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Edited Transcript of OCX.A earnings conference call or presentation 29-Jul-20 8:30pm GMT

Q2 2020 OncoCyte Corp Earnings Call

ALAMEDA Sep 22, 2020 (Thomson StreetEvents) -- Edited Transcript of OncoCyte Corp earnings conference call or presentation Wednesday, July 29, 2020 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Douglas T. Ross

OncoCyte Corporation - Chief Medical Officer

* Mitchell S. Levine

OncoCyte Corporation - CFO

* Padma Sundar

OncoCyte Corporation - SVP of Commercial

* Ronald A. Andrews

OncoCyte Corporation - CEO, President & Director

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Conference Call Participants

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* Bruce David Jackson

The Benchmark Company, LLC, Research Division - Senior Equity Analyst

* Poon Mah

Piper Sandler & Co., Research Division - Director & Senior Research Analyst

* Stephen Scott Unger

Needham & Company, LLC, Research Division - Senior Analyst

* Thomas Flaten

Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst

* Robert A. Yedid

LifeSci Advisors, LLC - MD

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Presentation

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Operator [1]

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Greetings, and welcome to Oncocyte Corporation Second Quarter 2020 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

It's now my pleasure to introduce your host, Bob Yedid, Managing Director of LifeSci Advisors. Thank you. You may begin.

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Robert A. Yedid, LifeSci Advisors, LLC - MD [2]

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Thank you, Doug, and thank you, everyone, for joining us for today's conference call to discuss Oncocyte's Second Quarter 2020 Financial Results and Recent Operating Highlights. If you have not seen today's financial results press release, please visit the company's website and look at the Investors page.

Before turning the call over to Ronnie Andrews, Oncocyte's President and Chief Executive Officer, I'd like to remind you that during this conference call, the company will make projections and forward-looking statements regarding future events. Any statements that are not historical facts are forward-looking statements. We encourage you to review the company's SEC filings, including, without limitation, the company's Form 10-K and Form 10-Qs, which identify the specific risk factors that may cause actual results or events to differ materially from those described in these forward-looking statements. These factors may include, without limitation, risks inherent in the development and/or commercialization of potential diagnostic tests, uncertainty in the results of clinical trials or regulatory approvals, the capacity of Oncocyte's third-party blood sample analytic system to provide consistent and precise analytic results on a commercial scale, the need to obtain third-party reimbursement for patients' use of any diagnostic test the company commercializes, our need and ability to obtain future capital and maintenance of intellectual property rights and uncertainties associated with COVID-19 pandemic and its possible effects on our operations. Therefore, actual results -- actual outcomes and results may differ materially from what is expressed or implied by these forward-looking statements. Oncocyte expressly disclaims any intent or obligation to update these forward-looking statements except as otherwise may be required under applicable law.

With that said, it's my pleasure to turn the call over to Ronnie Andrews, CEO. Ronnie?

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Ronald A. Andrews, OncoCyte Corporation - CEO, President & Director [3]

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Thanks, Bob, and welcome, everyone, to our conference call to discuss our second quarter 2020 financial results and operating highlights. Joining me today on the call are Mitch Levine, Chief Financial Officer; Al Parker, Chief Operating Officer; Dr. Doug Ross, our Chief Medical Officer; and Padma Sundar, our SVP of Commercial. We'll all be available during the question-and-answer session.

The second quarter of 2020 has been an important chapter in the evolution of Oncocyte. My goal for the call today is to do a brief high-level review of the DetermaDx technical overview performed since our call in June and spend the majority of our time sharing the tremendous progress we've experienced on our 2 commercially available high-impact tests that are both at revenue generation phase and have significant revenue upside, given the large and untapped markets they will serve and to provide additional clarity around DetermaIO and its value to Oncocyte today.

When I agreed to step into the CEO role a year ago, the mission was to diversify Oncocyte by adding high-value cancer tests where, at commercial launch stage, to build multiple revenue streams and mitigate the clinical development risk in the program to develop the test we then called DetermaVu. As a veteran of the molecular diagnostics industry, I've had a lot of experience with biomarker research. It's challenging. It's expensive. And unfortunately, early science does not always translate into final products.

And this is exactly what we encountered with DetermaDx. The strategy we embarked on last year was to build a company with tests that answer critical, unanswered questions for physicians managing lung cancer, a cancer that's not seen much improvement in outcomes over the last 50 years. Instead of investing more in discovery research to find such tests, we made the conscious decision to identify and acquire tests that had already been validated and well published, tests that were well down the path to reimbursement and tests that were ready for clinical market or for use by the emerging biopharma market for immune therapy trials.

Simply put, our goal was to rapidly transform Oncocyte to a commercial-stage company and drive revenue and growth and test adoption of proprietary products well ahead of the 18- to 24-month window it would have taken for us to finish the development and get reimbursement for DetermaDx.

Over the last year, our focus on execution has allowed us to hit the timing of every milestone we laid out a year ago despite the challenging pandemic environment. However, hitting the timing does not mean that every effort has a successful outcome, and we certainly share your disappointment that although we completed the clinical trial for DetermaDx by the end of second quarter of 2020, the result of that trial was not strong enough to justify further investment in the program at this time. Our decision will allow us to eliminate significant amount of DetermaDx spending.

In addition to the reduction in R&D spending, we'll also not repeat the level of nonrecurring expense from Q2. Therefore, we're targeting a quarterly cash burn in a go-forward basis of under $5 million and then a further reduction of cash burn as our revenues from both DetermaRx and IO continue to ramp up.

I know we're all disappointed with the outcome of the blinded prospective clinical trial results for Dx, and we have information for you today on our deep-dive analysis from the trial. It's very important to understand that Oncocyte's strategy to diversify and derisk our product portfolio has been very successful today, and we've now launched 2 very powerful tests into 2 high-growth market opportunities.

We are a very different company today than a year ago and have an incredibly bright future. So before I share the encouraging news of our commercial product momentum, let's spend a few minutes on the results of the Dx clinical validation post-study analysis.

As we committed on our call in late June when we reported the initial results of the clinical validation trial, we spent the last 3 weeks doing a deep dive into each component of the trial. We have used independent third-party experts for every major area of the testing process to ensure we effectively understand the results and identify any components of the panel that may have value to other companies in the blood-based screening market.

Based on results of our autopsy, we were able to confirm biological activity in the subset of a larger panel that made up the Dx product, but we're unable to power the endpoint sufficiently with our algorithm using this smaller marker set. However, we believe the subset of RNA markers may be of interest to companies pursuing a position in the enormous screening market using cell-free DNA and DNA methylation. You'll probably recognize a few of the companies like Guardant Health, Grail, Freenome, Thrive, et cetera.

We've already had some inbound calls regarding the extremely valuable IRENE Biobank as well, which has over 3,000 patient blood samples with patient outcomes, which could be a valuable tool to accelerate clinical studies for other blood-based screening efforts. The decision to discontinue our work on the DetermaDx program was not an easy one. But when we balance the ongoing cost of the program with the time to market and risk in the product, it became clear that reducing our burn and focusing on our 2 commercial products was in the best interest of all stakeholders.

So while we have made the decision not to continue to invest in markers discovery for Dx given the risk profile, we will make efforts to pursue opportunities to monetize the marker set and our IRENE biobank. Looking ahead, Oncocyte will now focus on driving adoption and revenue for our 2 commercially available products, DetermaRx for the clinical market and DetermaIO for the rapidly growing market for patient selection to support pharma development in immune therapies, with an eventual goal of rapidly advancing IO to the clinical market for immune therapy response prediction and selection.

Let's start with DetermaRx, the first and only predictive test for the identification of patients with Stage I to IIa nonsquamous non-small cell lung cancer, who are at risk for recurrence following surgery and likely responsive to adjuvant chemotherapy. This is a very important test as you will hear from our early adopters in the upcoming KOL Events, including the one scheduled for 2:30 Eastern Time tomorrow as they share actual case studies.

Today, a significant portion of these early-stage patients are given the false hope of a surgical cure when, in fact, they have micrometastatic disease that remains undetected in routine pathology. For example, molecular staging in breast cancer has been a standard of care for over 10 years, thanks to Genomic Health, which pioneered a model for completing routine pathology with a molecular stage score to help physicians know when to add chemo to the follow-up regimen to ensure patients would not have an unexpected recurrence. If you've followed our industry for very long, you'll know the success of that company and its test.

Well, until we launched DetermaRx in late January, there was no test to do the same thing in lung cancer. The robust data published on our test has led to rapid adoption by lung cancer experts who understand the importance of identifying high-risk early-stage patients. A molecular profile to identify patients who are at high risk for micrometastases and, ultimately, recurrence after surgery is the only way to detect this progression before it happens while still curable with routine application of chemotherapy.

The dramatic increase in the 5-year survival rate from 49% for high-risk patients who do not get chemo to 92% 5-year survival for those who DetermaRx classifies as high risk and then receive chemo is a staggering testimony to the importance of our test on patient survival. This quarter, we're excited to report that commercial payers have begun to reimburse DetermaRx claims.

Building on that, we also recently announced that Noridian, the Centers for Medicare & Medicaid Services -- Administrative Contractor, or MAC, for laboratories in California, had issued its final local coverage decision for DetermaRx. Noridian's decision aligns completely with Palmetto's criteria for the test and establishes Medicare coverage for approximately 70% of eligible patients nationwide.

This decision also establishes a new class of predictive test for Medicare coverage based primarily on the comprehensive clinical evidence presented in support of DetermaRx. DetermaRx is the only test in this new category. I'm incredibly proud of this accomplishment. We are driving change in cancer care and establishing ourselves as true pioneers in the lung cancer diagnostics community.

Moving next to the rapid growth of both physician adoption and testing volume for DetermaRx. We have made what I consider to be significant headway in the adoptions of DetermaRx in just a few months. Our test volumes doubled between Q1 and Q2 despite the challenging COVID-19 macro environment. And to date, we served well over 100 patients, and that number continues to grow this summer despite the spike in pandemic.

There are currently 47 hospitals who've made the test available for ordering by their surgeons and oncologists. These range from major academic medical centers and high-volume community health centers, where most early-stage cancer is treated. I'm pleased to report the addition of numerous health systems, including ones like UC Davis, Florida Cancer Specialists, MD Anderson, Banner Health and Dignity Health.

As a significant confirmation of the importance of our test to patient care, Florida Cancer Specialists, a network of over 500 providers, has integrated DetermaRx into their standard test menu, which means the test is flagged for physician ordering for every eligible patient case. Given the clear utility and reliable test performance with no other test available for this indication, we believe that DetermaRx is well positioned to become the standard of care at many additional health systems.

Another important metric to follow is the percent of physicians who reorder the test after their first patient order. In physician use studies from other molecular tests, typical companies were happy when they received greater than 30% reorder rates in the initial launch phases. So we're very pleased with a reorder rate of 60% today. We believe this speaks to a high level of physician satisfaction and clearly demonstrates the utility and value this test brings to patients and doctors as they navigate treatment decisions in early-stage lung cancer.

Touching on more physician adoption, we've implemented robust education programs now with attendance of over 1,800 medical oncologists and thoracic surgeons through the end of Q2. As part of our virtual physician education program, we will be hosting a KOL Webinar on DetermaRx tomorrow at 2:30 Eastern Time, showcasing new and expanded predictive data, which reinforces the dramatic impact this test has on patient survival when used to guide patient treatment decisions.

Events like these, coupled with resumption of in-person meetings with health care practitioners as permitted during COVID-19 restrictions, will allow us to continue our current growth trajectory in adoption and test orders. We encourage investors and analysts to join this event tomorrow.

The market for DetermaRx is no means limited to the United States. With an estimated 350,000 patients potentially eligible for the test globally each year, we believe DetermaRx' global total addressable market is estimated between $450 million and $500 million subject, of course, to pricing and adoption rates.

We're very uniquely positioned to access this market because there's no other test for this indication. Our strategy is to enter these markets with the right channel partner, one who is a dedicated oncology commercial channel to rapidly penetrate these market opportunities.

This is essential, especially in China, where the eligible patient population is approximately 6x larger than the U.S. with an estimated 250,000 surgical resections for lung cancer each year. We recently announced a distribution agreement with ProGenetics Limited, an exclusive distributor for multiple leading diagnostic test in Israel. This agreement marks our second international agreement this year, building upon our agreement with CORE Diagnostics earlier in the quarter to distribute DetermaRx throughout India, the Middle East and Africa.

With these agreements this year, it should be clear that there's tremendous interest by partners to access DetermaRx outside of the United States since our launch. Needless to say, we're actively pursuing relationships in other large markets like China and the EU and encourage investors look for completion of those milestones in the second half of 2020.

We're thrilled with our progress with DetermaRx. We went from acquisition in September 2019 to market launch in late January and now had a solid market adoption, all in less than 9 months. I'm incredibly fortunate to have an amazing team in place who work tirelessly to achieve all of our recent success with reimbursement, revenue generation, physician adoption, site onboarding and global expansion. We truly have done so much in an unprecedented market environment.

So moving next to DetermaIO and why we're incredibly excited about the opportunities with this remarkable test. We all know that immunotherapies have been transformative for some cancer patients in select indication. Some immunotherapies such as Merck's Keytruda, Bristol Myers' Opdivo and Yervoy and others are now among the top-selling drugs in the world and have saved thousands of lives.

But identifying which patients are most likely to benefit from these therapies, both for treating physicians and patients, remains a major obstacle. Currently, more than 750,000 patients are eligible for immune therapy in the U.S. alone, and there are close to 3,000 ongoing clinical trials involving immune therapies.

In addition, the use of immune therapies is only going to increase as the next generation of immune therapies begin to enter the market. According to Grand View Research, the IO therapy market will reach approximately $130 billion by 2026. And to date, there's no biomarker panel that is powerful enough to accurately identify patients who will have a sustained response. In fact, the current approximate treatment response rates are around 45%, meaning that over $65 billion could be spent each year on immune therapy that does not benefit patients. The molecular diagnostics market for testing to appropriately identify patients is also expected to grow to over $5 billion globally by 2026. This tremendous and growing market is why Insight Genetics was such an important and timely acquisition for Oncocyte and why DetermaIO has emerged rapidly as an extremely important part of the Oncocyte story moving forward.

So how does DetermaIO make a difference? As a reminder, DetermaIO is our proprietary gene expression profile test that evaluates the entire immune microenvironment in biopsies from cancer patients to identify cancers more or less likely to respond to anti-PD-1, anti-PD-L1 checkpoint immunotherapy.

The DetermaIO data builds upon over 150 publications that explore the original triple-negative breast cancer signature as a classifier. Data from clinical studies performed by researchers at MD Anderson and West Clinic presented at recent major oncology meetings demonstrated that the test outperformed the currently available biomarkers for immune therapy response prediction, namely PD-L1 staining in both triple-negative breast cancer and both PD-L1 and tumor mutational burden in lung cancer.

We believe the strength of the test as an immune system classifier and its ability robustly identify tumors poised to respond to immune therapy may enable more accurate predictions of which patients will benefit from treatment regardless of the tumor origin. It's very important for current shareholders and potential investors to clearly understand that DetermaIO is way past the development phase, and we are into the initial commercial phase of market development.

Simply put, DetermaIO is now commercially available for research use in biopharma and other research settings, and we believe will address some of the major shortcomings and appropriate targeting of immune therapy treatment and drug development. So let me tell you about our strategy for exploiting this emerging market by positioning DetermaIO to advance in 3 specific opportunities.

First and foremost, we believe this will be an important test for pharma as they look to expand checkpoint inhibitors into new indications, namely colorectal cancer, prostate, gastric, esophageal, endometrial and other cancers, expanding the potential market beyond PD-L1 or MSI-positive patients.

The second immediate opportunity is an emerging class of drugs designed to complement checkpoint inhibitors to overcome a suppressive tumor microenvironment. In short, there is potential to convert a cold tumor into a hot tumor with the application of combination drug regimen. There are also several companies interested in utilizing DetermaIO to identify the cold tumors that could then be suitable for such combinatorial trials. Assuming success, Oncocyte would take DetermaIO through the regulatory process as the companion diagnostic for these drugs.

Third, we plan on investing in maturing DetermaIO specifically in the triple-negative breast cancer applications where it has its origins. This is an emerging indication for checkpoint inhibitor therapy, but is complicated as triple-negative breast cancer includes a very diverse set of cancers that our extended classifier, TNBCType, is designed to distinguish. We'll be working to demonstrate that DetermaIO can identify immune responders in triple-negative breast cancer and are pleased to announce that DetermaIO has already been selected as the predictive biomarker for a checkpoint inhibitor clinical trial for triple-negative breast cancer in the early stage neoadjuvant setting where PD-L1 failed to accurately identify responders.

We're highly encouraged by the significant interest from numerous academic and pharma groups and expect to provide exciting updates in the near term and look forward to updating on our progress against these critical milestones for DetermaIO over the course of the next few months.

We also have continued momentum with our pharma services opportunity. As a reminder, in addition to our DetermaRx and DetermaIO emerging commercial revenue streams, we have a successful boutique pharma services business with our certified lab located in Nashville, which allows us to immediately leverage our proprietary test in the pharma service contracts, while also continuing to meet the additional needs of biopharma customers.

Our pharma services offering enable a full suite of molecular analysis services needed to support pharma drug development from discovery stage and clinical trial support through to companion diagnostics. In addition, our commercially available test, we believe our robust pharma services pipeline is another important and immediate opportunity for growth and revenue at Oncocyte.

To date, we gained numerous contracts and are already engaged in work with pharmaceutical companies like Boehringer Ingelheim, Eisai, Ono Pharmaceuticals, Tiaki and molecular diagnostics companies like QIAGEN, Promega and PlexBio. I'm happy to report that the pharma services pipeline has grown rapidly in a few short months and currently have over 1.5 million in contracted projects and a pipeline of proposals that could take the business to an even higher run rate by year-end, and we're only getting started.

While the 2020 revenue recognition for all these contracts depends on how fast pharma partners enroll patients and collect samples, the run rate is very encouraging and includes some very high-profile projects. All in all, we've accomplished a tremendous amount here at Oncocyte over the last year, and the effort of our small team has really been incredible.

We've moved from a single-test R&D stage company to a more diversified, derisked commercial-stage revenue-generating company. Oncocyte has never been stronger, and we're in an excellent position to execute and deliver on our goals.

Our focus on driving adoption of our proprietary molecular diagnostic tests in growing revenue is evident in everything we do each day. The global markets for our tests are large and growing. We have a solid line of sight on how to penetrate our market opportunities in the U.S. and in important global markets through a network of partners.

Before I turn the call over to Mitch for a review of our financials, I'd really like to thank the entire Oncocyte team for their hard work and dedication through this intense journey of our first year together. I hope that our strong execution and transparency leaves you confident in our strategic path forward. We thank you for your continued support and look forward to sharing our progress.

And at this point, I'd like to turn the call over to our CFO, Mitch Levine. Mitch?

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Mitchell S. Levine, OncoCyte Corporation - CFO [4]

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Hey, thanks, Ronnie. Hi, everybody. For the second quarter, we strengthened our balance sheet with a completion of a $10.7 million registered offering of common shares, priced at market and without paying any commissions or placement fees.

As of June 30, 2020, we had cash, cash equivalents and marketable securities of $17.1 million. We expect annualized savings of approximately $3 million from the discontinuation of the DetermaDx program and are now expecting a quarterly cash burn of $4.7 million to $5 million.

Cash used in operations was $7.0 million for the second quarter of 2020. This cash spend includes about $1 million of nonrecurring expenses, including transactional costs, acquisition-related costs and legal and business development costs.

I'd like to remind investors about our revenue recognition policies around DetermaRx in light of the recent CMS and Noridian final LCD decision, which became effective June 14, 2020. As a reminder, prior to January 1, 2020, we did not have any revenues or cost of revenues in our results because we did not have any commercialized products.

Under U.S. accounting principles, we will be able to recognize revenues on an accrual basis for DetermaRx once we have contracts or reimbursement from third-party payers or a history of experience of cash collections for the tests we perform or both. Until that time, we expect to recognize revenue on a cash basis.

Accordingly, we will incur and accrue cost of revenues and other operating expenses related to DetermaRx, which may not necessarily have corresponding revenues.

The final CMS approval decision makes our DetermaRx test eligible for Medicare reimbursement. After a final Medicare coverage price has been established, we expect to recognize revenue when the DetermaRx tests are performed for Medicare patients rather than on a cash basis. For private payers such as insurance companies, we expect to follow a similar policy.

As a reminder, our results of operations now include the consolidated results of our wholly-owned subsidiary, Insight Genetics, which we acquired at the end of January.

For the second quarter of 2020, we reported a net loss of $9.1 million or $0.14 per share as compared to $5.4 million or $0.10 per share for the second quarter of 2019. Operating losses as reported for the second quarter of 2020 were $8.8 million, an increase of $3.3 million as compared to $5.5 million in the second quarter of 2019. Operating losses, as adjusted, were $6.9 million, an increase of $2.2 million as compared to $4.7 million in the second quarter of 2019 on an as-adjusted basis.

We have provided a reconciliation between GAAP and non-GAAP operating losses in the financial tables included with our earnings release, which we believe is helpful in understanding our ongoing operation.

Revenues for the 3 and 6 months ended in June 30, 2020, were $143,000 and $158,000, respectively, primarily generated from pharma services as revenues from DetermaRx tests were recognized only when we receive cash payment for the test rather than on an accrual basis when the tests were performed.

Cost of revenues for the 3 and 6 months ended June 30, 2020, were $365,000 and $538,000, respectively, primarily occurred from performing the DetermaRx test and pharma services.

Research and development expenses for the second quarter of 2020 were $3.2 million as compared to $1.5 million for the second quarter of 2019, an increase of $1.7 million. The increase was primarily attributable to personnel and laboratory-related expenses for clinical validation activities related to our DetermaDx test.

General and administrative expenses for the second quarter of 2020 were $3.8 million as compared to $3.6 million for the same period in 2019, relatively unchanged from the prior year's second quarter.

Sales and marketing expenses for the second quarter were $1.6 million compared to $300,000 for the same period last year, an increase of $1.3 million. This increase was primarily attributable to ramp up in sales and marketing activities for our commercialization efforts of DetermaRx.

That concludes my remarks, including our financial highlights. Ronnie?

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Ronald A. Andrews, OncoCyte Corporation - CEO, President & Director [5]

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Operator, we can now open the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Thomas Flaten with Lake Street Capital Markets.

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Thomas Flaten, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [2]

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Can you talk a little bit about your plans for expanding the sales force? I know COVID remains a bit of a challenge, but as you have seen and commented previously, there has been some increase in face-to-face interactions. And I was just curious if you could comment a little bit on how you're thinking about that for the balance of the year.

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Ronald A. Andrews, OncoCyte Corporation - CEO, President & Director [3]

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Yes, Thomas, we were -- actually, before the recent spike, we were actually thinking about adding a few sales reps in September time frame. I think given where we are now, we will continue the virtual effort that we're on, and we're seeing great progress there. And we are going to begin the interview process.

We do think there are 3 really important regions of the country that we have been able to touch virtually that we probably need to drop reps in because when face-to-face -- when we can't get back face-to-face, it's going to be important that we're there. I mean what we are seeing is people coming on board, and then we get the follow-up med ed meetings. But it's going to be really important that our reps continue to meet with the teams in these early adopter sites so that we get the full pull from each account.

So right now, the plan is to hold off on those hires until we see how the spike claims down and to see when accounts open up. But we are planning on adding 3 probably before the end of the year.

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Padma Sundar, OncoCyte Corporation - SVP of Commercial [4]

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And of course, our virtual programs are so successful, we are continuing to add to that program. So as Ronnie said, the first CME that was conducted, we had about -- we had 1,800 surgeons and medical oncologists. We are working with that same organization. They're going to launch another program, which will be more interactive where doctors will be allowed to log into a portal and engage with people like Dr. David Gandara and Dr. Johannes Kratz. The outreach for that is 13,000 physicians. So we're continuing to -- continue with the virtual engagement. And then in a timely manner, we'll add kind of boots on the ground.

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Thomas Flaten, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [5]

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Got it. And then I don't know if you can comment with some specificity around what you've seen in July. I know you hit the 100 tests sometime in the second quarter. What have you seen so far? And has the more recent spike in COVID cases, particularly in the Southern states, had an impact? Or are you still seeing pretty rapid growth?

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Ronald A. Andrews, OncoCyte Corporation - CEO, President & Director [6]

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It's interesting that I just saw a paper from ASCO showing about a 40% reduction in patients that have cancer seeing their physicians, which is -- makes us all in this industry nervous. However, we have continued to see month-over-month growth in our sample volumes. And so while we obviously are watching these spikes very carefully, the one -- I think the one good thing to note is while we are seeing a rapid rise in infections of COVID-2, not all the countries are seeing that turn into ICU beds and actual hospitalizations to the point where surgeries cannot continue. So we'll watch it closely. But so far, we are seeing continued month-over-month growth.

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Padma Sundar, OncoCyte Corporation - SVP of Commercial [7]

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I'll just add some commentary. Some of the states where we've seen an unfortunate increase in the number of cases, if we look at our July dashboard, actually a lot of the cases are indeed coming from Florida, which is pleasantly surprising, including from Florida Cancer Specialists. They're already integrated in the test ordering menu as well as from California. So yes, we are seeing those cases come in, in July and these 2 cases where the COVID-19 cases are spiking. So seems like although the surgeries may not be back at 100% of pre-COVID levels, they are happening.

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Ronald A. Andrews, OncoCyte Corporation - CEO, President & Director [8]

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Yes. And Thomas, one thing that we're watching very closely as well, and this is just through my network at ASCO is because of COVID, people are getting chest x-rays and the incidental findings of earlier-stage tumors are definitely increasing. We have no idea how many yet, but we -- but at the last meeting I was at with my ASCO colleagues, that was part of the discussion. So we'll monitor that and see it. And we hope to continue our month-over-month growth rate despite the spike.

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Thomas Flaten, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [9]

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And so just a final question. Are you willing at this point to provide some guidance on testing volumes for the balance of the year? How you think it's going to evolve from where you are today?

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Ronald A. Andrews, OncoCyte Corporation - CEO, President & Director [10]

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Yes. Let me say this. Here's what I'd say. In the first year of their existence, Genomic Health had 20 reps and did 500 cases in the first year with no COVID and at 3x the market size. And we, right now, while we don't think we can achieve that number given the COVID headwind. But the progress we're going to make is going to be fairly significant given 6 reps and the headwind we have.

And so to believe that we could get to half of their volume in the 6 months and have COVID with 6 reps, something like that would be, I think, a pretty impressive ramp-up given what we're all going through. But certainly, we believe that, that number is reachable, and we'll know more. It's not that we're trying to hedge our bets here. We just -- we need to get through the spike and see like you're seeing, are we going to continue to see the ability for these people to get surgeries or not. That's the real challenge to give in a final number for the year. But we are on a very close track to at least deliver half of what Genomic Health did in a full year with 20 reps, no COVID. We'll deliver at least half of that in about 3/4 of the year with 6 reps in COVID. So it's an impressive ramp right now.

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Operator [11]

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Our next question comes from the line of Steve Unger with Needham.

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Stephen Scott Unger, Needham & Company, LLC, Research Division - Senior Analyst [12]

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Ronnie, you kind of -- you said in the comment regarding the DetermaIO on the clinical trial for triple-negative breast. And I was just wondering if you could provide more color for us.

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Ronald A. Andrews, OncoCyte Corporation - CEO, President & Director [13]

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Yes. We -- right now, we -- one of the things you guys will see us be challenged with is we enter these trials with these big pharmas, especially if it's a failed trial, and we are really precluded contractually from sharing the names of the companies and the actual specifics of the trial because, obviously, it's already a failed trial. And we want to make sure that if we resuscitate it, that would be a pretty phenomenal achievement for the pharma company.

And so unfortunately, I'm not able to say anything more than we are actively receiving samples, and we hope to be able to at least see results from that within 90 days.

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Stephen Scott Unger, Needham & Company, LLC, Research Division - Senior Analyst [14]

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Is that revenue generating? Or is that more of what I would call pilot?

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Ronald A. Andrews, OncoCyte Corporation - CEO, President & Director [15]

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Yes. In phase -- you hit the nail in my head. I think we will be very clear about this and transparent.

When we're getting involved this early with our test, we will run in kind the samples for these companies in sort of the resuscitation mode or we will get their silico data. We'll get the data from RNA-seq in some cases, and we'll be able to run our algorithm against that. And so those are the 2 avenues we'll approach for these sort of early -- these failed trials, where we want to take a quick early shot to see if we can resuscitate it. Once that happens, we will be billing for the samples.

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Padma Sundar, OncoCyte Corporation - SVP of Commercial [16]

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The one thing I wanted to add is since this is a very high-profile therapeutic, right, and being tested in the neoadjuvant setting, one -- once that data -- one of way to think about it is, is it directly revenue generating. But the other way to think about it is, once the data is available and it's presented at a medical meeting, it creates an excitement around the platform itself to attract other -- interest from other pharma, so it's a more strategic.

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Stephen Scott Unger, Needham & Company, LLC, Research Division - Senior Analyst [17]

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Yes, that's great. Great. In terms of DetermaRx, do you know your Medicare price yet?

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Ronald A. Andrews, OncoCyte Corporation - CEO, President & Director [18]

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We do not. And I'm going to give you some high-level thoughts. Padma is right across from me, I'll let her add color. We have given everything we needed to give to them to render us a price. The Noridian blessing was very important because now that's our local MAC, and that put a firm date on when we have to have a price.

So we know those 2 things. We do know that there is a new -- it was a fairly new methodology that they were trying to use, and we are waiting to see all of us, all the companies. I've talked to several CEOs in my space who are also waiting on pricing. And we're all under the impression that there's an evaluation right now of what's the appropriate method to price these panels.

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Padma Sundar, OncoCyte Corporation - SVP of Commercial [19]

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Yes. I'll reiterate this that because the Noridian is effective August 20, they have to pay us for claims after that. You're right. Ronnie is right in that the exact pricing has not been determined. And the reason for that is the management change at Palmetto, and they are sort of trying to introduce a new algorithm for pricing. And what we've heard is there is a dilemma as to whether that new algorithm should be adopted or whether they should be pricing using the old algorithm. And those are the discussions we are involved in. And that's the reason it's got delayed. So -- but whatever the issue, they have to pay us for claims after August 20 because it's effective on that date.

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Ronald A. Andrews, OncoCyte Corporation - CEO, President & Director [20]

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And we've already been -- we've been submitting claims since we got the approval. So we're obviously going to adjudicate all the older claims once we know the price.

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Stephen Scott Unger, Needham & Company, LLC, Research Division - Senior Analyst [21]

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Yes, that was my last question. I just wanted to -- of the 100-patient samples that you've tested, how many of those are eligible for reimbursement either by private payers or Medicare?

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Padma Sundar, OncoCyte Corporation - SVP of Commercial [22]

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So in terms of the sample volume, it's closely tracking to actually the market number. So about 70% of those patients have Medicare or Medicare Advantage and 30% have commercial insurance, which we are billing and getting paid some of the time. We will -- we are already -- we've submitted the past claims to Noridian. And we will be making an appeal -- although not guaranteed, we are making an appeal to get those claims paid because if you remember, the evidence between the draft LCD and the final LCD was unchanged. They didn't change anything. So we've made the case to the medical directors at Noridian that we should be paid for those past claims, and we'll keep you updated as we progress through those negotiations.

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Stephen Scott Unger, Needham & Company, LLC, Research Division - Senior Analyst [23]

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Good. Okay. So then worst-case scenario is you start getting paid after August 20 -- for samples after August 20?

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Padma Sundar, OncoCyte Corporation - SVP of Commercial [24]

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Yes.

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Ronald A. Andrews, OncoCyte Corporation - CEO, President & Director [25]

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Right, worst case. So we will have revenue in Q3 for Rx. I think as Mitch has described in terms of our revenue recognition, it's going to be on a cash-only basis in Q3 and Q4, most likely. And then as we get more and more traction and more and more history, we'll be able to move to an accrual methodology. But for now, it'd be cash only. So we'll continue to provide volume growth and then revenues at the coming quarterly conference calls.

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Operator [26]

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Our next question comes from the line of Steve Mah with Piper Sandler.

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Poon Mah, Piper Sandler & Co., Research Division - Director & Senior Research Analyst [27]

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Congrats on the early DetermaRx traction.

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Ronald A. Andrews, OncoCyte Corporation - CEO, President & Director [28]

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Yes. Thanks, Steve.

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Poon Mah, Piper Sandler & Co., Research Division - Director & Senior Research Analyst [29]

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Yes. I'm looking forward to the KOL call tomorrow as well.

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Ronald A. Andrews, OncoCyte Corporation - CEO, President & Director [30]

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That's going to be a good one. And you're going to hear some really fascinating, really good case studies from Dr. Gandara.

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Poon Mah, Piper Sandler & Co., Research Division - Director & Senior Research Analyst [31]

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Okay. No, that's great. So my questions are more just follow-up questions from prior people. But can you give us a sense for the number of physicians ordering? It looks like you're at 100 tests right now with 47 available hospitals. And then of those numbers of physicians, you guys mentioned 60% reorder rate. But could you give us a sense for how many surgeries are done per physician, maybe like in a per month or per quarter time frame?

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Ronald A. Andrews, OncoCyte Corporation - CEO, President & Director [32]

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Yes. So Padma, you just correct me if I get out of line here. But Steve, the way to think about it is our early path was to look at community -- try to get into these community centers, Florida Cancer Specialists, things like that and also go after the key opinion leaders. As you might imagine, those larger accounts are harder to penetrate and harder to bring up onboard.

So the early returns for us have been in these smaller community centers, and we now have 47 onboarded and about 60%. When you onboard an account, you have to get them up and onboard and then you have to do the med ed for the docs. So we're onboarding accounts every week. So there's a trail of who orders versus the number of accounts we have. And so Padma, I don't know if you have the latest...

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Padma Sundar, OncoCyte Corporation - SVP of Commercial [33]

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Yes, I think -- so it's important to highlight that yes, the first step is you onboard an account. And roughly, it can be anywhere from 2 to 5 doctors ordering per account. But then the hope is if you use Florida Cancer Specialists, as an example, you start with those 2 docs are ordering today, and then you do a med ed program, which we are doing next week with Florida Cancer specialists, so then you can grow that number from 2 to 10 and 25 and hopefully get to at least like 30%, 40% of the doctors. So that's how it will go, and that's the pattern.

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Ronald A. Andrews, OncoCyte Corporation - CEO, President & Director [34]

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Yes.

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Padma Sundar, OncoCyte Corporation - SVP of Commercial [35]

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So roughly, in the beginning, the first month, I would say, the range can be anywhere from 2 to 5 and then you expand within those larger accounts.

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Poon Mah, Piper Sandler & Co., Research Division - Director & Senior Research Analyst [36]

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Okay. All right. That's helpful. And then my next question is on the DetermaRx billing. My understanding is there's going to be a look-back period that Noridian will allow. How far back does that look back go?

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Ronald A. Andrews, OncoCyte Corporation - CEO, President & Director [37]

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Theoretically goes back to the original LCD. And so -- which we got from Palmetto, which was in April, I believe. So it's about -- should be about, I don't know, 70% to 80% of the volume should be eligible based on that LCD. But we're going to pursue all the way back to when we launched it, but those will be the hardest one to adjudicate.

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Padma Sundar, OncoCyte Corporation - SVP of Commercial [38]

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We have submitted the claims all the way back to when we first launched. So the submission is there, it's on hold with them. Like I said, it's not a guarantee, but we are in active discussions with them that the coverage policy did not change from draft LCD, which was last year, to final LCD. And therefore, in a sense, it was covered. So if it's a negotiation and the best-case scenario is we get paid, and the worst-case scenario is we don't get paid. So it goes by...

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Poon Mah, Piper Sandler & Co., Research Division - Director & Senior Research Analyst [39]

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Okay. Yes, that makes sense. And then let me sneak in one last one. On ProGenetics, is it going to be similar to core Dx where it’s just sample logistics? Or is it going to be a tech transfer?

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Ronald A. Andrews, OncoCyte Corporation - CEO, President & Director [40]

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Yes. Go ahead, Padma.

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Padma Sundar, OncoCyte Corporation - SVP of Commercial [41]

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It's exactly the same, which is pretty nice actually because the price per test is quite attractive. We haven't disclosed that yet. Yes. So they generate volume through their oncology channel, they send the sample and we send the test report back and they pay us per test report.

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Ronald A. Andrews, OncoCyte Corporation - CEO, President & Director [42]

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Ultimately, Steve, once we get these all established, the goal is going to be to transfer the wet work to some of these countries' laboratories, and we'll just get an algorithm fee, which will be the exact same price we get today, but they'll take on the wet work. And so as you might imagine, in the early days of these types of launches, it's really important for us to maintain the consistency of the testing. We want to make sure that we own the workflow. But ultimately, we'll be able to reproduce this via a more kit-like approach, and we'll be able to then charge for the algorithm and let them do the wet work locally, which will improve their turnaround time significantly.

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Operator [43]

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Our next question comes from the line of Bruce Jackson with The Benchmark Company.

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Bruce David Jackson, The Benchmark Company, LLC, Research Division - Senior Equity Analyst [44]

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So I wanted to just talk about DetermaIO for a second and about the road to clinical use. So if you could just give us a little bit more information about -- yes, I know you have to do a bunch of studies, but how big do those studies have to be? How long do you think it's going to take you to assemble the data? And then what year do you think that you might have the test actually available for clinical use? And what indication do you think it's going to be for?

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Ronald A. Andrews, OncoCyte Corporation - CEO, President & Director [45]

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Let me do this. Let me start, and I'm going to pitch it to Dr. Ross who's here, and then I'll pick up the end because you asked kind of a few questions within one.

To date, we have 71 lung patients, we have 55 breast -- triple-negative breast. Doug and you guys met with CMS and indicated that we probably need about 200, 250 more patients, something like that. And at that point, we would be able to submit our dossier. So Doug, do you want to just give an update on what you think the type of trials we might get to do that?

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Douglas T. Ross, OncoCyte Corporation - Chief Medical Officer [46]

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Yes. So there's really 2 different paths to get the product to market. One is working directly with a pharma company with specific drugs where we would be developing it as either a complementary or companion diagnostic. And Ronnie has talked elegantly about the path towards that with a checkpoint inhibitor or this emerging class of therapeutics that are designed to stimulate the immune system for those tumors that are cold, but not poised, if you will, that need some boost to their immune response to get them over the hump. So we're trying to work with both the checkpoint inhibitor candidates as well as this new class of candidates.

In terms of the conversations with CMS, we understand and they understand that the current biomarkers, predominantly PD-L1 but also tumor mutation burden and MSI in some tumors, are not performing up to the standards or the desires that either oncologists or patients hope for. And so there's plenty of room improvement. And the discussion centered around providing incremental value to PD-L1 and tumor mutation burden.

And in the case of PD-L1 right now, at least in non-small cell lung cancer, pretty much all patients are getting access to the drug either as single agent when they express it strongly or as combination therapy when they express it weakly. But the response rates are really not very discerning in terms of picking responders. So there's plenty of room to demonstrate incremental improvement, and Ronnie suggested that 200 to 300 patients in that sort of indication is the target and that's about right.

There's other tumor types where the drugs have not penetrated as much. And so in that setting, we would be looking towards a complementary diagnostic, something that's not on the label of the drug but instructs the use of the drug. And so those would be sort of de novo applications. And so that's the other route to market it.

I don't think we've guided in terms of date or year of launch. So I'll defer that back to Ronnie.

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Ronald A. Andrews, OncoCyte Corporation - CEO, President & Director [47]

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I'll pick that back up. So Bruce, to answer your question, we are actively pursuing data sets where samples have already been run using RNA-seq. We developed our test in RNA-seq. And therefore, even though now it's a 27-gene PCR panel, we can use our algorithm against RNA-seq and we could rapidly -- once we gained access to one of those data sets, we could rapidly produce the data that we could then take to publication. Once it's accepted for publication, we would have enough samples that would meet the CMS requirements.

So we are actively pursuing. You're going to hear in my highlights to look for in the second half is we want to obtain access to one or more of those types of data sets so that we could indeed be prepared for a publication and then submission to CMS hopefully in early 2021. And then it will be up to [Gabe] and team to figure out how far we can progress with that data set.

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Padma Sundar, OncoCyte Corporation - SVP of Commercial [48]

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In terms of your question on the indications, obviously, Ronnie and Doug have talked about non-small cell lung cancer, where we already have data and triple-negative breast cancer. So those are the indications that we are pursuing.

But one thing I want to highlight, and I'm sure everyone is familiar with the MSI story is in order for them to go from colorectal to a pan-cancer claim, they had a -- correct me if my numbers are wrong, about 70, 80 samples in colorectal cancer. But then for them to add on the pan-cancer claims, they had 5 other cancers where they had samples in the 10s and that allowed them to then submit a pan-cancer package to CMS.

So one could envision a 2-phase where first you go with lung and triple-negative breast cancer, and then you could run RNA-seq data on several other cancers and, therefore, show kind of utility potentially for a pan-cancer claim. So that's the strategy.

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Ronald A. Andrews, OncoCyte Corporation - CEO, President & Director [49]

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So Bruce, the plan is to aggressively go after these data sets and do the best we can to have a dossier in CMS next year.

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Bruce David Jackson, The Benchmark Company, LLC, Research Division - Senior Equity Analyst [50]

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Okay. Okay. That's great. Yes, I guess, the follow-up question that was we've got some meetings coming up in the tail end of this year. Any new publications lined up for either DetermaRx or DetermaIO that we should be looking forward to?

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Ronald A. Andrews, OncoCyte Corporation - CEO, President & Director [51]

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Yes. One of the other key milestones -- great news, Bruce, you're making me force all my milestones into this part versus the -- my closing. But yes, so with the other milestone is we have -- as you might imagine, we have a pervasive commercial effort and we have quite a few, what I would call, key opinion leaders and academics that are interested in supporting us with papers. And so we are working to pursue those types of abstracts and papers.

And as you know, there are several meetings this fall. And we are eager, especially around our IO panel, to complete the patent filing. And then from there, we'll be able to think about releasing a lot more information around it, including some manuscripts at future meetings.

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Padma Sundar, OncoCyte Corporation - SVP of Commercial [52]

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And we are targeting in terms of submissions -- at the North American lung cancer meeting, there'll be a little bit of a teaser on that tomorrow, not more as the KOLs have told me. And then there's the World Lung, and then there's also ed coming up. So we're looking at all of those leading opportunities.

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Ronald A. Andrews, OncoCyte Corporation - CEO, President & Director [53]

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Yes. So Bruce, just stay tuned on that. And as you know, we have to be careful what we say because a lot of these studies are embargoed. But yes, I think that we are -- I think you know me well enough. We will have a very assertive publication strategy from here forward. So...

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Operator [54]

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There are no further questions in the queue. I'd like to hand it back to Ron Andrews for closing remarks.

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Ronald A. Andrews, OncoCyte Corporation - CEO, President & Director [55]

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Well, thanks, everyone. I know the call went a little long today, but I think it's important information that we wanted to share with you guys.

I want to close by giving the key highlights, some of which Bruce got us to elucidate already. But for DetermaRx, we want to -- you'll see continued sample volume and revenue growth over the second half, consistent onboarding of new hospital systems, including some of the larger academic partners that we're targeting as well as global expansion via some additional partnerships.

For DetermaIO, it's going to be continued access to clinical trials so we can get the data we need, as I mentioned, to get us prepared for CMS dossier for a commercial launch in clinical markets, also publications of additional data in multiple cancers. And then ultimately, we want to continue to grow our pharma services business, which we believe is a really, really good opportunity for us in the short term to drive revenue growth as well as help us with that revenue to reduce the overall burn of the company.

So again, we appreciate the support of our investors. We appreciate especially the support of the team here. It's been an intense year since I got here, and I'm just really excited and proud of the team, where we are. And we have a really bright future for the company and excited to continue to update you guys in future quarters. So thanks for taking the time today, and we look forward to further opportunities.

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Operator [56]

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Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.