BIOCEPT, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto as of and for the year endedDecember 31, 2021 and the related Management's Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K for the year endedDecember 31, 2021 , filed with theSecurities and Exchange Commission , orSEC , onApril 5, 2022 . Past operating results are not necessarily indicative of results that may occur in future periods.
Company Overview
We are a molecular oncology diagnostics company that develops and commercializes proprietary clinical diagnostic laboratory assays designed to identify rare tumor cells and cell-free tumor DNA from blood and cerebrospinal fluid, or CSF. The identification of tumor cells and cell-free tumor DNA in CSF has become our principal development focus following our early commercial expansion into CSF in 2020. This product was branded and trademarked as CNSideTM inApril 2021 . The identification of circulating tumor cells, or CTCs, and circulating cell-free tumor DNA and RNA, or ctDNA and ctRNA, deriving from solid tumors such as breast cancer or lung cancer using a standard blood sample has been described as a "liquid biopsy." This term reflects the ease with which peripheral blood can be drawn compared to performing a surgical biopsy, but this technology is not limited to a peripheral blood approach. InJanuary 2020 , we adapted and validated our proprietary blood-based liquid biopsy technology for commercial and clinical research use in CSF to identify tumor cells that have metastasized to the central nervous system, or CNS, in patients with advanced lung cancer or breast cancer. CNSide has been designed to improve the clinical management of patients with suspected metastatic cancer involving the CNS by enabling the quantitative analysis and molecular characterization of tumor cells and ctDNA and ctRNA in the CSF. Since then, we have worked extensively with leading neuro-oncologists and other cancer experts to further define and characterize the use of this unique assay. Our efforts have culminated in the presentation of our early clinical experience at several leading academic forums, including most recently theSociety of Neuro-Oncology , or SNO, Brain Metastases meeting inAugust 2021 , as well as the Annual SNO meeting inNovember 2021 , the San Antonio Breast Cancer Symposium, or SABCS, inDecember 2021 and theAmerican Academy of Neurology inApril 2022 . We believe these presentations have illustrated the feasibility of this assay to inform three critical questions important for the care of patients with suspected or confirmed metastatic cancer involving the CNS: Is there tumor (diagnosis)? Is there target (presence of a biomarker to aid treatment selection)? Is there trend (a response to therapy)? The question "Is there tumor?" is essential for the diagnostic work-up of these patients. Tumor cells in the blood can shed from either primary or metastatic tumors. They can be rapidly removed in the capillary beds of the spleen, liver, kidneys, lungs and other organs, so they are rarely found. They are the defining feature of metastasis to the leptomeningeal space within the CNS and hence define the presence or absence of leptomeningeal metastasis, or LM. To distinguish tumor cells derived from CSF and blood we often refer to tumor cells in CSF as CSF Tumor Cells, or CSFTCs, rather than CTCs. Regarding the second clinical question, "Is there target?" our CNSide assay provides a vehicle for several different diagnostic assay profiles which combined with our molecular test menu and next generation sequencing (NGS) services can identify tumor cell biomarkers that are intended to help physicians make decisions related to the evolution or course of metastatic tumor that may inform treatment decisions. Cancer cells typically acquire genetic alterations which differ from that of normal cells. Metastatic cancers often acquire additional genetic alterations which distinguish them from the primary tumor site. This marked genetic variation between areas of tumor growth is termed "genetic heterogeneity," and findings related to this were featured in our SABCS presentation inDecember 2021 illustrating the value of CNSide in identifying "genetic heterogeneity" of a targetable biomarker called HER2. Finally, regarding the third clinical question, "Is there trend?" over the past year we have gained considerable experience with cases that have been sampled multiple times over the course of a patient's treatment. The association of quantitative CSF tumor cell counts with response to treatment has been noted in both lung and breast cancer, as well as other tumors examined. InAugust 2021 , at the SNO Brain Metastases meeting, we presented data obtained from a single institution experience showing how serial monitoring of CSFTCs by CNSide was used to determine the response to treatment in patients with Non-Small CellLung Cancer having LM. In addition, inNovember 2021 at SNO, we presented the early findings of several patients with breast cancer having LM which had been followed with multiple CSF samples drawn at different time points on each patient. The downward progression of tumor cell counts has been noted by several treating physicians to correlate with response to treatment and resolution of symptoms. Serial monitoring of genetic alterations present in CSF tumor cells may create opportunities to change the therapy of certain patients throughout treatment. These 20
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observations presented in abstracts and poster presentations in 2021 have informed our clinical study strategy which is the basis for our 2022 efforts to further explore these observations in a prospective clinical trial.
Our first CNSide multi-center prospective clinical trial, named FORESEE (NCT05414123) is now enrolling patients at one site inLos Angeles, CA. The trial's primary outcome measure will assess the impact of CNSide on treatment decisions, a step that we anticipate will open-up the possibility for CNSide to be included in the NCCN guidelines as a tool for diagnosis characterization and monitoring of Leptomeningeal Disease. With the help of a leading oncology Clinical Research Organization, we have established the infrastructure for the trial and are now in the process of opening other clinical sites (in additionalU.S. cities) where patients with Breast or Non-Small CellLung Cancer who have suspicious or confirmed Leptomeningeal Metastases (LM) will be enrolled. We anticipate enrolling the first patient in the study in the fourth quarter of 2022. Following the full commercial launch of CNSide, we submitted an initial application for Breakthrough Device Designation to the FDA in the second quarter of 2021. That initial submission was denied, and we do not intend to pursue this designation further.
COVID-19 Pandemic Response Summary
InJune 2020 , to respond to a national public health emergency precipitated by the COVID-19 pandemic, we introduced molecular testing for SARS-CoV2, the virus responsible for COVID-19, using aUnited States Food and Drug Administration , or FDA, Emergency Use Authorization, or EUA, based "RT-PCR" method developed by Thermo-Fisher.
Since launch of our COVID-19 testing program, we have performed more than
1,000,000 assays for customers. We have primarily marketed our COVID-19 testing
services to skilled nursing facilities in the western
Our COVID-19 testing services were responsible for most of our revenues during the quarters endedSeptember 30, 2021 andSeptember 30, 2022 making up 99% and 85%, respectively. However, as a result of increased vaccination and immunization levels, as well as decreased COVID-19 hospitalizations, reported cases and mandatory COVID-19 testing, we are currently seeing reduced demand for our COVID-19 testing services and expect this trend to continue. We do not anticipate COVID-19 testing revenue beyondDecember 2022 , absent a sustained, negative turn in the course of the pandemic. InMarch 2022 , theU.S. Health Resources and Services Administration , or HRSA, informed providers that, afterMarch 22, 2022 , it would stop accepting claims for testing and treatment for uninsured individuals under the HRSA COVID-19 Uninsured Program and that claims submitted prior to that date would be subject to eligibility and availability of funds. As ofSeptember 30, 2022 , less than 10% of our net accounts receivable was associated with claims for reimbursement for COVID-19 testing of uninsured individuals. Although we believe that our estimates for implicit price concessions are appropriate, actual results could differ from those estimates. For further details on revenue and receivables, see Note 1 to the unaudited condensed financial statements.
Additional Oncology Testing Services
In addition to CNSide, our current blood-based testing includes our Target SelectorTM technologies which enable detection of specific gene mutations, such as EGFR, KRAS or BRAF, in ctDNA from blood and CSF samples. Recently, after a thorough business review, we have decided to discontinue certain unprofitable blood-based molecular testing services including certain Target Selector offerings. We anticipate this action and the consequent staff reductions will help to reduce our future operating expenses. We also offer, and received MolDx reimbursement approval for, certain specific protein and gene alterations, such as HER2 amplification, in CTCs isolated from blood and CSF. We continue to offer these HER2 based tests as they are an important aspect of our CNSide offering. We will also continue to provide certain other blood-based testing services for biopharma partners and to support investigator-initiated studies involving CNSide. We believe our multi-modality combination of a proprietary cell capture and analysis method in combination with an extensive menu of molecular testing modalities that includes immunocytochemistry (ICC), florescent in situ hybridization (FISH), PCR testing and NGS testing provides us with the necessary tools to service a broad range of diagnostic applications in patients with neurological metastatic cancers. We continue to seek other diagnostic modalities that may benefit the neuro-oncology patients and their caregivers InJanuary 2019 , we began offering research use only, or RUO, liquid biopsy kits containing our patented and proprietary ctDNA Target Selector molecular (PCR-based) testing for certain specific cancer genes to laboratories and researchers worldwide. InMarch 2020 , we released an update for our RUO EGFR Target Selector Kit which expanded the sample types validated to include both ctDNA in peripheral blood and formalin-fixed paraffin-embedded, or FFPE. InMarch 2020 , we also released a RUO BRAF Target Selector assay kit validated for both ctDNA and FFPE. Recently, after a thorough business review, we have decided to discontinue this unprofitable service line in order to focus resources on CNSide clinical evidence development. 21 -------------------------------------------------------------------------------- At our corporate headquarters facility located inSan Diego, California , we operate a clinical laboratory that is CLIA-certified, CAP accredited and licensed by theCalifornia Department of Public Health . In this facility we also develop novel assays that are part of our project pipeline for future commercial launch and we manufacture our microfluidic channels and various assay reagents and products used in our testing processes. We also work closely with external manufacturers to outsource certain products such as collection tubes and to manufacture items that we intend to use in the near future to reduce costs and improve efficiency. The assays we offer and intend to offer are classified as CLIA laboratory developed tests, or LDTs, under CLIA regulations. CLIA certification and state licensure inCalifornia and certain other states under the supervision of a qualified laboratory medical director is required before any clinical laboratory, including ours, may perform testing on human specimens for the purpose of obtaining information for the diagnosis, prevention, or treatment of disease or the assessment of health. In addition, we participate in and have received CAP accreditation, which includes rigorous bi-annual laboratory inspections and requires adherence to specific quality standards.
Commercial Strategy
Our primary sales strategy is to engage neuro-oncologists, oncologists and other physicians inthe United States at private and group practices, hospitals, laboratories and cancer centers to educate them about our unique products and services. In addition, we market our clinical trial and research services to pharmaceutical and biopharmaceutical companies and clinical research organizations. We also market and sell molecular assay kits which enable laboratories other thanBiocept to perform our testing in house. Sales of these kits began in the first quarter of 2019.
Our revenue generating efforts are focused in the following areas:
• providing laboratory services to neuro-oncologists, oncologists and
other physicians or healthcare providers treating patients with cancer
who use the biomarker information we provide in order to determine the
best treatment plan for their patients;
• providing laboratory services using both our CTC and ctDNA and ctRNA
assays to help pharmaceutical and biopharmaceutical companies run
clinical studies establishing the use of novel drug therapies used to
treat cancer;
• licensing our proprietary technology and selling our distributed
products, including our SCTs and assay kits, to partners in the United
States and abroad; and
• performing COVID-19 testing.
We plan to grow our business by directly offering our CNSide and Target Selector
liquid biopsy CSFTC and molecular assays to neuro-oncologists, oncologists and
other physicians or heath care providers who treat patients with cancer. Based
on our product development data, as well as discussions with our key
collaborators, we believe that our planned future assays, particularly those
related to CSF, should provide important information and clinical value to
physicians.
We believe our ability to rapidly translate insights about the utility of
cytogenetic, immunocytochemical and molecular biomarkers to provide information
to neuro-oncologists, oncologists and other physicians for treatment decisions
in the clinical setting will improve patient treatment and management and that
these assays will become a key component of the standard of care for
personalized cancer treatment.
Provider Agreements
In
We are currently contracted with seven preferred provider organization networks, three large health plans, and three regional independent physician associations, and expect to continue to gain contracts to be considered as an "in-network" provider with additional plans.
Utilization of ctDNA for Next Generation Sequencing, or NGS, Testing
We are working internally and with collaborators from our industry and our client-base to establish appropriate NGS panels (or a single panel) for characterization of patient ctDNA from the supernatant associated with the CSF samples utilized in our CNSide testing. These panels help clinicians to characterize their patient's disease and potentially identify appropriate therapies for their metastatic cancer patients.
COVID-19 Pandemic
The COVID-19 pandemic continues to evolve, and the extent to which COVID-19 may impact our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease,
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the duration of any outbreaks, travel restrictions and social distancing in the
United States and other countries, government-funding for COVID-19 testing,
business closures or business disruptions, and the effectiveness of actions
taken in the United States and other countries to contain and treat the
disease. We are continuing to vigilantly monitor the situation with our primary
focus on the health and safety of our employees and clients.
Key Factors Affecting our Results of Operations and Financial Condition
Our overall long-term growth plan depends on our ability to continue to develop and commercialize products and assays through our CLIA-certified, CAP-accredited, and state-licensed laboratory. We have commercialized our CNSide and Target Selector assays for breast cancer, non-small cell lung cancer, or NSCLC, gastric cancer, colorectal cancer, prostate cancer, pancreaticobiliary cancer, and ovarian cancer. Our sales strategy is to engage medical oncologists, neuro-oncologists, surgical oncologists, urologists, pulmonologists, pathologists and other physicians inthe United States at private and group practices, hospitals and cancer centers. We also plan to continue to evaluate potential opportunities for the commercialization of our products and assays in other countries. Additionally, sales of our proprietary SCTs which allow for the intact transport of liquid biopsy samples for research use only, or RUO, from regions around the world, commenced during 2018. In addition to testing for physicians and their patients, we offer clinical trials testing and research services to help increase the efficiency and economic viability of clinical trials for pharmaceutical and biopharmaceutical companies and clinical research organizations both within and outside ofthe United States . We are currently exploring the possibility of introducing ctDNA technology outsidethe United States as part of IVD test kits and/or testing systems utilizing our Target Selector technologies. We plan to continue to cooperate with partners on accessing markets internationally either through partnerships with local groups and distributors or through the development of IVDs and/or test systems, including instrumentation. We also have a research and development program focused on technology enhancements, novel platform development, and evaluating clinical applications for our cancer diagnostic tests in different cancer types and clinical settings. To facilitate market adoption of our products and assays, we anticipate having to successfully complete additional clinical utility studies with clinical samples to generate clinical utility data and then publish our results in peer-reviewed scientific journals. Our ability to complete such clinical studies is dependent upon our ability to leverage our collaborative relationships with leading institutions to facilitate our research, to conduct the appropriate clinical studies and to obtain favorable clinical data. We currently collaborate with key thought leaders, physicians and clinical researchers across the country, including those atSarah Cannon Research Institute ,University of Colorado ,Northwestern University Lurie Cancer Center ,Stanford University ,Penn State University ,University of California, San Diego , St John'sCancer Institute atSanta Monica (formerlyJohn Wayne Cancer Institute ),Columbia University ,Emory University ,Johns Hopkins Medical Institute ,University of Texas Southwestern Medical Center ,Yale University ,Ohio State University ,Vanderbilt University ,Georgetown University and many others and plan to expand our collaborative relationships to include other key thought leaders at other institutions for the cancer types we target with our Target Selector commercialized assays and our planned future assays, as well as for our current and planned future products. Such relationships help us develop and validate the effectiveness and utility of our products, commercialized assays and our planned future assays in specific, clinical settings and provide us access to patient samples and data. We believe that the factors discussed in the following paragraphs have had and are expected to continue to have a material impact on our results of operations and financial condition. Revenues The Company's commercial revenues are generated from diagnostic services provided to patient's physicians and billed to third-party insurance payers such as managed care organizations, Medicare and Medicaid and patients for any deductibles, coinsurance or copayments that may be due. The Company recognizes revenue in accordance with Accounting Standards Codification (Topic 606), Revenue from Contracts with Customers, or ASC 606, which requires that an entity recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. We bill third-party payers on a fee-for-service basis at our list price and third-party commercial revenue is recorded net of contractual discounts, payer-specific allowances and other reserves. Our development services revenues are supported by contractual agreements and generated from assay development services provided to entities, as well as certain other diagnostic services provided to physicians. Diagnostic services are completed upon the delivery of assay results to the prescribing physician, at which time we bill for the service. Our gross commercial revenues billed are subject to estimated deductions for such contractual discounts, payer-specific allowances and other reserves to arrive at reported net revenues, which relate to differences between amounts billed and corresponding amounts estimated to be subsequently collected. These third-party payer discounts and sales allowances are estimated based on a number of assumptions and factors, including historical payment trends, seasonality associated with the annual reset of patient deductible limits onJanuary 1 of each year, and current and estimated future payments. The estimates of amounts that will ultimately be realized from commercial diagnostic services require significant judgment by us. Patients do not enter into direct agreements with us that commit 23
-------------------------------------------------------------------------------- them to pay any portion of the cost of the tests in the event that they have not met their annual deductible limit under their insurance policy, if any, or if their insurance otherwise declines to reimburse us. Adjustments to the estimated payment amounts are recorded at the time of final collection and settlement of each transaction as an adjustment to net revenue.
Costs and Expenses
We classify our costs and expenses into four categories: cost of revenues, research and development, sales and marketing, and general and administrative. Our costs and expenses principally consist of facility costs and overhead, personnel costs, outside services and consulting costs, laboratory consumables, development costs, and legal fees. Cost of Revenues. Our cost of revenues consists principally of facility costs and overhead, personnel costs, and laboratory and manufacturing supplies and materials. We are pursuing various strategies to reduce and control our cost of revenues, including automating aspects of our processes, developing more efficient technology and methods, and attempting to negotiate improved terms and volume discounts with our suppliers. Research and Development Expenses. We incur research and development expenses principally in connection with our efforts to develop and improve our tests. Our primary research and development expenses consist of direct personnel costs, laboratory equipment and consumables, and overhead expenses. We anticipate that research and development expenses will increase in the near-term, principally to develop and validate tests in our pipeline and to perform work associated with clinical utility studies and development collaborations. In addition, we expect that our costs related to collaborations with research and academic institutions will increase. All research and development expenses are charged to operations in the periods in which they are incurred. Sales and Marketing Expenses. Our sales and marketing expenses consist principally of personnel and related overhead costs for our sales team and their support personnel, travel and entertainment expenses, and other selling costs including sales collaterals and trade shows. We expect that as our revenues grow, our sales and marketing expenses will increase proportionately. General and Administrative Expenses. General and administrative expenses consist principally of personnel-related expenses, professional fees, such as legal, accounting and business consultants, insurance costs, and other general expenses. We expect that our general and administrative expenses will remain relatively flat for the foreseeable future. We further expect that general and administrative expenses will increase due to increased information technology, legal, insurance, accounting and financial reporting expenses associated with expanded commercial activities.
Results of Operations
Three months ended
The following table sets forth certain information concerning our results of operations for the periods shown (dollars in thousands):
For the Three Months Ended Change
September 30,
2021 2022 $ %
Net revenues $ 17,470 $ 5,587 $ (11,883 ) (68 %)
Cost of revenues 11,265 5,776 (5,489 ) (49 %)
Research and development 1,303 1,366 63 5 %
expenses
General and administrative 3,514 3,047 (467 ) (13 %)
expenses
Sales and marketing expenses 1,938 975 (963 ) (50 %)
Loss from operations (550 ) (5,577 ) (5,027 ) 914 %
Interest expense, net (75 ) (52 ) 23 (31 %)
Other income, net - 84 84 100 %
Loss before income taxes (625 ) (5,545 ) (4,920 ) 787 %
Income tax expense - - - -
Net loss $ (625 ) $ (5,545 ) $ (4,920 ) 787 %
Net Revenues
Net revenues were approximately
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The net estimated revenue per commercial accession delivered during the three
months ended September 30, 2022 was $111 , based on 49,874 commercial accessions
delivered, while during the three months ended September 30, 2021 it was $114 ,
based on 152,796 commercial accessions delivered. The decrease in net revenue
per commercial accessions delivered was primarily due to lower payor
reimbursement rates based on the payor-mix.
The following table sets forth certain information regarding commercial
accessions received during the three months ended September 30, 2021 and 2022:
For the Three Months Ended Change
September 30,
2021 2022 # / $ %
# Commercial accessions delivered 152,796 49,874 (102,922 ) (67%)
$ Value estimated per commercial $ 114 $ 111 $ (3 ) (3%)
accession delivered
Overall development revenues increased slightly compared with the same period in
the prior year due to higher average value per development accession delivered.
The following table sets forth certain information regarding development cases
delivered during the three months ended September 30, 2021 and 2022:
For the Three Months Ended September 30, Change
2021 2022 # / $ %
# Development services cases delivered 120 106 (14 ) (12%)
$ Value estimated per development $ 284 $ 340 20%
accession delivered $ 56
Costs and Expenses
Cost of Revenues. Cost of revenues was approximately $5.8 million for the three
months ended September 30, 2022 , compared with approximately $11.3 million for
the same period in 2021. The decrease is primarily due to a decrease in our
RT-PCR COVID-19 testing volume, including a $3.6 million decrease in direct
materials and supplies, a $1.5 million decrease in direct labor costs, and a
$0.3 million decrease in freight costs. Cost of revenues are comprised of, but
not limited to, expenses related to personnel costs, materials, supplies, and
other direct cost, as well as equipment depreciation and software amortization
expense. Our cost of revenues as a percentage of net revenues was 64% and 103%
for the three months ended September 30, 2021 and 2022, respectively.
Research and Development Expenses. Research and development expenses were
approximately $1.4 million for the three months ended September 30, 2022 ,
compared with approximately $1.3 million for the same period in 2021, remaining
relatively consistent period over period. Research and development expenses in
2022 relate to lab materials and supplies and outside service costs for our
FORESEE clinical trial. Research and development expenses in 2021 primarily
related to materials used in our laboratory to advance our research programs.
Research and development expenses are comprised of, but not limited to,
personnel costs, material, shipping and other direct costs, computer and
laboratory equipment maintenance and facility related costs.
General and Administrative Expenses. General and administrative expenses were
approximately $3.0 million for the three months ended September 30, 2022 ,
compared with approximately $3.5 million during the same period in 2021. General
and administrative expenses are comprised of, but not limited to, personnel
costs, facilities, depreciation, repairs and maintenance costs, stock-based
compensation expenses, patent and legal costs, accounting and audit fees, as
well as insurance, office and other expenses. The decrease is predominately due
to a $0.2 million decrease in stock-based compensation and a $0.2 million
decrease in bonus related expense due to a reduction in headcount. Further,
there was a decrease of $0.1 million in general legal expenses.
Sales and Marketing Expenses. Sales and marketing expenses were approximately
$0.9 million for the three months ended September 30, 2022 , compared with
approximately $1.9 million for the same period in 2021. Sales and marketing
expenses are comprised of, but not limited to, personnel costs, which include
commissions, trade show and other marketing related expenses, as well as office
and other costs. Sales and marketing expenses decreased primarily due to a
reduction in commissions expense of $0.4 million as a result of less revenue
volume, a $0.2 million decrease in salaries and wages due to reduction in sales
personnel, a $0.1 million decrease in training, conference, and seminar related
expenses, as well as a decrease of $0.2 million in consulting, promotion, and
outside service-related expenses.
Interest Expense, net. Interest expense, net were approximately $52,000 for the
three months ended September 30, 2022 , compared with approximately $75,000 for
the same period in 2021.
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Results of Operations
Nine months ended
The following table sets forth certain information concerning our results of operations for the periods shown (dollars in thousands):
For the Nine Months Ended September 30, Change
2021 2022 $ %
Net revenues $ 47,273 $ 36,143 $ (11,130 ) (24 %)
Cost of revenues 27,733 24,133 (3,600 ) (13 %)
Research and development 3,483 4,945 1,462 42 %
expenses
General and administrative 9,884 14,153 4,269 43 %
expenses
Sales and marketing expenses 5,806 6,292 486 8 % Income (loss) from operations 367 (13,380 ) (13,747 ) (3,746 %) Interest expense (219 ) (269 ) (50 ) 23 % Other income, net - 84 84 100 % Income (loss) before income 147 (13,565 ) (13,712 ) (9,328 %) taxes Income tax expense - - - 0 % Net income (loss) $ 147$ (13,565 ) $ (13,712 ) (9,328 %) Net Revenues
Net revenues were approximately
The net estimated revenue per commercial accession delivered during the nine months endedSeptember 30, 2022 was$128 , based on 280,709 commercial accessions delivered, while during the nine months endedSeptember 30, 2021 it was$118 , based on 398,197 commercial accessions delivered. The increase in net revenue per commercial accessions delivered was primarily due to higher payor reimbursement rates based on the payor-mix. The following table sets forth certain information regarding commercial accessions received during the nine months endedSeptember 30, 2021 and 2022: For the Nine Months Ended Change September 30, 2021 2022 # / $ % # Commercial accessions delivered 398,197 280,709 (117,488 ) (30%) $ Value estimated per commercial$ 118 $ 128 $ 10 9% accession delivered Overall development revenues increased slightly compared with the same period in the prior year due to higher average value per development accession delivered. The following table sets forth certain information regarding development cases delivered during the nine months endedSeptember 30, 2021 and 2022: For the Nine Months Ended September 30, Change 2021 2022 # / $ % # Development services cases 355 336 (19 ) (5%)
delivered
$ Value per development services $ 301 $ 319$ 18 6% accession delivered Costs and Expenses Cost of Revenues. Cost of revenues was approximately$24.1 million for the nine months endedSeptember 30, 2022 , compared with approximately$27.7 million for the same period in 2021. The decrease is primarily due to a decrease in our RT-PCR COVID-19 testing 26 --------------------------------------------------------------------------------
volume, including a
Research and Development Expenses. Research and development expenses were approximately$4.9 million for the nine months endedSeptember 30, 2022 , compared with approximately$3.5 million for the same period in 2021. Research and development expenses are comprised of, but not limited to, personnel costs, material, shipping and other direct costs, computer and laboratory equipment maintenance and facility related costs. The increase is primarily due to an increase of$0.5 million in materials and supplies, an increase of$0.2 million in outside services, an increase of$0.1 million in sponsored research, and an increase of$0.4 million in salaries and benefits as a result of our FORESEE clinical trial. General and Administrative Expenses. General and administrative expenses were approximately$14.2 million for the nine months endedSeptember 30, 2022 , compared with approximately$9.9 million during the same period in 2021. General and administrative expenses are comprised of, but not limited to, personnel costs, facilities, depreciation, repairs and maintenance costs, stock-based compensation expenses, patent and legal costs, accounting and audit fees, as well as insurance, office and other expenses. The increase is predominately due to an increase in severance and stock-based compensation expenses of approximately$1.0 million and$1.5 million , respectively, due to the resignation of our former Chief Financial Officer and Chief Executive Officer and complying with the terms of their separation agreements, which required, among other terms, payment of salary, annual bonus, COBRA premiums and an acceleration of stock options previously granted. Furthermore, audit and accounting fees increased by approximately$0.7 million due to additional internal control review services performed and an increase in fees for the year end audit and interim reviews. Legal expenses increased by approximately$0.4 million due to increased services forSEC filings as well as legal costs associated with the sales commission settlement. Consulting services and recruiting related expensed increased by$0.4 million due to accounting and finance department hires. Sales and Marketing Expenses. Sales and marketing expenses were approximately$6.3 million for the nine months endedSeptember 30, 2022 , compared with approximately$5.8 million for the same period in 2021. Sales and marketing expenses are comprised of, but not limited to, personnel costs, which include commissions, trade show and other marketing related expenses, as well as office and other costs. The increase is primarily due to costs associated with the sales commissions settlement as well presentation materials, website updates and trade shows. Interest Expenses, net. Interest expenses, net were approximately$269,000 for the nine months endedSeptember 30, 2022 compared with approximately$219,000 for the same period in 2021. The increase is primarily attributable to the interest portion of the sales commission settlement.
Income Tax Expense
Over the past several years we have generated operating losses in all jurisdictions in which we may be subject to income taxes. As a result, we have accumulated significant net operating losses and other deferred tax assets. Because of our history of losses and the uncertainty as to the realization of those deferred tax assets, a full valuation allowance has been recognized. We do not expect to report a provision for income taxes until we have a history of earnings, if ever, that would support the realization of our deferred tax assets. We have not completed a study to assess whether an ownership change has occurred or whether there have been multiple ownership changes since our formation, due to the complexity and cost associated with such a study, and the fact that there may be additional ownership changes in the future, however, we believe multiple ownership changes likely occurred. As a result, we have estimated that the use of our net operating loss is limited and the remaining net operating loss carryforwards and research and development credits we estimate can be used in the future remain fully offset by a valuation allowance to reduce the net asset to zero.
Liquidity and Capital Resources
We are actively working to improve our financial position and enable the growth of our business, by raising new capital and generating revenues. As ofSeptember 30, 2022 , our cash totaled$18.0 million . 27 --------------------------------------------------------------------------------
Cash Flows
Our net cash flow from operating, investing and financing activities for the periods below were as follows (dollars in thousands):
For the Nine Months Ended September 30,
2021 2022
Cash provided by (used in):
Operating activities $ 2,126 $ (9,047 )
Investing activities (982 ) (671 )
Financing activities 12,186 (1,125 )
Net increase (decrease) in cash $ 13,330 $ (10,843 )
Operating Activities. Net cash used in operating activities was approximately$9.0 million for the nine months endedSeptember 30, 2022 , compared with net cash provided by operating activities of approximately$2.1 million for the same period in 2021. The net decrease in cash used in operations was primarily related to our net loss in operations of$13.6 million . Exclusive of our non-cash transactions such as depreciation, amortization and stock-based compensation, cash used in operations was$4.0 million , primarily due to offset a reduction in accounts payable and accrual payments of$5.4 million based on timing of payments attributable to legal, accounting and audit fees, rent, as well as the payment of the sales commission settlement of$1.7 million . This is offset by a decrease in cash resulting from an increase of accounts receivable of$2.0 million . Cash Used in Investing Activities. Net cash used in investing activities was approximately$0.7 million for the nine months endedSeptember 30, 2022 , compared with approximately$1.0 million in the same period in 2021. Cash used in investing activities was related to purchases of property and equipment in both periods. Cash Provided by (used in) Financing Activities. Net cash used in financing activities was approximately$1.1 million for the nine months endedSeptember 30, 2022 , compared with net cash provided by financing activities of approximately$12.2 million for the same period in 2021. Our primary outflows of cash from financing activities during the nine months endedSeptember 30, 2022 consisted of$0.5 million of supplier financing payments and$0.8 million of finance lease payments for equipment used in our laboratory operations. This is offset by net cash proceeds of$0.2 million from issuance of common stock from our at-the-market equity facility. Our primary sources of cash from financing activities during the nine months endedSeptember 30, 2021 consisted of$13.5 million in net proceeds from our sale of common stock through our at-the-market equity facility, partially offset by$0.9 million of payments related to finance leases for equipment used in our laboratory operations, and$0.4 million of payments related to supplier and other third-party financing transactions.
Capital Resources and Material Cash Requirements
We expect to continue to incur substantial operating losses in the future. We expect that we will use the net proceeds from our sale of equity securities, if any, cash received from the licensing of our technology, if any, and our revenues from operations to hire sales and marketing personnel, support increased sales and marketing activities, fund further research and development, clinical utility studies and future enhancements of our assays, acquire equipment, implement automation and scale our capabilities to prepare for significant assay volume, for general corporate purposes and to fund ongoing operations and the expansion of our business, including the increased costs associated with expanded commercial activities. We may also use the net proceeds from our sale of equity securities, if any, cash received from the licensing of our technology, if any, and our revenues from operations to acquire or invest in businesses, technologies, services or products, although we do not have any current plans to do so. InMay 2020 , our shelf registration on Form S-3 was declared effective by theSEC . The shelf registration statement allows us to issue any combination of our common stock, preferred stock, debt securities and warrants from time to time for an aggregate initial offering price of up to$100.0 million . Our shelf registration statement on Form S-3 will be unavailable upon our filing of our Annual Report on Form 10-K for the year endingDecember 31, 2022 and we will not be able to file a new Form S-3 until, at the earliest,September 1, 2023 . InMay 2021 , we entered into the Sales Agreement with the Sales Agent, under which we may issue and sell from time to time up to$25.0 million of our common stock through or to the Sales Agent, as sales agent or principal. Sales of our common stock under the Sales Agreement are made at market prices by any method that is deemed to be an "at the market offering" as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended. During 2021, we received net proceeds of$14.1 million from the sale of our common stock and issued 3,428,680 shares of our common stock at a weighted average purchase price of$4.31 pursuant to the Sales Agreement. During the nine months endedSeptember 30, 2022 , we received net proceeds of approximately$0.2 million from the sale of our common stock 28
-------------------------------------------------------------------------------- and issued 208,609 shares of our common stock at a weighted average price of$1.32 pursuant to the Sales Agreement. As ofSeptember 30, 2022 ,$10.0 million of our common stock remained available for sale under the Sales Agreement. As ofSeptember 30, 2022 , our cash totaled$18.0 million . The COVID-19 testing revenue during 2021 provided us with increased levels of cash inflows from operations. However, we are currently seeing reduced demand for our COVID-19 testing services and do not anticipate COVID-19 testing revenue beyondDecember 2022 , absent a sustained, negative turn in the course of the pandemic. Accordingly, management performed the review required for going concern accounting and does not believe the Company presently has sufficient liquidity to continue to operate for the next twelve months after the filing of this Quarterly report on Form 10-Q. The COVID-19 pandemic continues to evolve, and the extent to which COVID-19 may impact the Company's business will depend on future developments, including whether the number of cases continues to decrease, the potential emergence of new variants, and testing policies of governments, businesses, and schools. The Company does not anticipate it will be profitable until it has commercial expansion of its proprietary clinical diagnostic laboratory assays designed to identify rare tumor cells from cerebrospinal fluid, trademarked as CNSide. Accordingly, management performed the review required for going concern accounting and does not believe the Company presently has sufficient liquidity to continue to operate for the next twelve months after the filing of this Quarterly report on Form 10-Q. Management intends to continue its efforts to contain costs and to raise additional capital until it ultimately generates sufficient cash to support operations from commercial sales. We have an effective shelf registration statement on file with theSEC which allows us to issue any combination of our common stock, preferred stock, debt securities and warrants from time to time, but this shelf registration will become unavailable to us upon the filing of our annual report on Form 10-K for the year endingDecember 31, 2022 . We can provide no assurances that any sources of a sufficient amount of financing will be available to us on favorable terms, if at all. If we are unable to raise a sufficient amount of financing in a timely manner, we would likely need to scale back our general and administrative activities and certain of our research and development activities. Our forecast pertaining to our current financial resources and the costs to support our general and administrative and research and development activities are forward-looking statements and involve risks and uncertainties. Actual results could vary materially and negatively as a result of a number of factors, including: • the impact of the COVID-19 pandemic on our business; • our ability to secure financing and the amount thereof; • the costs of operating and enhancing our laboratory facilities;
• the costs of developing our anticipated internal sales and marketing
capabilities;
• the scope, progress and results of our research and development programs,
including clinical utility studies;
• the scope, progress, results, costs, timing and outcomes of the clinical
utility studies for our diagnostic assays;
• our ability to manage the costs for manufacturing our microfluidic channels;
• the costs of maintaining, expanding and protecting our intellectual
property portfolio, including potential litigation costs and liabilities;
• our ability to obtain adequate reimbursement from governmental and other
third-party payers for our assays and services;
• the costs of additional general and administrative personnel, including
accounting and finance, legal and human resources, as a result of becoming
a public company;
• our ability to collect revenues; and
• other risks discussed in this report.
To fund our current and planned operations in the short-term (within the next 12
months) and long-term (beyond 12 months), we may seek to raise additional
capital through public or private equity offerings, debt financings, borrowings
or strategic partnerships coupled with an investment in our company or a
combination thereof. If we raise additional funds through the issuance of
convertible debt securities, or other debt securities, these securities could be
secured and could have rights senior to those of our common stock. In addition,
any new debt incurred by us could impose covenants that restrict our operations.
The issuance of any new equity securities will also dilute the interest of our
current stockholders. Given the risks associated with our business, including
our unprofitable operating history and our ability or inability to develop
additional assays, additional capital may not be available when needed on
acceptable terms, or at all. There is no assurance that we will be able to raise
adequate funds when needed or on favorable terms. If adequate funds are not
available when needed, we will need to delay, scale back or discontinue one or
more product development programs, curtail our commercialization activities,
significantly reduce expenses, sell assets (potentially at a discount to their
fair value or carrying value), enter into relationships with third parties to
develop or commercialize products or technologies that we otherwise would have
sought to
29-------------------------------------------------------------------------------- develop or commercialize independently, pursue an acquisition of our company at a price that may result in a significant loss on investment to our stockholders, file for bankruptcy, seek other protection from creditors, or liquidate all of our assets.
Critical Accounting Policies and Significant Judgments and Estimates
For a discussion of accounting policies that we consider critical to our business operations and understanding of our results of operations, and that affect the more significant judgments and estimates used in the preparation of our financial statements, please see the information listed in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Significant Judgments and Estimates" contained in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . There have been no material changes to our critical accounting policies and estimates from the information provided in our Annual Report on Form 10-K for the year endedDecember 31, 2021 .
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