BIOCEPT INC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

Edgar Glimpses |
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 ended
 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 ended , filed with
the Securities and Exchange Commission on . Past operating results
are not necessarily indicative of results that may occur in future periods.

Company Overview


We are an early stage molecular oncology diagnostics company that develops and
commercializes proprietary circulating tumor cell, or CTC, and circulating tumor
DNA, or ctDNA, assays utilizing a standard blood sample, or "liquid biopsy." Our
current and planned assays are intended to provide information to aid healthcare
providers to identify specific oncogenic alterations that may qualify a subset
of cancer patients for targeted therapy at diagnosis, show progression or be
used for monitoring in order to identify specific resistance mechanisms.
Sometimes traditional procedures, such as surgical tissue biopsies, result in
tumor tissue that is insufficient and/or unable to provide the molecular subtype
information necessary for clinical decisions. Our assays, performed on blood,
have the potential to provide more contemporaneous information on the
characteristics of a patient's disease when compared with tissue biopsy and
radiographic imaging.

Our current assays and our planned future assays focus on key solid tumor
indications utilizing our Target-SelectorTM liquid biopsy technology platform
for the biomarker analysis of CTCs and ctDNA from a standard blood sample. Our
patented Target-Selector CTC offering is based on an internally developed
microfluidics-based cell capture and analysis platform, with enabling features
that change how information provided by CTC testing is used by clinicians. Our
CTC technology also could be validated on cerebral spinal fluid in order to
provide information for patients with central nervous system tumors both primary
and metastatic. Our patented Target-Selector ctDNA technology enables detection
of mutations and genome alterations with enhanced sensitivity and specificity,
and is applicable to nucleic acid from ctDNA, could potentially be validated for
interrogating other sample types such as bone marrow, tissue (surgical
resections and/or biopsies) or cerebrospinal fluid. Our Target-Selector CTC and
ctDNA platforms provide both biomarker detection as well as monitoring
capabilities and require only a patient blood sample. In , we began
offering Research Use Only, or RUO, liquid biopsy kits containing our ctDNA
Target Selector ctDNA technology to laboratories worldwide.

At our corporate headquarters facility located in San Diego, California, we
operate a clinical laboratory that is certified under the Clinical Laboratory
Improvement Amendments of 1988, or CLIA, and accredited by the College of
American Pathologists, or CAP. We also performed the research and development
that led to our current assays, and continue to perform research and development
for our planned assays, at this same facility. In addition, we currently
manufacture our microfluidic channels, related equipment and certain reagents,
but are currently evaluating outsourcing certain manufacturing activities in the
near term to reduce costs and improve efficiency. The assays we offer and intend
to offer are classified as laboratory developed tests, or LDTs, under CLIA
regulations. CLIA certification 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.

Our primary sales strategy is to engage medical oncologists and other physicians
in the United States at private and group practices, hospitals, laboratories and
cancer centers. In addition, we market our clinical trial and research services
to pharmaceutical and biopharmaceutical companies and clinical research
organizations. Additionally, our pathology partnership program, branded as
Empower TCTM, provides the unique ability for pathologists to participate in the
interpretation of liquid biopsy results and is available to pathology practices
and hospital systems throughout the United States. Further, sales to laboratory
supply distributors of our patented blood collection tubes, or BCTs, commenced
in , which allow for the intact transport of liquid biopsy samples
for research use only, or RUO, from regions around the world.

Our revenue generating efforts are focused in three areas:

• providing laboratory services to medical oncologists, surgical

oncologists, urologists, pulmonologists, pathologists and other physicians

        who use the biomarker information we provide in order to determine the
        best treatment plan for their patients;

• providing laboratory services utilizing both our CTC and ctDNA testing in

order to help pharmaceutical and biopharmaceutical companies developing

drug candidate therapies to treat cancer; and

• licensing and/or selling our proprietary testing and/or technologies,

        including our BCTs, to partners in the United States and abroad.


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We plan to grow our business by directly offering medical oncologists, surgical
oncologists, pulmonologists, pathologists and other physicians our
Target-Selector liquid biopsy CTC and ctDNA assays. Based on our product
development data, as well as discussions with our collaborators, we believe that
our planned future assays should provide important information and clinical
value to physicians. In particular, CTC and ctDNA assays could deliver
important, actionable information not provided by other assays. For example, the
historic clinical CTC test is the United States Food and Drug Administration, or
FDA, approved CellSearch ® test, which provides CTC enumeration, but is not FDA
approved to perform biomarker analysis. We believe our ability to rapidly
translate research insights about the utility of cytogenetic, immunocytochemical
and molecular biomarkers to provide information to medical oncologists, surgical
oncologists, urologists, pulmonologists, pathologists 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.

Assays, Products and Services


We currently offer and conduct our commercialized diagnostic assays and offer
our clinical studies services at our CLIA-certified, CAP-accredited and
state-licensed laboratory. We have commercialized our Target-Selector assays for
a number of solid tumor indications such as: breast cancer, NSCLC, gastric
cancer, colorectal cancer, prostate cancer, melanoma, pancreaticobiliary cancer,
and ovarian cancer. These assays utilize our dual CTC and ctDNA technology
platforms and provide biomarker analysis from a patient's blood sample.

Our current assays and clinical trial services include:

• CTC and ctDNA Testing. Our current assays and our other planned cancer

diagnostic assays are based on our Target-Selector technologies and are

currently intended to be performed only in our clinical laboratory. After

completing testing, we or our partners provide our customers with an easy to

understand report that describes the results of the analyses performed, which

is designed to help medical oncologists, surgical oncologists, urologists,

pulmonologists, pathologists and other physicians make better decisions about

the treatment of their patients. • Clinical Studies Services. We plan to utilize our clinical laboratory and

translational research capabilities to provide clinical studies and research

services to pharmaceutical and biopharmaceutical companies and clinical

research organizations to improve the efficiency and economic viability of

their clinical studies. Our clinical studies and translational research

services could leverage our knowledge of CTCs and ctDNA and our ability to

develop and implement new cytogenetic, immunocytochemical and molecular

diagnostic assays. Our current assays can, and our other planned cancer

diagnostic assays and biomarker assays are anticipated to be able to, help

optimize clinical trial patient selection and/or monitor cancer drivers during

the course of treatment or disease progression. Demonstration of clinical

utility of our assays would more easily enable these tests to be adopted in

standard clinical practice, helping physicians select the most appropriate

therapy for their patients.



In the case of our breast and gastric cancer offerings, biomarker analysis
involves fluorescence in situ hybridization, or FISH, for the detection and
quantitation of the human epidermal growth factor receptor 2, or HER2, gene copy
number as well as immunocytochemical, or ICC, analysis to evaluate protein
expression of the of estrogen receptor, or ER, protein, progesterone receptor,
or PR, protein, and androgen receptor, or AR, protein; all of these tests are
currently available commercially. A patient's HER2 status provides the physician
with information about the appropriateness of therapies such as Herceptin ® or
Tykerb ®. ER and PR status provides the physician with information to guide
decisions related to endocrine therapies such as tamoxifen and aromatase
inhibitors.

Our lung cancer biomarker analysis offering currently includes FISH testing for
ALK, ROS1, RET, MET and FGFR1 gene rearrangements, as well as analysis for the
T790M, Deletion 19, and L858R mutations of the epidermal growth factor receptor,
or EGFR gene, as well as BRAF, KRAS and NRAS. The L858R mutation of the EGFR
gene and Exon 19 deletions are activators of EGFR kinase activity. For lung
cancer, we also offer a resistance profile assay consisting of the biomarkers
MET, HER2 (both of which we perform using our technology for CTCs), KRAS, and
T790M (both of which are performed using ctDNA in plasma). These assays can be
used by physicians to identify the mechanism causing disease progression for
patients with NSCLC who are being treated with tyrosine kinase inhibitor, or
TKI, therapy and therefore may qualify patients for inclusion in a clinical
trial.

Fibroblast growth receptor 1, or FGFR1, gene amplification is offered using our
CTC technology. FGFR1 amplification is present in several tumor types, including
both NSCLC and small cell lung cancer, or SCLC, and has been shown to be a
prognostic indicator of progression. FGFR1 is also a key target for several
drugs undergoing clinical development.

We analytically validated PD-L1 testing utilizing our CTC technology in 2016.
PD-L1 is a biomarker that is informative for immuno-oncology therapies currently
marketed for lung cancer and melanoma, as well as therapies in development for
multiple tumor types. We collaborated with David Rimm, M.D., Ph.D., a
pathologist at Yale Medical School and a scientific advisor to us, on the
analytical development of this assay.

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We plan to release additional blood-based biomarker assays, such as those that
test for ESR1 mutations, to our current menu of liquid biopsy assays using blood
samples. In addition, we plan to complete the development and offer multiplexed
biomarker tests, which will allow the detection and quantitative monitoring of
multiple biomarkers in a single assay.

In , we announced that we had executed a distribution agreement for
our patented blood collection tubes with VWR International, LLC which can
preserve intact cells (such as CTCs) for up to 96 hours and ctDNA for up to 8
days, allowing for the transport of RUO liquid biopsy samples from regions
around the world.

In , we launched our pathology partnership initiative, branded as
Empower TC, expanding access of our proprietary liquid biopsy testing to
community pathologists and hospitals throughout the United States. The aim of
this program is to incorporate community pathologists into the review of
biomarkers found in liquid biopsy for patients diagnosed with cancer.
Pathologists are now enabled to interpret our liquid biopsy results locally,
while patient specimens will continue to be sent to us for processing in our
CLIA-certified, CAP-accredited high complexity laboratory. In  we
launched Version 2 of Empower TC which is intended to expand the capabilities of
the program to allow for more tests to be interpreted by local pathologists.

We intend to continue to commercialize cancer diagnostic assays in the United
States as LDTs performed in our CLIA-certified, CAP-accredited, and
state-licensed laboratory. We plan to evaluate potential opportunities for the
commercialization of our products in other countries. We believe the
Target-Selector technology can be used for molecular biomarker screening, marked
as RUO test kits.

We launched the first of our RUO Target Selector kit products, ctDNA EGFR, in
. Additionally, we plan to evaluate opportunities for licensing of
our products and proprietary technologies to partners in the United States and
abroad.

In , we entered into a Software License and Laboratory Data Supply
Agreement with Prognos, Inc., an innovator in predicting disease by applying
artificial intelligence, or AI to clinical laboratory diagnostics. Under the
agreement, we will supply de-identified data from its liquid biopsy testing to
Prognos, which will leverage its AI capabilities to help its pharmaceutical
clients ensure that the right patients receive the right therapies. This
agreement could provide revenue sharing opportunities in future periods.



In we announced launch of the Oncomine NGS lung cancer panel in collaboration with Thermo Fisher Scientific. This panel requires a local coverage determination, or LCD, for reimbursement and we started that process with a meeting with MOLDx in . In the absence of a national coverage policy, an item or service may be covered at the discretion of the Medicare contractors based on an LCD. We have applied for LCD's in several categories as the initial step for national coverage.




In  we announced launch of the Oncomine NGS breast cancer panel, a
multi-gene liquid biopsy panel specifically developed for breast cancer, in
collaboration with Thermo Fisher Scientific. This panel is being marketed to
physicians and researches for the detection and monitoring of actionable genomic
biomarkers associated with breast cancer.

We also expanded our prostate panel offerings as a key element for growing the
demand for our testing among urologists, including the AR-V7 assay which helps
physicians determine if patient should stay on hormone therapy or switch to
chemotherapy, as well as PTEN, MET, MYC, and EGFR FISH assays which provide
valuable prognostic information to the aggressiveness of a patient's prostate
cancer.

Pharmaceutical Research and Health Economic Collaborations


We continue to execute on our strategies intended to expand our business
globally, as well as to engage with pharmaceutical companies on clinical trials
and assay development. We have preferred provider agreements in place in Mexico
with Quest Diagnostics to support testing for Astra Zeneca. In addition, we have
distribution agreements in place in Mexico, Uruguay, Turkey, Columbia, Israel
and Canada.

As a follow up to the CTC findings published in Cancer Medicine, we were
involved in a clinical study led by investigators at the Dana-Farber Cancer
Institute. Study enrollment was completed. During the screening phase of this
study, our CLIA-certified, CAP accredited laboratory tested blood samples from a
cohort of patients with HER2 negative tissue status, with the aim to identify
individuals with HER2 amplified CTCs. These patients were then assigned to
chemotherapy plus Herceptin ®. Additional CTC testing with HER2 FISH biomarker
analyses were performed at subsequent time points. At the  San
Antonio Breast Cancer Symposium, we presented findings of 311 patients tested
with HER2 negative tissue status, where 22% had CTCs with HER2 gene
amplification at disease progression. HER2 gene amplification subsequently
categorized these patients as potential candidates for anti-HER2 therapy as the
cancer evolved. Moreover, our multi-antibody CTC capture method identified a
substantial subset of patients who would not likely have had detectable CTCs
with commonly used CTC capture technologies. This added 10% (included in the
22%) to the number of women who were candidates for this highly specific
targeted therapy.

With our cooperation, researchers at Columbia University published a study in the journal Clinical and Translational Oncology in . The study demonstrated the high correlation (79%) of circulating tumor cells, primary tumor tissue biopsy and

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metastatic tumor tissue biopsy in the determination of hormone receptor status,
or ER/PR, of breast cancer patients. The investigators also found that this high
correlation was strongest when comparing metastatic tissue biopsy to CTCs (83%).
The conclusion of the study was that determining ER/PR status in CTCs using our
platform is feasible, with high concordance in ER/PR between tumor tissue (as
determined with immunohistochemistry, or IHC) and CTCs (as determined with
immunocytochemistry, or ICC). The authors suggest a larger trial to determine
the prognostic significance of these findings.

In , we presented the clinical validation data of our ctDNA assay
in collaboration with the University of California, San Diego. The results
demonstrated a very high level of concordance to tissue results (88%), together
with >95% analytical sensitivity and 99% analytical specificity, supporting our
offering of a validated, robust non-invasive solution for mutation
identification and monitoring in patients with lung cancer. Subsequent FDA
approval of Tagrisso ® , a third-generation tyrosine kinase inhibitor, presented
an opportunity for patients to be monitored using a ctDNA assay.

During 2016, we announced a pharmaceutical collaboration agreement that provides
testing for a clinical trial, which includes metastatic lung cancer patients
with leptomeningeal or brain metastases. In this exploratory trial, we tested
both cerebrospinal fluid and blood for molecular alterations that could be
impacted by treatment. A second pharmaceutical collaboration was announced in
2016, which entails a milestone-based assay development project focused on
hepatocellular carcinoma, or HCC, or liver cancer. Custom assays utilizing both
our CTC and ctDNA technologies were developed for identifying specified
biomarkers and capturing HCC CTCs for potential clinical trial use.

In , we announced a study collaboration with Dr. Giuseppe Giaccone at
the MedStar Georgetown University Hospital to assess resistance biomarkers in
non-small cell lung cancer, or NSCLC, patients treated with EGFR inhibitors or
chemotherapy. Later in 2016, we announced another collaboration involving a
study presented at the European Society for Medical Oncology, or ESMO, Annual
Congress in , evaluating the detection of EGFR alterations (del19,
L858R and T790M) by our Target-Selector liquid biopsy. Subsequent to this study,
we have earned business in both Mexico and Columbia for EGFR gene mutation
testing in blood to qualify patients for a pharmaceutical company's targeted
therapy. The relationship also resulted in a study initiated during the
following year that includes peripheral blood CTC assessment of PD-L1 protein
expression in patients undergoing chemotherapy as a monotherapy or in
combination with a checkpoint inhibitor. In , we announced a
clinical study agreement with Columbia University Medical Center to evaluate the
clinical utility of our Target-Selector platform to diagnose leptomeningeal
metastases, or LM, in breast cancer patients. This work was expanded in the
fourth quarter of 2018 to include patients with other primary solid tumor types.
Dr. Kevin Kalinsky leads this study to test CTCs in cerebrospinal fluid and
blood, where CTC analysis will be compared to standard methods for confirming LM
diagnosis.

In , we entered into a clinical study agreement with the University of
Texas Southwestern Medical Center. Led by recognized oncologist and ALK
alteration researcher, Dr. Saad Khan, the study is designed to evaluate the
clinical utility of our Target-Selector platform for patients diagnosed with
ALK-positive NSCLC and treated with ALK-inhibitor therapy. A second arm of the
study evaluated patients with rare cancers such as anaplastic thyroid cancer to
determine if genetic drivers such as ALK gene rearrangements can be identified
and treated with targeted therapy to improve patient outcomes.

In , we announced a collaboration involving 100 patients in a
clinical study with the University of California, San Diego. The study entails
clinical validation of specified PD-L1 antibody clones on our Target-Selector
CTC platform. Concordance of PD-L1 protein expression in tissue biopsy versus
liquid biopsy, as well as correlation of therapeutic response with PD-L1 liquid
biopsy status, are the study objectives.

Two complementary posters on the highly sensitive Target Selector ctDNA assays
were presented in 2018. The first poster entitled "Biocept Study Shows
Incorporation of Thermo Fisher QuantStudio 5 PCR Instrument into Target Selector
Platform Improves Sensitivity and Specificity in Detection of Lung Cancer
Biomarkers" was presented in  at the Fifth AACR-IASLC International
Joint Conference: Lung Cancer Translational Science from the Bench to the
Clinic. The related poster, entitled "Validation of highly sensitive
TargetSelector™ ctDNA assays for EGFR, BRAF, and KRAS mutations" was presented
at the  American Association for Cancer Research annual meeting.
Together, these posters highlight improvements to the Target Selector ctDNA
platform, enabling more sensitive mutation detection down to a single copy,
thereby increasing the likelihood of identifying actionable molecular drivers
towards guiding targeted therapy decisions and better management of a patient's
cancer.



In collaboration with Dr. Shilpa Gupta from the Masonic Cancer Center at the
University of Minnesota, a poster was presented at the  American
Association for Cancer Research annual meeting. The results demonstrated
proof-of-concept use of our Target-Selector CTC platform, correlating CTC count
with clinical responses in refractory testicular cancer patients undergoing
therapy. This work is part of a Phase 2 clinical trial of brentuximab vedontin
(an anti-CD-30 antibody) with bevacizumab in refractory CD-30 + germ cell
tumors. The capability for our Target-Selector CTC platform to monitor this rare
cancer type presents the potential for a precision medicine-based approach to
guide treatment decisions for these patients.



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During the first half of 2018, three key case studies were published in
peer-reviewed journals. In April, the 2018 Spring issue of Oncology & Hematology
Review featured a case report demonstrating the clinical utility of our CTC
platform whereby identification of an ALK rearrangement enabled sequential
targeted therapy and improved quality of life in a patient with NSCLC.  This
case illustrated the use of our technology to monitor therapeutic response and
early detection of drug resistance to manage patient disease through the course
of treatment with various ALK inhibitors. A Letter to the Editor in the 
issue of Journal of Thoracic Oncology described the identification of a ROS1
rearrangement by Biocept CTC analysis using FISH (fluorescent in situ
hybridization). The ROS1 translocation was concordant with tissue biopsy. In
contrast, next-generation sequencing analysis of plasma by another vendor failed
to detect the genetic alteration in the patient with lung cancer. Also, in , a case report describing the application of our CTC technology in the
management of metastatic breast cancer was published in Clinics in Oncology.
This work described a patient with recurrent breast cancer where numerous
tissue-based evaluations of the individual's bone-only metastases had repeated
challenges or inclusive results.  HER2 amplification detected in CTCs from blood
provided crucial information towards changing treatment strategies to include
anti-HER therapy, consequently extending and improving the patient's quality of
life. Each of the three published cases provide real-life examples in lung and
breast cancer towards establishing the importance of liquid biopsy to identify
and monitor clinically actionable biomarkers to improve outcomes of patients
with cancer.



In , we announced a collaboration involving two studies with the
University of California, San Diego. Each of the two studies will enroll 100
patients with solid tumors, for a total of 200 patients. One study will assess
the feasibility of using our CTC and ctDNA methodologies to predict
post-resection disease recurrence in patients with Stage II or III cancer, and
the other study will use our technology to predict response to therapy in
patients with metastatic disease. Dr. Rebecca Shatsky and Dr. Razelle Kurzrock
are the investigators key to both studies.



In , we announced a Quality Improvement Initiative with Highmark
Health to help improve molecular testing rates of NCCN Category I Guidelines for
NSCLC. The Initiative aims to improve health outcomes by using liquid biopsy to
more rapidly assess a patient's actionable biomarker status towards selecting
appropriate therapy, while reducing the overall cost of care. The project will
evaluate at least 100 patients in the Highmark Health-affiliated Allegheny
Health Network, or AHN, Cancer Institute. Patients will receive our CTC and
ctDNA testing in addition to tissue biopsy with the goal of obtaining biomarker
status results for a higher percentage of patients compared to standard testing.

Two scientific posters featuring the Target Selector™ CTC and ctDNA platforms
were presented in  at the International Association for the Study
of Lung Cancer, or IASLC, 19 th World Conference on Lung Cancer. Data from these
clinical studies demonstrate the ability of our technology to detect and monitor
CTC counts and actionable biomarkers in both blood and cerebrospinal fluid, or
CSF, of patients with advanced NSCLC. The first poster described interim results
of a collaboration with Dr. Janakiraman Subramanian at the Saint Luke's Cancer
Institute in Kansas City, Missouri. This study evaluates CTC enumeration in
advanced stage NSCLC patients before and during the course of chemotherapy.
Interim data suggest that CTC counts may have prognostic and predictive
potential to assess therapeutic benefit. The second poster was in collaboration
with Kadmon Corporation, featuring CTC and ctDNA analyses and monitoring in the
CSF of NSCLC patients with leptomeningeal metastases who were treated with
tesevatib in Kadmon's clinical trial KD019-206. In this study, alterations
detected in the CSF of patients were concordant with original tissue biopsies,
and serial monitoring of CTCs and ctDNA biomarkers in CSF were consistent with
the overall clinical.

A case series was published in  issue of the peer reviewed journal,
Clinics in Oncology. The work highlights the clinical utility of liquid biopsy
to stratify patients who may benefit from targeted therapy, describing three
patients with metastatic NSCLC for whom tissue biopsy was insufficient for
molecular profiling. In all three cases, our ctDNA liquid biopsy analyses
detected an activating EGFR mutation. EGFR tyrosine kinase inhibitor therapy
subsequently was initiated. Complete response lasting approximately two years
was observed in one patient. For two patients, our ctDNA testing was performed
at signs of clinical progression and Osimertinib was administered upon our
liquid biopsy identification of the EGFR T790M resistance marker. In sum,
patient survival was dramatically extended in all cases presented where targeted
therapies were prescribed based on liquid biopsy results.

In , we presented a poster at the annual meeting of the American
Association for Cancer Research. The work describes analytical validation of
Target Selector ESR1 Next Generation Sequencing, or NGS, ctDNA assays with
single copy mutant detection. The assays have a limit of detection, or LOD,
0.03% or better, with >99% sensitivity for mutant allele fractions, or MAF,
ranging from greater than 5% down to 0.03%. ESR1 gene mutations are associated
with acquired drug resistance in up to 55% of patients with estrogen receptor,
or ER, positive metastatic breast cancer, or mBC, who received anti-estrogen
treatment. Detection of ESR1 mutations may enable the prediction of treatment
failure and disease progression in these patients. As new therapies are
developed that antagonize ER activity by mechanisms that differ from current
drug treatments, ESR1 mutation testing can be a helpful tool to identify
patients who may benefit from these alternative agents.

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Provider Agreements


In , we announced that we had secured an in-network provider
agreement with Blue Cross Blue Shield of Texas, the largest provider of health
benefits in Texas. In addition, we entered into a national master business
agreement with the Blue Cross Blue Shield Association, a not-for-profit trade
association that provides multiple services for its 38-member Blue Cross and
Blue Shield health plan companies across the U.S., including forming national
strategic vendor partnerships. We were selected by the Blue Cross Blue Shield
Association based on a rigorous request-for-proposal progress. This agreement
establishes pricing for our Target-Selector liquid biopsy testing service
through the Blue Cross Blue Shield Association's group purchasing organization,
CareSourcing Workgroup. The pricing offered by the CareSourcing Workgroup group
purchasing organization is available to those Blue Cross and Blue Shield member
health plans that have, or may seek, in-network agreements with us.

In , we entered into a participating provider agreement with
MediNcrease Health Plans, LLC and a preferred provider agreement with Scripps
Health Plan Services, Inc., both establishing pricing for our Target-Selector
liquid biopsy testing service.

In , we signed an agreement with Wellmark, Inc., the largest health
insurer in Iowa and South Dakota. The agreement marks our third Blue Cross Blue
Shield contract and enables patients diagnosed with cancer the ability to access
our proprietary testing services in-network under their Wellmark health plan.



In , we entered into a quality initiative program with Highmark and
Alleghany Health Network as a result of the Caresourcing Workgroup. The focus is
to improve access to molecular testing to members with a diagnosis of lung
cancer. Enrollment begin in  and has been steadily increasing.



In we announced that we entered into a Laboratory Services Provider Agreement with Beacon Laboratory Benefit Solutions, Inc., a nationally recognized premier provider of laboratory benefit management technology solutions to health and managed care companies in the United States.


We are currently contracted with nine preferred provider organization networks,
three large health plans, and five regional independent physician associations,
and expect to continue to gain contracts in order to be considered as an
"in-network" provider with additional plans.

Patents and Technology


The proprietary nature of, and protection for, our products, services,
processes, and know-how are important to our business. Our success depends in
part on our ability to protect the proprietary nature of our products, services,
technology, and know-how, to operate without infringing on the proprietary
rights of others, and to prevent others from infringing our proprietary rights.
We seek patent protection in the United States and internationally for our
products, services and other technology. Our policy is to patent or in-license
the technology, inventions and improvements that we consider important to the
development of our business.

We also rely on trade secrets, know-how, and continuing innovation to develop
and maintain our competitive position. We cannot be certain that patents will be
granted with respect to any of our pending patent applications or with respect
to any patent applications filed by us in the future, nor can we be sure that
any of our existing patents or any patents granted to us in the future will be
commercially useful in protecting our technology.

Our success depends on an intellectual property portfolio that supports our future revenue streams and erects barriers to our competitors. We are maintaining and building our patent portfolio through filing new patent applications, prosecuting existing applications, and licensing and acquiring new patents and patent applications.


Despite these measures, any of our intellectual property and proprietary rights
could be challenged, invalidated, circumvented, infringed or misappropriated, or
such intellectual property and proprietary rights may not be sufficient to
permit us to take advantage of current market trends or otherwise to provide
competitive advantages. For more information, see the section entitled "Risk
Factors - Intellectual Property Risks Related to Our Business."

We have issued patents with broad claims covering our blood collection tube,
antibody cocktail approach, microchannel, CTC detection methodologies, and ctDNA
analysis. In addition to issued patents in the U.S., we have patents for our
proprietary microchannel in China, Korea, Europe, Hong Kong, Canada and Japan,
and for our antibody cocktail in Australia, Europe, Hong Kong and Japan. Our
patent estate continues to evolve, and in addition to the broad patent estate
around our CTC platform, we also have issued patents in the U.S., Australia,
Europe, Japan and China for our novel switch blocker technology, solidifying our
proprietary enrichment methodology for detecting ctDNA with very high
sensitivity. Our CTC platform patents were filed from 2005 through 2012, and we
expect to have patent protection into the 2030s. Our CTC patents and
applications cover not only cancer as a target, but also prenatal and other rare
cells of interest. Recently allowed patents in the U.S. cover the capture of
"any target of interest on any

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solid surface" using our antibody capture approach. The patent for our proprietary specimen collection tubes expire in 2031, and the patents for our ctDNA technology expire in the early 2030's.


As of , we owned 33 issued patents and 17 patents pending related
to our current technologies. Of these, 8 were issued and 5 were pending patents
in the U.S., while 24 were issued and 12 were pending patents in non-U.S.
territories. Separately, we also owned 7 issued patents related to our earlier
microarray and cell analysis technology.

Results of Operations

Three Months Ended and 2019

The following table sets forth certain information concerning our results of operations for the periods shown:



                                Three months ended June 30,                    Change
                                 2018                 2019               $                %
(dollars in thousands)
Net revenues                $          822       $        1,191     $        369               45 %
Cost of revenues                     2,700                2,673              (27 )             (1 %)
Research and development             1,019                1,148              129
expenses                                                                                       13 %
General and administrative           1,709                1,676              (33 )
expenses                                                                                       (2 %)
Sales and marketing                  1,433                1,615              182
expenses                                                                                       13 %
Loss from operations                (6,039 )             (5,921 )            118               (2 %)
Interest expense                       (84 )                (64 )             20              (24 %)
Warrant inducement and                 (30 )             (1,831 )         (1,801 )
other expenses                                                                              6,003 %
Loss before income taxes            (6,153 )             (7,816 )         (1,663 )             27 %
Income tax expense                       -                    -                -                0 %
Net loss                    $       (6,153 )     $       (7,816 )   $     (1,663 )             27 %


Net Revenues

Net revenues were approximately $1,191,000 for the three months ended , compared with approximately $822,000 for the same period in 2018, an
increase of $369,000, or 45%, which is primarily due to an increase in accession
volume over the same period in the prior year. The increase in accession volume
is partially attributable to the increase in the urology business specifically
targeted as part of our growth strategy.



The net estimated revenue per commercial accession delivered during the three months ended was $1,041, based on 1,074 commercial accessions delivered, while during the three months ended it was approximately $1,002, based on 760 commercial accessions delivered and approximately $771,000 in corresponding commercial net revenues.

The following table sets forth certain information regarding commercial accessions received during the three months ended and 2019:



                                         Three months ended June 30,                  Change
                                          2018                2019             # / $            %
# Commercial accessions received                849               1,066             217             26 %

$ Value estimated per commercial $ 1,171 $ 1,145 $ (26 )

           (2 %)

accession received

Additionally, overall development revenues stayed relatively flat as compared to the same period in the prior year. The net revenue per accession increased primarily due to the higher number of biomarkers ordered during period as compared to the same period in the prior year, partially offset by a lower number of development services accessions delivered as follows:



                                          Three months ended June 30,                   Change
                                          2018                  2019             # / $            %
# Development services accessions               129                   127              (2 )           (2 %)

delivered

$ Value per development services $ 399 $ 355

  $       (44 )          (11 %)
accession delivered


                                       31

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Costs and Expenses


Cost of Revenues. Cost of revenues was approximately $2,673,000 for the three
months ended , relatively flat compared with approximately
$2,700,000 for the same period in 2018, as we continued to leverage the fixed
components of our costs. Cost of revenues are comprised of, but not limited to,
expenses related to personnel costs, materials, shipping and other direct costs,
as well as equipment depreciation and software amortization expenses.

Research and Development Expenses. Research and development expenses were
approximately $1,148,000 for the three months ended , compared with
approximately $1,019,000 for the same period in 2018, representing an increase
of $129,000, or 13%. The increase was primarily attributable to development and
validation costs related to the recently launched lung and breast liquid biopsy
panels. 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
relatively flat at approximately $1,676,000 for the three months ended , compared with approximately $1,709,000 during the same period in 2018.
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.

Sales and Marketing Expenses. Sales and marketing expenses were approximately
$1,615,000 for the three months ended  compared with approximately
$1,433,000 for the same period in 2018, representing an increase of $182,000, or
13%. The increase was primarily attributable to higher volume and revenues
during the period. Sales and marketing expenses are comprised of, but not
limited to, personnel costs, trade show and other marketing related expenses, as
well as office and other costs.

Interest Expenses. Interest expenses were approximately $64,000 for the three
months ended  compared with approximately $84,000 for the same
period in 2018, a decrease of $20,000 or 24%. The decrease was primarily due to
the term loan having been paid off during 2018.

Warrant Inducement and Other Expense. Warrant inducement and other expenses were
approximately $1,831,000 for the three months ended  compared with
approximately $30,000 for the same period in 2018, an increase of
$1,801,000. The increase was due to recognizing the fair value of the inducement
warrants issued in  in connection with the warrant exercise offering of
$1.8 million as equity and recognizing as a warrant inducement expense.

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 ownership
changes likely occurred in each year from 2015 through 2018. 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.

                                       32

--------------------------------------------------------------------------------

Results of Operations

Six Months Ended and 2019

The following table sets forth certain information concerning our results of operations for the periods shown:



                                Six months ended June 30,                    Change
                                2018                2019               $                %
(dollars in thousands)
Net revenues                $       1,629       $       2,216     $        587               36 %
Cost of revenues                    5,135               5,273              138                3 %
Research and development            2,090               2,372              282               13 %
expenses
General and administrative          3,648               3,358             (290 )             (8 %)
expenses
Sales and marketing                 3,070               2,989              (81 )             (3 %)
expenses
Loss from operations              (12,314 )           (11,776 )            538               (4 %)
Interest expense                     (167 )              (126 )             41              (25 %)
Warrant inducement and                (30 )            (1,831 )         (1,801 )          6,003 %
other expenses
Loss before income taxes          (12,511 )           (13,733 )         (1,222 )             10 %
Income tax expense                     (1 )                 -                1             (100 %)
Net loss                    $     (12,512 )     $     (13,733 )   $     (1,221 )             10 %


Net Revenues

Net revenues were approximately $2,216,000 for the six months ended , compared with approximately $1,629,000 for the same period in 2018, an
increase of $587,000, or 36%, which is primarily due to an increase in accession
volume over the same period in the prior year. The increase in accession volume
is partially attributable to the increase in the urology business specifically
targeted as part of our growth strategy.



The net estimated revenue per commercial accession delivered during the six months ended was $1,030, based on 2,035 commercial accessions delivered, while during the six months ended it was approximately $932, based on 1,635 commercial accessions delivered and approximately $1,524,000 in corresponding commercial net revenues.

The following table sets forth certain information regarding commercial accessions received during the six months ended and 2019:


                                      Six months ended ,             

Change

                                       2018               2019            # / $            %
# Commercial accessions received          1,761              2,077             316             18 %

$ Value estimated per commercial $ 1,125 $ 1,108 $

    (17 )           (2 %)

accession received

Additionally, overall development revenues stayed relatively flat as compared to the same period in the prior year. The net revenue per accession increased primarily due to the higher number of biomarkers ordered during period as compared to the same period in the prior year, partially offset by a lower number of development services accessions delivered as follows:



                                       Six months ended June 30,                   Change
                                       2018                 2019            # / $            %
# Development services cases                298                  264             (34 )          (11 %)
delivered
$ Value per development services   $        323         $        330     $         7              2 %
accession delivered


Costs and Expenses

Cost of Revenues. Cost of revenues was approximately $5,273,000 for the six
months ended  stayed relatively flat compared to approximately
$5,135,000 for the same period in 2018, as we continue to leverage the fixed
components of our costs. The slight increase in costs of revenues is
attributable to the increase in our revenues as compared to the same period in
the prior year. Cost of revenues are comprised of, but not limited to, expenses
related to personnel costs, materials, shipping and other direct costs, as well
as equipment depreciation and software amortization expenses.

                                       33

--------------------------------------------------------------------------------
Research and Development Expenses. Research and development expenses were
approximately $2,372,000 for the six months ended , compared with
approximately $2,090,000 for the same period in 2018, an increase of $282,000,
or 13%, with the increase primarily due to development and validation costs of
new liquid biopsy tests and panels in the first half of the year. The increase
was attributable to an increase of $374,000 in materials and supplies costs,
partially offset by other lower expenses compared to the same period in the
prior year.

General and Administrative Expenses. General and administrative expenses were
approximately $3,358,000 for the six months ended , compared with
approximately $3,648,000 during the same period in 2018, a decrease of $290,000,
or 8%, primarily attributable to the ongoing cost containment efforts. 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.

Sales and Marketing Expenses. Sales and marketing expenses were approximately
$2,989,000 for the six months ended  compared with approximately
$3,070,000 for the same period in 2018, a decrease of $81,000 or 3%, due to a
decrease in personnel costs partially offset by costs related to increased sales
and marketing efforts related to higher revenues compared to the same period in
the prior year.

Interest Expenses. Interest expenses were approximately $126,000 for the six
months ended  compared with approximately $167,000 for the same
period in 2018, a decrease of $41,000 or 25%. The decrease was primarily due to
the term loan having been paid off during 2018.

Warrant Inducement and Other Expense. Warrant inducement and other expenses were
approximately $1,831,000 for the six months ended  compared with
approximately $30,000 for the same period in 2018, an increase of
$1,801,000. The increase was due to recognizing the fair value of the inducement
warrants issued in  in connection with the warrant exercise offering of
$1.8 million as equity and recognizing as a warrant inducement expense.

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 ownership
changes likely occurred in each year from 2015 through 2018. 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

Cash Flows

Our net cash flow from operating, investing and financing activities for the periods below were as follows:



                                            Six months ended June 30,
                                              2018               2019
             (dollars in thousands)
             Cash provided by/ (used in):
             Operating activities         $     (11,482 )     $  (11,970 )
             Investing activities                   (72 )            (86 )
             Financing activities                11,977           21,224
             Net increase in cash         $         423       $    9,168




Cash Used in Operating Activities. Net cash used in operating activities was
$12.0 million for the six months ended , compared to net cash used
in operating activities of $11.5 million for the same period in 2018. The net
increase of $488,000 in cash used was primarily related to an increase in cash
used to fund our net loss. During the six months ended  we recorded
a non-cash warrant inducement expense of $1.8 million related to the 
warrant inducement transaction.

                                       34

--------------------------------------------------------------------------------

Cash Used in Investing Activities. Net cash used in investing activities of approximately $86,000 and $72,000 during the six months ended and 2018, respectively, was related to purchases of fixed assets.


Cash Provided by Financing Activities. Net cash provided by financing activities
was $21.2 million for the six months ended , compared to net cash
provided by financing activities of $12.0 million for the same period in 2018.
Our primary sources of cash from financing activities during the six months
ended  consisted of $2.0 million in net proceeds from our offering
of common stock in , $6.6 million in net proceeds from our sale of
common stock and warrants in , $0.6 million in net proceeds from
exercise of overallotment from the  transaction, $7.6 million in net
proceeds from our sale of common stock and warrants in , and $4.9
million in proceeds from exercise of common stock warrants. Our primary sources
of cash from financing activities during the six months ended 
consisted of $13.3 million in net proceeds from our offering of common stock and
warrants in , which was partially offset by $1.4 million of
principal payments made on indebtedness.

Liquidity, Capital Resources and Expenditure Requirements


We expect to continue to incur substantial operating losses in the future. It
may take several years to achieve positive operational cash flow, or we may not
ever achieve positive operational cash flow. 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. On , we completed an offering of 990,000 shares of our common stock at a
purchase price of $2.25 per share raising net proceeds of approximately
$2.0 million. On , we completed an offering of 6,250,000 shares
of our common stock and warrants at a combined offering price of $1.20 per unit,
raising approximately $6.6 million, and on , the underwriters
exercised their overallotment option under the  transaction and
purchased 538,867 shares from us for total proceeds of $592,000. In addition, on
, we completed an offering of 5,950,000 shares of common stock and
warrants at an offering price of $1.37 per share raising approximately $7.6
million in net proceeds. In , investors exercised warrants for 4.1
million shares of common stock at exercise prices ranging from $1.20 to $1.25
per share resulting in net cash proceeds to the Company totaling $4.8
million. Approximately 2.1 million shares of the warrants exercised was pursuant
to a warrant inducement transaction raising approximately $2.3 million of net
proceeds of the total $4.8 million raised.

As of , our cash totaled $12.6 million, and our outstanding net
indebtedness totaled $1.8 million. While we currently are in the
commercialization stage of operations, we have not yet achieved profitability
and anticipate that we will continue to incur net losses for the foreseeable
future. We have determined that there is substantial doubt about our ability to
continue as a going concern for the one year following the date that our
unaudited condensed financial statements for the six months ended 
were issued, and we expect that we will need additional financing to execute on
our current or future business strategies beyond the fourth quarter of 2019.

In , the SEC declared effective a shelf registration statement filed by
us, which expires in . 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
$50 million, subject to certain limitations for so long as our public float is
less than $75 million.

We expect that we will need additional financing to execute on our current or
future business strategies. Until we can generate significant cash from
operations, including assay revenues, we expect to continue to fund operations
with the proceeds from offerings of our equity securities or debt, or
transactions involving product development, technology licensing or
collaboration. For example, we have an effective shelf registration statement on
file with the SEC which allows us to issue any combination of our common stock,
preferred stock, debt securities and warrants from time to time until expiry on
, subject to certain restrictions that apply for so long as our
public float is less than $75 million. The specific terms of additional future
offerings, if any, under this shelf registration statement would be established
at the time of such offerings. 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:

  • our ability to secure financing and the amount thereof;


  • the costs of operating and enhancing our laboratory facilities;


                                       35

--------------------------------------------------------------------------------

• 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 our other filings with the SEC.


We may raise additional capital to fund our current operations and to fund
expansion of our business to meet our long-term business objectives 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. If adequate funds are not available, we will need
to curb our expansion plans or limit our research and development activities,
which would have a material adverse impact on our business prospects and results
of operations.

Off-Balance Sheet Arrangements

We have not engaged in any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.

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 ended . 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 ended .

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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