals or exceeds 400,000 shares of our common stock. The Company may only effect one forced conversion during any 30-trading day period.
In the event of the Company’s liquidation, dissolution, or winding up, holders of Series A Preferred Stock will receive a payment equal to the stated value of the Series A Preferred Stock plus accrued but unpaid dividends and any other amounts that may have become payable on the Series A Preferred Stock due to any failure or delay that may have occurred in issuing shares of common stock upon conversion of a portion of the Series A Preferred Stock, before any distribution or payment to the holders of common stock or any of our other junior equity.
ONCOCYTE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Shares of Series A Preferred Stock will generally have no voting rights, except as required by law and except that the consent of holders of a majority of the outstanding Series A Preferred Stock will be required to amend any provision of our certificate of incorporation that would have a materially adverse effect on the rights of the holders of the Series A Preferred Stock. Additionally, as long as any shares of Series A Preferred Stock remain outstanding, unless the holders of at least 51% of the then outstanding shares of Series A Preferred Stock shall have otherwise given prior written consent, we, on a consolidated basis with our subsidiaries, are not permitted to (1) have less than $8 million of unrestricted, unencumbered cash on hand (“Cash Minimum Requirement”); (2) other than certain permitted indebtedness, incur indebtedness to the extent that our aggregate indebtedness exceeds $15 million; (3) enter into any agreement (including any indenture, credit agreement or other debt instrument) that by its terms prohibits, prevents, or otherwise limits our ability to pay dividends on, or redeem, the Series A Preferred Stock in accordance with the terms of the Certificate of Determination; or (4) authorize or issue any class or series of preferred stock or other capital stock of the Company that ranks senior or pari passu with the Series A Preferred Stock.
Shares of Series A Preferred Stock will be entitled to receive cumulative dividends at a rate per share (as a percentage of stated value) of 6% per annum, payable quarterly in cash or, at our option, by accreting such dividends to the stated value.
The Company is required to redeem, for cash, the shares of Series A Preferred Stock on the earlier to occur of (1) April 8, 2024, (2) the commencement of certain a voluntary or involuntary bankruptcy, receivership, or similar proceedings against the Company or its assets, (3) a Change of Control Transaction (as defined herein) and (4) at the election and upon notice of 51% in interest of the holders, if the Company fails to meet the Cash Minimum Requirement. A “Change of Control Transaction” means the occurrence of any of (a) an acquisition by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of 50% of the voting securities of the Company (other than by means of conversion of Series A Preferred Stock), (b) the Company merges into or consolidates with any other person, or any person merges into or consolidates with the Company and, after giving effect to such transaction, the stockholders of the Company immediately prior to such transaction own less than 50% of the aggregate voting power of the Company or the successor entity of such transaction, or (c) the Company sells or transfers all or substantially all of its assets to another person. Additionally, the Company has the right to redeem the Series A Preferred Stock for cash upon 30 days prior notice to the holders; provided if the Company undertakes a capital raise in connection with such redemption, the Investors will have the right to participate in such financing.
As of March 31, 2023, Oncocyte had shares issued and outstanding. The future right or obligation associated with the Series A Preferred Stock to be issued in the second closing was written off in the prior year since the second closing was not completed.
Common Stock
As of March 31, 2023 and December 31, 2022, Oncocyte has shares of common stock, no-par value, authorized. As of March 31, 2023 and December 31, 2022, Oncocyte had and shares of common stock issued and outstanding, respectively.
On April 5, 2023, the Company redeemed shares of the Series A Preferred Stock for approximately $1.1 million. See Note 17 for details.
Common Stock Purchase Warrants
As of March 31, 2023, Oncocyte had an aggregate of 16,395,343 common stock purchase warrants issued and outstanding with exercise prices ranging from $1.53 to $5.46 per warrant. The warrants will expire on various dates ranging from February 2024 to October 2029. Certain warrants have “cashless exercise” provisions meaning that the value of a portion of warrant shares may be used to pay the exercise price rather than payment in cash, which may be exercised under any circumstances in the case of the 2017 Bank Warrants and 2019 Bank Warrants or, in the case of certain other warrants, only if a registration statement for the warrants and underlying shares of common stock is not effective under the Securities Act or a prospectus in the registration statement is not available for the issuance of shares upon the exercise of the warrants.
ONCOCYTE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Oncocyte has considered the guidance in ASC 815-40, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, which states that contracts that require or may require the issuer to settle the contract for cash are liabilities recorded at fair value, irrespective of the likelihood of the transaction occurring that triggers the net cash settlement feature. This liability classification guidance also applies to financial instruments that may require cash or other form of settlement for transactions outside of the company’s control and, in which the form of consideration to the warrant holder may not be the same as to all other shareholders in connection with the transaction. However, if a transaction is not within the company’s control but the holder of the financial instrument can solely receive the same type or form of consideration as is being offered to all the shareholders in the transaction, then equity classification of the financial instrument is not precluded, if all other applicable equity classification criteria are met. Based on the above guidance and, among other factors, the fact that the warrants cannot be cash settled under any circumstance but require share settlement, all of the outstanding warrants meet the equity classification criteria and have been classified as equity.
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Stock-Based Compensation |
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| Share-Based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-Based Compensation |
Oncocyte had a 2010 Stock Option Plan (the “2010 Plan”) under which shares of common stock were authorized for the grant of stock options or the sale of restricted stock. On August 27, 2018, Oncocyte shareholders approved a new Equity Incentive Plan (the “2018 Incentive Plan”) to replace the 2010 Plan. In adopting the 2018 Incentive Plan, Oncocyte terminated the 2010 Plan and will not grant any additional stock options or sell any stock under restricted stock purchase agreements under the 2010 Plan; however, stock options issued under the 2010 Plan will continue in effect in accordance with their terms and the terms of the 2010 Plan until the exercise or expiration of the individual options.
During the year ended December 31, 2022, the Company awarded executive share-based payment awards under the 2018 Plan to certain executive officers and employees with time-based, market-based and performance-based vesting conditions (“2022 equity awards”).
The fair value of the 2022 equity awards with performance-based vesting condition was estimated using the Black-Scholes option-pricing model assuming that performance goals will be achieved. If such performance conditions are not met, no compensation cost is recognized and any recognized compensation cost is reversed. The probability of 2022 equity awards performance-based vesting conditions will be evaluated each reporting period and the Company will true-up the amount of cumulative cost recognized for the 2022 performance-based awards at each reporting period based on the most up-to-date probability estimates. The Company will recognize the compensation expense for 2022 performance-based awards expected to vest on a straight-line basis over the respective service period for each separately vesting tranche.
The fair value of the 2022 equity awards with market-based vesting condition was estimated using the Monte Carlo simulation model. Assumptions and estimates utilized in the model include the risk-free interest rate, dividend yield, expected stock volatility and the estimated period to achievement of the performance and market conditions, which are subject to the achievement of the market-based goals established by the Company and the continued employment of the participant. These awards vest only to the extent that the market-based conditions are satisfied as specified in the vesting conditions. Unlike the performance-based awards, the grant date fair value and associated compensation cost of the market-based awards reflect the probability of the market condition being achieved, and the Company will recognize this compensation cost regardless of the actual achievement of the market condition. Assumptions utilized in connection with the Monte Carlo valuation technique included: estimated risk-free interest rate of percent; term of years; expected volatility of percent; and expected dividend yield of percent. The risk-free interest rate was determined based on the yields available on U.S. Treasury zero-coupon issues. The expected stock price volatility was determined using historical volatility. The expected dividend yield was based on expectations regarding dividend payments. The total grant date fair value of the market-based awards was $.
In May 2022, the Company approved amendments to vesting conditions of performance-based and market-based awards of certain executive officers and employees. The performance-based awards were modified such that the stock awards will be eligible to vest as follows: (i) will vest on December 31, 2023 if the Company achieves LCD reimbursement for VitaGraft (formerly TheraSureTM Transplant Monitor) for one organ no later than December 31, 2022 and (ii) will vest on December 31, 2023 if DetermaIO or DetermaCNI (formerly TheraSure - CNI Monitor) submission for LCD is completed no later than December 31, 2022. Additional performance-based restricted stock unit (“RSU”) awards were modified to be eligible to vest upon the achievement by . The market-based RSU awards were modified such that the awards will be eligible to vest upon the achievement of product commercial launch minimum, target, and maximum goals as follows: (i) 1 laboratory test product in the US; (ii) 2 laboratory test products in US, and (iii) 3 laboratory test products in the US, respectively.
In accordance with ASC 718, the Company calculated the fair value of the market-based awards on the date of modification, noting an increase in the fair value of approximately $58,500 on the date of modification, with the incremental increase in fair value representing additional unrecognized stock-based compensation expense. The following assumptions were used in calculating the fair value of the market-based options on the date of modification:
In July 2022, the Company approved amendments to vesting conditions of performance-based awards of certain executive officers and employees. Certain performance-based awards were modified such that the stock awards will be eligible to vest as follows: (i) fifty percent () of the options will vest on December 31, 2023 (the “Vesting Date”), subject to Continuous Service through the Vesting Date, if local coverage determination is issued and priced for VitaGraft (Transplant) with respect to one organ no later than December 31, 2022; and (ii) fifty percent () of the options will vest on the Vesting Date, subject to Continuous Service through the Vesting Date, if the Company submits a local coverage determination request for DetermaIO or DetermaCNI no later than December 31, 2022. Additional performance-based stock awards were modified to be eligible to vest upon . These same awards contained budget performance goals which were modified to be eligible to vest upon the achievement of performance minimum, target, and maximum goals of (i) complete fiscal year 2022 with sufficient cash to continue operations for 12 months; (ii) complete fiscal year 2022 with sufficient cash to continue operations for 15 months; and (iii) complete fiscal year 2022 with sufficient cash to continue operations for 16 months, respectively.
As of December 31, 2022, of the performance-based were forfeited since the Company did not achieve LCD reimbursement for VitaGraft. .
During the year ended December 31, 2022, the Company accelerated the vesting of certain equity awards in accordance with the 2018 Incentive Plan after the departure of officers of the Company and the adoption of the workforce reduction plan. Due to the acceleration of such awards all associated unrecognized compensation was accelerated and recognized in full.
As of March 31, 2023, shares of common stock were reserved under the 2018 Incentive Plan for the grant of stock options or the sale of restricted stock or for the settlement of RSUs. Oncocyte may also grant stock appreciation rights under the 2018 Incentive Plan.
The determination of stock-based compensation is inherently uncertain and subjective and involves the application of valuation models and assumptions requiring the use of judgment. If Oncocyte had made different assumptions, its stock-based compensation expense and net income (loss) for the three months ended March 31, 2023, and 2022 may have been significantly different.
Oncocyte does not recognize deferred income taxes for incentive stock option compensation expense and records a tax deduction only when a disqualified disposition has occurred.
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Disaggregation of Revenues and Concentration Risk |
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| Disaggregation of Revenues and Concentration Risk | 7. Disaggregation of Revenues and Concentration Risk
The following table presents the percentage of consolidated revenues generated by unaffiliated customers that individually represent greater than ten percent of consolidated revenues:
The following table presents the percentage of consolidated revenues by products or services classes:
The following table presents the percentage of consolidated revenues attributable to geographical locations:
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Income Taxes |
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Mar. 31, 2023 | |
| Income Tax Disclosure [Abstract] | |
| Income Taxes | 8. Income Taxes
The provision for income taxes for interim periods is determined using an estimated annual effective tax rate in accordance with ASC 740-270, Income Taxes, Interim Reporting. The effective tax rate may be subject to fluctuations during the year as new information is obtained, which may affect the assumptions used to estimate the annual effective tax rate, including factors such as valuation allowances against deferred tax assets, the recognition or de-recognition of tax benefits related to uncertain tax positions, if any, and changes in or the interpretation of tax laws in jurisdictions where Oncocyte conducts business.
Oncocyte did not record any provision or benefit for income taxes for the three months ended March 31, 2023 and 2022, as Oncocyte had a full valuation allowance for the periods presented.
A valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized. Oncocyte established a full valuation allowance for all periods presented due to the uncertainty of realizing future tax benefits from its net operating loss carry-forwards and other deferred tax assets.
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Right-of-use assets, machinery and equipment, net, and construction in progress |
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| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Right-of-use assets, machinery and equipment, net, and construction in progress | 9. Right-of-use assets, machinery and equipment, net, and construction in progress
As of March 31, 2023 and December 31, 2022, right-of-use assets, machinery and equipment, net, and construction in progress were as follows (in thousands):
Depreciation expense amounted to $450,000 and $287,000 for the three months ended March 31, 2023 and 2022, respectively.
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Commitments and Contingencies |
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| Commitments and Contingencies | 10. Commitments and Contingencies
Oncocyte has certain commitments other than discussed in Note 3.
Office Lease Agreement
On December 23, 2019, Oncocyte entered into an Office Lease Agreement (the “Irvine Lease”) of a building containing approximately 26,800 square feet of rentable space located at 15 Cushing in Irvine, California (the “Premises”) that will serve as Oncocyte’s new principal executive and administrative offices and laboratory facility. Oncocyte completed the relocation of its offices to the Premises in January 2020 and subsequently constructed a laboratory at the Irvine facility to perform cancer diagnostic tests.
The Irvine Lease has an initial term of 89 calendar months (the “Term”), which commenced on June 1, 2020 (the “Commencement Date”). Oncocyte has an option to extend the Term for a period of five years (the “Extended Term”).
Oncocyte will pay base monthly rent in the amount of $61,640 during the first 12 months of the Term. Base monthly rent will increase annually, over the base monthly rent then in effect, by 3.5%. Oncocyte was entitled to an abatement of 50% of the base monthly rent during the first ten calendar months of the Term. If the Irvine Lease is terminated based on the occurrence of an “event of default,” Oncocyte will be obligated to pay the abated rent to the lessor.
If Oncocyte exercises its option to extend the Term, the initial base monthly rent during the Extended Term will be the greater of the base monthly rent in effect during the last year of the Term or the prevailing market rate. The prevailing market rate will be determined based on annual rental rates per square foot for comparable space in the area where the Premises are located. If Oncocyte does not agree with the prevailing market rate proposed by the lessor, the rate may be determined through an appraisal process. The base monthly rent during the Extended Term shall be subject to the same annual rent adjustment as applicable for base monthly rent during the Term.
In addition to base monthly rent, Oncocyte will pay in monthly installments (a) all costs and expenses, other than certain excluded expenses, incurred by the lessor in each calendar year in connection with operating, maintaining, repairing (including replacements if repairs are not feasible or would not be effective) and managing the Premises and the building in which the Premises are located (“Expenses”), and (b) all real estate taxes and assessments on the Premises and the building in which the Premises are located, all personal property taxes for property that is owned by lessor and used in connection with the operation, maintenance and repair of the Premises, and costs and fees incurred in connection with seeking reductions in such tax liabilities (“Taxes”). Subject to certain exceptions, Expenses shall not be increased by more than 4% annually on a cumulative, compounded basis.
Oncocyte was entitled to an abatement of its obligations to pay Expenses and Taxes while constructing improvements to the Premises constituting “Tenant’s Work” under the Irvine Lease prior to the Commencement Date, except that Oncocyte was obligated to pay 43.7% of Expenses and Taxes during the period prior to the Commencement Date for its use of the second floor of the Premises, which was already built out as office space.
The lessor provided Oncocyte with a “Tenant Improvement Allowance” in the amount of $1.3 million to pay for the plan, design, permitting, and construction of the improvements constituting Tenant’s Work. The lessor retained 1.5% of the Tenant Improvement Allowance as an administrative fee as provided in the Irvine Lease. As of March 31, 2023, the lessor had provided $1.3 million of the total Tenant Improvement Allowance.
Oncocyte has provided the lessor with a security deposit in the amount of $150,000 and a letter of credit in the amount of $1.7 million. The lessor may apply the security deposit, in whole or in part, for the payment of rent and any other amount that Oncocyte is or becomes obligated to pay under the Irvine Lease but fails to pay when due and beyond any cure period. The lessor may draw on the letter of credit from time to time to pay any amount that is unpaid and due, or if the original issuing bank notifies the lessor that the letter of credit will not be renewed or extended for the period required under the Irvine Lease and Oncocyte fails to timely provide a replacement letter of credit, or an event of default under the Irvine Lease occurs and continues beyond the applicable cure period, or if certain insolvency or bankruptcy or insolvency with respect to Oncocyte occur. Oncocyte is required to restore any portion of the security deposit that is applied by the lessor to payments due under the Irvine Lease, and Oncocyte is required to restore the amount available under the letter of credit to the required amount if any portion of the letter of credit is drawn by the lessor. Commencing on the 34th month of the Term, (a) the amount of the letter of credit that Oncocyte is required to maintain shall be reduced on a monthly basis, in equal installments, to amortize the required amount to zero at the end of the Term, and (b) Oncocyte will have the right to cancel the letter of credit at any time if it meets certain market capitalization and balance sheets thresholds; provided, in each case, that Oncocyte is not in then default under the Irvine Lease beyond any applicable notice and cure period and the lessor has not determined that an event exists that would lead to an event of default.
To obtain the letter of credit, Oncocyte has provided the issuing bank with a restricted cash deposit that the bank will hold to cover its obligation to pay any draws on the letter of credit by the lessor. The restricted cash may not be used for any other purpose.
On August 27, 2021, Oncocyte entered into a lease agreement to add an additional suite to its Nashville office space, containing approximately 1,928 square feet of rentable space located at 2 International Plaza, Suite 103, Nashville TN. The term of the lease commences on October 1, 2021 and extends through April 9, 2024 and will serve as additional office space for Insight Genetics’s operations.
The Irvine Lease is an operating lease under ASC 842 included in the tables below. The tables below provide the amounts recorded in connection with the application of ASC 842 as of, and during, the three months ended March 31, 2023, for Oncocyte’s operating and financing leases (see Note 2).
Under the Laboratory Agreement discussed in Note 3 (which expired on September 29, 2021), Oncocyte assumed all of Razor’s Laboratory Agreement payment obligations. Although Oncocyte is not a party to any lease agreement with Razor or Encore, under the terms of the Laboratory Agreement, Oncocyte received the landlord’s consent for the use of the laboratory at Razor’s Brisbane, California location (the “Brisbane Facility”) under the terms of a sublease to which Encore is the sublessee. The sublease expired on March 31, 2023 (the “Brisbane Lease”). The laboratory fee payments to Encore include both laboratory services and the use of the Brisbane Facility. Under the provisions of the Laboratory Agreement, if Oncocyte terminates the Laboratory Agreement prior to the expiration of the Brisbane Lease, Oncocyte shall assume the costs related to the subletting or early termination of the Brisbane Lease. The Laboratory Agreement terminated on March 31, 2023. Oncocyte determined that the Laboratory Agreement contains an embedded operating lease for the Brisbane Facility and Oncocyte allocated the aggregate payments to this lease component for purposes of calculating the net present value of the right-of-use asset and liability as of the inception of the Laboratory Agreement in accordance with ASC 842, as shown in the table below.
Financing lease
As of March 31, 2023, Oncocyte has one financing lease remaining through December 2023 for certain laboratory equipment with aggregate remaining payments of $93,000 shown in the table below. Oncocyte’s lease obligations are collateralized by the equipment financed under the lease schedule.
Operating and Financing leases
The following table presents supplemental cash flow information related to operating and financing leases for the three months ended March 31, 2023 and 2022 (in thousands):
The following table presents supplemental balance sheets information related to operating and financing leases as of March 31, 2023 and March 31, 2022 (in thousands, except lease term and discount rate):
Future minimum lease commitments are as follows (in thousands):
Litigation – General
Oncocyte will be subject to various claims and contingencies in the ordinary course of its business, including those related to litigation, business transactions, employee-related matters, and other matters. When Oncocyte is aware of a claim or potential claim, it assesses the likelihood of any loss or exposure. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, Oncocyte will record a liability for the loss. If the loss is not probable or the amount of the loss cannot be reasonably estimated, Oncocyte discloses the claim if the likelihood of a potential loss is reasonably possible and the amount involved could be material.
Tax Filings
Oncocyte tax filings are subject to audit by taxing authorities in jurisdictions where it conducts business. These audits may result in assessments of additional taxes that are subsequently resolved with the authorities or potentially through the courts. Management believes Oncocyte has adequately provided for any ultimate amounts that are likely to result from these audits; however, final assessments, if any, could be significantly different than the amounts recorded in the unaudited condensed consolidated interim financial statements.
Employment Contracts
Oncocyte has entered into employment and severance benefit contracts with certain executive officers. Under the provisions of the contracts, Oncocyte may be required to incur severance obligations for matters relating to changes in control, as defined, and certain terminations of executives. As of March 31, 2023, Oncocyte accrued approximately $3.2 million in severance obligations for certain executive officers, in accordance with the severance benefit provisions of their respective employment and severance benefit agreements, primarily related to Oncocyte’s acquisition of Chronix Biomedical Inc. in 2021.
Indemnification
In the normal course of business, Oncocyte may provide indemnification of varying scope under Oncocyte’s agreements with other companies or consultants, typically Oncocyte’s clinical research organizations, investigators, clinical sites, suppliers and others. Pursuant to these agreements, Oncocyte will generally agree to indemnify, hold harmless, and reimburse the indemnified parties for losses and expenses suffered or incurred by the indemnified parties arising from claims of third parties in connection with the use or testing of Oncocyte’s diagnostic tests. Indemnification provisions could also cover third party infringement claims with respect to patent rights, copyrights, or other intellectual property pertaining to Oncocyte’s diagnostic tests. Oncocyte’s office and laboratory facility leases also will generally contain indemnification obligations, including obligations for indemnification of the lessor for environmental law matters and injuries to persons or property of others, arising from Oncocyte’s use or occupancy of the leased property. The term of these indemnification agreements will generally continue in effect after the termination or expiration of the particular research, development, services, lease, or license agreement to which they relate. The Purchase Agreement also contains provisions under which Oncocyte has agreed to indemnify Razor and Encore from losses and expenses resulting from breaches or inaccuracy of Oncocyte’s representations and warranties and breaches or nonfulfillment of Oncocyte’s covenants, agreements, and obligations under the Purchase Agreement. Oncocyte periodically enters into underwriting and securities sales agreements with broker-dealers in connection with the offer and sale of Oncocyte securities. The terms of those underwriting and securities sales agreements include indemnification provisions pursuant to which Oncocyte agrees to indemnify the broker-dealers from certain liabilities, including liabilities arising under the Securities Act, in connection with the offer and sale of Oncocyte securities. The potential future payments Oncocyte could be required to make under these indemnification agreements will generally not be subject to any specified maximum amounts. Historically, Oncocyte has not been subject to any claims or demands for indemnification. Oncocyte also maintains various liability insurance policies that limit Oncocyte’s financial exposure. As a result, Oncocyte management believes that the fair value of these indemnification agreements is minimal. Accordingly, Oncocyte has not recorded any liabilities for these agreements as of March 31, 2023 and December 31, 2022.
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Workforce Reduction |
3 Months Ended |
|---|---|
Mar. 31, 2023 | |
| Workforce Reduction | |
| Workforce Reduction | 11. Workforce Reduction
In August 2022, the Company initiated a workforce reduction plan to strategically realign its operations and implement cost reduction programs to prioritize near term revenue generators and to manage and preserve cash. In connection with the reduction, the Company eliminated 14 positions, implemented tighter expense controls, and ceased non-core activities.
Further, on December 16, 2022, Oncocyte initiated an additional reduction in work force involving over 40% of its full-time employees. The transition began on December 16, 2022 and was completed in February 2023. As of December 31, 2022, the Company incurred an aggregate of $1.9 million related to employee severance and benefits costs in connection with its reductions in force during fiscal year 2022.
On April 12, 2023, Oncocyte announced a reduction in force involving approximately 20% of its workforce (the “April 2023 Reduction”), which management believes will extend Oncocyte’s cash runway in 2024. In connection with the April 2023 Reduction, we estimate that we will incur charges of approximately $0.3 million related to employee severance and benefits costs in the second quarter of 2023.
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Related Party Transactions |
3 Months Ended |
|---|---|
Mar. 31, 2023 | |
| Related Party Transactions [Abstract] | |
| Related Party Transactions | 12. Related Party Transactions
Financing Transactions
On April 13, 2022, Oncocyte entered into the Securities Purchase Agreement with Investors, including Broadwood and John Peter Gutfreund, a director of Oncocyte, for the Series A Preferred Stock Offering. Each of Broadwood and Mr. Gutfreund has a direct material interest in the Series A Preferred Stock Offering and agreed to purchase and shares, respectively, in the Series A Preferred Stock Offering and on the same terms as other investors. Additionally, Halle Capital Management, L.P. received $ from the Company as reimbursement for its legal fees and expenses. Mr. Gutfreund is the Managing Partner of Halle Capital Management, L.P. See Note 15 for additional information about the Series A Preferred Stock Offering.
Further, on April 13, 2022, Oncocyte entered into the Underwriting Agreement with the Underwriters for the Underwritten Offering. Pursuant to the Underwritten Offering, Broadwood acquired from us (i) shares of common stock, and (ii) 6,003,752 April 2022 Warrants to purchase up to 3,001,876 shares of common stock at an exercise price of $1.53 per share. However, the total number of shares of common stock that Broadwood purchased in the Underwritten Offering was 6,003,752, of which 783,098 existing shares were acquired by the underwriters in the open market and re-sold to Broadwood. Pura Vida acquired from us (i) shares of common stock, and (ii) 5,731,707 April 2022 Warrants to purchase up to 2,865,853 shares of common stock. However, the total number of shares of common stock that Pura Vida purchased in the Underwritten Offering was , of which existing shares were acquired by the underwriters in the open market and re-sold to Pura Vida. Halle Special Situations Fund LLC purchased from us (i) shares of common stock, and (ii) 7,129,456 2022 Warrants to purchase up to 3,564,728 shares of common stock. Mr. Gutfreund is the investment manager and a control person of Halle Capital Partners GP LLC, the managing member of Halle Special Situations Fund LLC. However, the total number of shares of common stock that Halle Special Situations Fund LLC purchased in the Underwritten was 7,129,456, of which 929,929 existing shares were acquired by the underwriters in the open market and re-sold to Halle Special Situations Fund LLC. See Note 15 for additional information about the Underwritten Offering.
On April 3, 2023, Oncocyte entered into a securities purchase agreement (the “2023 Securities Purchase Agreement”) with certain investors, including Broadwood, Pura Vida and entities affiliated with AWM, and certain directors, including Andrew Arno and John Peter Gutfreund (and certain of their affiliated parties), which provides for the sale and issuance by the Company of an aggregate of shares of common stock at an offering price of: (i) $0.30168 to investors who are not considered to be “insiders” of the Company pursuant to Nasdaq Listing Rules (“Insiders”), which amount reflects the average closing price of the Common Stock on Nasdaq during the five trading day period immediately prior to pricing, and (ii) $0.35440 to Insiders, which amount reflects the final closing price of the Common Stock on Nasdaq on the last trading day immediately prior to pricing (the “2023 Registered Direct Offering”). Broadwood purchased shares of common stock for $8,093,361.84, Pura Vida purchased shares of common stock for $200,013.84 and entities affiliated with AVM purchased shares of common stock for $2,849,999.92. Mr. Arno and his affiliated parties purchased shares of common stock for $150,000.51, and Mr. Gutfreund and his affiliated parties purchased for $604,252.00.
On April 5, 2023, Oncocyte redeemed all of the shares of Series A Preferred Stock held by Mr. Gutfreund for $618,672.34.
Company Employee(s)
The Company employs the son of Andrew Arno, Chairman of the Board as its Senior Manager, Investor Relations, Corporate Planning & Development. As of March 31, 2023, the total compensation paid by the Company to Mr. Arno’s son since January 1, 2022 is approximately $.
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Loan Payable to Silicon Valley Bank |
3 Months Ended |
|---|---|
Mar. 31, 2023 | |
| Debt Disclosure [Abstract] | |
| Loan Payable to Silicon Valley Bank | 13. Loan Payable to Silicon Valley Bank
Amended Loan Agreement
On October 17, 2019, Oncocyte entered into a First Amendment to Loan and Security Agreement (the “Amended Loan Agreement”) with Silicon Valley Bank (“the Bank”) pursuant to which Oncocyte obtained a new $ million secured credit facility (“Tranche 1”), a portion of which was used to repay the remaining balance of approximately $ on outstanding loans from the Bank, plus a final payment of $, under the February 21, 2017 Loan Agreement. The credit line under the Amended Loan Agreement may be increased by an additional $ million (“Tranche 2”) if Oncocyte obtains at least $ million of additional equity capital, as was the case with the original Loan Agreement, and a positive final coverage determination is received from CMS for DetermaRx at a specified minimum price point per test (the “Tranche 2 Milestone”), and Oncocyte is not in default under the Amended Loan Agreement. As of March 31, 2023, Oncocyte had satisfied the Tranche 2 Milestone and was eligible to borrow the $ million Tranche 2 funds. However, Oncocyte has not yet borrowed any funds under Tranche 2.
Payments of interest only on the principal balance were due monthly from the draw date through March 31, 2020, followed by 24 monthly payments of principal and interest, but the Bank has agreed to a deferral of principal payments, as discussed below. The outstanding principal balance of the loan will bear interest at a stated floating annual interest equal to the greater of (a) the prime rate or (b) 5% per annum. During August 2022, period in which the loan was paid off, the published prime rate was 5.5% per annum.
On April 2, 2020, as part of the Bank’s COVID-19 pandemic relief program, Oncocyte and the Bank entered into a Loan Deferral Agreement (“Loan Deferral”) with respect to the Amended Loan Agreement. Under the Loan Deferral Agreement, the Bank agreed to (i) extend the scheduled maturity date of the Amended Loan Agreement from March 31, 2022 to September 30, 2022, and (ii) deferred the principal payments by an additional 6 months whereby payments of interest only on the Bank loan principal balance will be due monthly from May 1, 2020 through October 1, 2020, followed by 23 monthly payments of principal and interest beginning on November 1, 2020, all provided at no additional fees to Oncocyte. No other terms of the Amended Loan Agreement were changed or modified. The Loan Deferral was accounted for as a modification of debt in accordance with ASC 470-50, Debt – Modifications and Extinguishments, thus there was no gain or loss recognized on the transaction.
At maturity of the loan, Oncocyte agreed to pay the Bank an additional final payment fee of $200,000, which was recorded as a deferred financing charge in October 2019 and is being amortized to interest expense over the term of the loan using the effective interest method. As of March 31, 2023, there is no remaining unamortized deferred financing cost and the full principal balance of the loan in addition to the final payment fee have been paid off.
Bank Warrants
In 2017, in connection with the Loan Agreement, Oncocyte issued common stock purchase warrants to the Bank (the “2017 Bank Warrants”) entitling the Bank to purchase shares of Oncocyte common stock in tranches related to the loan tranches under the Loan Agreement. In conjunction with the availability of the loan, the Bank was issued warrants to purchase 8,247 shares of Oncocyte common stock at an exercise price of $4.85 per share, through February 21, 2027. On March 23, 2017, the Bank was issued warrants to purchase an additional 7,321 shares at an exercise price of $5.46 per share, through March 23, 2027. The Bank may elect to exercise the 2017 Bank Warrants on a “cashless exercise” basis and receive a number of shares determined by multiplying the number of shares for which the applicable tranche is being exercised by (A) the excess of the fair market value of the common stock over the applicable exercise price, divided by (B) the fair market value of the common stock. The fair market value of the common stock will be the last closing or sale price on a national securities exchange, inter-dealer quotation system, or over-the-counter market.
On October 17, 2019, in conjunction with Tranche 1 becoming available under the Amended Loan Agreement, Oncocyte issued a common stock purchase warrant to the Bank (the “2019 Bank Warrant”) entitling the Bank to purchase 98,574 shares of Oncocyte common stock at the initial “Warrant Price” of $1.69 per share through October 17, 2029. The number of shares of common stock issuable upon the exercise of the 2019 Bank Warrant will increase on the date of each draw, if any, on Tranche 2. The number of additional shares of common stock issuable upon the exercise of the 2019 Bank Warrant will be equal to of Oncocyte’s fully diluted equity outstanding for each $ million draw under Tranche 2. The Warrant Price for Tranche 2 warrant shares will be determined upon each draw of Tranche 2 funds and will be closing price of Oncocyte common stock on the NYSE American or other applicable market on the date immediately before the applicable date on which Oncocyte borrows funds under Tranche 2. The Bank may elect to exercise the 2019 Bank Warrant on a “cashless exercise” basis and receive a number of shares determined by multiplying the number of shares for which the 2019 Bank Warrant is being exercised by (A) the excess of the fair market value of the common stock over the applicable Warrant Price, divided by (B) the fair market value of the common stock. The fair market value of the common stock will be last closing or sale price on a national securities exchange, interdealer quotation system, or over-the-counter market. As of March 31, 2023, Oncocyte has not borrowed any funds under Tranche 2.
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Co-Development Agreement with Life Technologies Corporation |
3 Months Ended |
|---|---|
Mar. 31, 2023 | |
| Co-development Agreement With Life Technologies Corporation | |
| Co-Development Agreement with Life Technologies Corporation | 14. Co-Development Agreement with Life Technologies Corporation
On January 13, 2022, Oncocyte entered into a Collaboration Agreement (the “LTC Agreement”) with Life Technologies Corporation, a Delaware corporation and subsidiary of Thermo Fisher Scientific (“LTC” and together with Oncocyte, the “Parties” or individually, a “Party”), in order to partner in the development and collaborate in the commercialization of Thermo Fisher Scientific’s existing Oncomine Comprehensive Assay Plus (“OCA Plus”) and Oncocyte’s DetermaIO assay for use with LTC’s Ion TorrentTM GenexusTM Integrated Sequencer and LTC’s Ion TorrentTM GenexusTM Purification System (“Genexus system”) in order to obtain in vitro diagnostic (“IVD”) regulatory approval. On February 7, 2023, Oncocyte entered into a Termination Agreement (the “Termination Agreement”) with LTC, pursuant to which the parties terminated the LTC Agreement.
ONCOCYTE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of March 31, 2023, Oncocyte was responsible for reimbursing LTC for $749,000 of certain development costs under the terms of the LTC Agreement.
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April 2022 Offerings |
3 Months Ended |
|---|---|
Mar. 31, 2023 | |
| April 2022 Offerings | |
| April 2022 Offerings | 15. April 2022 Offerings
Series A Preferred Stock Offering
On April 13, 2022, Oncocyte entered into the Securities Purchase Agreement with Investors, including Broadwood, in a registered direct offering of shares of our Series A Preferred Stock, which shares of Series A Preferred Stock are convertible into a total of shares of our common stock, at a conversion price of $1.53. The purchase price of each share of Series A Preferred Stock was $850, which included an original issue discount to the stated value of $1,000 per share. The rights, preferences and privileges of the Series A Preferred Stock are set forth in the Company’s Certificate of Determination, which the Company filed with the Secretary of State of the State of California. The Securities Purchase Agreement provides that the closing of the Series A Preferred Stock Offering will occur, subject to the satisfactory of certain closing conditions, in two equal tranches of $5,000,000 each for aggregate gross proceeds from both closings of $10,000,000. The first closing occurred on June 1, 2022, and Oncocyte received net proceeds of approximately $ million from the Series A Preferred Stock issued from the first tranche. The second closing would occur, subject to the satisfactory of certain closing conditions (including but not limited to a requirement that the Company has not received, in the 12 months preceding the second closing, a notice from Nasdaq that the Company is not in compliance with the listing and maintenance and listing requirements of Nasdaq), on the earlier of (a) the second trading day following the date that Oncocyte receives notice from an Investor to accelerate the second closing and (b) a date selected by Oncocyte on or after October 8, 2022 and on or prior to March 8, 2023, the Outside Date. On August 9, 2022, Oncocyte received a letter from Nasdaq indicating that the Company no longer meets the minimum bid price requirement of Nasdaq Listing Rule 5450(a)(1) of the Nasdaq continued listing requirements. As a result, no additional proceeds were received from the second closing of the Securities Purchase Agreement prior to the Outside Date.
ONCOCYTE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Series A Preferred Stock is convertible into shares of common stock at any time at the holder’s option. The conversion price will be subject to customary anti-dilution adjustments for matters such as stock splits, stock dividends and other distributions on common stock, and recapitalizations. The holder will be prohibited from converting shares of Series A Preferred Stock into shares of common stock if, as a result of such conversion, the holder, together with its affiliates, would own more than of the shares of common stock then issued and outstanding (provided a holder may elect, at the first closing, to increase such beneficial ownership limitation solely as to itself up to 19.99% of the number of shares of common stock outstanding immediately after giving effect to the conversion, provided further that following the receipt of shareholder approval required by applicable Nasdaq rules with respect to the issuance of common stock that would exceed the beneficial ownership limitation, such beneficial ownership limitation will no longer apply to the holder if the holder notified the Company that the holder wishes the Company to seek such shareholder approval). On July 15, 2022, the Company received such shareholder approval to remove the beneficial ownership limitation with respect to the Series A Preferred Stock held by Broadwood. Oncocyte may force the conversion of up to one-third of the shares of Series A Preferred Stock originally issued, subject to customary equity conditions, if the daily volume weighted average price of our common stock for 20 out of 30 trading days exceeds 140% of the conversion price and on 20 out of the same 30 trading days the daily trading volume equals or exceeds 400,000 shares of our common stock. Oncocyte may only effect one forced conversion during any 30-trading day period.
In the event of the Company’s liquidation, dissolution, or winding up, holders of Series A Preferred Stock will receive a payment equal to the stated value of the Series A Preferred Stock plus accrued but unpaid dividends and any other amounts that may have become payable on the Series A Preferred Stock due to any failure or delay that may have occurred in issuing shares of common stock upon conversion of a portion of the Series A Preferred Stock, before any distribution or payment to the holders of common stock or any of Oncocyte’s other junior equity.
Shares of Series A Preferred Stock generally has no voting rights, except as required by law and except that the consent of holders of a majority of the outstanding Series A Preferred Stock will be required to amend any provision of our certificate of incorporation that would have a materially adverse effect on the rights of the holders of the Series A Preferred Stock. Additionally, as long as any shares of Series A Preferred Stock remain outstanding, unless the holders of at least 51% of the then outstanding shares of Series A Preferred Stock shall have otherwise given prior written consent, the Company, on a consolidated basis with its subsidiaries, is not permitted to (1) have less than $8 million of unrestricted, unencumbered cash on hand (“Cash Minimum Requirement”); (2) other than certain permitted indebtedness, incur indebtedness to the extent that our aggregate indebtedness exceeds $15 million; (3) enter into any agreement (including any indenture, credit agreement or other debt instrument) that by its terms prohibits, prevents, or otherwise limits our ability to pay dividends on, or redeem, the Series A Preferred Stock in accordance with the terms of the Certificate of Determination; or (4) authorize or issue any class or series of preferred stock or other capital stock of the Company that ranks senior or pari passu with the Series A Preferred Stock.
Shares of Series A Preferred Stock will be entitled to receive cumulative dividends at a rate per share (as a percentage of stated value) of 6% per annum, payable quarterly in cash or, at our option, by accreting such dividends to the stated value.
The Company is required to redeem, for cash, the shares of Series A Preferred Stock on the earlier to occur of (1) April 8, 2024, (2) the commencement of certain a voluntary or involuntary bankruptcy, receivership, or similar proceedings against us or our assets, (3) a Change of Control Transaction (as defined herein) and (4) at the election and upon notice of 51% in interest of the holders, if the Company fails to meet the Cash Minimum Requirement. A “Change of Control Transaction” means the occurrence of any of (a) an acquisition by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of 50% of the voting securities of the Company (other than by means of conversion of Series A Preferred Stock), (b) the Company merges into or consolidates with any other person, or any person merges into or consolidates with the Company and, after giving effect to such transaction, the stockholders of the Company immediately prior to such transaction own less than 50% of the aggregate voting power of the Company or the successor entity of such transaction, or (c) the Company sells or transfers all or substantially all of its assets to another person. Additionally, the Company has the right to redeem the Series A Preferred Stock for cash upon 30 days prior notice to the holders; provided if the Company undertakes a capital raise in connection with such redemption, the Investors will have the right to participate in such financing.
The issuance and sale of the Series A Preferred Stock was completed pursuant to the Company’s effective shelf registration statement on Form S-3 (Registration No. 333-256650), filed with the Securities and Exchange Commission on May 28, 2021 and declared effective by the SEC on June 8, 2021, and an accompanying prospectus dated June 8, 2021 as supplemented by a prospectus supplement dated April 13, 2022.
ONCOCYTE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Series A Preferred Stock dividend for all issued and outstanding shares is set at 6% per annum per share. As of March 31, 2023, the Company elected to accrete dividends of $299,000, with respect to shares of Series A Preferred Stock.
As of March 31, 2023, Oncocyte had shares issued and outstanding. The future right or obligation associated with the Series A Preferred Stock to be issued in the second closing was written off since the second closing was not received as of March 31, 2023.
Underwritten Offering
On April 13, 2022, Oncocyte entered into the Underwriting Agreement with the Underwriters, pursuant to which the Company agreed to issue and sell to the Underwriters an aggregate of shares of common stock and 26,266,417 April 2022 Warrants to purchase up to 13,133,208.5 shares of common stock. Each share of common stock and the accompanying April 2022 Warrant was sold at a combined offering price of $, representing an offering price of $ per share of common stock and $0.01 per accompanying April 2022 Warrant, before underwriting discounts and commissions.
Under the terms of the Underwriting Agreement, the Company also granted to the Underwriters an over-allotment option, exercisable in whole or in part at any time for a period of 30 days from the date of the Underwriting Agreement, to purchase up to an additional shares of common stock and 3,939,962 April 2022 Warrants to purchase 1,969,981 shares of common stock to cover over-allotments, if any. The over-allotment option may be exercised separately for shares of common stock at a price to the underwriters of $ per share, and April 2022 Warrants at a price of $ per April 2022 Warrant. On April 14, 2022, the Underwriters exercised their option to purchase the April 2022 Warrants pursuant to the over-allotment option but did not exercise their option to purchase the additional shares of common stock.
The Company received net proceeds of approximately $32.8 million from the Underwritten Offering, which includes the April 2022 Warrants sold upon the exercise of the Underwriters’ overallotment option. The Underwritten Offering closed on April 19, 2022.
The Underwritten Offering was made pursuant to the Company’s effective “shelf” registration statement on Form S-3 (Registration No. 333-256650) filed with the Securities and Exchange Commission on May 28, 2021 and declared effective by the SEC on June 8, 2021, and an accompanying prospectus dated June 8, 2021 as supplemented by a prospectus supplement dated April 13, 2022.
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Assets Held for Sale and Discontinued Operations |
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| Assets Held for Sale and Discontinued Operations | 16. Assets Held for Sale and Discontinued Operations
Razor Disposal
On December 15, 2022, the Company entered into the Razor Stock Purchase Agreement with Dragon and Razor. Pursuant to the Razor Stock Purchase Agreement, Oncocyte agreed to sell, and Dragon agreed to purchase, shares of common stock of Razor, which constitutes approximately 70% of the issued and outstanding equity interests of Razor on a fully-diluted basis. On February 16, 2023, Oncocyte completed the Razor Sale Transaction. In connection with the Razor Closing, Oncocyte transferred to Razor all of the assets and liabilities related to DetermaRx. 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. Following the Razor Closing, Oncocyte continues to own shares of common stock of Razor, which constitutes approximately 30% of the issued and outstanding equity interests of Razor on a fully-diluted basis
In addition to the transfer of 70% of the equity interests of Razor, the Razor Stock Purchase Agreement provided that Dragon would purchase furniture, fixtures, and equipment from the Company for a cash consideration of $115,660. Upon the Razor Closing, the Company deconsolidated the assets and liabilities of Razor as control of Razor has transferred to Dragon.
During the quarter ended March 31, 2023, the Company recorded the final adjustment related to the disposal, including final working capital adjustments, and recorded a loss of $1.3 million during the quarter. Including the impairment losses we recognized as of December 31, 2022 related to this transaction, we recorded an overall loss of $27.2 million. The operating results for Razor have been recorded in discontinued operations of the accompanying unaudited condensed consolidated statements of operations for all periods presented, and we have reclassified their assets and liabilities as held for sale for the year ended December 31, 2022.
Laboratory equipment sold and held for sale
On January 31, 2023, the Company entered into an agreement to sell laboratory equipment for $0.2 million. As of March 31, 2023, the Company classified the equipment not yet sold as held for sale in current assets in the unaudited condensed consolidated balance sheet, as all the criteria of ASC subtopic 360-10, Property, Plant, and Equipment (“ASC 360-10”) have been met and the transaction was qualified as assets held for sale. The balance included in current assets held for sale related to this transaction was $0.2 million.
In March 2023, the Company entered into an agreement to auction equipment for $0.1 million net proceeds. The auction was finalized on March 21, 2023, and the Company recorded a loss of $0.3 million which is included in the loss on disposal and held-for-sale assets, on the unaudited condensed consolidated statement of operations.
On March 31, 2023, the Company entered into an agreement to sell laboratory equipment for $0.2 million. As a result, the Company classified the equipment as held for sale as current assets, in the unaudited condensed consolidated balance sheet, as all the criteria of ASC subtopic 360-10, Property, Plant, and Equipment (“ASC 360-10”) have been met and the transaction was qualified as assets held for sale. This equipment was written down to its fair value, less cost to sell, to $0.2 million in the unaudited condensed consolidated balance sheet. As a result of the expected sale, the Company recorded an impairment loss of $1.0 million on held-for-sale assets, in the unaudited condensed consolidated statement of operations. A portion of the held for sale equipment of $0.2 million was sold on April 20, 2023.
The Company classified its results of operations as discontinued operations for all periods presented in the accompanying unaudited condensed consolidated statements of operations. We have retrospectively adjusted the amounts reported for the quarter ended March 31, 2022, in the following table to give effect to such reporting of discontinued operations. For the quarter ended March 31, 2023, discontinued operations reflect operating results of Razor up to the closing of the sale, while discontinued operations during the quarter ended March 31, 2022 reflect the operating result of Razor for the entire quarter.
The Company’s unaudited condensed consolidated balance sheets and consolidated statements of operations report discontinued operations separate from continuing operations. Our unaudited condensed consolidated statements of comprehensive income (loss), statements of shareholders’ equity and statements of cash flows combined continuing and discontinued operations. A summary of financial information related to the Company’s discontinued operations is as follows.
ONCOCYTE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table represents the results of the discontinued operation of Razor (in thousands):
The following table represents the carrying amounts of the held for sale related assets and liabilities as of March 31, 2023 and carrying amounts of the held for sale related assets and liabilities of discontinued operations as of December 31, 2022 (in thousands):
The following table summarizes cash used related to Razor as of and for the three months ended March 31, 2023 and 2022 (in thousands):
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Subsequent Events |
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| Subsequent Events [Abstract] | |
| Subsequent Events | 17. Subsequent Events
Registered Direct Offering
On April 3, 2023, Oncocyte entered into an agreement with certain members of the Company’s board of directors, and several institutional and accredited investors, including Broadwood, the Company’s largest shareholder, and certain members of the Company’s board of directors (and certain of their affiliated parties), relating to their purchase of an aggregate of up to shares of its common stock at an offering price of $ per share to board members and $ per share to the other investors participating in the offering. 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. The Company used approximately $1.1 million of the net proceeds to immediately redeem an aggregate of shares of its Series A Preferred Stock and may thereafter elect to redeem additional shares.
Workforce Reduction
On April 12, 2023, Oncocyte announced the April 2023 Reduction involving approximately 20% of its workforce, which management believes will extend Oncocyte’s cash runway in 2024. In connection with the April 2023 Reduction, we estimate that we will incur charges of approximately $0.3 million related to employee severance and benefits costs in the second quarter of 2023. |
Basis of Presentation and Summary of Significant Accounting Policies (Policies) |
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| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basis of presentation | Basis of presentation
The unaudited condensed consolidated interim financial statements presented herein, and discussed below, have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. In accordance with those rules and regulations, certain information and footnote disclosures normally included in comprehensive consolidated financial statements have been condensed or omitted. The condensed consolidated balance sheets as of December 31, 2022 was derived from the audited consolidated financial statements at that date. These unaudited condensed consolidated interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in Oncocyte’s Annual Report on Form 10-K for the year ended December 31, 2022. The unaudited condensed consolidated interim financial statements presented herein as of March 31, 2023 is not representative of the full fiscal year or any future periods.
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| Principles of consolidation | Principles of consolidation
On January 31, 2020 (the “Insight Merger Date”), Oncocyte completed its acquisition of Insight Genetics, Inc. (“Insight”) through a merger with a newly incorporated wholly owned subsidiary of Oncocyte (the “Insight Merger”) under the terms of an Agreement and Plan of Merger (the “Insight Merger Agreement”). On the Insight Merger Date Oncocyte began consolidating Insight’s operations and results with Oncocyte’s operations and results (see Note 3). On February 24, 2021, with the acquisition of the remaining equity interests in Razor, Razor became a wholly owned subsidiary of Oncocyte, and on that date Oncocyte began consolidating Razor’s results with Oncocyte’s operations and results (see Note 3). On April 15, 2021 (the “Chronix Merger Date”), with the acquisition of Chronix Biomedical, Inc. (“Chronix”), pursuant to an Agreement and Plan of Merger dated February 2, 2021, amended February 23, 2021, and amended and restated as of April 15, 2021 (as amended and restated, the “Chronix Merger Agreement”), Chronix became a wholly owned subsidiary of Oncocyte. On the Chronix Merger Date, Oncocyte began consolidating Chronix’s operations and results with Oncocyte’s operations and results (see Note 3).
We have reflected the operations of Razor as discontinued operations for all periods presented. See Note 16 for further information. Unless otherwise noted, amounts and disclosures throughout these Notes to unaudited condensed consolidated interim financial statements relate solely to continuing operations and exclude all discontinued operations.
The accompanying unaudited condensed consolidated interim financial statements, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of Oncocyte’s financial condition and results of operations. The unaudited condensed consolidated results of operations are not necessarily indicative of the results to be expected for any other interim period or for the entire year. All material intercompany accounts and transactions have been eliminated in consolidation.
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| Use of estimates | Use of estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and contingent assets and liabilities, at the date of the unaudited condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates estimates which are subject to significant judgment, including, but not limited to, valuation methods used, assumptions requiring the use of judgment to prepare financial projections, timing of potential commercialization of acquired in-process intangible assets, applicable discount rates, probabilities of the likelihood of multiple outcomes of certain events related to contingent consideration, comparable companies or transactions, determination of fair value of the assets acquired and liabilities assumed including those relating to contingent consideration, assumptions related to going concern assessments, allocation of direct and indirect expenses, useful lives associated with long-lived intangible assets, key assumptions in operating and financing leases including incremental borrowing rates, loss contingencies, valuation allowances related to deferred income taxes, and assumptions used to value debt and stock-based awards and other equity instruments. Actual results may differ materially from those estimates.
Similarly, Oncocyte assessed certain accounting matters that generally require consideration of forecasted financial information. The accounting matters assessed included, but were not limited to, Oncocyte’s equity investments, the carrying value of goodwill, going concern assessment, acquired in-process intangible assets and other long-lived assets. Those assessments as well as other estimates referenced above were made in the context of information reasonably available to Oncocyte.
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| Business combinations and fair value measurements | Business combinations and fair value measurements
Oncocyte accounts for business combinations in accordance with ASC 805, which requires the purchase consideration transferred to be measured at fair value on the acquisition date in accordance with ASC 820, Fair Value Measurement. ASC 820 establishes a single authoritative definition of fair value, sets out a framework for measuring fair value and expands on required disclosures about fair value measurement. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. ASC 820 describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following:
● Level 1 – Quoted prices in active markets for identical assets and liabilities.
● Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted market prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
● Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
When a part of the purchase consideration consists of shares of Oncocyte common stock, Oncocyte calculates the purchase price attributable to those shares, a Level 1 security, by determining the fair value of those shares as of the acquisition date based on prices quoted on the principal national securities exchange on which the shares traded. Oncocyte recognizes estimated fair values of the tangible assets and identifiable intangible assets acquired, including in-process research and development, and liabilities assumed, including any contingent consideration, as of the acquisition date. Goodwill is recognized as any amount of the fair value of the tangible and identifiable intangible assets acquired and liabilities assumed in excess of the consideration transferred. ASC 805 precludes the recognition of an assembled workforce as an asset, effectively subsuming any assembled workforce value into goodwill.
In determining fair value, Oncocyte utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, and also considers counterparty credit risk in its assessment of fair value. For the periods presented, Oncocyte has no financial assets or liabilities recorded at fair value on a recurring basis, except for money market funds and marketable equity securities of Lineage and AgeX common stock held by Oncocyte described below. These assets are measured at fair value using the period-end quoted market prices as a Level 1 input. Oncocyte also has certain contingent consideration liabilities which are carried at fair value based on Level 3 inputs (see Note 3).
The following table presents the Company’s assets and liabilities, measured and recognized at fair value on a recurring basis, classified under the appropriate level of the fair value hierarchy as of March 31, 2023 (in thousands):
The following table presents the Company’s assets and liabilities, measured and recognized at fair value on a recurring basis, classified under the appropriate level of the fair value hierarchy as of December 31, 2022 (in thousands):
The carrying amounts of prepaid expenses and other current assets, accounts payable, accrued expenses and other current liabilities approximate fair values because of the short-term nature of these items.
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| Cash, cash equivalents, and restricted cash | Cash, cash equivalents, and restricted cash
The Company’s reconciliation of cash and cash equivalents, and restricted cash reported within the unaudited condensed consolidated balance sheets that sum to the total of the same amounts shown in the unaudited condensed consolidated statements of cash flows were as follows (in thousands):
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| Assets Held for Sale and Discontinued Operations | Assets Held for Sale and Discontinued Operations
As of March 31, 2023, the Company classified laboratory equipment previously presented in machinery and equipment as held for sale in current assets, in the unaudited condensed consolidated balance sheet, as all the criteria of ASC subtopic 360-10, Property, Plant, and Equipment (“ASC 360-10”) have been met and the transaction was qualified as assets held for sale.
During the three months ended March 31, 2023, the Company entered into various agreements to sell laboratory equipment for an aggregate amount of $0.6 million. As a result, the Company classified the equipment as held for sale as current assets, in the unaudited condensed consolidated balance sheet, as all the criteria of ASC subtopic 360-10, Property, Plant, and Equipment (“ASC 360-10”) have been met and the transaction was qualified as assets held for sale. The equipment was written down to its fair value, less cost to sell, to $0.4 million in the unaudited condensed consolidated balance sheet. As a result of the expected sale, the Company recorded an impairment loss of $1.3 million on held-for-sale assets, in the unaudited condensed consolidated statement of operations. A portion of the held for sale equipment of $0.2 million was sold on April 20, 2023. See Note 17 for further discussion.
Assets and liabilities are classified as held for sale when all of the following criteria for a plan of sale have been met: (1) management, having the authority to approve the action, commits to a plan to sell the assets; (2) the assets are available for immediate sale, in their present condition, subject only to terms that are usual and customary for sales of such assets; (3) an active program to locate a buyer and other actions required to complete the plan to sell the assets have been initiated; (4) the sale of the assets is probable and is expected to be completed within one year; (5) the assets are being actively marketed for a price that is reasonable in relation to their current fair value; and (6) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or the plan will be withdrawn. When all of these criteria have been met, the assets and liabilities are classified as held for sale in the unaudited condensed consolidated balance sheet. Assets classified as held for sale are reported at the lower of their carrying value or fair value less costs to sell. Depreciation and amortization of assets ceases upon designation as held for sale.
Discontinued operations comprise activities that were disposed of or discontinued at the end of the period, represent a separate major line of business that can be clearly distinguished for operational and financial reporting purposes and represent a strategic business shift having a major effect on the Company’s operations and financial results according to Accounting Standard Codification (“ASC”) Topic 205, Presentation of Financial Statements.
Additional details surrounding the Company’s assets and liabilities held for sale and discontinued operations are included in Note 16.
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| Goodwill and intangible assets | Goodwill and intangible assets
In accordance with ASC 350, Intangibles – Goodwill and Other, in-process research and development (“IPR&D”) projects acquired in a business combination that are not complete as of the acquisition date are capitalized and accounted for as indefinite-lived intangible assets until completion or abandonment of the related research and development efforts. Upon successful completion of the project, the capitalized amount is amortized over its estimated useful life. If a project is abandoned, all remaining capitalized amounts are written off immediately. Oncocyte considers various factors and risks for potential impairment of IPR&D assets, including the current legal and regulatory environment and the competitive landscape. 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. Consequently, the eventual realized value of the IPR&D project may vary from its fair value at the date of acquisition, and IPR&D impairment charges may occur in future periods. 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 Oncocyte becomes 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 (see Notes 3 and 4).
Goodwill represents the excess of the purchase price over the fair value of net identifiable assets and liabilities. Goodwill, similar to IPR&D, is not amortized but is tested for impairment at least annually, or if circumstances indicate its value may no longer be recoverable. Qualitative factors considered in this assessment include industry and market conditions, overall financial performance, and other relevant events and factors affecting Oncocyte’s business. Based on the qualitative assessment, if it is determined that the fair value of goodwill is more likely than not to be less than its carrying amount, the fair value of a reporting unit will be calculated and compared with its carrying amount and an impairment charge will be recognized for the amount that the carrying value exceeds the fair value. Oncocyte continues to operate in one segment and considered to be the sole reporting unit and, therefore, goodwill is tested for impairment at the enterprise level.
Oncocyte does not have intangible assets with indefinite useful lives other than goodwill and the acquired IPR&D discussed in Notes 3 and 4. As of December 31, 2022, goodwill has been fully impaired. As of March 31, 2023, acquired IPR&D have been impaired.
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| Long-lived intangible assets | Long-lived intangible assets
Long-lived intangible assets, consisting primarily of acquired customer relationships, are stated at acquired cost, less accumulated amortization. Amortization expense is computed using the straight-line method over the estimated useful life of 5 years (see Notes 3 and 4).
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| Contingent consideration liabilities | Contingent consideration liabilities
Certain of Oncocyte’s asset and business acquisitions involve the potential for future payment of consideration to third-parties and former selling shareholders in amounts determined as a percentage of future net revenues generated, or upon attainment of revenue milestones, from Pharma Services or laboratory tests, as applicable, or annual minimum royalties to certain licensors, as provided in the applicable agreements. The fair value of such liabilities is determined using unobservable inputs. These inputs include the estimated amount and timing of projected cash flows and the risk-adjusted discount rate used to present value the cash flows (see Notes 3 and 4). These obligations are referred to as contingent consideration.
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. Contingent consideration is an obligation of the acquirer to transfer additional assets or equity interests to the selling shareholders in the future if certain future events occur or conditions are met, such as the attainment of product development milestones. 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 certain revenues generated.
The fair value of contingent consideration after the acquisition date is reassessed by Oncocyte as changes in circumstances and conditions occur, with the subsequent change in fair value recorded in the condensed consolidated statements of operations. Changes in key assumptions can materially affect the estimated fair value of contingent consideration liabilities and, accordingly, the resulting gain or loss that Oncocyte records in its unaudited condensed consolidated interim financial statements. See Notes 3 and 4 for a full discussion of these liabilities.
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| Investments in capital stock of privately held companies | Investments in capital stock of privately held companies
Oncocyte evaluates whether investments held in common stock of other companies require consolidation of the company under, first, the variable interest entity (“VIE”) model, and then under the voting interest model in accordance with accounting guidance for consolidations under Accounting Standards Codification (“ASC”) 810-10. If consolidation of the entity is not required under either the VIE model or the voting interest model, Oncocyte determines whether the equity method of accounting should be applied in accordance with ASC 323, Investments – Equity Method and Joint Ventures. The equity method applies to investments in common stock or in-substance common stock if Oncocyte exercises significant influence over, but does not control, the entity, where significant influence is typically represented by ownership of 20% or more, but less than majority ownership, of the voting interests of a company.
Oncocyte initially records equity method investments at fair value on the date of the acquisition with subsequent adjustments to the investment balance based on Oncocyte’s pro rata share of earnings or losses from the investment.
From February 24, 2021, the date of Oncocyte’s acquisition of the remaining interests in Razor, through February 16, 2023 the date of its disposition, Razor entity’s financial statements have been consolidated with Oncocyte. See Notes 3, 4, and 16 for additional information.
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| Impairment of long-lived assets | Impairment of long-lived assets
Oncocyte assesses the impairment of long-lived assets whenever events or changes in circumstances indicate that such assets might be impaired and the carrying value may not be recoverable. Oncocyte’s long-lived assets consist primarily of intangible assets, right-of-use assets for operating leases, customer relationships, and machinery and equipment. If events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and the expected undiscounted future cash flows attributable to the asset are less than the carrying amount of the asset, an impairment loss, equal to the excess of the carrying value of the asset over its fair value, is recorded. See Notes 3, 4, and 16 for additional information with respect to impairments of long-lived assets. See Note 16 for disclosure of machinery and equipment impairment.
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| Revenue recognition | Revenue recognition
Pursuant to ASC 606, revenues are recognized when control of services performed is transferred to customers, in an amount that reflects the consideration Oncocyte expects to be entitled to in exchange for those services. ASC 606 provides for a five-step model that includes:
(i) identifying the contract with a customer, (ii) identifying the performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to the performance obligations, and (v) recognizing revenue when, or as, an entity satisfies a performance obligation.
Oncocyte determines transaction prices based on the amount of consideration we expect to receive for transferring the promised goods or services in the contract. Consideration may be fixed, variable, or a combination of both. The Company considers any constraints on the variable consideration and includes in the transaction price variable consideration to the extent it is deemed probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
DetermaRx testing revenue
Prior to the Razor Sale Transaction, Oncocyte generated revenue from performing DetermaRx tests on clinical samples through orders received from physicians, hospitals, and other healthcare providers. In determining whether all the revenue recognition criteria (i) through (v) above are met with respect to DetermaRx tests, each test result is considered a single performance obligation and is generally considered complete when the test result is delivered or made available to the prescribing physician electronically, and, as such, there are no shipping or handling fees incurred by Oncocyte or billed to customers. Although Oncocyte has billed 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. Application of the constraint for variable consideration is an area that requires significant judgment. For all payers other than Medicare, 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. Accordingly, for those payers, Oncocyte has recognized revenue upon payment because it has had insufficient history to reliably estimate payment patterns or has had contractual reimbursement arrangements, or both, in place.
As of March 31, 2023, Oncocyte had accounts receivable of $1.8 million from Medicare and Medicare Advantage covered DetermaRx tests (see Note 7).
We maintain an allowance for doubtful accounts at an amount we estimate to be sufficient to provide adequate protection against losses resulting from extending credit to our customers. We base this allowance, in the aggregate, on historical collection experience, age of receivables and general economic conditions. Our bad debts have not been material and have been within management expectations. During the first quarter of 2023, the Company adopted Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and subsequent amendments to the initial guidance under ASU 2018-19, ASU 2019-04, ASU 2019-05 and ASU 2019-10, which amends the current approach to estimate credit losses on certain financial assets, including trade and other receivables. Adoption of this standard did not have a material impact on the Company’s consolidated financial statements and related disclosures. As of March 31, 2023 and December 31, 2022, we had a bad debt allowance of $0.2 million.
Pharma services revenue
Revenues recognized include Pharma Services performed by Oncocyte’s Insight and Chronix subsidiaries for its pharmaceutical customers, including testing for biomarker discovery, assay design and development, clinical trial support, and a broad spectrum of biomarker tests. These 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. Upon completion of the service to the customer in accordance with a Pharma Services Agreement, Oncocyte has 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. 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. However, for certain SOWs under which work is performed pursuant to the customer’s highly customized specifications, Oncocyte has the enforceable right to bill the customer for work completed, rather than upon completion of the SOW. For those SOWs, Oncocyte recognizes 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. 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. Any revenues earned but not yet billed to the customer as of the date of Oncocyte’s condensed consolidated financial statements are recorded as contract assets and are included in prepaids and other current assets as of the financial statement date. Amounts recorded in contract assets are reclassified to accounts receivable in Oncocyte’s condensed consolidated financial statements when the customer is invoiced according to the billing schedule in the contract.
Oncocyte establishes an allowance for doubtful accounts 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. If circumstances related to customers change, estimates of the recoverability of receivables would be further adjusted. Oncocyte continuously monitors collections and payments from customers and maintains a provision for estimated credit losses and uncollectible accounts, if any, based upon its historical experience and any specific customer collection issues that have been identified. Amounts determined to be uncollectible are written off against the allowance for doubtful accounts. As of March 31, 2023, Oncocyte has not recorded any losses or allowance for doubtful accounts on its account receivables from Pharma Services.
As of March 31, 2023, Oncocyte had accounts receivable from Pharma Services customers of $0.2 million, as compared to $0.3 million as of December 31, 2022 (see Note 7). As of March 31, 2023 and December 31, 2022, we have not reserved a bad debt allowance for Pharma Services accounts receivables.
Licensing revenue
Revenues recognized includes licensing revenue derived from agreements with customers for exclusive rights to market Oncocyte’s proprietary testing technology. Under the agreements, Oncocyte grants exclusive rights to certain trademarks and technology of Oncocyte for the purpose of marketing Oncocyte’s tests within a defined geographic territory. A license agreement may specify milestone deliverables or performance obligations, for which Oncocyte recognizes revenue when its licensee confirms the completion of Oncocyte’s performance obligation. A licensing agreement may also include ongoing sales support from Oncocyte and typically includes non-refundable licensing fees and per-test Pharma Services revenues discussed above, for which Oncocyte treats the licensing of the technology, trademarks, and ongoing support as a single performance obligation satisfied by the passage of time over the term of the agreement.
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| Cost of revenues | 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 DetermaRx tests and Pharma Services, providing deliverables according to our licensing agreements, license fees due to third parties, and amortization of acquired intangible assets such as the Razor asset and customer relationship intangible assets. Infrastructure expenses include depreciation of laboratory equipment, allocated rent costs, leasehold improvements, and allocated information technology costs for operations at Oncocyte’s CLIA laboratories in California and Tennessee. Costs associated with generating the revenues are recorded as the tests or services are performed regardless of whether revenue was recognized. Royalties or revenue share payments for licensed technology calculated as a percentage of revenues generated using the associated technology are recorded as expenses at the time the related revenues are recognized.
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| Research and development expenses | Research and development expenses
Research and development expenses are comprised of costs incurred to develop technology, which include salaries and benefits (including stock-based compensation), laboratory expenses (including reagents and supplies used in research and development laboratory work), infrastructure expenses (including allocated facility occupancy costs), and contract services and other outside costs. Indirect research and development expenses are allocated primarily based on headcount, as applicable, and include rent and utilities, common area maintenance, telecommunications, property taxes, and insurance. Research and development costs are expensed as incurred.
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| Sales and marketing expenses | Sales and marketing expenses
Sales and marketing expenses consist primarily of personnel costs and related benefits, including stock-based compensation, trade show expenses, branding and positioning expenses, and consulting fees. Sales and marketing expenses also include indirect expenses for applicable overhead allocated based on headcount, and include allocated costs for rent and utilities, common area maintenance, telecommunications, property taxes, and insurance.
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| General and administrative expenses | General and administrative expenses
General and administrative expenses consist primarily of compensation and related benefits (including stock-based compensation) for executive and corporate personnel, professional and consulting fees, rent and utilities, common area maintenance, telecommunications, property taxes, and insurance.
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| Net income (loss) per common share |
Basic loss per share is computed by dividing the net loss applicable to common stockholders after deducting cumulative unpaid dividends and accretion of the preferred stock, by the weighted average number of shares of common stock outstanding during the year. Diluted loss per share is computed by dividing the net loss applicable to common stockholders after deducting cumulative unpaid dividends and accretion of the preferred stock, by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued, using the treasury stock method or the if-converted method, or the two-class method for participating securities, whichever is more dilutive. Potential common shares are excluded from the computation if their effect is antidilutive.
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| Leases | Leases
Oncocyte accounts for leases in accordance with ASC 842, Leases. Oncocyte determines if an arrangement is a lease at inception. Leases are classified as either financing or operating, with classification affecting the pattern of expense recognition in the condensed consolidated statements of operations. Under the available practical expedients for the adoption of ASC 842, Oncocyte accounts for the lease and non-lease components as a single lease component. Oncocyte recognizes right-of-use (“ROU”) assets and lease liabilities for leases with terms greater than twelve months in the condensed consolidated balance sheet. ROU assets represent the right to use an underlying asset during the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most leases do not provide an implicit rate, Oncocyte uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Oncocyte uses the implicit rate when it is readily determinable. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that Oncocyte will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Operating leases are included as right-of-use assets in machinery and equipment, and ROU lease liabilities, current and long-term, in the condensed consolidated balance sheets. Financing leases are included in machinery and equipment, and in financing lease liabilities, current and long-term, in the condensed consolidated balance sheets. Oncocyte discloses the amortization of our ROU assets and operating lease payments as a net amount, “Amortization of right-of-use assets and liabilities”, on the condensed consolidated statements of cash flows. Based on the available practical expedients under the standard, Oncocyte elected not to capitalize leases that have terms of twelve months or less.
During prior years, Oncocyte entered into various operating leases and an embedded operating lease in accordance with ASC 842 discussed in Note 10. Oncocyte’s accounting for financing leases remained substantially unchanged.
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| Accounting for Lineage and AgeX shares of common stock |
Oncocyte accounts for the shares of Lineage and AgeX common stock it holds as marketable equity securities in accordance with ASC 320-10-25, Investments – Debt and Equity Securities, as amended by Accounting Standards Update (“ASU”) 2016-01, Financial Instruments–Overall: Recognition and Measurement of Financial Assets and Financial Liabilities, as the shares have a readily determinable fair value quoted on the NYSE American and are held principally to meet future working capital purposes, as necessary. The securities are measured at fair value, with related gains and losses in the value of such securities recorded in the condensed consolidated statements of operations in other income (expense), and are reported as current assets on the condensed consolidated balance sheets based on the closing trading price of the security as of the date being presented.
As of March 31, 2023 and December 31, 2022, Oncocyte held and shares of common stock of Lineage and AgeX, respectively, as marketable equity securities with a fair market value of $0.5 million and $23,000, respectively.
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| Recent accounting pronouncements | Recent accounting pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and subsequent amendments to the initial guidance under ASU 2018-19, ASU 2019-04, ASU 2019-05 and ASU 2019-10, which amends the current approach to estimate credit losses on certain financial assets, including trade and other receivables. Generally, this amendment requires entities to establish a valuation allowance for the expected lifetime losses of these certain financial assets. Upon the initial recognition of such assets, which will be based on, among other things, historical information, current conditions, and reasonable supportable forecasts. Subsequent changes in the valuation allowance are recorded in current earnings and reversal of previous losses are permitted. Previously, U.S. GAAP required entities to write down credit losses only when losses are probable and loss reversals are not permitted. The Company adopted this ASU in the first quarter of 2023. Adoption of this standard did not have a material impact on the Company’s consolidated financial statements and related disclosures.
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, to provide specific guidance to eliminate diversity in practice on how to recognize and measure acquired contract assets and contract liabilities from revenue contracts from customers in a business combination consistent with revenue contracts with customers not acquired in an acquisition. The amendments in this update provide that the acquirer should consider the terms of the acquired contracts, such as timing of payment, identify each performance obligation in the contracts, and allocate the total transaction price to each identified performance obligation on a relative standalone selling price basis as of contract inception (that is, the date the acquiree entered into the contracts) or contract modification to determine what should be recorded at the acquisition date. These amendments are effective for the Company beginning with fiscal year 2023. The impact of the adoption of the amendments in this update will depend on the magnitude of any customer contracts assumed in a business combination in 2023 and beyond.
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| COVID-19 impact and related risks | COVID-19 impact and related risks
The Company is subject to risks and uncertainties as a result of the recent COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on the Company’s business is highly uncertain and difficult to predict, as the responses that the Company, other businesses and governments are taking continue to evolve. Furthermore, capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it is possible that it could cause a local and/or global economic slowdown or recession. Policymakers around the globe have responded with fiscal policy actions to support the healthcare industry and economy as a whole. The magnitude and overall effectiveness of these actions remain uncertain.
In addition, the Company’s Pharma Services have been affected by, and may continue to be affected by, the COVID-19 pandemic.
It is possible that impacts of COVID-19 on Oncocyte’s operations or its access to capital could prevent Oncocyte from complying, or could result in a material noncompliance, with one or more obligations or covenants under material agreements to which Oncocyte is a party, with the result that Oncocyte would be in material breach of the applicable obligation, covenant, or agreement. Any such material breach could cause Oncocyte to incur material financial liabilities or an acceleration of the date for paying a financial obligation to the other party to the applicable agreement, or could cause Oncocyte to lose material contractual rights, such as rights to use leased equipment or laboratory or office space, or rights to use licensed patents or other intellectual property, the use of which is material to Oncocyte’s business. Similarly, it is possible that impacts of COVID-19 on the business, operations, or financial condition of any third party with whom Oncocyte has a contractual relationship could cause the third party to be unable to perform its contractual obligations to Oncocyte, resulting in Oncocyte’s loss of the benefits of a contract that could be material to Oncocyte’s business.
The full extent to which the COVID-19 pandemic and the various responses to it might impact Oncocytes’ business, operations and financial results will depend on numerous evolving factors that are not subject to accurate prediction and that are beyond Oncocyte’s control. |
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Basis of Presentation and Summary of Significant Accounting Policies (Tables) |
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| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Fair Value Measurement of Financial Assets and Liabilities | The following table presents the Company’s assets and liabilities, measured and recognized at fair value on a recurring basis, classified under the appropriate level of the fair value hierarchy as of March 31, 2023 (in thousands):
The following table presents the Company’s assets and liabilities, measured and recognized at fair value on a recurring basis, classified under the appropriate level of the fair value hierarchy as of December 31, 2022 (in thousands):
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| Schedule of Cash and Cash Equivalents and Restricted Cash |
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| Schedule of Common Stock Computation of Diluted Net Loss Per Share of Common Stock |
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Business Combinations (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Business Acquisition [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Fair Value of Contingent Consideration Liability | The following table shows the Insight Merger Date contractual payment amounts, as applicable, and the corresponding fair value of each respective Contingent Consideration liability (in thousands):
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Insight Merger [Member] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Business Acquisition [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Contingent Consideration, Measured at Fair Value | The following tables reflect the activity for Oncocyte’s Contingent Consideration for the three months ended March 31, 2023 and 2022, measured at fair value using Level 3 inputs (in thousands):
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Chronix Merger [Member] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Business Acquisition [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Contingent Consideration, Measured at Fair Value | The following tables reflect the activity for Oncocyte’s Contingent Consideration for the three months ended March 31, 2023 and March 31, 2022, measured at fair value using Level 3 inputs (in thousands):
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Intangible Assets, net (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Goodwill and Intangible Assets | At March 31, 2023 and December 31, 2022, intangible assets, net, consisted of the following (in thousands):
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Intangible Assets Future Amortization Expense | Future amortization expense of intangible assets subject to amortization is expected to be the following (in thousands):
|
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Stock-Based Compensation (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Assumptions Used to Calculate Fair Value of Stock Options |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Stock Option Activity |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Stock-based Compensation Expense |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Assumptions Used to Calculate Fair Value of Stock Options |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Two Thousand Ten Plan Activity [Member] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Stock Option Activity |
|
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Disaggregation of Revenues and Concentration Risk (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue from Contract with Customer [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Consolidated Revenues Generated by Unaffiliated Customers | The following table presents the percentage of consolidated revenues generated by unaffiliated customers that individually represent greater than ten percent of consolidated revenues:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Consolidated Revenues Attributable to Products or Services | The following table presents the percentage of consolidated revenues by products or services classes:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Percentage of Consolidated Revenues Attributable to Geographical Locations | The following table presents the percentage of consolidated revenues attributable to geographical locations:
|
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Right-of-use assets, machinery and equipment, net, and construction in progress (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Right-of-use Assets, Machinery and Equipment, Net, and Construction in Progress | As of March 31, 2023 and December 31, 2022, right-of-use assets, machinery and equipment, net, and construction in progress were as follows (in thousands):
|
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Commitments and Contingencies (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commitments and Contingencies Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Supplemental Cash Flow Information Related to Operating and Financing Lease | The following table presents supplemental cash flow information related to operating and financing leases for the three months ended March 31, 2023 and 2022 (in thousands):
|
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| Schedule of Supplemental Balance Sheet Information Related to Operating and Financing Leases | The following table presents supplemental balance sheets information related to operating and financing leases as of March 31, 2023 and March 31, 2022 (in thousands, except lease term and discount rate):
|
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| Schedule of Future Minimum Lease Commitments for Operating and Financing Leases | Future minimum lease commitments are as follows (in thousands):
|
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Assets Held for Sale and Discontinued Operations (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Assets and Liabilities of Disposal Group Held for Sale | The following table represents the results of the discontinued operation of Razor (in thousands):
|
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| Discontinued Operations, Held-for-Sale [Member] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Assets and Liabilities of Disposal Group Held for Sale | The following table represents the carrying amounts of the held for sale related assets and liabilities as of March 31, 2023 and carrying amounts of the held for sale related assets and liabilities of discontinued operations as of December 31, 2022 (in thousands):
The following table summarizes cash used related to Razor as of and for the three months ended March 31, 2023 and 2022 (in thousands):
|
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Schedule of Cash and Cash Equivalents and Restricted Cash (Details) - USD ($) $ in Thousands |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Accounting Policies [Abstract] | ||
| Cash and cash equivalents | $ 11,803 | $ 19,993 |
| Restricted cash | 1,700 | 1,700 |
| Cash from discontinuing operations | 1,510 | |
| Cash, cash equivalents and restricted cash shown in the statements of cash flows | $ 13,503 | $ 23,203 |
Schedule of Contingent Consideration, Measured at Fair Value (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Business Acquisition [Line Items] | ||
| Ending balance | $ 11,130 | |
| Fair Value, Inputs, Level 3 [Member] | Insight Merger [Member] | ||
| Business Acquisition [Line Items] | ||
| Beginning balance | 5,370 | $ 7,060 |
| Change in estimated fair value | (2,220) | 360 |
| Ending balance | 3,150 | 7,420 |
| Fair Value, Inputs, Level 3 [Member] | Chronix Merger [Member] | ||
| Business Acquisition [Line Items] | ||
| Beginning balance | 40,292 | 69,621 |
| Change in estimated fair value | (16,087) | (5,016) |
| Ending balance | $ 24,205 | $ 64,605 |
Business Combinations (Details Narrative) - USD ($) $ in Millions |
3 Months Ended | ||||
|---|---|---|---|---|---|
Feb. 08, 2023 |
Apr. 15, 2021 |
Mar. 31, 2023 |
Dec. 15, 2022 |
Dec. 31, 2019 |
|
| Business Acquisition [Line Items] | |||||
| Fair value | $ 2.2 | ||||
| Chronix Biomedical Inc [Member] | |||||
| Business Acquisition [Line Items] | |||||
| Net deferred tax liabilities | 2.2 | ||||
| Goodwill | 9.5 | ||||
| Razor Genomics, Inc. [Member] | Development Agreement [Member] | |||||
| Business Acquisition [Line Items] | |||||
| Clinical trial expense reserve amount | 4.0 | ||||
| Chronix Biomedical Inc [Member] | Merger Agreement [Member] | Maximum [Member] | |||||
| Business Acquisition [Line Items] | |||||
| Business combination consideration transferred | $ 14.0 | ||||
| Earnout percentage on collections for sales | 15.00% | ||||
| Earnout percentage on collections for sale or license | 75.00% | ||||
| Chronix Equity [Member] | Merger Agreement [Member] | |||||
| Business Acquisition [Line Items] | |||||
| Earnout percentage on collections for sales | 10.00% | ||||
| Gross proceeds percentage | 5.00% | ||||
| Chronix Milestone [Member] | Merger Agreement [Member] | |||||
| Business Acquisition [Line Items] | |||||
| Royalty payments | 15.00% | ||||
| Chronix [Member] | |||||
| Business Acquisition [Line Items] | |||||
| Fair value | $ 16.1 | ||||
| Oncocyte Corp [Member] | |||||
| Business Acquisition [Line Items] | |||||
| Outstanding equity | 25.00% | ||||
| Oncocyte Corp [Member] | Razor Genomics, Inc. [Member] | |||||
| Business Acquisition [Line Items] | |||||
| Outstanding equity | 70.00% |
Schedule of Goodwill and Intangible Assets (Details) - USD ($) $ in Thousands |
3 Months Ended | 12 Months Ended | ||||||
|---|---|---|---|---|---|---|---|---|
Mar. 31, 2023 |
Dec. 31, 2022 |
|||||||
| Finite-Lived Intangible Assets [Line Items] | ||||||||
| Total intangible assets | $ 56,940 | $ 61,890 | ||||||
| Intangible assets, net | 56,661 | 61,633 | ||||||
| Customer Relationships [Member] | ||||||||
| Finite-Lived Intangible Assets [Line Items] | ||||||||
| Acquired intangible assets | 440 | 440 | ||||||
| Finite-Lived Intangible Assets, Accumulated Amortization | [1] | (279) | (257) | |||||
| DetermaIO [Member] | ||||||||
| Finite-Lived Intangible Assets [Line Items] | ||||||||
| Intangible assets acquired IPR&D | [2] | 9,700 | 14,650 | |||||
| DetermaCNI and VitaGraft [Member] | ||||||||
| Finite-Lived Intangible Assets [Line Items] | ||||||||
| Intangible assets acquired IPR&D | [3] | $ 46,800 | $ 46,800 | |||||
| ||||||||
Schedule of Intangible Assets Future Amortization Expense (Details) $ in Thousands |
Mar. 31, 2023
USD ($)
|
|---|---|
| Goodwill and Intangible Assets Disclosure [Abstract] | |
| 2023 | $ 66 |
| 2024 | 88 |
| 2025 | 7 |
| Total | $ 161 |
Intangible Assets, net (Details Narrative) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Goodwill and Intangible Assets Disclosure [Abstract] | ||
| Impairment of intangible | $ 4,950 | |
Shareholders’ Equity (Details Narrative) - USD ($) |
3 Months Ended | ||||||
|---|---|---|---|---|---|---|---|
Apr. 05, 2023 |
Jul. 15, 2022 |
Jun. 01, 2022 |
Apr. 13, 2022 |
Mar. 31, 2023 |
Dec. 31, 2022 |
Dec. 31, 2019 |
|
| Class of Stock [Line Items] | |||||||
| Conversion of Stock, Description | The holder will be prohibited from converting shares of Series A Preferred Stock into shares of common stock if, as a result of such conversion, the holder, together with its affiliates, would own more than 4.99% of the shares of common stock then issued and outstanding (provided a holder may elect, at the first closing, to increase such beneficial ownership limitation solely as to itself up to 19.99% of the number of shares of common stock outstanding immediately after giving effect to the conversion, provided further that following the receipt of shareholder approval required by applicable Nasdaq rules with respect to the issuance of common stock that would exceed the beneficial ownership limitation, such beneficial ownership limitation will no longer apply to the holder if the holder notified the Company that the holder wishes the Company to seek such shareholder approval | A holder is prohibited from converting shares of Series A Preferred Stock into shares of common stock if, as a result of such conversion, the holder, together with its affiliates, would own more than 4.99% of the shares of our common stock then issued and outstanding (provided a holder may elect, at the first closing, to increase such beneficial ownership limitation solely as to itself up to 19.99% of the number of shares of our common stock outstanding immediately after giving effect to the conversion, provided further that following the receipt of shareholder approval required by applicable Nasdaq rules with respect to the issuance of common stock that would exceed the beneficial ownership limitation, such beneficial ownership limitation will no longer apply to the holder if the holder notified the Company that the holder wishes the Company to seek such shareholder approval). | |||||
| Conversion price percentage | 140.00% | ||||||
| Common stock, shares authorized | 230,000,000 | 230,000,000 | |||||
| Preferred stock no par value | $ 0 | $ 0 | |||||
| Common stock, shares issued | 119,278,821 | 118,643,821 | |||||
| Common stock, shares outstanding | 119,278,821 | 118,643,821 | |||||
| Series A preferred stock value | $ 1,100,000 | ||||||
| Number of common stock purchase warrants | 16,395,343 | ||||||
| Minimum [Member] | |||||||
| Class of Stock [Line Items] | |||||||
| Warrant exercise price per share | $ 1.53 | ||||||
| Maximum [Member] | |||||||
| Class of Stock [Line Items] | |||||||
| Warrant exercise price per share | $ 5.46 | ||||||
| Common Stock [Member] | |||||||
| Class of Stock [Line Items] | |||||||
| Common stock, shares authorized | 230,000,000 | 230,000,000 | |||||
| Preferred stock no par value | $ 0 | $ 0 | |||||
| Oncocyte Corp [Member] | |||||||
| Class of Stock [Line Items] | |||||||
| Ownership percentage | 25.00% | ||||||
| Series A Redeemable Convertible Preferred Stock [Member] | |||||||
| Class of Stock [Line Items] | |||||||
| Preferred stock outstanding percentage | 51.00% | ||||||
| Cash in hand | $ 8,000,000 | ||||||
| Indebtedness expenses | $ 15,000,000 | ||||||
| Dividends rate | 6.00% | ||||||
| Temporary equity, shares issued | 5,882.4 | 6,000 | |||||
| Temporary equity, shares outstanding | 5,882.4 | 6,000 | |||||
| Series A Redeemable Convertible Preferred Stock [Member] | Oncocyte Corp [Member] | Preferred Stock [Member] | |||||||
| Class of Stock [Line Items] | |||||||
| Ownership percentage | 50.00% | ||||||
| Series A Redeemable Convertible Preferred Stock [Member] | Interest [Member] | Preferred Stock [Member] | |||||||
| Class of Stock [Line Items] | |||||||
| Ownership percentage | 51.00% | ||||||
| Series A Redeemable Convertible Preferred Stock [Member] | Security [Member] | Preferred Stock [Member] | |||||||
| Class of Stock [Line Items] | |||||||
| Ownership percentage | 50.00% | ||||||
| Series A Redeemable Convertible Preferred Stock [Member] | Securities Purchase Agreement [Member] | |||||||
| Class of Stock [Line Items] | |||||||
| Offering shares | 11,765 | ||||||
| Convertible preferred shares | 7,689,542 | ||||||
| Conversion price | $ 1.53 | ||||||
| Preferred stock offering | $ 850 | ||||||
| Stated value per share | $ 1,000 | ||||||
| Gross proceeds, closing | $ 10,000,000 | ||||||
| Net proceeds | $ 10,000,000 | 4,900,000 | |||||
| Series A Redeemable Convertible Preferred Stock [Member] | Securities Purchase Agreement [Member] | Share-Based Payment Arrangement, Tranche Two [Member] | |||||||
| Class of Stock [Line Items] | |||||||
| Preferred stock offering | $ 5,000,000 | ||||||
| Series A Preferred Stock [Member] | |||||||
| Class of Stock [Line Items] | |||||||
| Convertible preferred shares | 11,765 | ||||||
| Conversion price | $ 1.53 | ||||||
| Gross proceeds, closing | $ 10,000,000 | ||||||
| Preferred stock outstanding percentage | 51.00% | ||||||
| Cash in hand | $ 8,000,000 | ||||||
| Indebtedness expenses | $ 15,000,000 | ||||||
| Temporary equity, shares issued | 5,882.4 | ||||||
| Temporary equity, shares outstanding | 5,882.4 | ||||||
| Series A Preferred Stock [Member] | Oncocyte Corp [Member] | |||||||
| Class of Stock [Line Items] | |||||||
| Equity method investment, description of principal activities | if the daily volume weighted average price of our common stock for 20 out of 30 trading days exceeds 140% of the conversion price and on 20 out of the same 30 trading days the daily trading volume equals or exceeds | if the daily volume weighted average price of our common stock for 20 out of 30 trading days exceeds 140% of the conversion price and on 20 out of the same 30 trading days the daily trading volume equals or exceeds 400,000 shares of our common stock. | |||||
| Series A Preferred Stock [Member] | Oncocyte Corp [Member] | Preferred Stock [Member] | |||||||
| Class of Stock [Line Items] | |||||||
| Ownership percentage | 50.00% | ||||||
| Series A Preferred Stock [Member] | Security [Member] | Preferred Stock [Member] | |||||||
| Class of Stock [Line Items] | |||||||
| Ownership percentage | 50.00% | ||||||
| Series B Preferred Stock [Member] | Registered Direct Offering [Member] | |||||||
| Class of Stock [Line Items] | |||||||
| Number of stock redeem | 1,064 |
Schedule of Assumptions Used to Calculate Fair Value of Stock Options (Details) - $ / shares |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||
| Risk-free interest rates | 3.72% | 2.19% |
| Expected life (in years) | 6 years 3 months 3 days | 6 years |
| Volatility | 107.64% | 107.03% |
| Dividend yield | (0.00%) | (0.00%) |
| Market Based Awards [Member] | ||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||
| Risk-free interest rates | 2.72% | |
| Expected life (in years) | 2 years 7 months 6 days | |
| Volatility | 95.00% | |
| Grant date fair value of awards granted during the period | $ 1.13 | |
Summary of Stock Option Activity (Details) shares in Thousands |
3 Months Ended |
|---|---|
|
Mar. 31, 2023
$ / shares
shares
| |
| Two Thousand Ten Plan Activity [Member] | |
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | |
| Shares available for grant options, beginning of period | |
| Number of options outstanding, beginning of period | 607 |
| Weighted average exercise price, options outstanding, beginning of period | $ / shares | $ 4.04 |
| Shares available for grant options exercised | |
| Number of options outstanding, option exercised | |
| Weighted average exercise price, options exercised | $ / shares | |
| Shares available for grant options forfeited, cancelled and expired | |
| Number of options outstanding, options forfeited, cancelled and expired | |
| Weighted average exercise price, options forfeited, cancelled and expired | $ / shares | |
| Shares available for grant outstanding, end of period | |
| Number of options outstanding, end of period | 607 |
| Weighted average exercise price, outstanding end of period | $ / shares | $ 4.04 |
| Number of options outstanding, exercisable, end of period | 607 |
| Weighted average exercise price, exercisable, end of period | $ / shares | $ 4.04 |
| Number of options outstanding, options forfeited, cancelled and expired | |
| 2018 Paln Activity [Member] | |
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | |
| Shares available for grant options, beginning of period | 8,832 |
| Number of options outstanding, beginning of period | 8,560 |
| Weighted average exercise price, options outstanding, beginning of period | $ / shares | $ 2.96 |
| Number of options outstanding, option exercised | |
| Weighted average exercise price, options exercised | $ / shares | |
| Number of options outstanding, options forfeited, cancelled and expired | 1,650 |
| Weighted average exercise price, options forfeited, cancelled and expired | $ / shares | |
| Shares available for grant outstanding, end of period | 7,703 |
| Number of options outstanding, end of period | 9,690 |
| Weighted average exercise price, outstanding end of period | $ / shares | $ 2.14 |
| Number of options outstanding, exercisable, end of period | 3,969 |
| Weighted average exercise price, exercisable, end of period | $ / shares | $ 5.33 |
| Number of RSUs Outstanding, beginning of period | 441 |
| Shares available for grant options RSUs vested | |
| Number of options outstanding, option RSUs vested | |
| Number of RSUs Outstanding, option RSUs vested | (214) |
| Weighted average exercise price, options exercised | $ / shares | |
| Shares available for grant options RSUs granted | |
| Number of options outstanding, option RSUs granted | |
| Number of RSUs Outstanding, option RSUs granted | |
| Weighted average exercise price, option RSUs granted | $ / shares | |
| Shares available for grant options performance RSUs granted | |
| Number of options outstanding, option performance RSUs granted | |
| Number of RSUs Outstanding, option performance RSUs granted | |
| Weighted average exercise price, option RSUs Vested | $ / shares | |
| Shares available for grant options performance RSUs vested | |
| Number of options outstanding, option performance RSUs Vested | |
| Number of RSUs Outstanding, option performance RSUs vested | |
| Shares available for grant options granted | (2,779) |
| Number of options outstanding, option granted | 2,779 |
| Number of RSUs Outstanding, option granted | |
| Weighted average exercise price, option granted | $ / shares | $ 0.44 |
| Shares available for grant options exercised | |
| Number of RSUs Outstanding, options exercised | |
| Shares available for grant options forfeited, cancelled and expired | 1,650 |
| Number of options outstanding, options forfeited, cancelled and expired | (1,650) |
| Number of RSUs Outstanding, options exercised | |
| Shares available for grant RSUs, cancelled and expired | |
| Number of options outstanding, options forfeited, RSUs cancelled and expired | |
| Number of RSUs Outstanding, options forfeited, canceled and expired | |
| Weighted average exercise price, options forfeited, RSUs cancelled and expired | $ / shares | |
| Number of RSUs Outstanding, end of period | 227 |
Summary of Stock-based Compensation Expense (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||
| Total stock-based compensation expense | $ 834 | $ 2,010 |
| Share-Based Payment Arrangement, Option [Member] | Cost Of Revenues [Member] | ||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||
| Total stock-based compensation expense | 10 | |
| Share-Based Payment Arrangement, Option [Member] | Research and Development Expense [Member] | ||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||
| Total stock-based compensation expense | 323 | 180 |
| Share-Based Payment Arrangement, Option [Member] | Selling and Marketing Expense [Member] | ||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||
| Total stock-based compensation expense | 77 | 33 |
| Share-Based Payment Arrangement, Option [Member] | Selling, General and Administrative Expenses [Member] | ||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||
| Total stock-based compensation expense | 406 | 1,180 |
| Share-Based Payment Arrangement, Option [Member] | Discontinued Operations [Member] | ||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||
| Total stock-based compensation expense | $ 18 | $ 617 |
Stock-Based Compensation (Details Narrative) - USD ($) |
1 Months Ended | 3 Months Ended | 12 Months Ended | |||
|---|---|---|---|---|---|---|
Dec. 16, 2022 |
Jul. 31, 2022 |
May 31, 2022 |
Mar. 31, 2023 |
Mar. 31, 2022 |
Dec. 31, 2022 |
|
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||
| Risk-free interest rates | 3.72% | 2.19% | ||||
| Expected life (in years) | 6 years 3 months 3 days | 6 years | ||||
| Expected Volatility | 107.64% | 107.03% | ||||
| Dividend yield | (0.00%) | (0.00%) | ||||
| Share based payment award description | the achievement of performance minimum, target, and maximum goals of (i) 90% of revenue goal; (ii) 100% of revenue goal; and (iii) exceed revenue goal by up to 150%, respectively, during fiscal year 2022 | the Company of average market capitalization minimum, target, and maximum goals of (i) $300 million; (ii) $400 million; and (iii) $500 million, respectively, during the period beginning on January 1, 2022 and ending on December 31, 2024 | ||||
| Increase in fair value | $ 58,500 | |||||
| Vita Graft [Member] | ||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||
| Vested percentage | 50.00% | 50.00% | ||||
| Determal O [Member] | ||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||
| Vested percentage | 50.00% | 50.00% | ||||
| Determa CNI [Member] | ||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||
| Share based payment award vesting rights description | The remaining 50% is eligible to vest on December 31, 2023, since the Company completed the LCD submission for DetermaCNI on December 16, 2022 | |||||
| Performance Shares [Member] | ||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||
| Share based payment award description | 50% | |||||
| Performance Shares [Member] | Executive Officers And Employees [Member] | ||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||
| Performance based awards | 475,000 | 1,237,500 | ||||
| Market Based Awards [Member] | ||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||
| Risk-free interest rates | 2.72% | |||||
| Expected life (in years) | 2 years 7 months 6 days | |||||
| Expected Volatility | 95.00% | |||||
| Market Based Awards [Member] | Executive Officers And Employees [Member] | ||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||
| Performance based awards | 250,000 | |||||
| Monte Carlo Valuation Technique [Member] | ||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||
| Risk-free interest rates | 2.00% | |||||
| Expected life (in years) | 2 years 9 months 18 days | |||||
| Expected Volatility | 100.00% | |||||
| Dividend yield | 0.00% | |||||
| 2010 Stock Option Plan [Member] | ||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||
| Common stock, shares authorized | 5,200,000 | |||||
| Performance-Based Options [Member] | ||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||
| Grant date fair value | $ 117,625 | |||||
| 2018 Incentive Plan [Member] | ||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||
| Common stock, shares authorized | 21,000,000 | |||||
Schedule of Consolidated Revenues Generated by Unaffiliated Customers (Details) - Revenue Benchmark [Member] - Product Concentration Risk [Member] |
3 Months Ended | ||||
|---|---|---|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
||||
| Disaggregation of Revenue [Line Items] | |||||
| Concentration risk, percentage | 100.00% | 100.00% | |||
| Pharma Services Company A [Member] | |||||
| Disaggregation of Revenue [Line Items] | |||||
| Concentration risk, percentage | 19.00% | 14.00% | |||
| Pharma Services Company B [Member] | |||||
| Disaggregation of Revenue [Line Items] | |||||
| Concentration risk, percentage | 12.00% | [1] | |||
| Discontinued Operations Determa Rx [Member] | |||||
| Disaggregation of Revenue [Line Items] | |||||
| Concentration risk, percentage | 55.00% | 65.00% | |||
| |||||
Schedule of Consolidated Revenues Attributable to Products or Services (Details) - Revenue Benchmark [Member] - Product Concentration Risk [Member] |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Disaggregation of Revenue [Line Items] | ||
| Concentration risk, percentage | 100.00% | 100.00% |
| Pharma Services [Member] | ||
| Disaggregation of Revenue [Line Items] | ||
| Concentration risk, percentage | 42.00% | 27.00% |
| Discontinued Operations [Member] | ||
| Disaggregation of Revenue [Line Items] | ||
| Concentration risk, percentage | 58.00% | 73.00% |
Schedule of Percentage of Consolidated Revenues Attributable to Geographical Locations (Details) - Revenue Benchmark [Member] - Product Concentration Risk [Member] |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Disaggregation of Revenue [Line Items] | ||
| Total | 100.00% | 100.00% |
| UNITED STATES | ||
| Disaggregation of Revenue [Line Items] | ||
| Total | 17.00% | 17.00% |
| Outside United States Pharma Services [Member] | ||
| Disaggregation of Revenue [Line Items] | ||
| Total | 25.00% | 9.00% |
| Outside United States Licensing [Member] | ||
| Disaggregation of Revenue [Line Items] | ||
| Total | ||
| Discontinued Operations Outside United States Licensing [Member] | ||
| Disaggregation of Revenue [Line Items] | ||
| Total | ||
| Discontinued Operations Determa Rx [Member] | ||
| Disaggregation of Revenue [Line Items] | ||
| Total | 58.00% | 74.00% |
Schedule of Right-of-use Assets, Machinery and Equipment, Net, and Construction in Progress (Details) - USD ($) $ in Thousands |
Mar. 31, 2023 |
Dec. 31, 2022 |
||
|---|---|---|---|---|
| Property, Plant and Equipment [Abstract] | ||||
| Right-of-use assets | [1] | $ 3,499 | $ 3,499 | |
| Operating Lease, Right-of-Use Asset, Statement of Financial Position [Extensible Enumeration] | Machinery and equipment, net, and construction in progress | Machinery and equipment, net, and construction in progress | ||
| Machinery and equipment | $ 9,372 | $ 9,408 | ||
| Accumulated depreciation and amortization | (4,772) | (4,196) | ||
| Right-of-use assets, machinery and equipment, net | 8,099 | 8,711 | ||
| Construction in progress | 746 | 2,140 | ||
| Right-of-use assets, machinery and equipment, net, and construction in progress from continuing operations | 8,845 | 10,851 | ||
| Right-of-use assets, machinery and equipment, net, and construction in progress from discontinuing operations | 211 | |||
| Right-of-use assets, machinery and equipment, net, and construction in progress | $ 8,845 | $ 11,062 | ||
| ||||
Right-of-use assets, machinery and equipment, net, and construction in progress (Details Narrative) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Property, Plant and Equipment [Abstract] | ||
| Depreciation expense | $ 450,000 | $ 287,000 |
Schedule of Supplemental Cash Flow Information Related to Operating and Financing Lease (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Commitments and Contingencies Disclosure [Abstract] | ||
| Operating cash flows from operating leases | $ 286 | $ 277 |
| Operating cash flows from financing leases | 3 | 25 |
| Financing cash flows from financing leases | $ 28 | $ 10 |
Schedule of Supplemental Balance Sheet Information Related to Operating and Financing Leases (Details) - USD ($) $ in Thousands |
Mar. 31, 2023 |
Dec. 31, 2022 |
||
|---|---|---|---|---|
| Lessee, Lease, Description [Line Items] | ||||
| Right-of-use assets, net | [1] | $ 3,499 | $ 3,499 | |
| Machinery and equipment, net | 2,021 | 2,088 | ||
| Total financing lease liabilities | 89 | |||
| Operating And Financing Leases [Member] | ||||
| Lessee, Lease, Description [Line Items] | ||||
| Right-of-use assets, net | 1,957 | 2,463 | ||
| Right-of-use lease liabilities, current | 687 | 743 | ||
| Right-of-use lease liabilities, noncurrent | 2,550 | 3,237 | ||
| Total operating lease liabilities | 3,237 | 3,980 | ||
| Machinery and equipment | 537 | 537 | ||
| Accumulated depreciation | (473) | (364) | ||
| Machinery and equipment, net | 64 | 173 | ||
| Current liabilities | 89 | 107 | ||
| Noncurrent liabilities | 89 | |||
| Total financing lease liabilities | $ 89 | $ 196 | ||
| Weighted average remaining lease term, Operating lease | 4 years 3 months 18 days | 5 years 1 month 6 days | ||
| Weighted average remaining lease term, Financing lease | 9 months 18 days | 1 year 9 months 18 days | ||
| Operating lease | 11.26% | 11.19% | ||
| Financing lease | 11.55% | 11.55% | ||
| ||||
Schedule of Future Minimum Lease Commitments for Operating and Financing Leases (Details) $ in Thousands |
Mar. 31, 2023
USD ($)
|
|---|---|
| Lessee, Operating Lease, Liability, to be Paid, Fiscal Year Maturity [Abstract] | |
| 2023 | $ 762 |
| 2024 | 903 |
| 2025 | 869 |
| 2026 | 899 |
| 2027 | 695 |
| Total minimum lease payments | 4,128 |
| Less amounts representing interest | (891) |
| Present value of net minimum lease payments | 3,237 |
| Finance Lease, Liability, to be Paid, Fiscal Year Maturity [Abstract] | |
| 2023 | 93 |
| 2024 | |
| 2025 | |
| 2025 | |
| 2026 | |
| Total minimum lease payments | 93 |
| Less amounts representing interest | (4) |
| Total financing lease liabilities | $ 89 |
Commitments and Contingencies (Details Narrative) |
3 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|
|
Dec. 23, 2019
USD ($)
ft²
|
Mar. 31, 2023
USD ($)
|
Dec. 31, 2022
USD ($)
|
Aug. 27, 2021
ft²
|
|
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||||
| Severance Costs | $ 1,900,000 | |||
| Laboratory Equipment [Member] | ||||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||||
| Payment obligation amount. | $ 93,000 | |||
| Executive Officers [Member] | ||||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||||
| Severance Costs | 3,200,000 | |||
| Office Lease Agreement [Member] | ||||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||||
| Area of Land | ft² | 26,800 | |||
| Payments for rent | $ 61,640 | |||
| Total tenant improvement allowance | $ 1,300,000 | |||
| Percentage of administrative fee paid on original cost of equipment | 1.50% | |||
| Security Deposit | $ 150,000 | |||
| Line of Credit, Current | $ 1,700,000 | |||
| Office Lease Agreement [Member] | Landlord [Member] | ||||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||||
| Total tenant improvement allowance | $ 1,300,000 | |||
| Office Lease Agreement [Member] | Monthly Rent [Member] | ||||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||||
| Interest rate on lease agreement | 3.50% | |||
| Obligated to pay expenses and taxes percentage | 43.70% | |||
| Office Lease Agreement [Member] | First Ten Calendar [Member] | ||||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||||
| Interest rate on lease agreement | 50.00% | |||
| Lease Agreement [Member] | ||||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||||
| Area of Land | ft² | 1,928 |
Workforce Reduction (Details Narrative) - USD ($) $ in Millions |
3 Months Ended | 12 Months Ended |
|---|---|---|
Jun. 30, 2023 |
Dec. 31, 2022 |
|
| Employee severance | $ 1.9 | |
| Forecast [Member] | ||
| Employee severance | $ 0.3 |
Related Party Transactions (Details Narrative) - USD ($) |
3 Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|
Apr. 19, 2023 |
Apr. 05, 2023 |
Apr. 05, 2023 |
Apr. 03, 2023 |
Apr. 13, 2022 |
Apr. 13, 2022 |
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Warrant to purchase common stock | 16,395,343 | |||||||
| Value of stock redeemed | $ 1,100,000 | |||||||
| Total compensation paid | $ 834,000 | $ 2,010,000 | ||||||
| Maximum [Member] | ||||||||
| Warrant exercise price | $ 5.46 | |||||||
| Amo [Member] | ||||||||
| Total compensation paid | $ 100,000 | |||||||
| Broadwood Capital, LP [Member] | Underwritten Offering [Member] | ||||||||
| Warrant to purchase common stock | 6,003,752 | 6,003,752 | ||||||
| Warrant exercise price | $ 1.53 | $ 1.53 | ||||||
| Broadwood Capital, LP [Member] | Underwritten Offering [Member] | Common Stock [Member] | ||||||||
| Sale of stock, shares | 5,220,654 | |||||||
| Broadwood Capital, LP [Member] | Underwritten Offering [Member] | Common Stock [Member] | Maximum [Member] | ||||||||
| Warrant to purchase common stock | 3,001,876 | 3,001,876 | ||||||
| Broadwood Capital, LP [Member] | Underwritten Offering [Member] | Underwriters [Member] | ||||||||
| Warrant to purchase common stock | 783,098 | 783,098 | ||||||
| Pura Vida Investments LLC [Member] | Underwritten Offering [Member] | ||||||||
| Warrant to purchase common stock | 5,731,707 | 5,731,707 | ||||||
| Pura Vida Investments LLC [Member] | Underwritten Offering [Member] | Common Stock [Member] | ||||||||
| Sale of stock, shares | 4,984,093 | |||||||
| Issuance of shares | 5,731,707 | |||||||
| Pura Vida Investments LLC [Member] | Underwritten Offering [Member] | Common Stock [Member] | Maximum [Member] | ||||||||
| Warrant to purchase common stock | 2,865,853 | 2,865,853 | ||||||
| Pura Vida Investments LLC [Member] | Underwritten Offering [Member] | Underwriters [Member] | Common Stock [Member] | ||||||||
| Issuance of shares | 747,614 | |||||||
| Halle Special Situations Fund LLC [Member] | Underwritten Offering [Member] | ||||||||
| Warrant to purchase common stock | 7,129,456 | 7,129,456 | ||||||
| Halle Special Situations Fund LLC [Member] | Underwritten Offering [Member] | Common Stock [Member] | ||||||||
| Sale of stock, shares | 6,199,527 | |||||||
| Warrant to purchase common stock | 7,129,456 | 7,129,456 | ||||||
| Halle Special Situations Fund LLC [Member] | Underwritten Offering [Member] | Common Stock [Member] | Maximum [Member] | ||||||||
| Warrant to purchase common stock | 3,564,728 | 3,564,728 | ||||||
| Halle Special Situations Fund LLC [Member] | Underwritten Offering [Member] | Underwriters [Member] | ||||||||
| Warrant to purchase common stock | 929,929 | 929,929 | ||||||
| Series A Preferred Stock [Member] | April 2022 Offering [Member] | John Peter Gutfreund [Member] | ||||||||
| Sale of stock, shares | 1,176.48 | |||||||
| Securities Purchase Agreement [Member] | Halle Capital Management LP [Member] | ||||||||
| Offering shares | 85,000 | |||||||
| Securities Purchase Agreement [Member] | Series A Preferred Stock [Member] | Gutfreund [Member] | ||||||||
| Number of stock redeemed | 588.23529 | |||||||
| Value of stock redeemed | $ 618,672.34 | |||||||
| Securities Purchase Agreement [Member] | Series A Preferred Stock [Member] | Broadwood Capital, LP [Member] | ||||||||
| Offering shares | 5,882.35 | |||||||
| Securities Purchase Agreement [Member] | Common Stock [Member] | ||||||||
| Offering shares | 45,494,198 | |||||||
| Related party transaction, description | (i) $0.30168 to investors who are not considered to be “insiders” of the Company pursuant to Nasdaq Listing Rules (“Insiders”), which amount reflects the average closing price of the Common Stock on Nasdaq during the five trading day period immediately prior to pricing, and (ii) $0.35440 to Insiders, which amount reflects the final closing price of the Common Stock on Nasdaq on the last trading day immediately prior to pricing (the “2023 Registered Direct Offering”) | |||||||
| Securities Purchase Agreement [Member] | Common Stock [Member] | Arno [Member] | ||||||||
| Offering shares | 423,252 | |||||||
| Proceeds from issuance of stock | $ 150,000.51 | |||||||
| Securities Purchase Agreement [Member] | Common Stock [Member] | Gutfreund [Member] | ||||||||
| Offering shares | 1,705,000 | |||||||
| Proceeds from issuance of stock | $ 604,252.00 | |||||||
| Securities Purchase Agreement [Member] | Common Stock [Member] | Broadwood PartnersLP [Member] | ||||||||
| Offering shares | 26,827,638 | |||||||
| Proceeds from issuance of stock | $ 8,093,361.84 | |||||||
| Securities Purchase Agreement [Member] | Common Stock [Member] | Pura Vida [Member] | ||||||||
| Offering shares | 663,000 | |||||||
| Proceeds from issuance of stock | $ 200,013.84 | |||||||
| Securities Purchase Agreement [Member] | Common Stock [Member] | AVM [Member] | ||||||||
| Offering shares | 9,447,096 | |||||||
| Proceeds from issuance of stock | $ 2,849,999.92 | |||||||
Loan Payable to Silicon Valley Bank (Details Narrative) - USD ($) |
Apr. 02, 2020 |
Oct. 17, 2019 |
Mar. 31, 2023 |
Oct. 31, 2019 |
Dec. 31, 2017 |
Mar. 23, 2017 |
|---|---|---|---|---|---|---|
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||||||
| Interest rate | 5.50% | |||||
| Warrants to purchase, shares | 16,395,343 | |||||
| Warrant [Member] | ||||||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||||||
| Warrants to purchase, shares | 8,247 | 7,321 | ||||
| Exercise price | $ 4.85 | $ 5.46 | ||||
| Amended Loan Agreement [Member] | ||||||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||||||
| Interest rate | 5.00% | |||||
| Amended Loan Agreement [Member] | Bank Warrant [Member] | ||||||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||||||
| Debt instrument, final payment | $ 200,000 | |||||
| Warrants to purchase, shares | 98,574 | |||||
| Exercise price | $ 1.69 | |||||
| Amended Loan Agreement [Member] | Share-Based Payment Arrangement, Tranche One [Member] | ||||||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||||||
| Line of Credit, Current | $ 3,000,000 | |||||
| Repayments of lines of credit | 400,000 | |||||
| Debt instrument, final payment | 116,000 | |||||
| Amended Loan Agreement [Member] | Share-Based Payment Arrangement, Tranche Two [Member] | ||||||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||||||
| Line of Credit, Current | 2,000,000 | |||||
| Additional paid in capital | $ 20,000,000 | |||||
| Line of credit facility, maximum borrowing capacity | $ 2 | |||||
| Amended Loan Agreement [Member] | Share-Based Payment Arrangement, Tranche Two [Member] | Bank Warrant [Member] | ||||||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||||||
| Percentage for warrant exercise price per share | 0.02% | |||||
| Diluted equity outstanding | $ 1,000,000 | |||||
| Loan Deferral Agreement [Member] | ||||||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||||||
| Debt instrument maturity date description | Under the Loan Deferral Agreement, the Bank agreed to (i) extend the scheduled maturity date of the Amended Loan Agreement from March 31, 2022 to September 30, 2022, and (ii) deferred the principal payments by an additional 6 months whereby payments of interest only on the Bank loan principal balance will be due monthly from May 1, 2020 through October 1, 2020, followed by 23 monthly payments of principal and interest beginning on November 1, 2020, all provided at no additional fees to Oncocyte |
Co-Development Agreement with Life Technologies Corporation (Details Narrative) |
3 Months Ended |
|---|---|
|
Mar. 31, 2023
USD ($)
| |
| Life Technologies Corporation [Member] | |
| Development costs | $ 749,000 |
April 2022 Offerings (Details Narrative) - USD ($) |
3 Months Ended | |||||
|---|---|---|---|---|---|---|
Jul. 15, 2022 |
Jun. 01, 2022 |
Apr. 19, 2022 |
Apr. 13, 2022 |
Mar. 31, 2023 |
Dec. 31, 2019 |
|
| Conversion of stock description | The holder will be prohibited from converting shares of Series A Preferred Stock into shares of common stock if, as a result of such conversion, the holder, together with its affiliates, would own more than 4.99% of the shares of common stock then issued and outstanding (provided a holder may elect, at the first closing, to increase such beneficial ownership limitation solely as to itself up to 19.99% of the number of shares of common stock outstanding immediately after giving effect to the conversion, provided further that following the receipt of shareholder approval required by applicable Nasdaq rules with respect to the issuance of common stock that would exceed the beneficial ownership limitation, such beneficial ownership limitation will no longer apply to the holder if the holder notified the Company that the holder wishes the Company to seek such shareholder approval | A holder is prohibited from converting shares of Series A Preferred Stock into shares of common stock if, as a result of such conversion, the holder, together with its affiliates, would own more than 4.99% of the shares of our common stock then issued and outstanding (provided a holder may elect, at the first closing, to increase such beneficial ownership limitation solely as to itself up to 19.99% of the number of shares of our common stock outstanding immediately after giving effect to the conversion, provided further that following the receipt of shareholder approval required by applicable Nasdaq rules with respect to the issuance of common stock that would exceed the beneficial ownership limitation, such beneficial ownership limitation will no longer apply to the holder if the holder notified the Company that the holder wishes the Company to seek such shareholder approval). | ||||
| Percentage of issued and outstanding shares | 4.99% | |||||
| Conversion price percentage | 140.00% | |||||
| Number of common stock purchase warrants | 16,395,343 | |||||
| Over-Allotment Option [Member] | ||||||
| Purchase of warrant | 3,939,962 | |||||
| Proceeds from issuance initial public offering | $ 32,800,000 | |||||
| April 2022 Warrants [Member] | Over-Allotment Option [Member] | ||||||
| Purchase of warrant | 26,266,417 | |||||
| April 2022 Warrants [Member] | IPO [Member] | ||||||
| Number of common stock purchase warrants | 26,266,417 | |||||
| Sale of stock, price per share | $ 1.3325 | |||||
| Common Stock [Member] | ||||||
| Shares issued, price per share | $ 0.01 | |||||
| Common Stock [Member] | IPO [Member] | ||||||
| Number of common stock purchase warrants | 13,133,208.5 | |||||
| Shares issued, price per share | $ 1.3225 | |||||
| Warrant [Member] | IPO [Member] | ||||||
| Exercise price | $ 0.01 | |||||
| Oncocyte Corp [Member] | ||||||
| Ownership percentage | 25.00% | |||||
| Underwriting Agreement [Member] | ||||||
| Purchase of warrant | 3,939,962 | |||||
| Shares issued, price per share | $ 1.24255 | |||||
| Underwriting Agreement [Member] | April 2022 Warrants [Member] | ||||||
| Purchase of warrant | 3,939,962 | |||||
| Underwriting Agreement [Member] | Common Stock [Member] | ||||||
| Number of common stock purchase warrants | 1,969,981 | |||||
| Underwriting Agreement [Member] | Warrant [Member] | ||||||
| Number of common stock purchase warrants | 3,939,962 | |||||
| Series A Preferred Stock [Member] | ||||||
| Stock issued during period, shares, conversion of units | 11,765 | |||||
| Preferred stock, convertible, shares issuable | 7,689,542 | |||||
| Preferred stock, convertible, conversion price | $ 1.53 | |||||
| Purchase price | 850 | |||||
| Stated value | $ 1,000 | |||||
| Proceeds from issuance of preferred stock and preference stock | $ 10,000,000 | |||||
| Preferred stock outstanding percentage | 51.00% | |||||
| Cash in hand | $ 8,000,000 | |||||
| Indebtedness expenses | $ 15,000,000 | |||||
| Preferred stock, dividend rate, percentage | 6.00% | |||||
| Dividends, preferred stock | $ 299,000 | |||||
| Number of shares issued | 5,882.4 | |||||
| Number of shares outstanding | 5,882.4 | |||||
| Series A Preferred Stock [Member] | Oncocyte Corp [Member] | ||||||
| Equity method investment description | if the daily volume weighted average price of our common stock for 20 out of 30 trading days exceeds 140% of the conversion price and on 20 out of the same 30 trading days the daily trading volume equals or exceeds | if the daily volume weighted average price of our common stock for 20 out of 30 trading days exceeds 140% of the conversion price and on 20 out of the same 30 trading days the daily trading volume equals or exceeds 400,000 shares of our common stock. | ||||
| Series A Preferred Stock [Member] | Oncocyte Corp [Member] | Preferred Stock [Member] | ||||||
| Ownership percentage | 50.00% | |||||
| Series A Preferred Stock [Member] | Security [Member] | Preferred Stock [Member] | ||||||
| Ownership percentage | 50.00% | |||||
| Series A Preferred Stock [Member] | Securities Purchase Agreement [Member] | Share-Based Payment Arrangement, Tranche One [Member] | ||||||
| Net proceeds | $ 4,900,000 | |||||
| Series A Preferred Stock [Member] | Two Equal Tranches [Member] | ||||||
| Proceeds from issuance of preferred stock and preference stock | $ 5,000,000 |
Schedule of Discontinued Operation (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Discontinued Operations and Disposal Groups [Abstract] | ||
| Net revenue | $ 421 | $ 1,044 |
| Cost of revenues | 507 | 1,824 |
| Research and development | 702 | 3,121 |
| Sales and marketing | 498 | 2,971 |
| General and administrative | 329 | 6 |
| Loss from discontinued operations | 1,311 | |
| Net loss from discontinued operations | $ (2,926) | $ (6,878) |
Schedule of Assets and Liabilities of Disposal Group Held for Sale (Details) - USD ($) $ in Thousands |
3 Months Ended | ||
|---|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
Dec. 31, 2022 |
|
| CURRENT ASSETS | |||
| Assets held for sale | $ 2,121 | ||
| TOTAL ASSETS | 82,800 | 100,091 | |
| CURRENT LIABILITIES | |||
| TOTAL LIABILITIES | 39,335 | 60,497 | |
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||
| Net cash used in operating activities | (4,357) | $ (5,532) | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||
| Net cash used in investing activities | $ (114) | ||
| Discontinued Operations, Held-for-Sale [Member] | |||
| CURRENT ASSETS | |||
| Cash and cash equivalents | 1,510 | ||
| Accounts receivable | |||
| Prepaid expenses and other current assets | 346 | ||
| Machinery and equipment, net, and construction in progress | 211 | ||
| Intangible assets, net | 25,920 | ||
| Impairment of held for sale assets | (25,866) | ||
| Assets held for sale | 421 | ||
| TOTAL ASSETS | 421 | 2,121 | |
| CURRENT LIABILITIES | |||
| Accounts payable | 160 | 492 | |
| Accrued compensation | 248 | ||
| Accrued expenses and other current liabilities | 76 | 1,265 | |
| TOTAL LIABILITIES | $ 236 | $ 2,005 | |
Assets Held for Sale and Discontinued Operations (Details Narrative) - USD ($) |
1 Months Ended | 3 Months Ended | 12 Months Ended | ||||||
|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2023 |
Feb. 16, 2023 |
Feb. 16, 2023 |
Jan. 31, 2023 |
Dec. 15, 2022 |
Mar. 31, 2023 |
Mar. 31, 2023 |
Dec. 31, 2022 |
Apr. 20, 2023 |
|
| Assets held for sale | $ 421,000 | $ 421,000 | $ 421,000 | ||||||
| Razor Stock Purchase Agreement [Member] | Razor [Member] | |||||||||
| Equity interest | 30.00% | 30.00% | |||||||
| Razor Stock Purchase Agreement [Member] | Common Stock [Member] | |||||||||
| Purchase of warrant | 1,366,364 | ||||||||
| Razor Stock Purchase Agreement [Member] | Common Stock [Member] | Razor [Member] | |||||||||
| Consideration transferred | $ 115,660 | ||||||||
| Razor Stock Purchase Agreement [Member] | Common Stock [Member] | Razor [Member] | |||||||||
| Purchase of warrant | 1,366,364 | ||||||||
| Equity interest | 30.00% | 30.00% | |||||||
| Loss on disposal | 1,300,000 | $ 27,200,000 | |||||||
| Razor Stock Purchase Agreement [Member] | Common Stock [Member] | Dragon [Member] | |||||||||
| Purchase of warrant | 3,188,181 | ||||||||
| Razor Stock Purchase Agreement [Member] | Common Stock [Member] | Dragon [Member] | Razor [Member] | |||||||||
| Equity interest | 70.00% | 70.00% | 70.00% | ||||||
| Laboratory Equipment Agreement [Member] | |||||||||
| Proceeds from sale of equipment | 200,000 | $ 200,000 | |||||||
| Assets held for sale | 200,000 | 200,000 | $ 200,000 | $ 200,000 | |||||
| Proceeds from sale of equipment | 200,000 | ||||||||
| Impairment loss | $ 1,000,000.0 | ||||||||
| Auction Equipment Agreement [Member] | |||||||||
| Proceeds from sale of equipment | 100,000 | ||||||||
| Loss on disposal and held-for-sale assets | $ 300,000 | ||||||||
Subsequent Events (Details Narrative) - USD ($) $ / shares in Units, $ in Millions |
3 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|
Apr. 05, 2023 |
Apr. 03, 2023 |
Jun. 30, 2023 |
Dec. 31, 2022 |
|
| Subsequent Event [Line Items] | ||||
| Net proceeds to immediately redeem | $ 1.1 | |||
| Employee severance and benefits costs | $ 1.9 | |||
| Registered Direct Offering [Member] | Series B Preferred Stock [Member] | ||||
| Subsequent Event [Line Items] | ||||
| Number of stock redeem | 1,064 | |||
| Subsequent Event [Member] | Registered Direct Offering [Member] | ||||
| Subsequent Event [Line Items] | ||||
| Proceeds from issuance of common stock | $ 13.9 | |||
| Employee severance and benefits costs | $ 0.3 | |||
| Subsequent Event [Member] | Registered Direct Offering [Member] | Series B Preferred Stock [Member] | ||||
| Subsequent Event [Line Items] | ||||
| Net proceeds to immediately redeem | $ 1.1 | |||
| Number of stock redeem | 1,064 | |||
| Subsequent Event [Member] | Registered Direct Offering [Member] | Board Members [Member] | ||||
| Subsequent Event [Line Items] | ||||
| Shares issued price per share | $ 0.3544 | |||
| Subsequent Event [Member] | Registered Direct Offering [Member] | Other Investors [Member] | ||||
| Subsequent Event [Line Items] | ||||
| Shares issued price per share | $ 0.30168 | |||
| Subsequent Event [Member] | Registered Direct Offering [Member] | Maximum [Member] | ||||
| Subsequent Event [Line Items] | ||||
| Purchase of warrant | 45,562,425 |
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