Item 1. Business

Development of Our Business

Oncocyte is a molecular diagnostics company focused on developing and commercializing proprietary tests, initially offered as laboratory-developed tests (“LDTs), to serve unmet medical needs across the cancer care continuum. Our tests aim to provide actionable information to physicians and patients at critical decision points to optimize treatment decisions, including the selection of immunotherapy, improve patient outcomes, and reduce overall cost of care. During the early years of our cancer LDT development efforts we explored the development of non-invasive, liquid biopsies, for a variety of cancers. We subsequently determined to focus our resources on the development of a non-invasive confirmatory blood test for lung cancer that we called DetermaDx™ intended for use to clarify whether a potentially cancerous lung nodule is suspicious or likely benign.

To diversify and grow our business while DetermaDx™ was in development, we completed two strategic asset and business acquisitions during 2019 and early 2020 that transformed Oncocyte from a single product company to a company with a broader menu of laboratory-developed tests that physicians may use at different critical decision points in cancer diagnosis and treatment to support their decision-making. We believe that our effort to provide clinically actionable tests for certain key decision points along the continuum of diagnosis shown below will mitigate the inherent risk of being a single product company and should lead to greater revenue opportunities in rapidly emerging markets in lung cancer and beyond.

As part of the new strategy to become relevant in the broader diagnostic continuum of lung cancer, our first strategic transaction was an investment in Razor Genomics, Inc. (“Razor”) during September 2019 through which we acquired an equity position in Razor and a sublicense to complete development and to commercialize Razor’s test for early stage lung cancer management. This test, which we call DetermaRx™, is the first and only test to predict a post-surgery patient’s risk of cancer recurrence and their response to chemotherapy in early stage lung cancer, and is our first test to be commercialized and reimbursed by Medicare. DetermaRx serves an unmet clinical need given 30-50% mortality rates in these patients in the absence of timely chemotherapy treatment. During February 17, 2017,2021 we had 277 shareholdersacquired all of record and there were 29,361,616the outstanding shares of our common stock outstanding, of which 14,674,244 shares were held by our parent BioTime, Inc. ("BioTime"). The shares held by BioTime account for less than 50% of our common stock outstanding as a whole. Accordingly, effective February 17, 2017, we are a no longer a consolidated subsidiary of BioTime. See Note 10 of our financial statements included elsewhere in this Annual Report.

In January 2020, we acquired Insight Genetics, Inc. (“Insight”) which significantly expanded our product pipeline by adding DetermaIO^TM, a proprietary gene expression assay with promising data supporting its potential to help identify patients likely to respond to checkpoint inhibitor drugs. This new class of drugs modulate the immune response and show activity in multiple solid tumor types including non-small cell lung cancer (NSCLC), and triple negative breast cancer (TNBC). Insight also has an existing revenue generating pharma service business that offers pharmaceutical companies comprehensive, multi-analyte test development and clinical trial services at its CLIA laboratory. The breadth of expertise at our Insight facility includes DNA and gene expression (RNA) test development, analysis and clinical testing for clinical studies and trials across multiple platforms including polymerase chain reaction (PCR) and next generation sequencing (NGS) including whole transcriptome analysis at the RNA level and whole exome analysis at the DNA level for tumor mutational burden (TMB) and genomic profiling for treatment selection.

On the pharmaceutical services side, there are approximately 3,000 PD-1/PD-L1 ongoing clinical trials that are expected to recruit over 500,000 patients over the next 5 years. This represents a potential $1 billion market opportunity for immune-therapy clinical trial services alone. It is well established that multi-analyte testing is more sensitive than testing a single analyte. Our multi-analyte testing capabilities combining DNA and RNA should make us an attractive service provider to biopharmaceutical companies for biomarker discovery and companion diagnostic development compared to DNA based testing alone.

We discontinued the development of DetermaDx™ during the second quarter of 2020 after findings from a clinical validation study demonstrated that the performance of DetermaDx™ did not meet the predetermined endpoints for the study. The primary clinical validation study endpoint for the commercial launch of DetermaDx™ was to achieve a statistically significant improvement over and above the clinical factors being utilized by physicians today to help with the diagnosis of intermediate risk lung nodules, particularly those in the 0.8 cm to 2.2 cm size range. Since discontinuing DetermaDx™ we have focused our efforts on maximizing the opportunities for our two most advanced commercial LDTs, DetermaRx™ and DetermaIO™.

During February 2021, we and our newly organized wholly-owned subsidiary CNI Monitor Sub, Inc. entered into an Agreement and Plan of Merger (the “Chronix Merger Agreement”) pursuant to which we plan to acquire Chronix Biomedical, Inc. (“Chronix”) through a merger of Chronix with our subsidiary. By acquiring Chronix, we will add Chronix’s TheraSure™-CNI Monitor to our diagnostic test pipeline. The CNI Monitor, which we plan to market as DetermaCNI, is a patented, blood-based test for immunotherapy monitoring utilizing a copy number index or CNI that relies on the property of cancer to modify the normal genome of cells by accumulating mutations and variation in the number of copies of genes in the genome. The CNI Monitor test quantitatively measures the amount of that copy number variation present in blood that has been shed by dying tumor cells. Monitoring the change in the CNI over time for a patient on immunotherapy may allow a physician to monitor their patient’s response to the immunotherapy treatment or the progression of the disease and to adjust treatment accordingly. Our initial focus will be to offer the CNI Monitor to the pharma industry for research use and pharma trials in lung cancer and other solid tumor types treated by immunotherapy. Our ultimate goal will be to develop the CNI Monitor for clinical use as a blood-based immunotherapy monitoring test.

In addition to the CNI Monitor, Chronix has certain organ transplant technology. Chronix has laboratory operations in Germany that can support the continued development and commercial launch of the CNI Monitor and other tests, including our DetermaRx™ and DetermaIO™, in Germany and other EU member countries after completion of the merger.

We expect to complete the Chronix merger during April 2021 if the conditions to the merger under the Chronix Merger Agreement are met.

The Cancer Care Continuum

The cancer care continuum that is the focus of our business be divided into three important components of information that physicians require to manage their patients through the full term of cancer care:

This three-component continuum represents a large unmet total available market or TAM in the United States and the rest of the world as reflected in graphic below. Oncocyte’s mission is to address the second and third components of the continuum after cancer has been diagnosed, with the goal of ensuring that each patient has the best chance for disease free survival.

Since the advent of genomic scale characterization of cancer, oncologists have strived to apply genomic targeted testing to improvement in selection of treatment and management of disease progression. We are initially applying a comprehensive targeted approach to lung cancer where management paradigms are most mature and believe a similar approach will have utility across solid tumors grounded in their common features in responding to immune therapy. Our first indication for commercialization is lung cancer which remains the leading cause of cancer death in the United States and the rest of the world, making it one of the largest molecular diagnostic market opportunities.

While our sales efforts current focus on physicians managing patients with lung cancer, the pipeline of tests we plan to offer in the future will expand to all per sharesolid tumors and, strategically, our clinical studies and trials with pharma companies will not be limited to lung cancer given the early success of our test in other solid tumors. Our proprietary diagnostic tests are focused on the interrogation of RNA signatures, the coding component that converts DNA code into actual protein production within a cell, from tumor tissue or peripheral blood samples and target key clinical questions that are critical to better management of cancer, from treatment through monitoring of therapeutic efficacy and recurrence of certain cancers. As we expand the scope of our test offerings towards the goal of addressing more key clinical decision points in lung and other cancers, we remain technology agnostic, and aim to continue to identify tests that allow us to reduce to practice the findings from large scale genomic profiling leading to the best approach that addresses the needs of patients and physicians in a manner consistent with the need for rapid turnaround time and judicious use of precious tumor tissue or blood samples while delivering good health economic outcomes.

Our primary growth engines are tests that are novel and proprietary. Through our strategic acquisitions, we have added significant bioinformatics expertise in algorithm development and validation that we can use to analyze functional gene expression and other biological data in order to develop tests that address significant clinical challenges that have not been successfully addressed by currently available technologies. At the same time our tests are run on instruments with a high global installed base enabling decentralization of testing to labs worldwide.

Business Strategy

Why Treatment Selection in Cancer

Approximately 1.8 million people were diagnosed with cancer in 2020 in the United States, and relatedan estimated 17 million worldwide, according to the American Cancer Society. Despite the advancements in therapeutics, cancer remains the second leading cause of death in the United States. Biomarkers are playing an increasingly important role in helping pharmaceutical companies and oncologists identify and select patients for established and new therapies to ensure the right patient gets the right treatment as early as possible post-diagnosis, in order to best improve patient outcomes.

We are building Oncocyte to be a “one stop lab” for treatment decisions for every patient diagnosed with a solid tumor, by delivering to the treating oncologist proprietary biomarker testing that offers incremental information includingto inform patient treatment and monitor response to therapy, in combination with the price at which sharescurrent standard of common stock have been soldcare testing they order today. Since DetermaRx and DetermaIO would only be offered by Oncocyte, our goal is to become the preferred lab for physicians for both our proprietary tests and more traditional tests otherwise offered by many different labs that we can perform in our CLIA laboratories. An example of this testing would be for a patient diagnosed with lung cancer, for whom standard of care targeting information on EGFR, ALK, PD-L1 would be offered, plus DetermaIO our proprietary test for informing immune therapy decisions, all using the same patient tumor or mayblood sample. This would allow informed selection of targeted immune-therapy and potentially the need for additional cytotoxic chemotherapy. For the course of treatment, we are developing blood based monitoring tools to detect non-response or progression on therapy to inform timely treatment changes.

This “one-stop” approach offers several practical advantages. Today, the testing needs of physicians managing cancer patients are met by several specialty reference labs, meaning the physician or hospital must split the sample and send portions to several different labs to complete the various tests needed to accurately diagnose the cancer type and select a therapy. Not only does this process consume a large amount of sparse patient biopsy sample risking depletion of the sample before completing all testing, but also the process can take up to three weeks for the compilation of all the results to make it back to the treating physician to inform therapeutic decision making. All too often in the existing paradigm, patients are committed to a therapeutic approach before all the information is returned from the different clinical labs. Oncocyte’s consolidation of testing modalities will allow the judicious use of limited patient biopsy samples and deliver results to the ordering physician within a more expeditious time frame for optimizing the treatment regimen. Our survey of cancer physicians indicates a significant demand for the attributes of consuming a minimal portion of patient biopsy sample and faster turnaround of testing results.

Our Laboratory Tests — Strategically Addressing Unmet Clinical Questions Across the Cancer Care Continuum

We are developing molecular LDTs that provide physicians information to enable the timely diagnosis and treatment of cancer with the ultimate goal of transforming this deadly cancer to a curable or chronic disease. We believe that the proprietary tests in our product pipeline will allow Oncocyte to be issued, have been retroactively adjusted, where applicable,relevant in the early stage of decision making giving us unique access to reflect the reverse stock split of OncoCyte common stock as if it had occurred atsample “tumor block” from the beginning of the earliest period presented.

DetermaRx^TM – Treatment selection in early stage lung cancer

Oncocyte’s first commercially available laboratory-developed test is DetermaRx^TM, the only predictive molecular test for early stage adenocarcinoma of the lung. This gene expression-based test provides information that a physician can use to develop highly accurate, easyhelp identify early-stage, surgically resected patients with Stage I and IIA non-squamous non-small cell lung cancer (NSCLC) who are at high-risk of recurrence and may benefit from chemotherapy.

NSCLC of the lung is the most common type of lung cancer accounting for 80% to administer, non-invasive molecular diagnostic tests to improve85% of incidence. Survival rates for patients diagnosed at an early stage are significantly higher than those for patients whose lung cancer is diagnosed at an advanced stage such as Stage III or Stage IV. Surgery is the standard of care for patients diagnosed with early stage (Stage I and Stage IIA) lung cancer. Yet even after complete surgical resection, between 30% to 50% of those early stage patients have a recurrence of the disease. Trials of chemotherapy treatment in early-stage disease have been inconclusive as to whether the early stage treatment improves outcomes in un-stratified patients. Current guidelines suggest risk stratification and use of adjuvant (post-surgery) chemotherapy in “high-risk” patients. However, the recommendations for assessment of risk are subjective and lack clinical studies that validate their usefulness in informing the use of chemotherapy.

DetermaRx™ is a 14-gene molecular stratification test performed on surgically resected tissue and is indicated for patients with Stage I and Stage IIA NSCLC to help determine who may benefit from adjuvant chemotherapy. Typically, thoracic surgeons or medical oncologists order the test after surgical resection. These surgical samples are processed as formalin fixed and paraffin embedded (FFPE) tissue samples. We receive blocks or scrolls of FFPE samples for testing in our CLIA-certified laboratory. A test report is generated classifying patient risk of recurrence and returned to the ordering physician, generally within 10 business days. This turnaround time enables the treating physician to have the report in time for discussion of a treatment plan with the patient, usually a month after surgery.

The results from the prospective study published in Clinical Lung Cancer 2018 and presented at the North American Lung Conference (NA IASCLC) in 2020 were compelling. Patients who were identified as “high risk” and treated with double platinum chemotherapy had a 3% recurrence rate compared to a 30% cancer diagnosisrecurrence rate in high risk patients who declined chemotherapy.

We believe that there is an annual U.S. market opportunity of approximately 40,000 patients or approximately $140 million for DetermaRx™ based on our reimbursement levels approved by CMS in 2020. This market is expected to grow as high-risk screening recommendations are adopted, resulting in more patients being screened through Low Dose CT (LDCT) scans and diagnosed at an early stage. The European market presents a similar number of patients per year, while China represents the largest patient population with over 250,000 early stage lung cancer cases per year.

DetermaRx^TM has been validated in three independent cohorts with close to 1,400 patients and test data has been published in top-tier peer reviewed publications including Lancet Oncology, JAMA, and the Journal of Thoracic Oncology. Importantly, the impact of the use of chemotherapy in high-risk patients was demonstrated in a paper published in Clinical Lung Cancer in 2017. We have also initiated a prospective definitive clinical trial randomizing molecular high-risk patients to adjuvant chemotherapy or surgical intervention alone in order to gather the highest level of evidence supporting the predictive information of DetermaRx. If successful, this study will strongly support access to the entire global market, including countries whose regulatory entities require the most stringent evidence for test reimbursement or marketing.

DetermaIO^TM – Immunotherapy treatment selection

For patients diagnosed with cancer, immunotherapies, particularly immune checkpoint inhibitors (ICI’s) targeting PD-1 and PD-L1, have emerged as a novel drug class that helps recruit the body’s immune system to attack the growing tumor. Pharmaceutical companies are investing heavily in this space, with hundreds of clinical trials ongoing, and a number of drugs approved by the FDA for all solid tumors, including pembrolizumab (Keytruda^TM), nivolumab (Opdivo^TM), and atezolizumab (Tecentriq^TM).

Through the acquisition of Insight in January 2020, Oncocyte has expanded its portfolio to include a novel gene expression-based test called DetermaIO™, which is being developed to identify patients most likely to respond to immunotherapy drugs. Current predictive biomarkers, including PD-L1 and Tumor Mutational Burden or TMB, have shown only limited ability to accurately predict which patients will respond to an immunotherapy. For example, according to published literature, more than half of PD-L1 positive patients do not respond to immune- checkpoint inhibitors, and 1 in 6 patients who will respond are missed (referred to as a “false negative”).

While ICIs represent a significant advancement in treatment options for patients diagnosed with advanced solid cancers, the response rates have been modest, based on treatment directed by the current standard of care biomarker PD-L1 immunohistochemistry. Depending on the solid tumor type, only approximately 15% to 40% of PD-L1 positive tumors respond to ICIs, while a significant number of PDL-1 negative patients do respond. Another issue with ICIs is that although ICI treatments can be highly effective in the right patients, ICI’s also have significant side effects which include exacerbation of latent autoimmune disorders. There is a compelling medical and health economic unmet need for a biomarker that can provide three improvements to the use of ICIs: (1) the identification of additional patients who may respond to the treatment and missed by the existing biomarkers, (2) enable additional or alterative treatment options for the 60% to 85% of patients who may receive these expensive drugs without benefit but while still facing the risk of side effects associated with ICIs, and (3) inform the use of ICI’s in combination with traditional cytotoxic chemotherapy to enhance response rates.

DetermaIO^TM represents an opportunity to enter a very large market to help identify patients who will respond to immune therapy, with more than 750,000 U.S. patients eligible for ICI therapy annually and growing with expanding indications for this type of treatment. As depicted in the image below, analyst predict the ICI spend in the US alone will exceed $125 billion by 2025 meaning the healthcare system will deploy well over $60 billion on drug therapies that will offer no benefit to many of the patients who would receive ICI therapy.

DetermaIO^TM is a proprietary molecular test that has proven in clinical studies to date to provide incremental utility beyond the current tests being used to identify patients who will have a response to ICIs, and represents a solid opportunity to provide better information for patient management leading to better meetpatient outcomes as well as saving the needshealthcare systems in the US significant cost. We completed the CLIA validation of DetermaIO™ in April of 2020 and launched the test for research use through our Pharma Services operations to enable pharmaceutical and biopharmaceutical companies to utilize it in clinical studies of ICIs that they are developing. There are approximately 3,000 PD-1/PD-L1 targeted therapy clinical trials ongoing that are expected to recruit over 500,000 patients. This represents a potential $1 billion market opportunity for immune-therapy clinical trial services to pharma companies developing ICIs which could be addressed by our Pharma Services operations. The test currently is only available as a research product for pharma studies, but there are currently several studies that have been submitted for publication that include clinical data to support use of DetermaIO as in clinical practice to predict which cancer patients are likely to respond to immunotherapies. Assuming successful publication or presentation of these studies, including the clinical data, at the upcoming American Association of Cancer Research (AACR) in April, the American Association of Clinical Oncology (ASCO) in early June and European Society of Medical Oncology (ESMO) in September, we expect to be able to launch DetermaIO in the clinical market in the late third or early fourth quarter of 2021.

We also believe, based on our projected reimbursable pricing model, that the clinical use of DetermaIO will address a potential $3 billion TAM opportunity. The actual TAM for DetermaIO™ in medical practice will depend upon a variety of factors including our ability to demonstrate the efficacy and clinical utility of the test, the extent of physician acceptance of the test, whether the test will be approved for Medicare reimbursement, and, if reimbursement is approved, the actual approved reimbursement price.

How DetermaIO May Inform the Choice of Therapies

Despite the potential benefit of immunotherapy, those therapies are associated with high cost and toxicity, making it very important to accurately identify both responders and non-responders to reduce overall morbidity and mortality. DetermaIO™ was developed for that purpose. The test measures the expression levels of 27 genes and algorithmically computes a quantitative score that incorporates information from the immune inflammatory infiltrates within and around the tumor combined with information from the wound response surrounding the tumor. An established threshold is used to classify patients as likely responder or likely non-responder which has now been validated in several independent clinical studies in multiple cancers. Initial data using DetermaIO™ as an immune therapy response predictor in NSCLC was presented at the 2019 Society for Immunotherapy of Cancer (SITC) conference that suggested the test may offer incremental utility beyond PD-L1 and TMB alone in identifying responders to checkpoint inhibitors. Similarly, data presented at the 2020 American Society of Clinical Oncology annual meeting (ASCO) demonstrated superiority to PDL-1 IHC in predicting pathologic complete response in neoadjuvant treated triple negative breast cancer.

The diagram below reflects the importance of the biology of the tissue immune micro-environment and explains why we believe DetermaIO is an important breakthrough complimenting the current therapy decision process for physicians considering immune checkpoint inhibitors. The figure depicts that every individual forms tumor cells during their lifetime, but our immune system recognizes these abnormal cells and attacks and removes them keeping them from growing into a clinically relevant cancer. When the immune system is over-active and reacts to normal cells, it results in autoimmune disorders. The balance between killing these near normal tumor cells and normal cells is called immune homeostasis and is largely governed by biologic systems called immune checkpoints. When tumors cells disrupt these checkpoints and overwhelm the immune system, a cancer develops. One mechanism by which tumor and the immune system regulate the intensity of immune surveillance is through modulating expression of PD-1 and PD-L1 that together regulate the activity immune effector cells. ICI therapeutics have been developed that block these receptor sites and allow the immune system to once again “see” the tumor and attack and restore the immune system’s ability to kill cancer cells. Because these drugs work on immune cells regardless of their targets, the side effects of these drugs can be enhanced autoimmunity. Unfortunately, response rates to ICI’s are only approximately 15% to 40% depending upon tumor type. However, responses are often durable although resistance does evolve during treatment in some patients. The early success of these drugs has stimulated deeper investigation into the mechanism by which tumors evade the immune system which has revealed a complex interplay between tumor evasion strategies, the activity of immune effector cells and the tissue repair mechanisms that modulate anti-tumor activity. The balance between signal from the tumor, signals from the inflammatory cells invading the tumor, and signals from the wound response are now understood to account for resistance to ICI’s and are the target of second-generation therapeutic strategies to overcome resistance.

DetermaIO^TM was developed to measure the status of the immune system in immune and wound response tissue surrounding tumors. It incorporates measurement of the complete microenvironment including activity of genes expressed in immune effector cells, genes expressed in activated wound response cells, and in some cases, genes expressed by the tumor itself. It is the combination of measurement of these three signals that we believe distinguishes DetermaIO^TM from most other approaches. Current biomarkers being used to assess the likelihood of immune response have shown only modest ability to predict responses to ICI’s. PDL-1 immunohistochemistry looks at the presence of PDL-1 receptors and tumor mutation burden (TMB) at the number of mutations (neoantigens) in the tumor genome. We believe DetermaIO is a direct measure the status of the immune microenvironment and as such identifies those tumors poised to respond to the addition of ICI’s. We believe and now have data to support that the integration of the signal from the “Hot” component of the tumor with the “Cold” immune repressive features, and in some cases the exclusion of immune cells altogether, the immune desert, is superior to measuring any of these physiologies alone.

The ability to accurately determine response to immunotherapies has important implications for both the patients themselves and the healthcare economy as a whole. For the patients that are likely to respond to immunotherapies, these drugs can be a much more effective and less toxic treatment option than standard chemotherapy. For the patients who are unlikely to respond, opting for a different course of treatment would eliminate exposure to potentially serious side effects such as autoimmune diseases, and could save payers in the healthcare industry use of extremely costly therapy regimens. The market continues to seek a test that is predictive, uses very little tissue, and can be performed rapidly. We believe DetermaIO™ meets all the important criteria for a precision medicine test that can be routinely use.

The origin of the gene expression classifier used in DetermaIO™ was work done to better classify triple negative breast cancer (TNBC) into four tumor cell subtypes that could be modified by the immune classifier. It started with a greater than 2200 gene unsupervised classifier that recognized both the physiological differences between tumor types within TNBC, and the activated immune and stromal signatures characteristic of advanced cancers. The original development team from Insight had success reducing the large gene signature to a 101-gene panel for classification of TNBC, and then recognized that the only twenty-seven RNAs from the tumor could provide the appropriate classification of the immune environment that has now matured into DetermaIO™, our CLIA certified PCR test for immune response classification. Since this immune classifier relies upon gene expression signatures derived primarily from inflammatory cells and activated stromal cells, there is no reason to assume that DetermaIO’s immune classification function would be limited to only these tissue types. This prompted our work in lung cancer where the unmodified classifier performed very similarly to breast cancer. We are working to validate the classification function and classifier threshold using publicly available gene expression datasets and testing the classifier as a predictor of response to ICI therapy in other solid tumor types. DetermaIO™ is now offered as part of our Pharma Services business as a CLIA validated PCR test, and can be assessed for clinical studies in whole transcriptome RNAseq data. In addition, the original 101-gene TNBC tumor classifier is advancing in studies elucidating its association with different targeted or cytotoxic chemotherapy treatment regimens in TNBC. We plan on investing in further studies to elucidate and validate the role of DetermaIO and the TNBC classifier in managing immune therapy in other tumor types and TNBC respectively.

Blood Based Monitoring Opportunity

The next emerging opportunity in cancer diagnostics is in the area of therapy response monitoring and recurrence monitoring. Analysts have estimated a worldwide TAM ranging from $5 billion to $10 billion for monitoring for therapeutic efficacy and disease recurrence. There are an estimated 15 million people “living with cancer” and over one million people diagnosed with a solid tumor each year in the US alone. Monitoring is a “repeat” testing opportunity and given the limitations of current standard of care, CT/MRI imaging, there is an emerging and potentially large market for a blood based test that can inform a treating physician that a tumor is becoming resistant to a patient’s current treatment protocol before an imaging technique can detect whether there is shrinkage in a tumor. Our mission is to provide relevant, high value information from our menu of tests to treating physicians throughout the “patient journey” for people with lung cancer and other solid tumors. DetermaRx and DetermaIO were developed to help physicians choose the right therapy, and our entry into blood based monitoring is a natural addition to our test menu to help physicians understand whether their therapeutic choice is working for their patient and to help them make appropriate changes to a patient’s protocol if the tumor is non-responsive. Once the patient’s tumor resolves and they become “Disease Free”, monitoring for recurrence 3 to 4 times a year using a simple blood test could become a way to help turn cancer into a chronic disorder versus a deadly disease, an important part of our corporate mission.

Most approaches to blood based detection and quantitation of tumor load involve genome scale sequencing of a patient’s tumor to identify “personal” mutations in the tumor and then develop a custom NGS panel assay to monitor for those mutations in each patient’s blood. This process requires significant investment in time and money upfront and complicated infrastructure to manage these “tumor informed” personalized custom panels. We believe there is an opportunity to develop tests that do not require this personalization and therefore eliminate the burdensome tissue requirement and shorten the time to initiate therapeutic monitoring. If we complete our planned acquisition of Chronix, we will add to our test pipeline their Therapy Monitoring solution, TheraSure CNI, which we expect to market as DetermaCNI. This new monitoring test does not require tumor sequencing prior to blood testing therefore is intended to be an alternative to the tumor informed approach that requires a tissue biopsy. Chronix will also bring to Oncocyte a world class assay development team with deep experience and a portfolio of intellectual property in the field of digital-PCR based detection of DNA in blood that will be the foundation for development of our next generation tumor monitoring products.)

Pharma Services

Our acquisition of Insight expanded our laboratory offerings to include a CLIA-certified laboratory that has been accredited by the College of American Pathologists (CAP). The lab is ISO 9001 201 and 21 CFR Part 820 compliant which allows it to support the key delivery of services to the pharmaceutical and biotechnology industry for biomarker discovery, clinical trials, and product development. Our pharma service business offers pharmaceutical companies comprehensive, multi-analyte test development and clinical trial services at our Nashville, Tennessee CLIA laboratory. The breadth of our expertise includes DNA and gene expression (RNA) test development, analysis and clinical testing for clinical studies and trials across multiple platforms including polymerase chain reaction (PCR) and next generation sequencing (NGS) including whole transcriptome analysis at the RNA level and whole exome analysis at the DNA level for tumor mutational burden (TMB) and genomic profiling for treatment selection. We currently provide the following services:

Pharmaceutical companies investing millions of dollars in clinical trials may benefit from developing predictive biomarkers that can help identify the subset of patients physiciansmost likely to respond to their drugs. This patient stratification approach may enhance the success rates of their clinical trials by allowing the pharmaceutical company to identify which patients to include in the trials. We believe that it is now well understood that a multi-analyte approach combining DNA, RNA, and payers.  Our initial focusprotein expression and epigenomic markers will deliver the highest level of treatment response prediction compared to DNA based testing alone.

The quality credentialing and the multi-analyte capabilities described above enable our laboratory to provide end-to-end services to biopharmaceutical companies from discovery of a predictive biomarker, to its validation in clinical trials, and finally to the United States Food and Drug Administration (“FDA”) stage for approval of the biomarker as a “companion diagnostic” to be confirmatory diagnostics, utilizing novel liquid biopsy technology, for useutilized in conjunction with imagingthe therapy to confirm initial suspicious imaging results suchidentify patients eligible for the drug.

Commercialization of our Molecular Diagnostic Tests

Our first commercial diagnostic test is DetermaRx™ which we began to commercialize in 2020. We are presently performing the DetermaRx tests at our CLIA certified laboratory in Brisbane, California. We are in the process to completing construction of a new laboratory at our facility in Irvine California which will be the home of our west coast CLIA operations and certain administrative functions. We expect to complete construction and certify the Irvine laboratory by June of 2021, after which we plan to decommission the Brisbane laboratory. We will then have a west coast CLIA lab in Irvine and an Eastern US CLIA lab and Pharma Services lab in Nashville, Tennessee that will serve as our Immune Diagnostic Center of Excellence, and at the close of the Chronix merger, we will acquire and operate our Blood Based Monitoring Center of Excellence from Gottingen, Germany.

In January 2020, we hired our first six sales representatives and trained them for the market launch of DetermaRx^TM all of whom have extensive experience selling high value oncology molecular tests, and a medical educator who is a board-certified genetic counselor. The product was launched to seven Early Adopter Sites in February to establish and test our CLIA lab protocols and workflows, gain customer feedback on the final patient report and validate our logistical plan for sample transport. The decision was made to enter a full market launch in late February after successful validation of our processes, and full engagement started in early March. To expand our customer base for DetermaRx™, we have hired a limited sales force in focused regions of the country to identify and target hospitals and physicians that perform a high volume of surgical resections, which include large group practices (LGPs), as well as National Comprehensive Cancer Network (NCCN) and NCI cancer centers. Our primary call point is thoracic surgeons because they manage most early-stage lung nodulescancer patients, and breast lumps within certain oncology indications.refer patients to medical oncologists for further treatment post-surgery as needed. Our sales representatives also call on medical oncologists who make the chemotherapy treatment decision for patients identified high-risk by the test. These are complimentary call points as often decisions to adopt a test are made by a multi-disciplinary team. Unfortunately, the world was facing the emergence of a pandemic of a Novel Coronavirus, called SARS- CoV2, which ultimately led to the COVID pandemic that severely impacted our sales forces’ ability to engage new accounts and surgeons in person at the critical early phase of full market launch. In addition,late March 2020, our medical education team pivoted to a virtual training program and began to offer Medical Education events over virtual calls and video meetings which allowed our sales representatives to set up virtual presentations to educate physicians about DetermaRx^TM. We believe the program was successful because through the end of 2020, the virtual programs had reached over 3,000 healthcare professionals. As of the filing of this Annual Report, we may develop screening diagnosticscontinue to rely on the virtual programs since our sales professionals have limited in person access to hospitals and surgical or oncologist’s offices.

Since our broad commercial launch in March 2020, DetermaRx has now been made available at more than 80 hospitals in the United States including multiple prestigious National Cancer Institute (NCI) and NCCN cancer centers and large community practices where most cancer is treated. The strategy we are pursuing to market DetermaRx™ is likely to be replicated in large measure for the market launch of our other cancer tests as potential replacementswe complete test development.

We are investing in physician education to drive demand for screening imaging protocolsDetermaRx™. A central pillar of our physician education efforts is our Key Opinion Leader-led speaker program that do not meet the needsis focused on peer-to-peer engagement. Several community and academic speakers have already been enrolled as speakers. Our marketing and physician education efforts also include participation in lung cancer focused national and regional medical meetings and symposia, and grant support of accredited continuing medical education (CME) events.

Market Access – Reimbursement

Billing, Coverage, and Reimbursement for our Diagnostic Tests

Currently DetermaRx^TM is Oncocyte’s only commercialized clinical test. We expect that revenues from our clinical laboratory for this test will be derived from several different sources:

In August 2020, CMS delivered a final coverage and pricing decision, which is important for commercialization because approximately 70% of patients for whom the test is indicated are eligible for Medicare coverage. However, in the absence of reimbursement by a health insurance plan or Medicare, patients who would be candidates for the use of our tests may decline to use our tests, and physicians may be reluctant to prescribe our tests, due to the cost of the test to the patients. Because of this patient cost factor, revenues from any new cancer test that we market may experience slow growth until the test is approved for reimbursement by larger payer plans which cover many patients.

Medicare

For cancer diagnostics, Medicare or CMS reimbursement approval is critical. CMS relies on a network of Medicare Administrative Contractors (“MACs”) to make Local Coverage Decisions approving a test for reimbursement. The Molecular Diagnostics Services (“MolDx”) Program was developed by Palmetto GBA (the previous MAC for California) to identify and establish coverage and reimbursement for molecular diagnostics tests. The program has developed guidelines for the level of evidence of efficacy required to be obtained through clinical trials. Palmetto, which contracted with CMS to administer the MolDx, issues Local Coverage Determinations that affect coverage, coding, and billing of many molecular tests and the current MAC for California, Noridian Healthcare Solutions, LLC, has adopted the coverage policies from Palmetto. MACs also serve as the primary operational contact between the Medicare Fee-For-Service program, for paying Medicare claims, and approximately 1.5 million health care providers enrolled in the program.

Private Third-Party Payers

In addition to seeking Medicare reimbursement approval, we will seek reimbursement approval from private payers such as health insurance companies and HMOs. Private payers generally will determine whether to approve a diagnostic test for reimbursement based on the published results of clinical validity and clinical utility studies, and may base their decision on whether to cover a test, and at what level to reimburse, on the MAC’s local coverage determination. Obtaining private payer medical coverage generally takes twelve to twenty-four months from the time that sufficient evidence is demonstrated. In the interim we will bill commercial payers and appeal any denials using the published clinical evidence supporting the utility of the test.

Reimbursement rates paid by private third-party payers can vary based on whether the provider is considered to be an “in-network” provider, a participating provider, a covered provider, an “out-of-network” provider or a non-participating provider. Currently, we are out-of-network with all commercial payers. ForThese definitions can vary among payers. An in-network provider usually has a contract with the payer or benefits provider. This contract governs, among other things, service-level agreements and reimbursement rates. In certain instances, an insurance company may negotiate an in-network rate for our testing. An in-network provider may have rates that are lower per test than those that are out-of-network, and that rate can vary widely. Rates vary based on the payer, the testing type and often the specifics of the patient’s insurance plan. If a laboratory agrees to contract as an in-network provider, it generally expects to receive quicker payment and access to additional covered patients. However, it is likely that we will initially be considered an “out-of-network” or non-participating provider by payers who cover the vast majority of patients until we can negotiate contracts with the payers.

We cannot predict whether, or under what circumstances, payers will reimburse for patients for our tests. We have a rigorous process for prior authorization and appeals to overturn denials and to get contracted with commercial payers. Full or partial denial of coverage by payers, or reimbursement at inadequate levels, would have a material adverse impact on our business and on market acceptance of our tests.

Billing and Collection

Where there is a private or governmental third-party payer coverage policy in place, we will bill the payer and the patient in accordance with the established policy. Our efforts in obtaining reimbursement based on individual claims, including pursuing appeals or reconsiderations of claims denials, could take a substantial amount of time, and bills may not be paid for many months, if at all. Furthermore, if a third-party payer denies coverage after final appeal, payment may not be received at all.

Where there is no coverage policy in place, we will pursue reimbursement on a case-by-case basis. In some indications,cases, if not prohibited by law or regulation, we may also pursue the probability of recurrence of a specific cancer through the development of prognostics; or companion diagnostics that help a physician determine which therapy is the optimal treatmentbill physicians, hospitals and other laboratories directly for the patient.

Corporate Information

We were incorporated in September 2009 in the state of California. Our principal executive offices are located at 1010 Atlantic Avenue, Suite 102, Alameda,15 Cushing, Irvine, California 94501.92618. Our telephone number is (510) 775-0515.

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012. We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.0$1.07 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the first sale of our common equity securities pursuant to an effective registration statement under the Securities Act of 1933, as amended (the “Securities Act”); (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the Securities and Exchange Commission, or the SEC. We refer to the Jumpstart Our Business Startups Act of 2012 herein as the “JOBS Act,” and references herein to “emerging growth company” shall have the meaning associated with it in the JOBS Act.

As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable, in general, to public companies that are not emerging growth companies. These provisions include:

We may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company.

Competition

Our industry is highly competitive and data generated thus far from patient serum (blood) or urine screening, we are focusingcharacterized by rapid technological change. Key competitive factors in our efforts on biomarkers associated with lung, breast and bladder cancers. Our approach is based on utilizing detectable amountsindustry include, among others, the ability to successfully complete clinical studies, the ability to obtain any required regulatory approval, average selling prices of cancer-associated biomarkers in patients with early-stage disease. Our identification of certain combinations of biomarkers in lung, breast and bladder cancer as well as clinician and payer feedback on unmet need has led us to identify promising initial indications and target analytes.

For the DetermaRx™ test, Oncocyte is not aware of any other diagnostic test currently on the market for the treatment stratification of patients with surgically resected Stage I and IIA NSCLC, therefore we do not believe there is a direct competitor to our DetermaRx™ test. Guidelines established by the NCCN include criteria for identifying patients at high risk of recurrence for resected Stage I and IIA NSCLC, but these criteria, to our knowledge, have not been validated to demonstrate accuracy or clinical benefit.

The DetermaIO™ test competes with multiple biomarkers already in clinical use or in development for predicting response to immunotherapy. The most commonly used clinical tests employed in the immunotherapy response market are PD-L1 expression testing and TMB. We have agreedbelieve, however, the current standard of care for PD-L1 testing has important limitations. According to published literature, more than half of PD-L1 positive patients do not respond to immune- checkpoint inhibitors, and 1 in 6 patients who will respond are missed (referred to as a “false negative”). Furthermore, data presented at recent oncology medical conferences suggests that TMB is not a reliable predictor of immunotherapy response. Further, data presented at SITC (discussed previously), suggested that DetermaIO™ outperformed both PD-L1 and TMB in predicting response to checkpoint inhibitors in patients with NSCLC. We are planning additional studies to confirm these results in a larger patient population for clinical use commercially reasonable diligent efforts, directly or through sub-licensees,and reimbursement.

Certain Razor Agreements

During February 2021 we acquired all of the shares of Razor common stock from its shareholders. Razor is now a wholly-owned subsidiary of Oncocyte. Razor holds an exclusive worldwide license from a state university under certain patent rights applicable to developDetermaRx™. The license agreement includes certain royalty payment, sublicense revenue sharing, and commercialize Licensed Products. We will provide Wistar with written plans fortest development and commercialization milestone provisions. If the development and commercialization milestones are not met in a timely manner UCSF could convert the license into a non-exclusive license. Royalties payable to the licensor will be in a mid-single digit percentage range depending on the source of Licensed Products and Wistar hasrevenue. The license agreement will remain in effect until the right to raise reasonable objections to our plans. We will also provide Wistar with annual reports on our progress in developing, evaluating, testing, and commercializing Licensed Products. We have agreed that weexpiration or a sub-licensee will commence commercial sale of a Licensed Product by a specified date. If sales of a Licensed Product do not commence by the specified date, we may purchase up to three one-year extensionsabandonment of the deadlinelast of the licensed patent rights, but would terminate earlier if Oncocyte were to become subject to bankruptcy proceedings or if Oncocyte fails to perform or violates any term of the license agreement and does not cure the breach within the time allotted.

During September 2019, we entered into a Sublicense and Distribution Agreement (“Razor Sublicense Agreement”) with Razor and its then principal shareholder Encore Clinical, Inc. (“Encore”) pursuant to which Razor granted us exclusive worldwide sublicenses under certain patent rights applicable to DetermaRx™ for purposes of commercialization and development of DetermaRx™. Although we have since acquired all of the shares of Razor from its former shareholders, Oncocyte remains obligated on the Razor Sublicense Agreement to pay all royalties and all revenue sharing and earnout payments owed by paying Wistar a designated feeRazor to certain third parties with respect to DetermaRx™ revenues, including the licensor of the patent rights, but those payments will be deducted from gross revenues to determine net revenues for the applicable extension.

Development Agreement

During September 2019, in connection with our initial investment in Razor, we entered into a Development Agreement that governs certain matters pertaining to a clinical trial of DetermaRx (“Clinical Trial”). The Development Agreement sets forth (i) certain obligations and responsibilities of Oncocyte, Encore, and Razor, with respect to the Clinical Trial, including the obligations of Oncocyte and Razor to pay Clinical Trial costs and expenses, (ii) Encore’s obligation to provide consulting services to Razor and Oncocyte in support of the Clinical Trial, (iii) Oncocyte’s obligation to make certain payments in cash to Encore , from and againstto issue additional shares of Oncocyte common stock to Encore and the Minority Shareholders, upon the attainment of certain Clinical Trial milestones, and (iv) Encore’s entitlement to certain cash payments if certain Clinical Trial funding is received.

Upon completion of enrollment of the full number of patients for the Clinical Trial, Oncocyte will issue to Encore and the other former Razor shareholders shares of Oncocyte common stock with an aggregate market value at the date of issue equal to $3 million. If the issuance of shares of our common stock having a market value of $3 million would require us to issue a number of shares that, when combined with any and all liability, loss, damage, action, claim or expense (including attorney’s fees) suffered or incurred byshares we issued under the Indemnified Parties due to claims which result from or arise out of (a) the LicensePurchase Agreement and the license granted to us, and any sublicense granted pursuant to the License Agreement, (b) the development, use, manufacture, promotion, sale or other dispositionMinority Shareholder Purchase Agreements, would exceed 19.99% of the licensed patents, licensed Technical Information or any Licensed Products, (c) the breachissued and outstanding shares of any our representations, warranties, or covenants in the License Agreement, or a breach of a sublicense by a sub-licensee, or (d) the successful enforcement by an Indemnified Party of its indemnification rights under the License Agreement. This indemnification obligation shall apply to liabilities resulting from: (i) any product liability or other claim of any kind related to the use of a Licensed Product; (ii) any claim that the licensed patentscommon stock or the design, composition, manufacture, use, sale or other dispositionoutstanding voting power of any Licensed Product infringes or violates any patent, copyright, trademark or other intellectual property rights of any third party; or (iii) clinical trials or studies conducted by or on behalf of us or any sub-licensee relating to the Licensed Products. Notwithstanding the foregoing, we will not be obligated to indemnify and hold harmless the Indemnified Parties from and against any liabilities that result from or arise out of an Indemnified Party’s gross negligence or willful misconduct.

If within a specified time frame Encore is substantially responsible for obtaining funding to Oncocyte or sub-licensees or affiliatesRazor for the Clinical Trial from any third-party pharmaceutical company, a portion of any our sub-licensees challenges the validity, patentability, scope, construction, enforceability, non-infringement, or Wistar’s ownership of any issued patent comprising the licensed patents, or assists any third party in any such challenge; or (f) we failadditional funding amount will be paid to fulfill our product development and commercialization diligence obligations and related performance milestones.

Facilities

Oncocyte leases a building located at 15 Cushing in Irvine, California that serves as Oncocyte’s principal executive and cure period, if Wistar materially breachesadministrative offices and laboratory facility. Oncocyte plans to construct a clinical diagnostic laboratory and a research laboratory in the License Agreement. At any timebuilding and to seek CLIA certification for the laboratory. Oncocyte also operates CLIA certified laboratories in Brisbane, California and Nashville, Tennessee.

Materials

There is a limited number of manufacturers of molecular testing equipment and related chemical reagents necessary for the provision of our cancer tests. Additionally, the chemical reagents used with the testing equipment we chose are available only from the equipment manufacturer. This situation poses a risk to us. After encountering inconsistent results using testing equipment and reagents from one manufacturer, we switched to testing equipment from a different manufacturer. If issues were to arise with the testing equipment or reagents we are using causing us to acquire different testing equipment again, we would need to conduct additional laboratory studies to determine whether our previous test results can be reproduced using the new equipment. If similar issues were to arise after the second anniversary date of the License Agreement we may terminate the License Agreement, with or without cause, upon the passagecommercialization of a specifiedtest, we could experience a disruption for a period of time after giving Wistar written notice of termination.

We rely primarily on patents and contractual obligations with employees and third parties to protect our proprietary rights. We have sought, and intend to continue to seek, appropriate patent protection for important and strategic components of our proprietary technologies by filing patent applications in the U.S. and certain foreign countries. There can be no assurance that any of our patents will guarantee protection or market exclusivity for our diagnostic tests and diagnostic test candidates. We may also use license agreements both to access technologies developed by other companies and universities and to convey certain intellectual property rights to others. Our financial success will be dependent in part on our ability to obtain commercially valuable patent claims and to protect our intellectual property rights and to operate without infringing upon the proprietary rights of others.

We have also obtained ancertain exclusive license from Wistarrights to certain pendingpatents and patent applications in the fieldco-owned by our subsidiary Razor and The University of molecular diagnostics for lung cancer.California San Francisco. The pending claims are directed to compositions of matter and methods useful for treating and detection of lung cancer using specific biomarkers or a panel of specific biomarkers, with projected expiration dates in 2036. Additionally, we have obtained from Wistar an exclusive option under which we may obtain licenses to additional issued and pending patents in the field of molecular diagnostics for lung cancer.biomarkers. Patents covered by the exclusive optionrights have issued in the United States, Australia, Europe, and Hong Kong with projected expiration dates in 2032 and 2033.

We and Razor also have exclusive sublicense rights to certain patents and patent applications owned by The University of California San Francisco. The claims are directed to compositions of matter and methods useful for treating and detection of lung cancer using specific biomarkers or a panel of specific biomarkers. Patents covered by the exclusive rights have issued in Australia, Europe, New Zealand, Japan, China, Canada, and Hong Kong and are pending in the United States Canadawith projected expiration dates in 2028.

Through our acquisition of Insight Genetics in January of 2020, we obtained exclusive rights to additional intellectual property, including trade secrets, registered trademarks, domain names, copyrights, issued and India. Thosereissued patents are projectedand pending applications, and software material, and have sense the acquisition filed our own patents to expire in 2028 - 2030.

In addition to relying on patents, we will rely on trade secrets, know-how, and continuing technological advancement, and licensing opportunities to maintain our competitive position. The molecular diagnostics that we are developing use gene expression classifiers or algorithms, which are mathematical models that weight the biomarkers to produce a score. We will treat the mathematical models as trade secrets. We have entered into intellectual property, invention, and non-disclosure agreements with our employees, and it is our practice to enter into confidentiality agreements with our consultants. There can be no assurance, however, that these measures will prevent the unauthorized disclosure or use of our trade secrets and know-how, or that others may not independently develop similar trade secrets and know-how or obtain access to our trade secrets, know-how, or proprietary technology.

Our patents and patent applications are directed to compositions of matter, formulations, methods of use and/or methods of manufacturing. The patent positions of pharmaceutical and biotechnology companies, including ours, are generally uncertain and involve complex legal and factual questions. Our business could be negatively impacted by any of the following:

In addition, others may independently develop similar or alternative technologies, duplicate any of our technologies and, if patents are licensed or issued to us, design around the patented technologies licensed to or developed by us. Moreover, we could incur substantial costs in litigation if we have to defend ourselves in patent lawsuits brought by third parties or if we initiate such lawsuits

The United States Supreme Court’s decisions inMayo Collaborative Services v. Prometheus Laboratories, Inc. andAssociation for Molecular Pathology v. Myriad Genetics may limit our ability to obtain patent protection on diagnostic methods that merely recite a correlation between a naturally occurring event and a diagnostic outcome associated with that event. Our cancer diagnostic tests are based on the presence of certain genetic markers for a variety of cancers. InMayo Collaborative Services v. Prometheus Laboratories, Inc., the Supreme Court ruled that patent protection is not available for simple the use of a mathematical correlation of the presence of a well-known naturally occurring metabolite as a means of determining proper drug dosage. The claims in the contested patents that were the subject of that decision were directed to measuring the serum level of a drug metabolite and adjusting the dosing regimen of the drug based on the metabolite level. The Supreme Court said that a patent claim that merely claimed a correlation between the blood levels of a drug metabolite and the best dosage of the drug was not patentable subject matter because it did no more than recite a correlation that occurs in nature.

InAssociation for Molecular Pathology v. Myriad Genetics, the Supreme Court ruled that the discovery of the precise location and sequence of certain genes, mutations of which can dramatically increase the risk of breast and ovarian cancer, was not patentable. Knowledge of the gene location and sequences was used to determine the genes’ typical nucleotide sequence, which, in turn, enabled the development of medical tests useful for detecting mutations in these genes in a particular patient to assess the patient’s cancer risk. But the mere discovery of an important and useful gene did not render the genes patentable as a new composition of matter.

In Illumina, Inc. v. Ariosa Diagnostics, Inc., the Federal Circuit reversed and remanded the lower court and found that claims directed to methods of preparing plasma to isolate extracellular fetal DNA, based on the inventors’ discovery that fetal DNA strands in maternal plasma are relatively short compared to maternal DNA, were directed to patent-eligible subject matter. The majority reasoned that the claimed methods include process steps that lead to a DNA fraction that is different from the naturally-occurring fraction present in the mother’s blood due to enrichment of cell-free fetal DNA. Thus, the process achieves more than simply observing that fetal DNA is shorter than maternal DNA or detecting the presence of that phenomenon. The majority noted that the inclusion of specific techniques for carrying out the steps of the method, illustrated the concrete nature of the claimed process steps. These concrete process steps were used, not merely to observe the presence of the phenomenon that fetal DNA is shorter than maternal DNA, but to exploit that discovery in a method for preparation of a mixture enriched in fetal DNA and thus supported a finding of patent eligible subject matter.

While the cases discussed above are instructive, the United States Patent and Trademark Office (the “USPTO”) has also issued interim guidelines in light of the Supreme Court decisions indicating that process claims having a natural principle as a limiting step will be evaluated to determine if the claim includes additional steps that practically apply the natural principle such that the claim amounts to significantly more than the natural principle itself. Because the diagnostic tests that we are developing combine an innovative methodology with newly discovered compositions of matter, we are hopeful that this Supreme Court decision will not preclude the availability of patent protection for our diagnostic tests.

The USPTO has also issued amultiple Subject Matter Eligibility UpdateUpdates to provide further guidance in determining subject matter eligibility. The Subject Matter Eligibility Update includesUpdates include new Subject Matter Eligibility Examples for the Life Sciences. These examples provide favorable exemplary subject matter eligibility analysis of hypothetical claims covering diagnostic tests and claims drawn from case law. This update from the USPTO does not change our opinion on our ability to obtain meaningful patent protection.

There is a risk that any patent applications that we file and any patents that we hold or later obtain could be challenged by third parties and declared invalid or infringing of third partythird-party claims. A patent interference proceeding may be instituted with the USPTO when more than one person files a patent application covering the same technology, or if someone wishes to challenge the validity of an issued patent filed before March 16, 2013. At the completion of the interference proceeding, the USPTO will determine which competing applicant is entitled to the patent, or whether an issued patent is valid. Patent interference proceedings are complex, highly contested legal proceedings, and the USPTO’s decision is subject to appeal. This means that if an interference proceeding arises with respect to any of our patent applications, we may experience significant expenses and delay in obtaining a patent, and if the outcome of the proceeding is unfavorable to us, the patent could be issued to a competitor rather than to us. In addition to interference proceedings, the USPTO can reexamine issued patents at the request of a third party seeking to have the patent invalidated. After March 16, 2013Currently an inter partes review proceeding will allow third parties to challenge the validity, based on issues of novelty and non-obviousness, in view of patents and printed publications, of an issued patent where there is a reasonable likelihood of invalidity. This means that patents owned or licensed by us may be subject to re-examination and may be lost if the outcome of the re-examination is unfavorable to us.

Post Grant Review under the America Invents Act makes available opposition-like proceedings in the United States. As with the USPTO interference proceedings, Post Grant Review proceedings will be very expensive to contest and can result in significant delays in obtaining patent protection or can result in a denial of a patent application. To invoke a post-grant review, a challenge must be filed within nine months of a patent’s issuance or reissuance. Post-grant review can be sought based on any grounds that can be used to challenge the validity of a patent claim, with the exception of failure to disclose the best mode. Also, a derivation proceeding may be instituted by the USPTO or an inventor alleging that a patent or application was derived from the work of another inventor.

Oppositions to the issuance of patents may be filed under European patent law and the patent laws of certain other countries. As with the USPTO interference proceedings, these foreign proceedings can be very expensive to contest and can result in significant delays in obtaining a patent or can result in a denial of a patent application.

The enforcement of patent rights often requires litigation against third party infringers, and such litigation can be costly to pursue. Even if we succeed in having new patents issued or in defending any challenge to issued patents, there is no assurance that our patents will be comprehensive enough to provide us with meaningful patent protection against our competitors.

We expect that DetermaRx™ and DetermaIO™ will be requiredregulated under the Clinical Laboratory Improvements Amendment (“CLIA”) as laboratory developed tests or “LDTs” and will not be regulated as in vitro diagnostic test or IVDs” that will be subject to hold certain federal, state,approval by the FDA and local licenses, certifications and permits to conduct our business.through the European Directive on in vitro diagnostics in the European Union. below. In 1988, Congress enacted CLIA, which established quality standards for all laboratories providingthat provide testing services to ensure the accuracy, reliability and timeliness of patient test results regardless of where the test wasis performed. Our laboratory will obtain a CLIA certificate of accreditation. We also will be required to meet certain laboratory licensing and other requirements under state laws. Our laboratory will hold the required licenses from the applicable state agencies in the states in which we operate or from which we receive blood or urine samples for testing.

Under CLIA, a laboratory is defined as any facility that performs laboratory testing on specimens derived from humans for the purpose of providing information for the diagnosis, prevention or treatment of disease, or the impairment of, or assessment of health of human beings. Because we meet this definition, CLIA requires that we hold a certificate applicable to the complexity of the categories of testing we perform and that we comply with certain standards. Laboratories performing high complexity testing are required to meet more stringent requirements than laboratories performing less complex tests. CLIA further regulates virtually allregulations require clinical laboratories by requiring that theylike ours to comply with various operational, personnel, facilities administration, quality, and proficiency testing requirements intended to ensure that their clinical laboratory testing services are accurate, reliable and timely. CLIA certification is also a prerequisite to be eligible to be reimbursedfor reimbursement eligibility for services provided to state and federal health care program beneficiaries. CLIA is user-fee funded. Therefore, all costs of administering the program must be covered by the regulated facilities, including certification and survey costs.

We have designed, developed, and are validating our tests will likely be classified as LDTs and consequently bebelieve our tests are governed under the CLIA regulations, as administered by CMS, as well as by applicable state laws.

Historically, the FDA has exercised enforcement restraint with respect to most LDTs and has not required laboratories that offer LDTs to comply with FDA requirements for medical devices, such as registration, device listing, quality systems regulations, premarket clearance or premarket approval, and post-market controls.

In recent years, however, the FDA has stated it intends to end its policy of enforcement restraint and begin regulating certain LDTs as medical devices. OnIn October 3, 2014, the FDA issued two draft guidance documents, entitled “Framework for Regulatory Oversight of Laboratory Developed Tests (LDTs)” and “FDA Notification and Medical Device Reporting for Laboratory Developed Tests (LDTs)”, respectively, that set forth a proposed risk-based regulatory framework that would apply varying levels of FDA oversight to LDTs.

The FDA has indicated that it does not intend to modify its policy of enforcement restraint until the draft guidance documents are finalized. Subsequently, in January 13, 2017, the FDA issued a Discussion Paper on LDTs (“Discussion Paper”), in which followsit outlined a substantially revised “possible approach” to the FDAs late 2016 announcement that contrary to its earlier reports, it would not issue a final guidance on its proposed oversight of LDTs and allow for further public discussion on appropriate oversight. As it did in its 2014 guidance documents, the FDA continues to advocate a risk basedLTDs. The risk-based approach to LDT oversight and proposes focusingoutlined focuses on new and significantly modified high and moderate risk LDTs; however, newLDTs and significantly modified LDTs in certain categories would not be expected to comply with premarket review, quality systems, and registration and listing requirements unless necessary to protect public health. These exempt categories include low risk LDTs, LDTs for rare diseases, traditional LDTs, LDTs intended solely for public health surveillance, certain LDTs used in CLIA certified labs, and LDTs intended solely for forensic use. Based on the FDA’s guidance in the Discussion Paper, our products will likelyuse would not require FDA filing before launch.be expected to comply with premarket review, quality systems, and registration and listing requirements unless necessary to protect public health. With respect to the postmarketpost-market surveillance of LDTs, the FDA’s Discussion Paper recommends that laboratories initially report serious adverse events for all tests except the exempted categories ifof tests, which include LDTs intended for public health surveillance, some stem cell/tissue/organ transplantation LDTs, and LDTs intended solely for forensic use. The Discussion Paper notes that while the report neither represents the formal position of the FDA and norit is itnot a final version of the LDT2014 draft guidance documents publishedand that it does not intend to represent the FDA’s formal position but rather describes the evolution of the agency’s thinking about the regulatory framework for LDTs.

Responding to the COVID-19 pandemic, in 2014, it is hoped that its publication will continue to advance further public disclosure.

It is unclear at this time when or if the FDA will finalize its plans to end enforcement discretion, via notice and comment rulemaking or otherwise, and even then, new and significantly modified LDTs couldregulatory requirements are expected to be phased-in over four years, however, to date no firm time commitments have been set. Nonetheless,time. Nevertheless, the FDA may decideattempt to regulate certain LDTs on a case-by-case basis at any time.

In December 2018, legislators released a draft bill called the Verifying Accurate, Leading-edge IVCT Development (“VALID”) Act, which features a precertification program. The term IVCT refers to in vitro clinical tests, a category that w comprises both test kits and lab-developed tests. Following years of discussion, on March 5, 2020, identical versions of the VALID Act were introduced in both chambers of Congress. As introduced, the VALID Act includes precertification proposed by the FDA, a process through which diagnostic developers could receive premarket approval or clearance for one test representative of a group of tests using the same technology and have other elements in common. Approval of that representative test would precertify other tests in the group and allow the lab to launch them without premarket review. The VALID Act would also create a new system for labs and hospitals to use to submit their tests electronically to the FDA for approval, which is aimed at reducing the amount of time it takes for the agency to approve such tests, and establish a new program to expedite the development of diagnostic tests that can be used to address a current unmet need for patients. The introduced Valid Act also includes specific language designed to address public health emergencies, including COVID-19. The FDA estimates that between 40% and 50% of tests would qualify for precertification. If enacted, the impact of the VALID Act will be minimal for IVD manufacturers because of the alignment between the VALID Act and existing medical device statutory and regulatory requirements and the fact that such requirements have been enforced for IVD manufacturers for decades; however, it will have a significant impact on clinical laboratories as laboratories will need to comply with many new requirements, including: registration and listing with the FDA; quality requirements; investigational studies; premarket review and approval; adverse event reporting; and corrections and removals (recalls). While the VALID Act outlines a framework for these elements (among others), the law, if enacted, would direct the FDA to promulgate regulations and issue guidance documents, giving clinical laboratories and others ample opportunity to participate in shaping the new IVCT regulatory program.

On March 18, 2020, Senator Rand Paul introduced a bill, called the Verified Innovative Testing in American Laboratories (“VITAL”) Act, which strikes a counterpoint to the proposed VALID Act. VITAL seeks to update existing federal lab standards under the CLIA, specifically stating that all aspects of lab-developed testing procedures would be regulated by the US Health and Human Services Secretary under the Public Health Services Act, and that no aspects of lab-developed testing procedures would be regulated under the Federal Food, Drug, and Cosmetic Act, including during a public health emergency.

While we cannot predict whether the either VALID Act or the VITAL Act as proposed, or any modified version of either act will be enacted into law, it is expected that some form of the acts will be incorporated into a broader health care legislative package. The likelihood that Congress will pass legislation and the extent to which such legislation may affect the FDA’s plans to regulate certain LDTs as medical devices is difficult to predict at this time. Until the VALID Act, VITAL Act, or other legislation is passed reforming the federal government’s regulation of LDTs, it is unknown how the FDA may regulate our tests in the future and what testing and data may be required to support any required clearance or approval.

If the FDA ultimately regulates certain LDTs, whether via final guidance, final regulation, or as instructed by Congress, our tests may be subject to certain additional regulatory requirements. Complying with the FDA’s requirements can be expensive, time-consuming, and subject us to significant or unanticipated delays. Insofar as we may be required to obtain premarket clearance or approval to perform or continue performing an LDT, we cannot assure that we will be able to obtain such authorization. Even if we obtain regulatory clearance or approval where required, such authorization may not be for the intended uses that we believe are commercially attractive or are critical to the commercial success of our tests. As a result, the application of the FDA’s requirements to our tests could materially and adversely affect our business, financial condition, and results of operations.

Notwithstanding the FDA’s current position with respect to oversight of our tests, we may voluntarily decide to pursue FDA pre-market review for our current tests and tests we may offer in the future if we determine that doing so would be appropriate from a strategic perspective.

Failure to comply with applicable FDA regulatory requirements may trigger a range of enforcement actions by the FDA including warning letters, civil monetary penalties, injunctions, criminal prosecution, recall or seizure, operating restrictions, partial suspension or total shutdown of operations, and denial of or challenges to applications for clearance or approval, as well as significant adverse publicity. We cannot predict the ultimate form or impact of any such FDA guidance and the potential effect on our diagnostic test services.

In addition to federal certification requirements of laboratories under CLIA, licensure will bewe are required and maintainedto maintain licensure under California law for the San Francisco Bay Area basedour laboratory that we plan to establish. Suchin Brisbane, California and under Tennessee law for our laboratory in Nashville, Tennessee. State laws generally include standards for the day-to-day operation of a clinical reference laboratory, including the training and skills required of personnel and quality control. In addition, Californiathose laws often mandate proficiency testing, which involves testing of specimens that have been specifically prepared for the laboratory.

Some states require licensure of out-of-state laboratories that accept specimens from those states. Our laboratories will need to pass various state inspections in order to get licensed to provide LDTs in each of state that requires licensure. CLIA provides that a state may adopt laboratory regulations that are more stringent than those under federal law, and two states, New York and Washington, have met that standard and therefore substitute for the federal CLIA program. In addition, some, but not all, states require a separate state license or permit, which must be obtained in addition to a CLIA certificate, and some states require a laboratory doing business in that state to be licensed even if the inspection requirementslaboratory is located in another state.

Our laboratories are licensed by the appropriate state agencies in the states in which we do business, if such licensure is required. If a laboratory is out of compliance with state laws or regulations governing licensed laboratories, a state may impose penalties, which penalties vary from state to state but may include suspension, limitation, revocation or annulment of the otherlicense, assessment of financial penalties or fines, or imprisonment. We believe that we are in material compliance with all applicable licensing laws and regulations.

We may become aware from time to time of certain states Pennsylvania, Florida and Maryland have laws that require a certificate of compliance, and New York has its own special inspection requirements that must be met, in orderout-of-state laboratories to market our diagnostics in those states orobtain licensure to perform diagnostic tests onaccept specimens received from patients residing in those states.

In the future, we may elect to develop IVDs, which are regulated by the FDA as medical devices. Medical devices marketed in the United States are subject to the regulatory controls under CLIA, the Federal Food, Drug, and Cosmetic Act, and regulations adopted by the FDA. Some requirements, known as premarket requirements, apply to medical devices before they are marketed, and other requirements, known as post-market requirements, apply to medical devices after they are marketed.

The particular premarket requirements that must be met to market a medical device in the United States will depend on the classification of the device under FDA regulations. Medical devices are categorized into one of three classes, based on the degree of risk they present. Devices that pose the lowest risk are designated as Class I devices; devices that pose moderate risk are designated as Class II devices and are subject to general controls and special controls; and the devices that pose the highest risk are designated as Class III devices and are subject to general controls and premarket approval.

A premarket submission to the FDA will be required for some Class I devices, most Class II devices; and all Class III devices. Most Class I and some Class II devices are exempt from premarket submission requirements. Some Class I and most Class II devices may only be marketed after a 510(k) premarket notification, while a more extensive PMA is required to market Class III devices.

Until all regulatory requirements suggested by the FDA or required by any new legislation are phased in, our initial confirmatory diagnosticscurrent LDTs will not require FDA filing before launch. Since the tests are being developed as LDTs, the regulatory pathway thatlaunch and we will be following iscontinue to follow the CLIA certification and inspection pathway.

If the new requirements are phased in or if we elect to develop IVDs, our future screenings diagnostics may require a 510(k) submission or a PMA.Premarket Approval (“PMA”) application to the FDA. In a 510(k) submission, the device sponsor must demonstrate that the new device is “substantially equivalent” to a predicate device in terms of intended use, technological characteristics, and performance testing. A 510(k) requires demonstration of substantial equivalence to another device that is legally marketed in the United States. Substantial equivalence means that the new device is at least as safe and effective as the predicate. A device is substantially equivalent if, in comparison to a predicate it (a) has the same intended use as the predicate and has the same technological characteristics as the predicate; or (b) has the same intended use as the predicate, has different technological characteristics, and the information submitted to the FDA does not raise new questions of safety and effectiveness, and is demonstrated to be at least as safe and effective as the legally marketed predicate device.

A claim of substantial equivalence does not mean the new and predicate devices must be identical. Substantial equivalence is established with respect to intended use, design, energy used or delivered, materials, chemical composition, manufacturing process, performance, safety, effectiveness, labeling, biocompatibility, standards, and other characteristics. A device may not be marketed in the United States until the submitter receives a letter declaring the device substantially equivalent. If the FDA determines that a device is not substantially equivalent, the applicant may resubmit another 510(k) with new data, or request a Class I or II designation through the FDA’sde novo process that allows a new device without a valid predicate to be classified into Class I or II if it meets certain criteria, or file a reclassification petition, or submit a PMA.

A new 510(k) submission is required for changes or modifications to an existing approved device, where the modifications could significantly affect the safety or effectiveness of the device or the device is to be marketed for a new or different indication for use.

A PMA for Class III devices is the most stringent type of premarket submission. Before the FDA approves a PMA, the sponsor must provide valid scientific evidence demonstrating reasonable assurance of safety and effectiveness for the device’s intended use.

Under the Health Insurance Portability and Accountability Act (“HIPAA”), the Department of Health and Human Services (“HHS”)HHS has issued regulations to protect the privacy and security of protected health information used or disclosed by health care providers, such as us.information. HIPAA also regulates standardization of data content, codes and formats used in health care transactions and standardization of identifiers for health plans and providers. Penalties for violations of HIPAA regulations include civil and criminal penalties.

CMS and the Office of Civil Rights issued a final rule in February 2014 to amend both the HIPAA and CLIA regulations. The final rule amended the HIPAA privacy rule to remove the CLIA laboratory exceptions, and as a result, HIPAA-covered laboratories are now required to provide individuals, upon request, with access to their completed test reports. Under the 2014 rule, CLIA laboratories and CLIA-exempt laboratories may provide copies of a patient’s completed test reports that, using the laboratory’s authentication process, can be identified as belonging to that patient. These changes to the CLIA regulations and the HIPAA Privacy Rule were intended to provide individuals with a greater ability to access their health information, empowering them to take a more active role in managing their health and health care.information. CLIA laboratories must create and maintain policies, procedures, and other documentation necessary to inform patients of the right to access laboratory test reports and how to exercise that right.

In addition to the federal privacy regulations, there are a number of state laws governingregarding the privacy mayand security of health information and personal data that are applicable to clinical laboratories. The compliance requirements of these laws, including additional breach reporting requirements, and the penalties for violation vary widely and new privacy and security laws in this area are evolving. For example, California has implemented comprehensive privacy laws and regulations. The California Confidentiality of Medical Information Act imposes restrictive requirements regulating the use and disclosure of health information and other personally identifiable information. In addition to fines and penalties imposed upon violators, some of these state laws also afford private rights of action to individuals who believe their personal information has been misused. California’s patient privacy laws, for example, provide for penalties of up to $250,000 and permit injured parties to sue for damages. In addition to the California Confidentiality of Medical Information Act, California also recently enacted the California Consumer Privacy Act of 2018, or CCPA, which became effective January 1, 2020. The CCPA has been characterized as the first “GDPR-like” privacy statute to be adoptedenacted in the future. WeUnited States because it mirrors a number of the key provisions of the E.U. General Data Protection Regulation. The CCPA establishes a new privacy framework for covered businesses in the State of California, by creating an expanded definition of personal information, establishing new data privacy rights for consumers imposing special rules on the collection of consumer data from minors, and creating a new and potentially severe statutory damages framework for violations of the CCPA and for businesses that fail to implement reasonable security procedures and practices to prevent data breaches. While data subject to HIPAA and federal regulations governing the conduct of clinical trials is exempt from CCPA, certain of our business activities may be subject to CCPA. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that result from a business’ failure to implement and maintain reasonable data security procedures.

On November 3, 2020, California passed the California Privacy Rights Act (“CPRA”) through a ballot initiative. The CPRA will create a new California Privacy Protection Agency, an “independent watchdog” whose mission is both to “vigorously enforce” the CPRA and “ensure that businesses and consumers are well-informed about their rights and obligations.” Among other things, the CPRA will create a new category of “sensitive personal information” and offer consumers the right to limit processing of such information, impose purpose limitation, data minimization, data retention, and security compliance obligations on regulated businesses, and add or modify the rights available to consumers, including by providing a right to correct the information a business holds about them. The CPRA’s amendments to the CCPA will take steps to comply with all current health information privacy requirements of which we are aware and with which we must comply. However, we can provide no assurance that we will remain in compliance with diverse privacy requirements in all of the jurisdictions in which we do business. The current requirements may periodically change and could have an effect on our business operations if compliance becomes substantially more costly than under current requirements. FailureJanuary 1, 2023, and will generally apply to comply with privacy requirements could result in civilpersonal information collected by businesses on or criminal penalties, which could have a materially adverse effect on our business.

Under a federal law directed at “self-referral,” commonly known as the Stark Law, there are prohibitions, with certain exceptions, on Medicare and Medicaid payments for laboratory tests referred by physicians who personally, or through a family member, have a “financial relationship”—including an investment or ownership interest or a compensation arrangement—with the clinical laboratory performing the tests. Several Stark Law exceptions are relevant to arrangements involving clinical laboratories, including: (1) fair market value compensation for the provision of items or services; (2) payments by physicians to a laboratory for clinical laboratory services; (3) certain space and equipment rental arrangements that satisfy certain requirements, and (4) personal services arrangements that satisfy certain requirements. The laboratory cannot submit claims to the Medicare Part B program for services furnished in violation of the Stark Law, and Medicaid reimbursements may be at risk as well. Penalties for violating the Stark Law include the return of funds received for all prohibited referrals, fines, civil monetary penalties and possible exclusion from the federal health care programs. Many states have comparable laws that are not limited to Medicare and Medicaid referrals.

A number of states, including California, do not allow business corporations to employ physicians to provide professional services. This prohibition against the “corporate practice of medicine” is aimed at preventing corporations such as us from exercising control over the medical judgments or decisions of physicians. The state licensure statutes and regulations and agency and court decisions that enumerate the specific corporate practice rules vary considerably from state to state and are enforced by both the courts and regulatory authorities, each with broad discretion. If regulatory authorities or other parties in any jurisdiction successfully assert that we are engaged in the unauthorized corporate practice of medicine, we could be required to restructure our contractual and other arrangements. In addition, violation of these laws may result in sanctions imposed against us and/or the professional through licensure proceedings, and we could be subject to civil and criminal penalties that could result in exclusion from state and federal health care programs.

A variety of federal and state laws prohibit fraud and abuse. These laws are interpreted broadly and enforced aggressively by various state and federal agencies, including CMS, the Department of Justice, the Office of Inspector General for HHS, and various state agencies. In addition, the Medicare and Medicaid programs increasingly use a variety of contractors to review claims data and to identify improper payments as well as fraud and abuse. These contractors include Recovery Audit Contractors, Medicaid Integrity Contractors and Zone Program Integrity Contractors. In addition, CMS conducts Comprehensive Error Rate Testing audits, the purpose of which is to detect improper Medicare payments. Any overpayments identified must be repaid unless a favorable decision is obtained on appeal. In some cases, these overpayments can be used as the basis for an extrapolation, by which the error rate is applied to a larger universe of claims, and which can result in even higher repayments.

The federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting, receiving, or providing remuneration, directly or indirectly, to induce or in return for either the referral of an individual, or the furnishing, recommending, or arranging for the purchase, lease or order of any health care item or service reimbursable, in whole or in part, under a federal health care program. The definition of “remuneration” has been broadly interpreted to include anything of value, including gifts, discounts, credit arrangements, payments of cash, ownership interests and providing anything at less than its fair market value. Recognizing that the Anti- Kickback Statute is broad and may technically prohibit many innocuous or beneficial arrangements within the health care industry, the Office of Inspector General for HHS has issued a series of regulatory “safe harbors.” These safe harbor regulations set forth certain requirements that, if met, will assure immunity from prosecution under the federal Anti-Kickback Statute. Although full compliance with these provisions ensures against prosecution under the federal Anti-Kickback Statute, the failure of a transaction or arrangement to fit within a specific safe harbor does not necessarily mean that the transaction or arrangement is illegal or that prosecution under the federal Anti-Kickback Statute will be pursued. For further discussion of the impact of federal and state health care fraud and abuse laws and regulations on our business, see the section entitled “Risk Factors.”

HIPAA also created new federal crimes, including health care fraud and false statements relating to health care matters. The health care fraud statute prohibits knowingly and willfully executing a scheme to defraud any health care benefit program, including private third-party payers. A violation of this statute is a felony and may result in fines, imprisonment or exclusion from federal health care programs, such as the Medicare and Medicaid programs. The false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for health care benefits, items or services. A violation of this statute is a felony and may result in fines, imprisonment or exclusion from federal health care programs.

Many states have laws similar to the federal laws described above, and state laws may be broader in scope and may apply regardless of payor.

Our laboratory will be subject to federal, state and local regulations relating to the handling and disposal of regulated medical waste, hazardous waste and biohazardous waste, including chemical, biological agents and compounds, blood samples and other human tissue. Typically, we will use outside vendors who are contractually obligated to comply with applicable laws and regulations to dispose of such waste. These vendors will be licensed or otherwise qualified to handle and dispose of such waste.

The Occupational Safety and Health Administration has established extensive requirements relating to workplace safety for health care employers, including requirements to develop and implement programs to protect workers from exposure to blood-borne pathogens by preventing or minimizing any exposure through needle stick or similar penetrating injuries.

As of February 10, 2017December 31, 2020, we employed 1551 persons on a full-time basis and one person on a part-time basis. Four of our full-time employees hold Ph.D. degrees in one or more fields of science.

Item 1A. Risk Factors

Our business is subject to various risks, including those described below. You should consider the following risk factors, together with all of the other information included in this Report, which could materially adversely affect our proposed operations, our business prospects, and financial condition, and the value of an investment in our business. There may be other factors that are not mentioned here or of which we are not presently aware that could also affect our business operations and prospects.

Since our inception in September 2009, we have incurred operating losses and negative cash flowflows and we expect to continue to incur losses and negative cash flows in the future. Our net losses for the years ended December 31, 20162020 and 20152019 were approximately $11.2$29.9 million and $8.7$22.4 million, respectively, and we had an accumulated deficit of approximately $35.3 million and $24.1$123.7 million as of December 31, 2016 and 2015, respectively. Since inception, we have financed2020. We finance our operations primarily through sales of our common stock and warrants, loans from BioTime and BioTime affiliates, exercise of warrants, a bank loan, and sale of BioTime common shares that we hold as available-for-sale securities. Although BioTime may continue to provide administrative support to us on a reimbursable basis, there is no assurance that BioTime will provide future financing.stock. There is no assurance that we will be able to obtain any additional financing that we may need, or that any such financing that may become available will be on terms that are favorable to us and our shareholders. Ultimately, our ability to generate sufficient operating revenue to earn a profit depends upon our success in developing and marketing or licensing our diagnostic tests and technology.

Razor has rights to commercialize DetermaRx™ under a license agreementwhich imposes certain obligations, on us, including payment obligations and obligations to pursue development and commercialization of diagnostic tests under the licensed patents and technology. If Wistarthe licensor believes that weRazor and Oncocyte as Razor’s sublicensee have failed to meet ourthose contractual obligations under a license agreement, Wistarit could seek to limit or terminate our license rights, which could lead to costly and time-consuming litigation and, potentially, a loss of the licensed rights. During the period of any such litigation our ability to carry out the development and commercialization of potential diagnostic tests,continue marketing DetermaRx™, and our ability to raise any capital that we might then need, could be significantly and negatively affected. If our license rights were restricted or ultimately lost, we would not be able to continue to use the licensed patents and technologylicenses needed for DetermaRx™ in our business.

After encountering inconsistent results using diagnostic test usingtesting equipment and reagents from one manufacturer, and we are working closely with that manufacturerswitched to optimize reagent and system parameters and metrics to ensure consistent, reliable resultsdiagnostic testing equipment from the equipment and reagents that we are using to analyze blood samples.a different manufacturer. The chemical reagents that are required for useused with that particular manufacturer’sthe diagnostic testing equipment are available only from thatthe equipment manufacturer. If issues were to arise with the manufacturer of thenew equipment or reagents we are using discontinues operation or if we experience supply or quality issues with their equipment or reagents, it may become necessary forcausing us to acquire different diagnostic testing equipment again, we would need to conduct validation and analytic equipment, which would require additional testing proceduresstudies to ensure reproducibility ofdetermine whether our previous test results can be reproduced using the new equipment. As a result, we maycould experience delays again in developing our diagnostic tests ortests. If similar issues were to arise after commercialization of a diagnostic test, we may becould experience a disruption for a period of time in providing the diagnostic tests thatto patients and we commercialize.

In order to facilitate the development, manufacture and commercialization of our diagnostic tests we may enter into strategic alliances with diagnostic, pharmaceutical, companies or other industry participantsmedical device companies to advance our programs and enable us to maintain our financial and operational capacity. We will face significant competition in seeking appropriate alliances. We may not be able to negotiate alliances on acceptable terms, if at all. If we fail to create and maintain suitable alliances, we may have to limit the size or scope of, or delay, one or more of our product development or research programs, or we will have to increase our expenditures and will need to obtain additional funding, which may be unavailable or available only on unfavorable terms.

If we are able to enter into development and marketing arrangements with diagnostic, pharmaceutical or medical device companies for our diagnostic tests, we may license product development, manufacturing, and marketing rights to the pharmaceutical or medical device company or to a joint venture company formed with the pharmaceutical or medical device company. Under such arrangements we might receive only a royalty on sales of the diagnostic tests developed or an equity interest in a joint venture company that develops the diagnostic test. As a result, our revenues from the sale of those diagnostic tests may be substantially less than the amount of revenues and gross profits that we might receive if we were to develop, manufacture, and market the diagnostic tests ourselves.

We may enter into various kinds of collaborative research and development, manufacturing, and diagnostic test marketing agreements to develop and commercialize our diagnostic tests. Any future milestone payments and cost reimbursements from collaboration agreements could provide an important source of financing for our research and development programs, thereby facilitating the application of our technology to the development and commercialization of our diagnostic tests, but there are risks associated with entering into collaboration arrangements.

There is a risk that we could become dependent upon one or more collaborative arrangements for diagnostic test development or manufacturing or as a source of revenues from the sale of any diagnostic tests that may be developed by us alone or through one of the collaborative arrangements. A collaborative arrangement upon which we might depend might be terminated by our collaboration partner or they might determine not to actively pursue the development or commercialization of our diagnostic tests. A collaboration partner also may not be precluded from independently pursuing competing diagnostic tests or technologies.

There is a risk that a collaboration partner might fail to perform its obligations under the collaborative arrangements or may be slow in performing its obligations. In addition, a collaboration partner may experience financial difficulties at any time that could prevent it from having available funds to contribute to the collaboration. If a collaboration partner fails to conduct its diagnostic test development, manufacturing, commercialization, regulatory compliance, sales and marketing or distribution activities successfully and in a timely manner, or if it terminates or materially modifies its agreements with us, the development and commercialization of one or more diagnostic test candidates could be delayed, curtailed or terminated because we may not have sufficient financial resources or capabilities to continue diagnostic test development, manufacturing, and commercialization on our own.

Ownership of our common stock will entail certain risks associated with the limited history of the trading of our common stock, volatility of prices for our shares, and the fact that we do not pay dividends.

Many of these factors are beyond our control. The stock markets in general, and the market for pharmaceutical and biotechnological companies in particular, have been experiencing extreme price and volume fluctuations which have affected the market price of the equity securities without regard to the operating performance of the issuing companies. Broad market fluctuations, as well as industry factors and general economic and political conditions, may adversely affect the market price of our common stock.

Under FASB issuedaccounting standard ASU No. 2014-15, “Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” ASU No. 2014-15 defines management's responsibility to assess an entity's ability to continue as a going concern, and to provide related footnote disclosures. ASU No. 2014-15 is effective for us for the year ended December 31, 2016, and all annual and interim periods thereafter. Inin connection with preparing financial statements for each annual and interim reporting period ASU No. 2014-15 requires that an entity’sour management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’sOncocyte’s ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued when applicable). As a result of the implementation of ASU No. 2014-15, we will be required to have more cash, cash equivalents, and liquid investments on hand on the date we issue or file our financial statements than had been the case during prior years in order to avoid going a concern qualification in our auditor’s report and in the footnotes to our financial statements. If our financial statements were to become subject to a going concern qualification or uncertainty or if we are unable to alleviate substantial doubt as part of our going concern assessment, or both, the market price of our common stock could decline.

We do not pay cash dividends on our common stock. For the foreseeable future we anticipate that any earnings generated in our business will be used to finance the growth of our business and will not be paid out as dividends to our shareholders. Under a Loan and Security Agreement with Silicon Valley Bank, we have agreed not to pay dividends or to make any distributions or to redeem toor repurchase any capital stock without Silicon Valley Bank’s prior written consent while the Loan and Security Agreement remains in effect. This means that our stock may not be a suitable investment for anyone who needs to earn income from their investments.

The market for our common stock will depend, in part, on the research and reports that securities analysts publish about our business and our common stock. We do not have any control over these analysts. There is no guarantee thatCertain securities analysts will cover our common stock. If securities analysts do not cover our common stock, the lack of research coverage may adversely affect the market price of those shares. If securities analysts do cover our shares and they could issue reports or recommendations that are unfavorable to the price of our shares, and they could downgrade a previously favorable report or recommendation, and in either case our share price could decline as a result of the report. If one or more of these analysts ceases to cover our shares or fails to publish regular reports on our business, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.

In the future, we may issue our authorized but previously unissued equity securities, resulting in the dilution of the ownership interests of our present shareholders. We are currently authorized to issue an aggregate of 55,000,000155,000,000 shares of capital stock consisting of 50,000,000150,000,000 shares of common stock and 5,000,000 “blank check” shares of preferred stock. At February 17, 2017December 31, 2020, there were 29,361,61669,116,802 shares of common stock outstanding, 3,033,6533,383,913 shares of common stock reserved for exercise of warrants and 3,399,2178,428,821 shares of common stock reserved for issuance upon the exercise of options under our employee stock option plan.plans. No shares of preferred stock are presently outstanding.

We may issue additional common stock or other securities that are convertible into or exercisable for common stock in order to raise additional capital, or in connection with hiring or retaining employees, directors, or consultants, or in connection with future acquisitions of licenses to technology or rights to acquire diagnostic tests in connection with future business acquisitions, or for other business purposes. The future issuance of any such additional common stock or other securities may create downward pressure on the trading price of our common stock.

We may also issue preferred stock having rights, preferences, and privileges senior to the rights of our common stock with respect to dividends, rights to share in distributions of our assets if we liquidate our company, or voting rights. Any preferred stock may also be convertible into common stock on terms that would be dilutive to holders of common stock.

We are an “emerging growth company,” as defined in the JOBS Act, and we may to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. We may take advantage of these reporting exemptions until we are no longer an “emerging growth company.” We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.0$1.07 billion or more; (ii) the fifth anniversary of the completion of the first sale of our common equity securities pursuant to an effective registration statement under the Securities Act; (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.

Item 1B. Unresolved Staff Comments

Not applicable.

Item 2. Properties

Our principal executive and office space at BioTime’s facilityadministrative offices are located in Alameda, California. BioTime has leased approximately 30,795 square feet ofan office and laboratory facility of leased space in two buildings locatedIrvine, California. The Irvine lease expires in Alameda,September 2027. At this Irvine, California location, we are expanding the capacity of our CLIA laboratories as our planned primary clinical laboratory facility to perform a larger volume of cancer diagnostic tests to be performed, which is still under construction and is expected to be completed in 2021.

We also operate CLIA-certified laboratories in Brisbane, California and Nashville, Tennessee. Our subleased Brisbane CLIA laboratory space sublease will provide OncoCyte useexpire on March 31, 2023, and the lease of the Nashville, Tennessee CLIA laboratory space sufficient for a CLIA compliant diagnostic laboratory.

Item 3. Legal Proceedings

From time to time, we may be involved in routine litigation incidental to the conduct of our business. We are not presently involved in any material litigation or proceedings,proceedings.

Item 4. Mine Safety Disclosures

Not applicable

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and toIssuer Purchases of Equity Securities

Market Information

Beginning on March 8, 2021, our knowledge no such litigation or proceedings are contemplated.

Holders

As of February 17, 2017,March 9, 2021, we had 277approximately 262 holders of record of our common stock. This number does not include shareholders whose shares of OncoCyteOncocyte common stock are held in “street name” in accounts with securities broker-dealers or other financial institutions or fiduciaries.

Securities Authorized for Issuance under Equity Compensation Plans

The following table shows certain information concerning the options outstanding and available for issuance under all of our compensation plans and agreements as of December 31, 20162020 (in thousands, except weighted average exercise price):

Additional information concerning our 2010 Employee Stock Option Plan and theour 2018 Equity Incentive Plan and stock options may be found in Note 711 to the consolidated financial statements found elsewhere in this Report.

Recent Sales of Unregistered Securities

None.

Item 6. Selected Financial Statements.

We have never paid cash dividends on our capital stock and we do not anticipate paying cash dividends in the foreseeable future, but intend to retain our capital resources for reinvestment in our business. Underare a Loan and Security Agreement with Silicon Valley Bank, we have agreed not to pay dividends or to make any distributions or to redeem to repurchase any capital stock without Silicon Valley Bank’s prior written consent. Any future determination to pay cash dividends will be at the discretion of our Board of Directors and will be dependent upon the repaymentsmaller reporting company as defined by Rule 12b-2 of the loans from Silicon Valley Bank, our financial condition, resultsSecurities Exchange Act of operations, capital requirements1934, as amended, or the Exchange Act. Accordingly, we are not required to provide the information required by this item in this Report.

Item 7. Management’s Discussion and other factors as our BoardAnalysis of Directors deems relevant.