UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 20192020

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to __________

Commission file number 1-37648

OncoCyte Corporation

(Exact name of registrant as specified in its charter)

15 Cushing

Irvine, California 92618

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code(949) 409-7600

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ☒

The approximate aggregate market value of shares of voting common stock held by non-affiliates computed by reference to the price at which shares of common stock were last sold as of June 30, 20192020 was approximately $47.0$70.3 million. Shares held by each executive officer and director and by each person who beneficially owns more than 5% of the outstanding common stock have been excluded in that such persons may under certain circumstances be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

As of March 4, 2020,9, 2021, there were outstanding 62,471,12288,914,144 shares of common stock, no par value.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Proxy Statement for its 20202021 Annual Meeting of Shareholders are incorporated by reference in Part III.III

OncoCyte Corporation

Table of Contents

PART I

Certain statements contained herein are forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, including, but not limited to, statements pertaining to future financial and/or operating results, future growth in research, technology, clinical development, and potential opportunities for Oncocyte, along with other statements about the future expectations, beliefs, goals, plans, or prospects expressed by management constitute forward-looking statements. Any statements that are not historical fact (including, but not limited to statements that contain words such as “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “seek,” “should,” “strategy,” “target,” “will,” “would”) should also be considered to be forward-looking statements. Forward-looking statements involve risks and uncertainties, including, without limitation, risks inherent in the development and/or commercialization of potential products, uncertainty in the results of clinical trials or regulatory approvals, need and ability to obtain future capital, and maintenance of intellectual property rights. Actual results may differ materially from the results anticipated in these forward-looking statements and as such should be evaluated together with the many uncertainties that affect the businesses of Oncocyte, particularly those mentioned in this Report under “Risk Factors”. Except as required by law, Oncocyte undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

The forward-looking statements include, among other things, statements about:

ReferencesUnless the context otherwise requires, all references to “Oncocyte,“OncoCyte,” “our”“we,” “us,” “our,” “the Company” or “us” meansimilar words refer to OncoCyte Corporation.Corporation, together with our consolidated subsidiaries.

The description or discussion, in this Form 10-K, of any contract or agreement is a summary only and is qualified in all respects by reference to the full text of the applicable contract or agreement.

DetermaRx™, DetermaIO™, DetermaTx™, DetermaMx™ and DetermaDx™ are trademarks of OncoCyte Corporation regardless of whether the “TM” symbol accompanies the use of or reference to the applicable trademark in this Report.

INDUSTRY AND MARKET DATA

This Annual Report (“Report”) on Form 10-K contains market data and industry forecasts that were obtained from industry publications, third party market research and publicly available information. These publications generally state that the information contained therein has been obtained from sources believed to be reliable. While we believe that the information from these publications is reliable, we have not independently verified such information.

This Report also contains estimates and other statistical data made by independent parties and by us relating to market size and growth and other data about our industry. We obtained the industry and market data in this Report from our own research as well as from industry and general publications, surveys and studies conducted by third parties, some of which may not be publicly available. Such data involves a number of assumptions and limitations and contains projections and estimates of the future performance of the industries in which we operate that are subject to a high degree of uncertainty. We caution you not to give undue weight to such projections, assumptions and estimates.

PRELIMINARY NOTE ABOUT OWNERSHIP OF OUR COMMON STOCK

As of March 4, 2020, we had 254 shareholders of record and there were 62,471,122 shares of our common stock outstanding, of which 6,041,154 shares were held by our former parentLineage Cell Therapeutics, Inc. (“Lineage”) (formerly known as BioTime, Inc.). Beginning on February 17, 2017, the shares held by Lineage accounted for less than 50% of our total common stock outstanding. Accordingly, effective February 17, 2017, we are a no longer a consolidated subsidiary of Lineage and as of the date of this Report, Lineage holds less than 10% of our total common stock outstanding. See Note 1 of our financial statements included elsewhere in this Report.

Item 1. Business

OverviewDevelopment of Our Business

Oncocyte is a molecular diagnosticdiagnostics company focused on developing and commercializing proprietary tests, initially offered as laboratory-developed tests (“LDTs”)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 diagnosis and 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 have prioritizedsubsequently determined to focus our resources on the development of a non-invasive confirmatory blood test for lung cancer as our first indication. Lung cancer remains the leading cause of cancer death in the United States, despite the availability of molecular testing and novel therapiesthat we called DetermaDx™ intended for use to treat patients.clarify whether a potentially cancerous lung nodule is suspicious or likely benign.

ThroughTo 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 has gone through a transformation from a single product company to a company with a wider batterybroader 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 particularclinically 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.

Key Clinical Questions Our Product Offerings Will Address

Although we believe our approach may have utility across other solid tumors, we have prioritized 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. Our proprietary diagnostic tests are focused on the interrogation of RNA signatures from diagnostic tissue or peripheral blood samples and target key clinical questions that are critical to better management of lung cancer, from detection through treatment of cancer. As we expand the scope of our offerings towards the goal of addressing several key clinical decision points in lung cancer, we remain technology agnostic, and aim to find the best approach that addresses the needs of patients and physicians in a manner consistent with good health economic outcomes.

Our diagnostic tests are novel and proprietary. We leverage our significant bioinformatics expertise in algorithm development and validation to analyze functional gene expression and other biological data, 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.

In development is DetermaDx™ (formerly known as DetermaVu™), a proprietary non-invasive blood-based test developed in our laboratory that measures biomarkers of the immune system’s response to cancer to help a physician determine whether lung nodules detected through imaging are likely benign. Our goal in developing DetermaDx^TM is to reduce the number of unnecessary, invasive, risky and expensive diagnostic biopsy procedures. A DetermaDx™ result suggesting that a patient’s lung nodule is likely benign, would give greater confidence to a physician deciding whether to manage a patient by “watch and wait”, radiologic follow-up for lung nodule change in size over time. DetermaDx™ was CLIA validated in the fourth quarter of 2019, and is currently undergoing a large clinical validation, which if successful will move the product towards commercial launch.

As part of the new strategy to become relevant in the broader diagnostic continuum of lung cancer, we madeour first strategic transaction was an investment in Razor Genomics, Inc. (“Razor”) during September 2019 through which we acquired an equity position in Razor and acquired a licensesublicense to complete development and to commercialize Razor’s test for early stage lung cancer management. This test, which we call DetermaRx^TMDetermaRx™, is the first and only test available that provides information to physicianspredict a post-surgery patient’s risk of cancer recurrence and their response to help identify patients with a high-risk for recurrence of early-stage, operable adenocarcinoma of the lung. By offering patients at high-risk of recurrence chemotherapy published studies demonstrated that decision-making supported by DetermaRx^TM significantly impacted survival rates for patients within early stage lung cancer.cancer, and is our first test to be commercialized and reimbursed by Medicare. DetermaRx^TMreceived serves an unmet clinical need given 30-50% mortality rates in these patients in the absence of timely chemotherapy treatment. During February 2021 we acquired all of the outstanding shares of Razor common stock and it is now a proposed positive coverage decision from the Centers for Medicare and Medicaid Services (“CMS”) in August 2019. While DetermaRx^TM is commercially available now, we expect to receive a final pricing decision for DetermaRx^TMfrom CMS during the first halfwholly-owned subsidiary of 2020, which will make Medicare reimbursement available and should enable us to become a revenue stage company.Oncocyte.

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.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 solid 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 Lung Cancer?Treatment Selection in Cancer

In the United States, approximatelyApproximately 1.8 million people were diagnosed with cancer in 2019. Lung2020 in the United States, and an estimated 17 million worldwide, according to the American Cancer Society. Despite the advancements in therapeutics, cancer accounts for about 13% of all new cancer cases equating to approximately 228,000 patients being diagnosed each year. Around 142,000 people died from lung cancer in 2019 making itremains the second leading cause of cancer death. There is a significant unmet needdeath 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 reduce mortality from lung cancer through increasing awareness of screening opportunities,ensure the right patient gets the right treatment as early diagnosis, and optimal and timely treatment and monitoring of diagnosed patients. By providing physicians and patients with actionable and timely informationas possible post-diagnosis, in order to help them make critical care decisions, Oncocyte aims tobest improve lung cancer outcomes through improved diagnosis, risk management, treatment, and monitoring.

 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 to inform patient treatment and monitor response to therapy, in combination with the current standard of care 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, diagnosisfor 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 blood sample. This would allow informed selection of targeted immune-therapy and management. 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 allows for efficient commercialization with a sales team that can target lung cancer focused physicians including pulmonologists, thoracic surgeons and medical oncologists. This is becoming very important as patient management decisions are increasingly made in cross-specialty tumor boards.“one-stop” approach offers several practical advantages. Today, the testing needs of physicians managing lung cancer patients are met by several specialty reference labs, meaning the providerphysician or hospital must split the sample and send each one offportions to aseveral different lab forlabs to complete the various tests they needneeded 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.

Oncocyte’s consolidation of testing modalities will allow the judicious use of limited patient biopsy samples, and return results to the ordering physician within ten days, on time for selecting the best treatment regimen. 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 boththe 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 relevant in earlierthe early stage of decision making giving us unique access to the sample “tumor block” from the beginning of the diagnostic process, thus allowing us to offer other follow up tests without physicians needing to send patient samples to another laboratory.

Strategically Addressing Unmet Clinical Questions Across the Lung Cancer Care Continuum

We are developing molecular diagnostics that provide physicians information to enable the timely diagnosis and treatment of lung cancer with the ultimate goal of transforming this deadly cancer to a curable or chronic disease. Although we may sometimes refer to our tests as “diagnostic tests,” each test was developed in a CLIA-certified laboratory and will be performed in our CLIA-certified laboratories in Brisbane, California and Nashville, Tennessee. Our laboratory-developed tests are intended to support and help inform physician decision-making, but are not themselves diagnostic or prescriptive of treatment decisions.

DetermaDx^TM(formerly known as DetermaVu™) –Early diagnosis of lung cancer

Oncocyte is developing DetermaDx^TM, a proprietary non-invasive blood-based test that measures biomarkers of the immune system’s response to cancer to help determine whether lung nodules detected through imaging are likely benign. Our goal in developing DetermaDx^TMis to reduce the number of unnecessary invasive, risky and expensive diagnostic biopsy procedures.

Early stage lung cancer may appear as suspicious nodules on a CT scan. The landmark National Lung Screening Trial (NLST) showed that screening with low dose CT (LDCT) scans resulted in a 20% reduction in lung cancer–related death. This resulted in the implementation of a screening program with regular LDCT scans for high-risk individuals, primarily heavy smokers. However, more than 75% of nodules detected in the NLST study were not malignant, i.e., benign. A study published in CHEST 2015 reported that in clinical practice even in patients with larger nodule sizes in the 8mm to 20mm range only one-quarter of the nodules biopsied were malignant. This shows that a significant population of patients with benign nodules undergo unnecessary invasive diagnostic procedures including a biopsy, such as a bronchoscopy or needle biopsy, or surgery. Lung biopsies are risky and dangerous, as some tumors in the lung are incredibly difficult to access without causing damage to the lung itself. The overall adverse event rate for biopsy and similar invasive procedures in patients with lung nodules was 22% for patients 55 to 65 years of age, and 24% for Medicare eligible patients who are 65 years of age or older. According to a recent JAMA publication, the cost of complications ranges from $6,000 to $56,000. So, while LDCT scans are beneficial in diagnosing lung cancer early, there is an unmet medical need for a non-invasive blood test to help identify patients whose nodules are likely benign and can be spared risky and invasive biopsy procedures. Our DetermaDx^TMtest in development seeks to address this unmet need.

More than 1.6 million suspicious lung nodules are detected annually via screening or incidentally, a number that is expected to increase as the adoption of screening increases. Using current clinical practice guidelines, physicians are faced with the dilemma of how to manage these patients, as the majority of these nodules are benign, but there are no clinical imaging features that clearly identify the malignant nodules.

Nodule size is one predictor of malignancy along with other factors such as patient age, nodule shape, nodule location, and smoking status. The Mayo Clinic developed a risk model using these clinical factors to help to guide physicians in the treatment of lung nodules. Unfortunately, the majority of nodules fall in an intermediate risk category, leaving physicians without guidance on whether the nodules are benign or malignant. To help provide guidance, Lung-Rads and Fleishner guidelines were developed. These guidelines recommend surveillance when nodule size is less than 8mm. Nodule sizes greater than 30mm are considered to be “masses” and warrant a biopsy. Treatment of nodules measuring 8mm and 30mm remains the biggest diagnostic dilemma to physicians, as guidelines are not prescriptive in this size range. The initial intended use for DetermaDx^TM will be to help inform whether a nodule is likely benign in patients with a nodule size of 8mm to 22mm. Our survey of physicians and analysis of practice patterns in over 3,000 U.S. subjects show that the 8mm to 22mm nodule size range is the one in which the most unnecessary invasive biopsy procedures on a benign nodule are performed. This need is further supported by other surveys reporting a 54% biopsy rate, while only 24% of the biopsied nodules were malignant. The adverse consequence for patients who have a biopsy of a benign nodule is that more than 22% of all lung biopsy patients experience adverse events as a result of the procedure.

We announced the completion of R&D Validation of DetermaDx™ in early 2019, and we completed CLIA Validation in early 2020. CLIA Validation demonstrates that the full assay system utilized in our CLIA certified lab in Brisbane, California, run by our staff at that laboratory, and on the analytically validated instrumentation, provides the same results on clinical samples as those obtained in the R&D Validation stage of assay development. We are on plan with the Clinical Validation study of DetermaDx^TM, with an expected completion date at the end of the second quarter of 2020. In our Clinical Validation study, more than 400 patient samples are being assayed in a blinded manner in our CLIA lab and the performance of the full assay system will be assessed against clinical diagnosis to show how our laboratory-developed test is likely to perform in clinical practice. When completed, this clinical validation will be one of, if not the largest, validation cohort for a blood test for this intended use. In general, tests that have been validated on large patient populations are deemed more trustworthy by physicians for clinical use. If our Clinical Validation study of DetermaDx^TMconfirms performance that is impactful to patient care, we plan to initiate marketing the test to oncologists and surgeons.

The clinical utility and economic impact of DetermaDx^TM stems from the its potential to provide information that could provide re-classification of a significant number of lung nodules in the 8mm to 22mm size range as likely benign. Those patients can avoid the risky and costly invasive biopsy procedure by being routed to surveillance with subsequent LDTC scans, which is the standard practice for nodules less than 8mm in size which are considered low risk nodules by guidelines today.

The 500,000 annual United States patient population with lung nodules in the 8mm to 22mm size range represents a potential $1.75 billion market opportunity based on our projected reimbursable pricing model for DetermaDx^TM. In our cohort we have observed invasive diagnostic procedures being performed on smaller nodules of 6mm to 7mm in size. Expansion of our clinical studies into this smaller nodule size range would add another 300,000 patients or a potential additional $1 billion to the market opportunity for this test.

Upon successful publication of the Clinical Validation results, we will prepare for test commercialization including seeking CMS approval of Medicare reimbursement for the test. We expect to primarily market DetermaDx^TM to pulmonologists, but patients with lung nodules sometimes may be routed directly to surgeons who will be a common target customer base for both DetermaRx™ and DetermaDx™.

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 help 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 80-85%80% to 85% 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 patients withthose early stage NSCLCpatients have a recurrence of the disease. Trials of chemotherapy treatment in early-stage disease have been inconclusive as to whether they improvethe 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^TMDetermaRx™ 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 recurrence 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 projected reimbursable pricing model.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 LDCTLow 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^TMhas been validated in twothree 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. CMS has deliveredWe have also initiated a proposed positive coverage decision for DetermaRx^TM, and we are awaiting 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.

We are initiating a randomized prospective definitive clinical trial randomizing molecular high-risk patients to adjuvant chemotherapy or standard of caresurgical intervention alone in order to gather the highest level of evidence supporting the inclusionpredictive information of DetermaRx. If successful, this study will strongly support access to the DetermaRxentire global market, including countries whose regulatory entities require the most stringent evidence for test into national guidelines, which we believe will make the test the standard of care for all patients with Stage I and IIA non-squamous NSCLC.reimbursement or marketing.

DetermaIO^TM–Immunotherapy treatment selection in advanced lung cancer

For patients diagnosed with advanced 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 already approved for several indications, including NSCLC. A recent article published by the Journal of the American Medical Association estimated that in the United States 750,000 patients per year are eligibleFDA for immunotherapy. We believe, based on our projected reimbursable pricing model, that this represents over a potential $2 billion market opportunity for a test that can reliably predict which cancer patients are likely to respond to immunotherapies.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 that we callcalled 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 who 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”).

GivenWhile 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 patient outcomes as well as saving the healthcare 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, yet thethose therapies are associated with high cost and toxicity, associated with the treatment,making it is 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 an immunomodulatory-positive (IM+)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 immunomodulatory-negative (IM-) score. Patients who are IM+ havelikely non-responder which has now been shown to be much more likely to respond to immunotherapies, while patients who are IM- have been shown to be much less likely to respond.validated in several independent clinical studies in multiple cancers. Initial data using DetermaIO™ thatas an immune therapy response predictor in NSCLC was presented at the 2019 Society for Immunotherapy of Cancer (SITC) conference that suggested that ourthe test may outperform bothoffer 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 of immunotherapies such as auto-immuneautoimmune 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.

DetermaIO^TM–Immunotherapy treatment selection in breast cancer care

The origin of the gene expression datasetclassifier used in DetermaIO™ was work done to better classify triple negative breast cancer (TNBC) into fivefour tumor cell subtypes all of which canthat 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 classifier. These subtypesclassification. 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 theirits association with different targeted or cytotoxic chemotherapy treatment regimens. In additionregimens in TNBC. We plan on investing in further studies to continuing developmentelucidate and validate the role of DetermaIO™ for prediction of patients likely or unlikely to respond to lung cancer immunotherapies, Oncocyte is planning validation studies for DetermaIO™ as a predictor for immunotherapy responseDetermaIO and the TNBC classifier in the treatment ofmanaging immune therapy in other tumor types and TNBC and may work towards clinical validation of this broader subtyping test for selection of other therapy classes in TNBC.respectively.

Significant Global Market OpportunitiesBlood Based Monitoring Opportunity

The globalnext 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 our testsmonitoring 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 significant, representing an annuala “repeat” testing opportunity and given the limitations of over 2.5 million samplescurrent standard of care, CT/MRI imaging, there is an emerging and closepotentially large market for a blood based test that can inform a treating physician that a tumor is becoming resistant to a potential $9 billion total addressable market as follows: DetermaRx™ — more than 80,000 potential patients: DetermaDx™ — more than 1 million potential patients; DetermaIO™ — more than 1.5 million patients. Eachpatient’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 these 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 performed as a multi-gene expressionnatural addition to our test using standard FFPE tissue samplesmenu to help physicians understand whether their therapeutic choice is working for DetermaRx™their patient and DetermaIO™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”, ormonitoring for recurrence 3 to 4 times a year using a simple blood drawtest 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 DetermaDx™. Althoughthose mutations in each patient’s blood. This process requires significant investment in time and money upfront and complicated infrastructure to manage these have been developed“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 LDTs for the U.S. marketDetermaCNI. This new monitoring test does not require tumor sequencing prior to blood testing therefore is intended to be performedan 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 our CLIA laboratories, onethe field of digital-PCR based detection of DNA in blood that will be the foundation for development of our goals is to establish a relationship with a global instrument platform company to develop and commercialize a kitted product in foreign markets for each of our tests.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 most 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 protein expression and epigenomic markers will deliver the highest level of treatment response prediction compared to DNA based testing alone.

With the Insight acquisition, we now have a differentiated offering to biopharma that includes a full suite of diagnostically relevant offerings analyzing DNA and RNA level including real time PCR, multiplex PCR, and next generation sequencing (NGS).

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 Federalthe United States Food and Drug Administration (“FDA”) stage for approval of the biomarker as a “companion diagnostic” to be utilized in conjunction with the therapy to identify patients eligible for the drug.

Commercialization of our Molecular Diagnostic Tests

Our first commercial diagnostic test is DetermaRx™. Since which we acquired rightsbegan to commercialize DetermaRx™ in September 2019, we have been receiving clinical samples and reporting patient results through2020. We are presently performing the RazorDetermaRx tests at our CLIA certified laboratory in Brisbane, California. We are receiving patient samplesin 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 and we are providing test results to, a select group of cancer care centers.Gottingen, Germany.

The strategyIn January 2020, we are pursuing to market DetermaRx™ is likely to be replicated in large measurehired 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 other cancer tests as we complete developmentCLIA lab protocols and workflows, gain customer feedback on the tests become readyfinal patient report and validate our logistical plan for commercialization.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. TheOur primary call points for our sales force arepoint is thoracic surgeons who perform resections of early stagebecause they manage most early-stage lung cancer patients, and 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 decisionsdecision 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 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 continue 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 we complete test development.

We are investing in physician education to drive demand for DetermaRx™. A central pillar of our physician education efforts is our Key Opinion Leader-led speaker program that is 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.

We have also initiated a patient education program in partnership with physicians. We are working with the Go2 Foundation (formerly the Addario Foundation) to drive patient awareness, and to make the test accessible and available for physicians to order at the community level throughout their Centers of Community COE network of more than 50 cancer care hospitals.

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:

We estimate thatIn August 2020, CMS delivered a final coverage and pricing decision, which is important for commercialization because approximately 70% of DetermaRx™ patients will havefor 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 lung 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. Palmetto issued a proposed positive local coverage determination (“LCD”) for the DetermaRx™ decision in August 2019. The comment period following this decision ended in November 2019. We expect to submit claims to CMS upon receiving the final local coverage decision. The pricing for the test is also anticipated to be finalized at the same time as the final LCD.

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. We have shown our published clinical evidence to ten payers that represent over 100 million covered lives, and we received favorable feedback from several of the payers on the clinical evidence. 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. These 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 cases, if not prohibited by law or regulation, we may bill physicians, hospitals and other laboratories directly for the services that they order. However, laws and regulations in certain states prohibit laboratories from billing physicians or other purchasers for testing that they order. Some states may allow laboratories to bill physicians directly but may prohibit the physician and, in some cases, other purchasers from charging more than the purchase price for the services, or may allow only for the recovery of acquisition costs, or may require disclosure of certain information on the invoice. An increase in the number of states that impose similar restrictions could adversely affect us by encouraging physicians to perform laboratory services in-house or by causing physicians to refer services to other laboratories that are not subject to the same restrictions.

Under U.S. generally accepted accounting principles, we may not be able to recognize revenues, even if we have performed and delivered the tests we discussed above, until we have contracts for reimbursement from payers and a history of experience of cash collections for the tests we perform. Until we develop that experience or have the contracts in place with payers, or both, we expect to recognize revenue on a cash basis for the tests that we perform. Accordingly, we will accrue cost of revenues and other operating expenses related to our diagnostic tests before any revenues may be recognized until we receive payment for the tests performed. If this were to occur, it may result in costs of revenues and other operating expenses to be incurred and recognized in our consolidated statements of operations without any corresponding revenues for the period reported.

Corporate Information

We were incorporated in September 2009 in the state of California. Our principal executive offices are located at 15 Cushing, Irvine, California 92618. Our telephone number is (949) 409-7600. Our website iswww.Oncocyte.com. Information contained on, or that can be accessed through, our website, is not, and shall not be deemed to be, incorporated into or be considered a partypart of this Report.

DetermaDx™, DetermaRx™, and DetermaIO™ are trademarks of OncoCyte Corporation.

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 characterized by rapid technological change. Key competitive factors in our industry include, among others, the ability to successfully complete clinical studies, the ability to obtain any required regulatory approval, average selling prices of competing tests, CLIA laboratory capacity and costs, intellectual property and patent rights, and sales and marketing capabilities. We are an early stage company with a limited operating history and many of our competitors have substantially more resources than we do, including financial, technical and sales resources. In addition, many of our competitors have more experience than we have in the development and commercialization of diagnostics. We are also competing with academic institutions, governmental agencies and private organizations that are conducting research in the field of diagnostics. Our competition will be determined in part by the potential indications for which our lead test candidates are developed and ultimately marketed. Additionally, the timing of market introduction of our diagnostic tests or of competitors’ tests may be an important competitive factor. Accordingly, we expect that important competitive factors will include the speed with which we can complete pivotal validation and utility studies of DetermaDx™ and commercialize the test, including obtaining Medicare reimbursement approval.

For the DetermaDx™ test, Oncocyte is aware of one major direct competitor, Biodesix, Inc. (“Biodesix”), that has a commercially available blood-based lung cancer diagnostic test that competes in the nodule management market. According to publicly available information provided by Biodesix, it has two products, Nodify-XL2 to identify likely benign nodules, and the Early CDT^®test to identify nodules at high risk for cancer. Because the Early CDT^® test result may potentially route the patient to an invasive procedure, we believe the Early CDT^®test does not offer a similar value proposition as DetermaDx™. However, the Nodify-XL2 test appears to be a direct competitor to DetermaDx™, as it claims to help identify likely benign nodules in an effort to avoid unnecessary and risky lung biopsies. In addition, another company called Veracyte, Inc., (“Veracyte”) has developed Percepta^®, a tissue-based product for indeterminate bronchoscopies for lung nodules. Based on our understanding and publicly available information, Percepta^® is performed on tissue samples collected via an invasive surgical procedure and therefore, we believe Percepta^® does not address the unmet need of avoiding unnecessary invasive and risky lung diagnostic procedures.

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 believe, 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 and reimbursement.

Licensed Technology from WistarCertain Razor Agreements

We have entered intoDuring February 2021 we acquired all of the shares of Razor common stock from its shareholders. Razor is now a License Agreement that entitles us to use certain patents, know-how and data belonging to The Wistar Institutewholly-owned subsidiary of Anatomy and Biology (“Wistar”).

Licenses Granted

Under the License Agreement, we have obtainedOncocyte. Razor holds an exclusive sublicensable, worldwide license from a state university under certain patents (“Licensed Patents”),patent rights applicable to DetermaRx™. The license agreement includes certain royalty payment, sublicense revenue sharing, and under certain know-howtest development and data (“Technical Information”) belonging to Wistar, for use in the field of molecular diagnostics for lung cancer, including but not limited to confirmatory, companion and recurrence diagnostics for any type of lung cancer with detection through whole blood, fractionated blood, plasma, serum and/or other biological samples (the “Licensed Field”). We have the right to grant sublicenses of the licensed patents and Technical Information subject to certain conditions.

Royalties, License Fees and Other Payment Obligations

We have paid Wistar an initial license fee and will pay Wistar royalties on “net sales” of licensed products,” as those terms are defined in the License Agreement. The royalty rates will range from 3% to 5% depending upon the amount of cumulative net sales. The amount of royalties payable to Wistar will be reduced by the amount of any royalties that we must pay to any third parties on the sale of the licensed products, but subject to a maximum reduction of 50%. Our obligation to pay royalties to Wistar will terminate on a licensed product-by-licensed product and country-by-country basis until the later of (i) the date a valid claim of a licensed patent covering the licensed product no longer exists, or (ii) the tenth (10th) anniversary of the first commercial sale of the licensed product in each country.

We have agreed to pay Wistar a minimum annual royalty each year, which in each case will be credited against total royalties due on net sales of licensed products during the year in which the minimum royalty is paid. We will also be obligated to pay Wistar an annual license maintenance fee in the mid-five figures.

We have agreed to pay Wistar a portion of any non-royalty sublicensing income that we may receive from the sub-licensee. Non-royalty sublicensing income will include any consideration received from a sub-licensee for granting the sublicense, but excluding royalties, the fair market value of any equity or debt securities sold to a sub-licensee, and any payments received from a sub-licensee for any related research we conduct for the sub-licensee.

We also have agreed to pay Wistar (a)commercialization milestone payments upon the occurrence of certain milestone events inprovisions. 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 a licensed product, and (b) all pastrevenue. The license agreement will remain in effect until the expiration or ongoing costs incurred or to be incurred by Wistar, including government fees and attorneys’ fees, inabandonment of the courselast of prosecuting the licensed patents.

Other Obligations

We have agreedpatent rights, but would terminate earlier if Oncocyte were to use commercially reasonable diligent efforts, directly or through sub-licensees, to develop and commercialize licensed products. We have agreed that we 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 extensions of the deadline by paying Wistar a designated fee for the applicable extension. Oncocyte has agreed to purchase additional extensions.

We have agreed to indemnify Wistar and its trustees, managers, officers, agents, employees, faculty, affiliated investigators, personnel and staff, from and against certain claims and liabilities related to the License Agreement and the development, manufacture and sale of licensed products, excluding liabilities that result from or arise out of an indemnified party’s gross negligence or willful misconduct.

Termination of the License Agreement

Wistar has the right to terminate the License Agreement, subject to certain notice and cure periods andforce majeure delays in certain cases, if any of the following occur: (a) we fail to pay any amount payable to Wistar, subject to certain exceptions; (b) we materially breach any covenant or agreement or any continuing representation or warranty contained in the License Agreement, subject to certain exceptions; (c) we become subject to certain bankruptcy proceedings or insolvency events, (d) we dissolveif Oncocyte fails to perform or cease operations, (e) we orviolates any term of our affiliates or sub-licensees or affiliates of any our sub-licensees challenges the validity, patentability, scope, construction, enforceability, non-infringement, or Wistar’s ownership of any issued patent comprisinglicense agreement and does not cure the licensed patents, or assists any third party in any such challenge; or (f) we fail to fulfill our product development and commercialization diligence obligations and related performance milestones.breach within the time allotted.

We have the right to terminate the License Agreement with or without cause, upon the passage of a specified period of time after giving Wistar written notice of termination.

Wistar’s Retained Rights to Certain Proposed Products

Wistar has reserved the right to (i) make, use, practice and further develop the licensed patents and Technical Information for educational, research, and other internal purposes; (ii) grant to any academic, government, research or non-profit institution or organization the right to make, use and practice the licensed patents or Technical Information for non-commercial research and educational purposes; and (iii) grant licenses under the Licensed Patents or Technical Information to any party for any field, product, service or territory other than the licensed products in the Licensed Field.

In addition, if Wistar determines to develop or has developed an actual or potential licensed product that is for an application, product, sub-field or indication in the Licensed Field, but for which Wistar reasonably believes a licensed product is not being actively developed or commercialized by us or by our affiliates or sub-licensees, Wistar may give us notice of the proposed product. IfDuring September 2019, we timely inform Wistar of our election to develop the proposed product, and if we successfully negotiate a development plan and milestones for the proposed product, we will be entitled to develop the proposed product as a licensed product under the License Agreement. If we do not elect to develop the proposed product or do not reach agreement with Wistar for a development plan and milestones for the proposed product, Wistar may exclude the proposed product from our license under the License Agreement and may develop the proposed product itself or grant licenses to third parties under the licensed patents and Technical Information for the development and commercialization of the proposed product.

Razor Sublicense Agreement

We have 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 has granted us: (i) anus exclusive worldwide sublicensesublicenses under certain patent rights applicable to DetermaRx™ in the field of use covered by the applicable license held by Razor for purposes of commercialization and development of DetermaRx™, and (ii) an exclusive sublicense under certain co-owned patent rights applicable to DetermaRx™ in. Although we have since acquired all of the United States and in other countries whereshares of Razor may lawfully grant such licenses in the field of use for purposes of commercialization and development of DetermaRx™ . We have the exclusive rights to commercialize and collect revenues derived from the commercialization of DetermaRx™.The key terms ofits former shareholders, Oncocyte remains obligated on the Razor Sublicense Agreement are summarized below.

Royalty, License, and Revenue Sharing Payments

Oncocyte will make royalty payments to Encore and the other shareholders of Razor based on the net cash revenues actually collected from commercialization of DetermaRx™, less certain related costs including certain payments to third parties as royalties and revenue share payments owed by Razor to third parties with respect to revenues from the commercialization of DetermaRx™. The initial royalty rate payable to the Razor shareholders will be a low double-digit percentage and will decline as certain cumulative net revenue benchmarks are reached, with a single digit royalty rate payable to them as the benchmarks are attained. Royalties will be payable to the Razor shareholders on a quarterly basis.

Oncocytewill pay all royalties and all revenue sharing and earnout payments owed by Razor 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 purpose of paying royalties to the Razor shareholders. Total royalty and earnout payments to the Razor shareholders, the licensor, and other third parties will be a low double-digit percentage, and in addition certain milestone payments may become due if cumulative net revenue benchmarks are reached. Royalties and earnout payments will be payable on a quarterly basis.

Development Agreement

TerminationDuring 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 SublicenseDetermaRx (“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 , and to 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.

The Razor Sublicense Agreement will terminate upon the expiration or terminationUpon completion of Razor’s license agreement with the licensorenrollment of the test technology, and may be terminated at an earlier date (i) by mutual written consentfull number of patients for the parties, (ii) byClinical Trial, Oncocyte upon an uncured material breach of the representations, warranties, covenants, or agreements under the Razor Sublicense Agreement or under certain other agreements by Encore, or any such uncured material breach by Razor before the date on which we acquire all of the shares of Razor common stock held bywill issue to Encore and the other former Razor shareholders (the “Second Closing Date”), (iii) by Encore uponshares of Oncocyte common stock with an uncured material breachaggregate 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 shares we issued under the Purchase Agreement and the Minority Shareholder Purchase Agreements, would exceed 19.99% of the representations, warranties, covenants,issued and outstanding shares of our common stock or agreements under the Razor Sublicenseoutstanding voting power of our shares as of the date of the Purchase Agreement, or under certain other agreements by Oncocyte, or (iv) by Oncocyte if there has been any event, fact, condition, change, circumstance, occurrence or effect, which, either individually or inwe may deliver a number of shares of our common stock that would not exceed that combined 19.99% limit and an amount of cash necessary to bring the aggregate, adversely affects, in any material respects, DetermaRx™, it prospects or its abilitycombined value of cash and shares to be commercialized.$3 million.

Intellectual Property

If within a specified time frame Encore is substantially responsible for obtaining funding to Oncocytewill have or Razor for the right to controlClinical Trial from any third-party infringement, invalidationpharmaceutical company, a portion of rights, or other claims with respect to DetermaRx™ to the extent permitted by the Razor’s license agreement with its licensor.Prior to the Second Closing, any intellectual property rights developed by Oncocyte, Razor or Encore with respect to DetermaRx™such additional funding amount will be owned jointlypaid to Encore, subject to a $3 million cap on the payment to Encore if the funding is provided by Oncocyte, Razor, and Encore, to the extent permitted by the license agreement between Razor and its licensor, but after the Second Closing, Razor and Encore will assign their rights to Oncocyte.a designated pharmaceutical company.

Facilities

Oncocyteleases a building located at 15 Cushing in Irvine, California that serves as Oncocyte’s principal executive and administrative offices and laboratory facility. Oncocyte plans to construct a clinical diagnostic laboratory and a research laboratory in the building 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 diagnostic testing equipment and related chemical reagents necessary for the provision of our diagnosticcancer tests. Additionally, the chemical reagents used with the diagnostic testing equipment we chose are available only from the equipment manufacturer. This situation poses a risk to us. After encountering inconsistent results using diagnostic testing equipment and reagents from one manufacturer, we switched to diagnostic testing equipment from a different manufacturer. If issues were to arise with the diagnostic testing equipment or reagents we are using causing us to acquire different diagnostic testing equipment again, we would need to conduct additional R&D Validation studies, Analytic Validation, and CLIA Laboratory Validationlaboratory studies to determine whether our previous test results can be reproduced using the new equipment. If similar issues were to arise after commercialization of a diagnostic test, we could experience a disruption for a period of time in providing the diagnostic tests to patients and we would lose revenues and potentially market share as a result.

Patents and Trade Secrets

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.

Our patent portfolio includes certain patent families owned by us with claims directed to compositions of matter and methods useful for detection of breast and lung cancers using specific biomarkers or a panel of specific biomarkers. Patents are pending in the United States, with projected expiration dates ranging from 2033 to 2039.

We have also obtained an exclusive license from Wistar to certain pending patent applications in the field of molecular diagnostics for lung cancer. The pending claims are directed to compositions of matter and methods useful for detection of lung cancer using specific biomarkers or a panel of specific biomarkers, with projected expiration dates ranging from 2027 to 2038. Patents covered by the exclusive license have issued in the United States, Europe, Australia, Canada and India and are pending in the United States, Australia, Brazil. Canada, China, Europe, India, Israel, Japan, Mexico, New Zealand, Russia, Saudi Arabia, Singapore, South Korea, and the United Arab Emirates. Those patents are projected to expire in 2028 - 2029.

We have also obtained certain exclusive rights to patents and patent applications co-owned by our subsidiary Razor and 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 the United States, Australia, Europe, and Hong Kong with projected expiration dates in 2032.2032 and 2033.

We haveand Razor also obtained anhave exclusive sublicense rights to certain patents and patent applications owned by The University of California San Francisco and licensed to Razor.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 the United States, Australia, Europe, New Zealand, Japan, China, Canada, and Hong Kong and are pending in Canadathe United States with projected expiration dates between 2024 and 2032.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 reissued patents and pending applications, and software material, and have sense the acquisition filed our own patents to the business of Insight Genetics was assigned to Oncocyte.protect DetermaIO.

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.

General Risks Related to Obtaining and Enforcing Patent Protection

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.

Also, inAriosa Diagnostics, Inc. v. Sequenom, Inc., the Federal Circuit ruled that a method for detecting a paternally inherited nucleic acid of fetal origin performed on a maternal serum or plasma sample from a pregnant female was not patent eligible subject matter under the framework set forth inMayo Collaborative Services v. Prometheus Laboratories, Inc. The court examined the elements of the claim to determine whether the claim contained an inventive concept sufficient to transform the claimed naturally occurring phenomenon into a patent eligible application and found that the method steps did not support patentability because they used conventional amplification and detection techniques. Although the claims can be distinguished from the claims at issue inMayo Collaborative Services v. Prometheus Laboratories, Inc., the court was bound by the language of the Supreme Court decision to hold Sequenom’s claims unpatentable.

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 multiple Subject Matter Eligibility Updates to provide further guidance in determining subject matter eligibility. The Subject Matter Eligibility Updates 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-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. Currently 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.

Government Regulation

CLIA—Clinical Laboratory Improvement Amendments of 1988 and State Regulation

We expect that DetermaDx™, DetermaRx™, and DetermaIO™ will be regulated under the Clinical Laboratory Improvements Amendment (“CLIA”) as laboratory diagnosticdeveloped tests or “LDTs” and will not be regulated asin vitro diagnostic test or IVDs” that will be subject to approval by the FDA and through the European Directive onin vitro diagnostics in the European Union. See “Government Regulation” below. In 1988, Congress enacted CLIA, which established quality standards for all laboratories that provide testing services to ensure the accuracy, reliability and timeliness of patient test results regardless of where the test is performed.

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 regulations require clinical laboratories like our laboratoryours to comply with various operational, personnel, facilities administration, quality, and proficiency testing requirements intended to ensure that testing services are accurate, reliable and timely. CLIA certification is a prerequisite for 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.

FDA Regulation of Diagnostic Tests

We have designed, developed, and are validating our tests as LDTs and consequently believe 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. In October 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.

InThe 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 2017, the FDA issued a Discussion Paper on LDTs (“Discussion Paper”), in which proposesit outlined a substantially revised “possible approach” to the oversight of LTDs. The risk-based approach to LDT oversight focusingoutlined focuses on new and significantly modified high and moderate risk LDTs. However,LDTs and 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 would not be expected to comply with premarket review, quality systems, and registration and listing requirements unless necessary to protect public health. With respect to the post-market surveillance of LDTs, the FDA’s Discussion Paper recommends that laboratories initially report serious adverse events for all tests except the exempted categories of 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 published in 2014, it is hoped that its publication will continue to advance further public disclosure. The FDA has indicatedand that it does not intend to modify its policyrepresent the FDA’s formal position but rather describes the evolution of enforcement restraint until the draft guidance documents are finalized.agency’s thinking about the regulatory framework for LDTs.

Based onResponding to the COVID-19 pandemic, in August, 2020, the Department of Health and Human Services (“HHS”), the parent agency for FDA, formally rescinded FDA guidance set forth in the Discussion Paper, the proposed legislation, and theother informal statements concerning FDA’s comments on such legislation, FDA premarket review of LDTs and announced that the FDA “will not require premarket review of [LDTs] absent notice-and comment rulemaking, as opposed through guidance documents, compliance manuals, website statements, or other informal issuances.” It is unclear at this time whether the Biden administration will revise or rescind this policy.

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 in the near future, however, to date no firm time commitments have been set. Nonetheless,over time. Nevertheless, the FDA may decideattempt to regulate certain LDTs on a case-by-case basis at any time.

FDA regulations could also require, among other things, additional clinical studies and submission of a premarket notification or filing a Premarket Approval (“PMA”) application with the FDA. For example, LDTs with the same intended use as a cleared or approved companion diagnostic are defined in the FDA’s draft guidance as “high-risk LDTs (Class III medical devices)” for which premarket review would be required. This may include the use of our LDTs for screening patients for cancer.

Since 2017, legislators have been working to advance a draft of the Diagnostic Accuracy and Innovation Act (“DAIA”) to serve as a basis for creating new regulatory framework for LDTs. In August 2018, the FDA suggested changes to DAIA and addressed the need for a new regulatory framework that would require new tests to undergo FDA review to demonstrate they are analytically and clinically valid. The FDA’s changes to the bill included proposals related to premarket approval, provisional approval, and a precertification program, and made explicit its authority to revoke approval, request raw data, and take corrective action against test developers in order to protect the public health. In December 2018 the FDA Commissioner and the Director of the Center for Devices and Radiological Health (CDRH) expressed significant concerns regarding disparities between some LDTs and in vitro diagnostics that have been reviewed and cleared or approved by the FDA.

Responding to the FDA’s DAIA comments, 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 new category that was introduced in DAIA, andw 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 widely anticipatedpackage. The likelihood that Congress will pass legislation and the extent to be enacted in 2020.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 FDA finalizes its regulatory position regarding LDTs, or 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.

California State Laboratory Licensing

In addition to federal certification requirements of laboratories under CLIA, we are required to maintain licensure under California law for our laboratory in Brisbane, California. The California and under Tennessee law includesfor 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. Our clinical laboratory was certified by the state of California in 2017. If we do not meet the requirements of California laws, the California Department of Health Services (“DHS”) may suspend, restrict or revoke our license to operate our laboratory, assess substantial civil money penalties, or impose specific corrective action plans.

Other State Laboratory Licensing

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 laboratory is located in another state.

Our laboratory islaboratories 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 license, 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 othercertain states that require out-of-state laboratories to obtain licensure to accept specimens from patients within the state, and other states may impose such requirements in the future.state. If we identify any other state with such requirements, or if we are contacted by any other state advising us of such requirements, we intend to follow all instructions from the state regulators regarding compliance with such requirements.

In Vitro Diagnostics

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 be marketed after a 510(k) premarket notification, while a more extensive PMA is required to market Class III devices.

Until 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 we are developing 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.

Health Insurance Portability and Accountability Act and Other Data Privacy and Security Laws

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. 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 arewere intended to provide individuals with a greater ability to access their health 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 December 2020, aiming to remove regulations that impede communication and data exchange between providers and health plans and expand individuals’ rights to access their own digital health information, HHS proposed further changes to the HIPAA privacy rule. These most recently proposed updates of the HIPAA privacy rule are subject to public comment period until May 6, 2021.

In addition to the federal privacy regulations, there are a number of state laws regarding the privacy and 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 enacted in the United 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. WhileThe 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 statue is inwill take effect as of March 19, 2020, draft regulations promulgatedon January 1, 2023, and will generally apply to personal information collected by the California Attorney General have not yet been finalized and remain open for public comment until March 27, 2020. We cannot predict when regulations will be finalized, and what effect those regulations may havebusinesses on our operations.

or after January 1, 2022.

Physician Referral Prohibitions

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.

In October 2019, HHS proposed changesOn November 20, 2020 CMS issued a final rule to modernize and clarify the Stark Law,regulations that interpret self-referral law. The final rule was issued in conjunction with the Anti-Kickback Statute,CMS Patients over Paperwork initiative and the Civil Monetary Penalty Law, which would represent some of the most significant changes to these laws in the last decade. The changes have been promulgated as part of HHS’s “RegulatoryHHS Regulatory Sprint to Coordinated Care” which was launched in 2018 with the goal of reducing regulatory burden and incentivizing coordinated care. As part of this initiative, CMS and the HHS Office of Inspector General (OIG) began scrutinizing a variety of long-standing regulatory requirements and prohibitions to determine whether they unnecessarily hinder the innovative arrangements that policymakers are otherwise hoping to see develop. The proposed rules reflect a coordinated effort between CMS and OIG to address various challengesestablishes exceptions to the transition tophysician self-referral law for certain value-based care. The Stark Law Proposed Rule includescompensation arrangements between or among physicians, providers, and suppliers. It also establishes a new exceptions designed to enable value-based careexception for certain arrangements under which a physician receives limited remuneration for items or services actually provided by the physician; establishes a new exception for donations of cybersecurity technology and proposes a long list of additional changes torelated services; and amends the Stark Law regulations intended to address many ofexisting exception for electronic health records (EHR) items and services. While the most challenging aspects of Stark Law compliance. If finalized, the changes proposed in these rules could presentfinal rule presents significant opportunities for new arrangements, but mayit also necessitatenecessitates revisions to current arrangements involving healthcare providers, others involved in the healthcare industry, and patients.

Corporate Practice of Medicine

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.

Federal and State Fraud and Abuse Laws

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.

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 payer.

Additionally, the U.S. Foreign Corrupt Practices Act (“FCPA”) prohibits U.S. corporations and their representatives from offering, promising, authorizing or making payments to any foreign government official, government staff member, political party or political candidate in an attempt to obtain or retain business abroad. The scope of the FCPA includes interactions with certain healthcare professionals in many countries. Other countries have enacted similar anti-corruption laws and/or regulations.

Other Regulatory Requirements

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.

On May 1, 2020, the Office of the National Coordinator for Health Information Technology promulgated final regulations under the authority of the 21st Century Cures Act that impose new conditions to obtain and maintain certification of certified health information technology and prohibit certain covered actors, including operators of laboratories which are considered “health care providers” under the final regulation, from engaging in activities that are likely to interfere with the access, exchange, or use of electronic health information (information blocking). The final regulations further defined exceptions for activities that are permissible, even though they may have the effect of interfering with the access, exchange, or use of electronic health information. The information blocking effective date is April 5, 2021. Under the 21st Century Cures Act, health care providers that violate the information blocking prohibition will be subject to appropriate disincentives, which HHS services has yet to establish through required rulemaking. Developers of certified information technology and health information networks and health information exchanges, however, may be subject to civil monetary penalties of up to $1 million per violation. The HHS Office of Inspector General has the authority to impose such penalties and on April 24, 2020 published a proposed rule to codify its new authority in regulation, which the agency proposed would become effective 60 days after it issues a final rule, but in no event before November 2, 2020. HHS Office of Inspector General has not yet issued a final rule.

Employees

As of December 31, 2019,2020, we employed 3351 persons on a full-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.

Risks Related to Our Business OperationsCapital Resources

We may incur significant cash payment and common stock issuance obligations under our agreements arising from our investments in Razor and Insight.Insight and planned investment in Chronix.

As described in Note 57 to our consolidated financial statements, we have entered into certain agreements with Razor and its shareholders, including a Purchase Agreement, Minority Holder Stock Purchase Agreements, and a Development Agreement, under which we may incur significant cash payment and common stock issuance obligations. UnderAs described in Note 15 to our consolidated financial statements, we paid the amounts due to Razor under the Purchase Agreement and the Minority Holder Stock Purchase Agreements we could become obligated to purchase, or we may elect to purchase, the outstanding Razor common stock from its shareholders for which we would pay those shareholders $10 million in cash and issue to them shares of Oncocyte common stock with an aggregate market value equal to $5 million at the date of issue.Agreements.

Under the Development Agreement, upon completion of enrollment of the full number of patients for DetermaRx™ Clinical Trial, Oncocyte will be obligated to issue to the Razor shareholders shares of Oncocyte common stock with an aggregate market value equal to $3 million at the date of issue.

The number of shares of Oncocyte common stock issuable under the Purchase Agreement, the Minority Holder Purchase Agreements, and the Development Agreement on a combined basis is limited to 19.99% of the issued and outstanding shares of Oncocyte common stock or the outstanding voting power of Oncocyte shares as of the date of the Purchase Agreement, and if that number of shares has a value of less than $5 million on the date the Purchase Agreement and Minority Holder Purchase Agreement obligations must be met, or less than $3 million on the date the Development Agreement obligation must be met, we would need to pay an amount of cash necessary to bring the combined value of cash and shares to $5 million to satisfy the Purchase Agreement and Minority Holder Purchase Agreement obligations, or $3 million to satisfy the Development Agreement obligation. The number of shares that may become issuable to satisfy those $5 million andthe $3 million obligations cannot presently be determined because the number of shares will depend upon the market price of our common stock when the shares become issuable. The issuance of those shares of common stock will dilute the interests of our other common stockholders.

Under the Development Agreement we are also obligated to pay the expenses of DetermaRx™ Clinical Trial after Razor’s $4 million Clinical Trial Expense Reserve has been exhausted.If within a specified time frame Encore is substantially responsible for obtaining funding to Oncocyte or Razor for the Clinical Trial from any third-party pharmaceutical company, a portion of such additional funding amount will be paid to Encore, subject to a $3 million cap on the payment to Encore if the funding is provided by a designated pharmaceutical company.

Also, under the Development Agreement we must pay Encore $4 million in cash ifRazor receives a final positive coverage decision from CMS/MolDx for reimbursement of patient costs of DetermaRx™.

In addition, under the Merger Agreement pursuant to which we acquired Insight, as described in Note 115 to the consolidated financial statements included elsewhere in this Report, we have agreed to pay contingent consideration of up to $6.0 million in any combination of cash or shares of Oncocyte common stock if certain milestones related to DetermaIO™ are achieved (the “Contingent Consideration”), which consist of (i) a $1.5 million clinical trial completion and data publication milestone, (ii) $3.0 million for an affirmative final local coverage determination from CMS for a specified lung cancer test, and (iii) up to $1.5 million for achieving certain CMS reimbursement milestones.

If the Chronix merger is completed, we will issue 295,000 shares of OncoCyte common stock to holders of certain Chronix preferred stock, and we will provide $2.675 million in cash for the payment of certain Chronix liabilities and we will assume up to $5.575 million of additional Chronix liabilities. As additional consideration for the acquisition of Chronix, we have agreed to pay to holders of other classes and series of Chronix stock (i) up to $14 million in any combination of cash or OncoCyte common stock if certain milestones are achieved, (ii) earnout consideration of up to 15% of net collections for sales of specified tests and products during certain five to ten-year earnout periods, and (iii) up to 75% of net collections during a seven-year earnout period from the sale or license of Chronix’s patents to a third party for use in transplantation medicine.

To meet these various cash payment obligations, we may need to sell additional shares of our common stock or other securities to raise the cash needed, or we may have to divert cash on hand that we would otherwise use for other business and operational purposes which could cause us to delay or reduce activities in the development and commercialization of our cancer tests. Any shares of common stock or other securities we sell to raise cash to meet our cash payment obligations will dilute the interests of our common stockholders.

We have incurred operating losses since inception, and we do not know if we will attain profitability.

Since our inception in September 2009, we have incurred operating losses and negative cash flows and we expect to continue to incur losses and negative cash flows in the future. Our net losses for the years ended December 31, 2020 and 2019 were $29.9 million and $22.4 million, respectively, and we had an accumulated deficit of $123.7 million as of December 31, 2020. We finance our operations primarily through sales of our common stock. There is no assurance that we will be able to obtain any additional financing that we may experience delaysneed, 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.

It is likely that we will need to issue additional equity or debt securities in order to raise additional capital needed to pay our operating expenses until such time as our revenues are sufficient to finance our operating expenses.

Our rights to receive and retain certain payments from Burning Rock Biotech Limited under our Sublicense Agreement with them are subject to certain conditions.

We have entered into an Exclusive Sublicense Agreement in the PRC Territory (the “Sublicense Agreement”) with Burning Rock Biotech Limited (“Burning Rock”), Razor and Razor’s largest shareholder Encore Clinical Inc. pursuant to which rights to DetermaRx™ in the Peoples Republic of China, including Hong Kong, Macau, and Taiwan will be sublicensed to Burning Rock. Under the Burning Rock Sublicense Agreement we will be entitled to receive certain payments totaling $4 million subject to the successful transfer and installation of the DetermaRx™ technology on Burning Rock’s platforms, and additional payments if certain milestones are achieved. However, there is no assurance that the transfer and installation of the DetermaRx™ technology will be successfully completed within the time required by the Burning Rock Sublicense Agreement or that any of the additional validation studies necessary forpayment milestones will be achieved. Further, even if we do receive the commercialization$4 million payment, we will be obligated to refund to Burning Rock all or a portion of DetermaDx™,that payment if certain subsequent events occur, including events that are not within our control. The refund obligation will lapse in installments of $250,000 every three months after the completion date of the technology installation required to launch the DetermaRx™ test, until the occurrence of an event trigger, the obligation to make a refund to Burning Rock or we may encounter unanticipated results or findings.until March 31, 2025 when the refund obligation will expire in full.

Risks Related to Our Business Operations

We have successfully completedOur revenues in the near term will depend on ourCLIA Laboratory Validation study ability to commercialize a small number of DetermaDx™diagnostic tests and have commenced Clinical Validation. Clinical Validationto grow our Pharma Services business.

Our near-term commercial efforts will focus on maximizing the opportunities for DetermaRx™ and DetermaIO™ and DetermaCNI™ if we complete the Chronix merger, as well as increasing our Pharma Services business. Our reliance on a small group of diagnostic tests as sources of revenue could limit our future revenue, make it more difficult for us to finance our operations, and impair our prospects for profitability and growth. DetermaIO™ is the final step prior to commercial launch of an LDT,currently available only for biopharma diagnostic development and we are anticipating completion of our Clinical Validation study for DetermaDx™ by the end of the second quarter of 2020. If the Clinical Validation study is completed successfully, weresearch use. We plan to commercialize DetermaDx™ promptly thereafter. However, until we perform the Clinical Validation study, we will not know whether we can successfullycontinue DetermaIO™ development, initially for use as a companion test in immunotherapy drug development to select patients for clinical trials, and subsequently as a full companion diagnostic for clinical use to help physicians determine which patients are most likely to have a sustained response to immunotherapies. We also plan to develop DetermaCNI™ for clinical use if complete the development of DetermaDx™. We may not be able to successfully complete this testing for DetermaDx™ or any other test we may develop. While we plan to make DetermaDx^TMcommercially available in the second half of 2020,Chronix merger. However, there can beis no assurance that thereour development plans for DetermaIO™ or DetermaCNI™ will be no delays in the successful completion of the Clinical Validation study andor that we will be generate sufficient revenues from commercialization of DetermaDx™, dueour diagnostic tests and from performing Pharma Services to any number factors some of which may not be withinfinance our control. Any delays in the successful completion of the Clinical Validation study for DetermaDx™ could cause us to incur significant additional costsoperations and delay the completion of development and commercial launch of DetermaDx™. We may encounter unanticipated results or finding in the Clinical Validation study showing that our earlier study results may not be predictive of future test results with DetermaDx™. We have performed only limitedearn a profit.

The research and development work for other diagnostic tests, and we have conducted no research and development work outside of cancer. Our Immune System Interrogation approach, which analyzes the immune system’s response to a specific disease, and our technology may not ultimately have application in any other population, and we may be unable to identify any future candidates and tests for any other cancer or any other disease population.

We recently launched our first diagnostic test on the market and have not yet generated any revenues from operations.

We are in the early stages process of the commercial launch of DetermaRx™, and we are workingdoing is costly, time consuming, and uncertain as to complete development of DetermaDx^TMand anticipate making it commercially available in the second half 2020. However, we may be unable to complete development of DetermaDx™ in that timeframe or at all. We also need to perform additional development work on DetermaIO^TM before it can be made available for commercial use clinically. Even if we complete development of DetermaDx™ and DetermaIO™, our commercialization arrangements for those tests and DetermaRx™ may not generate revenues in sufficient amounts to meet our operating expenses. Without sufficient diagnostic test sales or licensing fee revenues, we will not be able to operate at a profit, and we will not be able to cover our operating expenses without raising additional capital.

We have limited capital, marketing, and sales resources for the commercialization of our diagnostic tests.its results.

We are buildingincurred research and development expenses amounting to approximately $9.8 million and $6.8 million during years ended December 31, 2020 and 2019, respectively. The current focus of our own marketingresearch and sales capabilitydevelopment efforts is a clinical trial of DetermaRx™ and the development of DetermaIO™ for clinical use. Other tests planned for our development pipeline include DetermaTx™, DetermaMx™ and, if we complete the Chronix merger, DetermaCNI™. If we are successful in developing a new technology or diagnostic test for additional types of cancer, refinement of the new technology or diagnostic test and definition of the practical applications and limitations of the technology or diagnostic test may take years and require the expenditure of large sums of money. There is no assurance that we will be successful in completing the development of our current diagnostic tests and are devoting significant financial and management resources to recruiting, training, and managing our sales force and building a health care regulatory compliance program. However, due to our limited capital resources, we may need to enter into marketing arrangements with other diagnostic companies for one or more of our tests in domestic or foreign markets. Under such marketing arrangements we may license marketing rights to one or more of ourdeveloping additional diagnostic tests to other diagnostic companies or to one or more joint venture companies that may be formed to market our tests, and we might receive only a royalty on sales or an equity interest in a joint venture company. As a result, our revenues from the saleregardless of our tests through such arrangements may be substantially less than the amount of revenues and gross profits that we might receive if we were to market our tests ourselves.expenditures.

Sales of our diagnostic tests could be adversely impacted by the reluctance of physicians to adopt the use of our tests and by the availability of competing diagnostic tests.

Physicians and hospitals may be reluctant to try a new diagnostic test due to the high degree of risk associated with the application of new technologies and diagnostic test in the field of human medicine, especially if the new test differs from the current standard of care for detecting cancer in patients. Competing tests for the initial diagnosis, reoccurrence diagnosis and optimal treatment of cancer are being manufactured and marketed by established companies and by other smaller biotechnology companies. In order to compete with other diagnostic tests, particularly any that sell at lower prices, our tests will have to provide medically significant advantages or be more cost effective. Even if we are able to overcome physician reluctance and compete with products that are currently on the market, our competitors may succeed in developing new safer, more accurate or more cost-effective diagnostic tests that could render our diagnostic tests and technologies obsolete or noncompetitive.

We have limited capital, marketing, sales, and regulatory compliance resources for the commercialization of our diagnostic tests.

We are building our own marketing and sales capability for our diagnostic tests, and are devoting significant financial and management resources to recruiting, training, and managing our sales force and building a health care regulatory compliance program. However, due to our limited capital resources, we may need to enter into marketing arrangements with other diagnostic companies for one or more of our tests in domestic or foreign markets. Under such marketing arrangements we may license marketing rights to one or more of our diagnostic tests to other diagnostic companies or to one or more joint venture companies that may be formed to market our tests, and we might receive only a royalty on sales or an equity interest in a joint venture company. As a result, our revenues from the sale of our tests through such arrangements may be substantially less than the amount of revenues and gross profits that we might receive if we were to market our tests ourselves.

If we complete the acquisition of Chronix we will face risks related to the integration of Chronix’s operations with ours.

Although we believe that our planned acquisition of Chronix will be beneficial to our business, including adding their LDT in development TheraSure™-CNI Monitor, adding their laboratory in Germany, and adding key personnel, there are a number of risks that we will face associated with the acquisition, including but not limited to: (i) the possibility that we will not realize the anticipated benefits of the acquisition or that the benefits will not justify the cost of the acquisition; (ii) unexpected expenditures or assumed liabilities that may be incurred as a result of the acquisition; (iii) unanticipated difficulties in conforming Chronix business practices with ours, including accounting policies, operating procedures, internal controls, and financial records, especially considering that Chronix has operations abroad; (iv) we may not have accurately forecasted the future performance of Chronix and cost of operations which could result in unforeseen adverse effects on our operating results; (v) synergies between Chronix and Oncocyte that we estimated may be materially different from actual results; (vi) we be unsuccessful in integrating and retaining Chronix personnel; (vii) we may need to devote a greater than estimated allocation of our resources to develop and commercialize Chronix laboratory tests and technologies; (viii) we may not be able to maintain the accreditation or certification of Chronix’s German laboratory; and (ix) managing a larger and more complex business enterprise, including managing operations overseas and complying with foreign laws, may strain our financial and management resources.

We may face technology transfer challenges and expenses in adding new tests to our portfolio and in expanding our reach into new geographical areas on new instrument platforms.

Our plan for expanding our business includes developing and acquiring additional teststhat can be transferred into our current lab footprint in the US and/or onto molecular testing instrument platforms for distribution in ex-US markets.. Due to differences in the hardware and software platforms available at different laboratories for running molecular tests, we may need to make adjustments to the configuration of the reagents that make up our LDTs in our US labs or as we convert them to kits, and there may be changes to the related software in order for the tests to be performed on particular hardware platforms. Making any such adjustments could take a considerable amount of time and expense, and there will be no assurance that we will succeed in running our tests on the hardware and software that we may encounter in different laboratories. To manage this issue and to attain uniformity among our laboratory locations, we may license or acquire our own instrument system and software from another company that has a platform that will be compatible with our tests. In addition to acquisition costs, operationally we will have to build out infrastructure for installing a new testing platform across multiple laboratory locations as well as support functions to help maintain these instrument systems in new customer labs, and we may also encounter unexpected technology issues in the process.

If our laboratory facilities become damaged or inoperable, or we are required to vacate any facility, our ability to provide services and pursue our research and development and commercialization efforts may be jeopardized.

We do not have any clinical laboratory facilities outside of our facilities in Brisbane, California, and Nashville, Tennessee. Our planned primary clinical laboratory facility in Irvine, California is still under construction and is expected to be completed in 2021. We also plan to acquire a laboratory in Germany through our planned merger with Chronix. Our facilities and equipment could be harmed or rendered inoperable by natural or man-made disasters, including fire, flooding and power outages, which may render it difficult or impossible for us to perform our tests or provide laboratory services for some period of time. The inability to perform our tests or the backlog of tests that could develop if any of our facilities is inoperable for even a short period of time may result in the loss of customers or harm to our reputation or relationships with key researchers, collaborators, and customers, and we may be unable to regain those customers or repair our reputation in the future. Furthermore, our facilities and the equipment we use to perform our research and development work could be costly and time-consuming to repair or replace.

Additionally, a key component of our research and development process involves using biological samples and the resulting data sets and medical histories, as the basis for our diagnostic test development. In some cases, these samples are difficult to obtain. If the parts of our laboratory facilities where we store these biological samples are damaged or compromised, our ability to pursue our research and development projects, commercialization of our diagnostic tests, as well as our reputation, could be jeopardized. We carry insurance for damage to our property and the disruption of our business, but this insurance may not be sufficient to cover all of our potential losses and may not continue to be available to us on acceptable terms, if at all.

Further, if our laboratories become inoperable, we may not be able to license or transfer our proprietary technology to a third-party, with established state licensure and CLIA certification under the scope of which our diagnostic tests could be performed following validation and other required procedures, to perform the tests. Even if we find a third-party with such qualifications to perform our tests, such party may not be willing to perform the tests for us on commercially reasonable terms. Moreover, we believe our tests are currently subject to enforcement discretion by the FDA because we believe the tests currently qualify as LDTs. If, however, we are required to find a third-party laboratory to conduct our testing services, we believe this would change our status and the FDA would consider such tests offered through a third-party to then be a medical device subject to active FDA regulation and enforcement under itsin vitrodiagnostic authorities. In that case, we may be required to obtain premarket clearance or approval prior to offering our tests, which would be time-consuming and costly and could result in interruptions and delays in our ability to sell or offer our tests.

We may not be able to produce additional cancer diagnostic tests that offer high enough sensitivity to offset the availability of minimally invasive biopsies for some types of cancer, which could impede our development and commercialization of an array of diagnostic tests.

We believe that a significant benefit of DetermaDx™ will be the reduction of unnecessary surgical biopsies to diagnose lung cancer. While lung cancer biopsies involve an invasive surgical procedure, biopsies of some other types of cancer, including breast cancer, often can be performed using less invasive procedures that result in significantly less risk, discomfort, and cost to the patient while providing a diagnostic result that would be as accurate or more accurate than any diagnostic tests we may develop. As a result, physicians and patients may prefer to rely on a non-invasive or minimally invasive biopsy to test for certain cancers rather than use a blood test.

We have incurred operating losses since inception, and we do not know if we will attain profitability.

Since our inception in September 2009, we have incurred operating losses and negative cash flows and we expect to continue to incur losses and negative cash flows in the future. Our net losses for the years ended December 31, 2019 and 2018 were $22.4 million and $15.8 million, respectively, and we had an accumulated deficit of $93.7 million as of December 31, 2019. Since inception, we have financed our operations through sales of our common stock and warrants, loans from Lineage and Lineage affiliates, warrant exercises, a bank loan and sale of Lineage common shares that we hold as marketable equity securities. We do not expect Lineage to provide future financing. 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.

The research and development work we are doing is costly, time consuming, and uncertain as to its results.

We incurred research and development expenses amounting to approximately $6.8 million and $6.5 million during years ended December 31, 2019 and 2018, respectively. During the past few years we have devoted substantially all of our research and development efforts to the development of DetermaDx™, but we have recently expanded the focus of our research and development to include DetermaIO™ acquired through our merger with Insight and a clinical trial of DetermaRx™. We also plan to conduct research and development of additional or improved versions of our diagnostic tests. If we are successful in developing a new technology or diagnostic test for additional types of cancer, refinement of the new technology or diagnostic test and definition of the practical applications and limitations of the technology or diagnostic test may take years and require the expenditure of large sums of money. There is no assurance that we will be successful in completing the development of our current diagnostic tests or in developing additional diagnostic tests regardless of the amount of our expenditures.

It is likely that we will need to issue additional equity or debt securities in order to raise additional capital needed to pay our operating expenses until such time as our revenues are sufficient to finance our operating expenses.

If we fail to meet our obligations under license agreements, we may lose our rights to key technologies on which our business depends.

We use certain biomarkers that have been licensed from Wistar for DetermaDx™ and we haveRazor has rights to commercialize DetermaRx™ under a sublicense from Razor. These agreements imposelicense which 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 the licensor believes that weRazor and Oncocyte as Razor’s sublicensee have failed to meet ourthose contractual obligations it 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 DetermaDx™ orcontinue marketing DetermaRx™ and any other potential diagnostic tests that utilize licensed markers or other technology,, 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 biomarkers or technologylicenses needed for DetermaRx™ in our business.

Even if the licensor were to elect to convert our exclusive license to non-exclusive rights rather than terminating our license as a result of our failure to meet a license agreement obligation, the loss of exclusivity might result in our loss of revenue to any competitors that might acquire rights from the licensor to use the licensed patents in competition with us.

There is a limited number of manufacturers of molecular diagnostic testing equipment and related chemical reagents necessary for the provision of our diagnostic tests.

After encountering inconsistent results using diagnostic testing equipment and reagents from one manufacturer, we switched to diagnostic testing equipment from a different manufacturer. The chemical reagents used with the diagnostic testing equipment are available only from the equipment manufacturer. If issues were to arise with the new equipment or reagents we are using causing us to acquire different diagnostic testing equipment again, we would need to conduct validation and analytic studies to determine whether our previous test results can be reproduced using the new equipment. As a result, we could experience delays again in developing our diagnostic tests. If similar issues were to arise after commercialization of a diagnostic test, we could experience a disruption for a period of time in providing the diagnostic tests to patients and we would lose revenues and potentially market share as a result.

If we fail to enter into and maintain successful strategic alliances for diagnostic tests that we elect to co-develop, co-market, or out-license, we may have to reduce or delay our diagnostic test development or increase our expenditures.

In order to facilitate the development, manufacture and commercialization of our diagnostic tests we may enter into strategic alliances with diagnostic, pharmaceutical, or medical 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 become dependent on possible future collaborations to develop and commercialize many of our diagnostic test candidates and to provide the manufacturing, regulatory compliance, sales, marketing and distribution capabilities required for the success of our business.

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.

Failure to adequately protect, or disputes relating to, trademarks, could harm our business.

We cannot be certain that the legal steps we are taking are sufficient to protect our trademark rights or that, notwithstanding legal protection, others will not infringe or misappropriate our intellectual property rights. In addition, we could come into conflict with third parties over trademark rights, which could result in disruptive and expensive litigation. Challenges to our trademarks could result in significant costs related to the prosecution or defense of the registrations of our trademarks or rebranding if we need to abandon or modify a trademark.

Our business could be adversely affected if we lose the services of the key personnel upon whom we depend.

We presently rely on a small senior management team to direct our diagnostics program and our initial commercial activities. Accordingly, the loss of the services of one or more of the members of that management team could have a material adverse effect on our business.

We have granted a security interest in substantially all of our assets to secure our obligations under a bank loan agreement.

We have entered into a Loan and Security Agreement with Silicon Valley Bank for a loan that is secured by substantially all of our assets, other than our patents and trade secrets, as collateral for the loan. If a default were to arise under the Loan and Security Agreement, the bank could foreclose on its security interest and we could lose our collateral, which could force us to discontinue our operations.

Our business and operations could suffer in the event of system failures.

Despite the implementation of security measures, our internal computer systems and those of our contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. Such events could cause interruption of our operations. For example, the loss of data for our diagnostic test candidates could result in delays in our regulatory filings and development efforts and significantly increase our costs. To the extent that any disruption or security breach was to result in a loss of or damage to our data, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the development of our diagnostic test candidates could be delayed.

Security breaches and other disruptions could compromise our information and expose us to liability, and could cause our business and reputation to suffer.

In the ordinary course of business, we collect and store sensitive data, including intellectual property, our proprietary business information and that of our business partners, and personally identifiable information of patients and employees. The secure processing, maintenance, and transmission of this information is critical to our operations and business strategy. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance, or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost, or stolen. Any such access, disclosure, theft, or other loss of information could result in legal claims or proceedings or liability under laws that protect the privacy of personal information, and could disrupt our operations and damage our reputation. Even if we do not incur an interruption of or our operations, fines, penalties, or financial liability to third parties from a security breach, we could suffer a loss of confidence in our services, which could adversely affect our business and competitive position.

Failure of our internal control over financial reporting could harm our business and financial results.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with accounting principles generally accepted in the U.S. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our consolidated financial statements; providing reasonable assurance that receipts and expenditures of our assets are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our consolidated financial statements would be prevented or detected. Our growth and entry into new diagnostic tests, technologies and markets will place significant additional pressure on our system of internal control over financial reporting. Any failure to maintain an effective system of internal control over financial reporting could limit our ability to report our financial results accurately and timely or to detect and prevent fraud. Because we are an emerging growth company and a smaller reporting issuer, we are exempt from the requirement of having our internal controls over financial reporting audited by our independent registered public accountants, which means that material weaknesses or significant deficiencies in our internal controls that might be detected by an audit may not be detected and remedied.

We may from time to time be involved in orare subject to legal proceedings,laws and unfavorable outcomes of such legal proceedings may adversely affect our businessregulations governing corruption, which will require us to develop, maintain, and financial condition.implement costly compliance programs.

We may from timemust comply with a wide range of laws and regulations to time be involvedprevent corruption, bribery, and other unethical business practices, including the Foreign Corrupt Practices Act or FCPA, anti-bribery and anti-corruption laws in subjectother countries. The creation and implementation of international business practices compliance programs is costly and such programs are difficult to or threatened with legal proceedings related to, or incidental to the conductenforce, particularly where reliance on third parties is required.

Anti-bribery laws prohibit us, our employees, and some of our business. Such legal proceedings can be complex, costly,agents or representatives from offering or providing any personal benefit to covered government officials to influence their performance of their duties or induce them to serve interests other than the missions of the public organizations in which they serve. Certain commercial bribery rules also prohibit offering or providing any personal benefit to employees and disruptiverepresentatives of commercial companies to business operationsinfluence their performance of their duties or induce them to serve interests other than their employers. The FCPA also obligates companies whose securities are listed in the U.S. to comply with certain accounting provisions requiring us to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and devise and maintain an adequate system of internal accounting controls for international operations. The anti-bribery provisions of the FCPA are enforced primarily by diverting the attentionUnited States Department of Justice. The SEC is involved with enforcement of the books and energiesrecords provisions of managementthe FCPA.

Compliance with these anti-bribery laws is expensive and difficult, particularly in countries in which corruption is a recognized problem. In addition, the anti-bribery laws present particular challenges in the medical industry because in many countries including China, hospitals are state-owned or operated by the government, and doctors and other key personnel. hospital employees are considered foreign government officials. Furthermore, in certain countries (China in particular), hospitals and clinics are permitted to sell pharmaceuticals to their patients and are primary or significant distributors of pharmaceuticals. Certain payments to hospitals in connection with clinical studies, procurement of pharmaceuticals and other work have been deemed to be improper payments to government officials that have led to vigorous anti-bribery law enforcement actions and heavy fines in multiple jurisdictions, particularly in the U.S. and China.

It is not always possible to identify and deter violations, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations.

In addition, defensethe medical industry, corrupt practices include, among others, acceptance of kickbacks, bribes or other illegal gains or benefits by the hospitals and settlement costs for any legal proceeding can be substantial, evenmedical practitioners from manufacturers of pharmaceutical or other products, distributors or their third party agents in connection with the prescription of certain pharmaceuticals or sale of products. If our employees, affiliates, distributors or third party marketing firms violate these laws or otherwise engage in illegal practices with respect to claims that have no merit.

Our business may be materially adversely affected by the recent coronavirus (COVID-19) outbreak.

The outbreak of the coronavirus (COVID-19) could disrupt our operations due to absenteeism by infectedtheir sales or ill members of management or other employees, or absenteeism by members of management and other employees who elect not to come to work due to the illness affecting others in our office or laboratory facilities, or due to quarantines. COVID-19 illness could also impact membersmarketing of our Board of Directors resulting in absenteeism from meetings of the directors or committees of directors, and making it more difficult to convene the quorums of the full Board of Directors or its committees needed to conduct meetings for the management of our affairs.

Supplies of chemical reagents used in our diagnostic and research laboratories could be disrupted if the manufacturers or suppliers of the reagents or chemicals used in the reagents experience absenteeism due to illness of their employees or due to local quarantines. Absenteeism due to coronavirus illness could also impact companies that the reagent manufacturers use to ship reagents to us. We cannot presently predict the extent to which the virus may impact our operations.

We are expecting a final local coverage decision from CMS/MolDx for reimbursement of patient costs of DetermaRx™ but it is possible that the timing of that decision could be delayed due to absenteeism by CMS employees or by the diversion of their efforts and attention to reimbursement approval of new diagnostic testsproducts or other activities relatedinvolving our products, we could be required to COVID-19. Further, the regulatory framework governing private laboratories and molecular diagnostic companies may be affected as governmental authorities respond to the COVID-19 outbreak, which may have unanticipated and unforeseen impact on our operations.

The broad range of local, state and national responses to COVID-19 has required us to adjust our marketing and selling activities to reflect the current environment. We have adjusted our meetings with the oncology community to rely on non-personal contacts, which might be less effective than in person meetings to promote the use of our tests. Also, the concern over available hospital, staffing, equipment, and other resources, and the risk of exposure to the virus, may lead to early stage lung cancer surgeries being delayed in the current period of uncertainty,pay damages or heavy fines by multiple jurisdictions where we operate, which could result in delayed or reduced use of DetermaRx™ in the near term.

The anticipated economic consequences of the COVID-19 pandemic have adversely impacted financial markets, resulting in high share price volatility, reduced market liquidity,materially and substantial declines in the market prices of the shares of most publicly traded companies, including Oncocyte. Volatile or declining markets for equities could adversely affect our financial condition and results of operations. There have been recent occurrences in which certain hospitals have denied access to sales representatives from pharmaceutical companies because the hospitals wanted to avoid the perception of corruption. If this attitude becomes widespread among our potential customers, our ability to raise capital when needed through the sale of shares of common stock or other equity securities. While these market conditions persist whenpromote our products to hospitals may be adversely affected.

If we and our subsidiaries expand operations internationally, we will need to raise capital,increase the scope of our compliance programs to address the risks relating to the potential for violations of the FCPA and other anti-bribery and anti-corruption laws. Our compliance programs will need to include policies addressing not only the FCPA, but also the provisions of a variety of anti-bribery and anti-corruption laws in multiple foreign jurisdictions, provisions relating to books and records that apply to us as a public company, and include effective training for our personnel throughout our organization. The creation and implementation of anti-corruption compliance programs is costly and such programs are difficult to enforce, particularly where reliance on third parties is required. Violation of the FCPA and other anti-corruption laws can result in significant administrative and criminal penalties for us and our employees, including substantial fines, suspension or debarment from government contracting, prison sentences, or even the death penalty in extremely serious cases in certain countries. The SEC also may suspend or bar us from trading securities on U.S. exchanges for violation of the FCPA’s accounting provisions. Even if we are able to sell sharesnot ultimately punished by government authorities, the costs of investigation and review, distraction of our common stock under then prevailing market conditions, we might havepersonnel, legal defense costs, and harm to accept lower prices for our sharesreputation could be substantial and issue a larger number of shares than might have been the case under better market conditions, resulting in significant dilution of the interestscould limit our profitability or our ability to develop or commercialize our product candidates. In addition, if any of our shareholders.

If wecompetitors are deemed to be an investment company, we may have to institute burdensome compliance requirements and our activities may be restricted.

An entity that, among other things, is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting, owning, trading, or holding certain types of securities would be deemed an investment company under the Investment Company Act of 1940 (the “1940 Act”). Based on the securities we hold, including our equity ownership in a privately held company, we may not meet requirements for an exemption promulgated under the 1940 Act. If we are deemed to be an investment company under the 1940 Act, we would be subject to additional limitations on operating ourthe FCPA, they may engage in practices that will lead to their receipt of preferential treatment from foreign hospitals and enable them to secure business including limitations on the issuance of securities, which may make it difficult for usfrom foreign hospitals in ways that are unavailable to raise capital.us.

Risks Related to Our Industry

Our operations as a clinical laboratory are subject to oversight by CMS under CLIA, as well as certain state agencies, and any failure to maintain our CLIA or applicable state permits and licenses may affect our ability to commercialize our diagnostic tests.

We are subject to CLIA, a federal law regulating clinical laboratories that perform testing on specimens derived from humans for the purpose of providing information for the diagnosis, prevention or treatment of disease. Our clinical laboratories must be certified under CLIA in order for us to perform testing on human specimens. CLIA is intended to ensure the quality and reliability of clinical laboratories in the United States by mandating specific standards in the areas of personnel qualifications, administration, and participation in proficiency testing, patient test management, quality control, quality assurance and inspections. We have a current certificate under CLIA to perform routine chemistry. To renew these certificates, our diagnostic laboratories are subject to survey and inspection every two years. Moreover, CLIA inspectors may make periodic inspections of our clinical laboratories outside of the renewal process.

The law also requires us to maintain a state laboratory license to conduct testing in the states in which are laboratories are located. State laws establish standards for day-to-day operation of a clinical laboratory, including the training and skills required of personnel and quality control. In addition, several states require that we hold licenses to test specimens from patients in those states. We do not have immediate plans to market our tests for commercial use in the European Union and as a result, at this time we do not believe we are subject to EU or EU member state post-market regulations related to our tests.

If we were to lose our CLIA certification or a required state license for a laboratory, whether as a result of a revocation, suspension or limitation, we would no longer be able to offer our tests from the affected laboratory, which would limit our revenue and harm our business. If we were to lose our license in other states where we are required to hold licenses, we would not be able to test specimens from those states. If we perform testing on samples originating in a state where we require a license, but do not currently have one, we could be subject to fines, sanctions, and may be denied permits or licenses in the future.

If the FDA takes the position that any of our tests are not within the scope of its policy on enforcement discretion for laboratory-developed tests, or otherwise determines that it will seek to actively regulate one or more of our diagnostic tests, responding to such a regulatory position could lead to delays in commercialization, or (if encountered after commercialization) requirements to halt the commercial provision of our tests until FDA marketing authorization is obtained.

Although we believe we are within the scope of the FDA’s policy on enforcement discretion for laboratory-developed tests, the initial commercialization and continued commercial availability of an LDT is subject to uncertainty given the FDA’s latitude in interpreting and applying its laws and policies. For example, although the FDA has historically exercised enforcement discretion over most LDTs, it does not consider tests to be subject to this enforcement discretion if they were or are designed or manufactured completely, or partly, outside of the laboratory that offers and uses them, or if they are offered “over-the-counter” (as opposed to being available to patients only when prescribed by a health care provider). Even for tests that appearIn recent years, however, the FDA has stated it intends to fall within FDA’s previously statedend its policy onof general enforcement discretion and regulate certain LDTs as medical devices. To this end, on 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. Subsequently, on January 13, 2017, the FDA published a “discussion paper” in which it outlined a substantially revised “possible approach” to the oversight of LDTs.

In August 2020, the U.S. Department of Health and Human Services, the parent agency for FDA, announced that the FDA “will not require premarket review of LDTs absent notice-and-comment rulemaking, as opposed to through guidance documents, compliance manuals, website statements, or other informal issuances.” It is unclear at this time whether this policy will be retained the Biden Administration, and if so, when the FDA might seek to begin the notice and comment rulemaking process.

Legislative proposals addressing the FDA’s oversight of LDTs have been introduced in previous Congresses, and we expect that new legislative proposals may decidebe introduced from time-to-time. The likelihood that Congress will pass such legislation and the extent to which such legislation may affect the FDA’s plans to regulate certain LDTs on a case-by-case basisas medical devices is difficult to predict at anythis time.

In December 2018,March 2020, a bill titled the FDA Commissioner and the Director“Verifying Accurate Leading-edge IVCT Development Act of the Center for Devices and Radiological Health (CDRH) expressed significant concerns regarding disparities between some2020,” or VALID Act, was officially introduced in Congress. The bill proposes a risk-based approach to regulate LDTs and creates a new in vitro diagnosticsclinical test, or IVCT, category of regulated products, which includes LDTs, and a regulatory structure under the FDA. As proposed, the bill grandfathers many existing tests from the proposed premarket approval, quality systems, and labeling requirements, respectively, but would require such tests to comply with other regulatory requirements (e.g., registration and listing, adverse event reporting). Later that have been reviewedmonth, Senator Paul introduced the Verified Innovative Testing in American Laboratories Act of 2020, or VITAL Act, which proposes that all aspects of “laboratory-developed testing procedures” be subject to regulation under CLIA, and cleared or approvedthat no aspects of such procedures be subject to regulation by the FDA. We cannot predict if either of these bills will be enacted in their current (or any other) form and cannot quantify the effect of these bills on our business.

If the FDA were to determine that our tests are not within the policy for LDTs for any reason, including new rules, policies, or guidance, or due to new legislation such as the proposed VALID Act, our tests may become subject to FDA requirements, including pre-market review. If required, the regulatory marketing authorization process may involve, among other things, successfully completing additional clinical trials and submitting a pre-market clearance (510(k)) submission or filing ade novoor pre-market approval application with the FDA. If pre-market review and approval is required by the FDA, we may need to incur additional expenses or require additional time to seek it, or we may be unable to satisfy FDA standards, and our tests may not be cleared or approved on a timely basis, if at all, and the labeling claims permitted by the FDA may not be consistent with our currently planned claims or adequate to support adoption of and reimbursement for our tests. Ongoing compliance with FDA regulations would increase the cost of conducting our business, and subject us to inspection by and the regulatory requirements of the FDA, for example registration and listing, adherence to good manufacturing practices under the Quality System Regulation, and medical device reporting, and enforcement action in the event we fail to comply with these requirements. Our laboratory islaboratories are operating under CLIA and isare not currently operating as a device manufacturing facilityfacilities following FDA’s Quality System Regulation. Because these standards differ, we may face challenges establishing FDA-compliant quality systems or be unable to do so. If after commercialization under the LDT framework our tests are allowed to remain on the market but there is uncertainty about the regulatory status of our tests, including questions that may be raised if competitors object to our regulatory positioning as an LDT, we may encounter ongoing regulatory and legal challenges and related costs. Such challenges or related developments (for example if the labeling claims the FDA allows us to make are more limited than the claims we currently plan to make) may impact our commercialization efforts as orders or reimbursement may be less than anticipated. Any of these regulatory developments may cause our business to suffer.

We will also need to obtain FDA and other regulatory approvals for any IVDs that we may develop, in order to market those IVD tests.

If we decide to develop IVDs, we will need to obtain regulatory clearance or approval to market each new IVD test. This means that:

Clinical trial failures can occur at any stage of the testing and we may experience numerous unforeseen events during, or as a result of, the clinical trial process that could delay or prevent commercialization of our current or future diagnostic tests.

Clinical trial failures or delays can occur at any stage of the trials, and may be directly or indirectly caused by a variety of factors, including but not limited to:

In 2019, when certain provisions of the Medicare Access and CHIP Reauthorization Act of 2015 (“MACRA”) are scheduled to take effect, the demand and payment for our services may be impacted.

The Medicare Access and CHIP Reauthorization Act of 2015 (“MACRA”), which was signed into law on April 16, 2015, makes substantial changes to the payment structure for physicians. This legislation, beginning in 2019, encourages physicians to enroll in alternative payment methods which incentivize physicians differently than how they are currently. We do not currently know how or if this will impact the future demand or payments for our services.

The commercial success of our diagnostic tests depends on the availability and sufficiency of third-party payer coverage and reimbursement, which may be limited or unavailable.

Our ability to successfully commercialize our diagnostic tests will depend, in significant part, on the extent to which appropriate reimbursement levels can be obtained for patients. Physicians will be hesitant to order a diagnostic test for a patient when they may be left with a large out-of-pocket fee through co-payments or co-insurance or unreimbursed balances. Third-party payers, including Medicare, Medicaid and private insurers, are increasingly challenging the prices charged for healthcare products and services. In addition, legislative proposals to reform health care or reduce government insurance programs may result in lower prices or the actual inability of prospective customers to purchase our tests. Furthermore, even if reimbursement is available, it may not be available at price levels sufficient for us to realize a positive return on our investment. We have never successfully obtained reimbursement for any test and may never be able to obtain reimbursement from any third-party payer; without such coverage and reimbursement, we may not achieve market acceptance of our test and may never be profitable.

The United States government and state legislatures have shown significant interest in implementing cost containment programs to limit the growth of government-paid healthcare costs, including price controls, restrictions on reimbursement and coverage. Adoption of government controls and measures, and tightening of restrictive policies in jurisdictions with existing controls and measures, could exclude or limit one or more of our diagnostic tests from coverage. Even if a diagnostic test receives coverage and reimbursement from third-party payers, such coverage policies and reimbursement rates may change at any time, might not be adequate, or less favorable coverage policies and reimbursement rates may be implemented in the future. If we are unable to obtain and maintain sufficient third-party coverage and adequate reimbursement for a diagnostic test, its commercial success may be greatly hindered, and our financial condition and results of operations may be materially and adversely affected.

We may need to conduct additional studies in order to demonstrate the cost-effectiveness of our diagnostic tests to the satisfaction of our target customers and their third-party payers. Such studies might require us to commit a significant amount of management time and financial and other resources

Changes in healthcare laws and policies may have a material adverse effect on our financial condition, results of operations and cash flows.

The ACA substantially changedWe cannot predict whether future healthcare initiatives will be implemented at the way health care is financedfederal or state level, or how any future legislation or regulation may affect us. For instance, the payment reductions imposed by both governmental and private insurers, and Congressional leadersthe Affordable Care Act (“ACA”) and the President have voiced their intent to amendexpansion of the ACA or to repealfederal and replace it with new legislation,state governments’ role in the provisions of which are not yet known, and legal challengesU.S. healthcare industry as well as changes to the validityreimbursement amounts paid by payers for our tests and future tests and products may reduce our profits and have a materially adverse effect on our business, financial condition, results of operations and cash flows. Notably, Congress enacted legislation in 2017 that eliminated the ACA’s “individual mandate” beginning in 2019, which may significantly impact the number of covered lives participating in exchange plans. The U.S. Supreme Court is currently reviewing the constitutionality of the ACA, are currently being considered by Federal courts and mayalthough it is unclear when a decision will be decided bymade. Further, it is possible that additional governmental action be taken in response to the United States Supreme Court in 2020. Among the ACA’s key changes, the ACA reduced payment rates under the Medicare Clinical Laboratory Fee Schedule and established an Independent Payment Advisory Board to reduce the per capita rate of growth in Medicare spending if spending exceeds a target growth rate. If retained, such provisions may negatively impact payment rates for our diagnostic tests. Furthermore, effective January 1, 2013, the ACA included a 2.3% excise tax on the sale of certain medical devices sold outside of the retail setting. Although a moratorium has been imposed on this excise tax for 2016 through 2019, the excise tax is scheduled to be restored in 2020.COVID-19 pandemic.

PAMA significantly altered the payment methodology under the Clinical Laboratory Fee Schedule that determines Medicare coverage for laboratory tests. Under PAMA (as amended by the Further Consolidated Appropriations Act, 2020 and the Coronavirus Aid, Relief, and Economic Security Act, respectively) and its implementing regulations, clinical laboratories are requiredmust report to report test payment dataCMS private payer rates for each Medicare-covered clinical diagnostic laboratory test and beginning in 2017,tests. Laboratories that fail to timely report the required payment information may be subject to substantial civil money penalties. Medicare payment ratepayments for each clinical diagnostic laboratory testtests are paid based upon these reported private payer rates. For certain clinical diagnostic laboratory tests that are not designated as advanced diagnostic laboratory tests, initial payment rates will be equal toassigned by the weighted median amount for the test from the most recent data collection period.

Congress has proposed on several occasions to impose a 20% coinsurance payment requirement on patients for clinicalcross-walk or gap-fill methodology. For laboratory tests reimbursed under the Medicare Clinical Laboratory Fee Schedule, which would require us to bill patients for these amounts. In the event that Congress were to ever enact such legislation, the cost of billing and collecting for ourare designated as new advanced diagnostic laboratory tests could often exceed the amount actually received from the patient.

Medicare payments for new ADLTs are nowinitial payment rates will be based on the actual list price or charge. After the test is commercially availablecharge for three quarters, the laboratory test. The payment rates calculated under PAMA will be requiredheld at 2020 levels during 2021, and then, where applicable based upon median private payer rates reported, reduced by up to report payment and volume information and that data will be used15% per test per year in each of 2022 through 2024, with a second round of private payer rate reporting in 2022 to set paymentestablish rates for the test for the following year.2023 through 2025.

On January 1, 2018, the new PAMA-based Medicare Clinical Laboratory Fee Schedule went into effect for the first time. PAMA-based prices did not impact all lab tests equally. Some tests had price reductions while others saw price increases.

We cannot predict whether future health care initiatives will be implemented at the federal or state level, or how any future legislation or regulation may affect us. The expansion of government’s role in the U.S. health care industry as a result of the ACA or the repeal or amendment of the ACA, and changes to the reimbursement amounts paid by Medicare and other payers for diagnostic tests may have a materially adverse effect on our business, financial condition, results of operations and cash flows.

Because of certain Medicare billing policies, we may not receive complete reimbursement for tests provided to Medicare patients.

Medicare has coverage policies that can be national or regional in scope. Coverage means that the test or assay is approved as a benefit for Medicare beneficiaries. If there is no coverage, neither the supplier nor any other party, such as a diagnostic laboratory, may receive reimbursement from Medicare for the service. Regional policies are directed by Medicare’s regional MACs. Reimbursement for our diagnostic testing may be negatively impacted by California MAC policies.

Long payment cycles of Medicare, Medicaid and other third-party payers, or other payment delays, could hurt our cash flows and increase our need for working capital.

Medicare and Medicaid have complex billing and documentation requirements that we will have to satisfy in order to receive payment. Failure to comply with these requirements and other laws applicable to billing may result in, among other things, non-payment, refunds, exclusion from government healthcare programs, and civil or criminal liabilities, any of which may have a material adverse effect on our revenues and earnings. Similarly, the failure of private health insurers or other private third-party payers to properly process our payment claims in a timely manner could delay our receipt of payment for our diagnostic tests and services, which may have a material adverse effect on our cash flows.

Private health insurance company policies may deny coverage or limit the amount they will reimburse us for the performance of our diagnostic tests.

Patients who are not covered by Medicare will generally rely on health insurance provided by private health insurance companies. If we are considered a “non-contracted provider” by a third-party payer, that payer may not reimburse patients for diagnostic tests performed by us, or doctors within the payer’s network of covered physicians may not use our services to perform diagnostic tests for their patients. As a result, we may need to enter into contracts with health insurance companies or other private payers to provide diagnostic tests to their insured patients at specified rates of reimbursement which may be lower than the rates we might otherwise collect.

We will be required to comply with federal and state laws governing the privacy of health information, and any failure to comply with these laws could result in material criminal and civil penalties.

HIPAA sets forth security regulations that establish administrative, physical and technical standards for maintaining the confidentiality, integrity and availability of Protected Health Information in electronic form. We also may be required to comply with state laws that are more stringent than HIPAA or that provide individuals with greater rights with respect to the privacy or security of, and access to, their health care records. The Health Information Technology for Economic and Clinical Health Act (“HITECH”) established certain health information security breach notification obligations that require covered entities to notify each individual whose “protected health information” is breached.

We may incur significant compliance costs related to HIPAA and HITECH privacy regulations and varying state privacy regulations and varying state privacy and security laws. Given the complexity of HIPAA and HITECH and their overlap with state privacy and security laws, and the fact that these laws are rapidly evolving and are subject to changing and potentially conflicting interpretation, our ability to comply with the HIPAA, HITECH and state privacy requirements is uncertain and the costs of compliance are significant. The costs of complying with any changes to the HIPAA, HITECH and state privacy restrictions may have a negative impact on our operations. Noncompliance could subject us to criminal penalties, civil sanctions and significant monetary penalties as well as reputational damage.

If we are successful in commercializing our diagnostic tests, we will be obligated to comply with numerous additional federal and state statutes and regulations pertaining to our business and be subject to government oversight and scrutiny for our compliance with such laws. Laboratory and health care regulatory compliance efforts are expensive and time-consuming, and failure to maintain compliance with applicable laws could result in enforcement action which could be detrimental to our business.

If we are successful in commercializing any of our diagnostic tests, and particularly if payment becomes available from government or commercial payers for a test, we will be subject to extensive and frequently changing federal and state laws governing various aspects of our business. We will be subject to ongoing compliance with laws addressing our laboratory licensure and certification at the federal and state level; advertising and promotion (including laws enforced by the Federal Trade Commission); and laws intended to prevent fraud, waste, and abuse in healthcare programs (including among others the Anti-Kickback Statute, False Claims Act, the Eliminating Kickbacks in Recovery Act (EKRA), the Stark Law, and applicable state law equivalents).

These laws and regulations are complex and are subject to interpretation by the courts and by government agencies. If one or more such agencies alleges that we may be in violation of any of these requirements, regardless of the outcome, it could damage our reputation and adversely affect important business relationships with third parties. Any action brought against us for violation of these or other laws or regulations, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. If our operations are found to be in violation of any of these laws and regulations, we may be subject to any applicable penalty associated with the violation, including civil and criminal penalties, damages and fines, and in some circumstances we could be required to refund payments received by us from payers, or even be excluded from participation in healthcare programs. Any of the foregoing consequences could seriously harm our business and our financial results.

We plan to adopt policies and procedures designed to comply with applicable laws and regulations. Developing a compliance infrastructure is costly and time-consuming, and even a well-designed and implemented compliance program cannot necessarily prevent all violations of relevant laws. We may be subject to enforcement action based on the actions or omissions of employees or contractors, including our anticipated sales force.

Risks Related to Intellectual Property

We rely on patents and trade secrets, and our financial success will depend, in part, on our ability to obtain commercially valuable patent claims, protect our intellectual property rights and operate without infringing upon the proprietary rights of others.

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 United States and certain foreign countries. 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 depend, in part, on our ability to obtain commercially valuable patent claims, protect our intellectual property rights and operate without infringing upon the proprietary rights of others.

With regard to DetermaDx™, we exclusively license from Wistar two patent families with claims directed to compositions of matter and methods useful for detection of lung cancer using specific biomarkers or a panel of specific biomarkers. The first patent family has patent applications pending in the United States and certain foreign jurisdictions, including Australia, Canada, China, India, and Japan, where, if issued, such patents would expire in 2036. The second patent family has patent applications pending in the United States and certain foreign jurisdictions, including Australia, Canada, China, India, and Japan, where, if issued, such patents would expire in 2037. There is no assurance that patents pending will issue.

We may not be able to obtain patent protection for our diagnostic test if our pending U.S. patent applications are found to be directed to unpatentable subject matter.

The U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. For example, recent cases have held that diagnostic methods merely reciting a correlation between a naturally occurring event and a diagnostic outcome associated with that event is not patentable subject matter. If our pending U.S. patent applications are found to be directed to unpatentable subject matter by the USPTO, or any patents issuing from our pending patent applications are invalidated based on these decisions, we may be unable to prevent competitors from using the biomarkers or other subject matter disclosed in the patent applications to develop similar diagnostic tests that would compete with our tests. Additionally, there have been recent proposals for additional changes to the patent laws of the United States and other countries that, if adopted, could impact our ability to enforce our proprietary technology. Depending on future actions by the U.S. Congress, U.S. courts, the USPTO and the relevant law-making bodies in other countries, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future.

Changes to the patent laws in the United States and other jurisdictions could diminish the value of patents in general, thereby impairing our ability to protect our diagnostic test.

Our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biopharmaceutical industry involves both technological and legal complexity and is costly, time-consuming and inherently uncertain. Patent reform legislation in the United States and other countries, including the Leahy-Smith America Invents Act, or the Leahy-Smith Act, signed into law in September 2011, could increase those uncertainties and costs. The Leahy-Smith Act includes a number of significant changes to U.S. patent law. These include provisions that affect the way patent applications are prosecuted, redefine prior art and provide more efficient and cost-effective avenues for competitors to challenge the validity of patents. In addition, the Leahy-Smith Act has transformed the U.S. patent system into a “first to file” system. The first-to-file provisions, however, only became effective in March 2013. Accordingly, it is not yet clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its implementation could make it more difficult to obtain patent protection for our inventions and increase the uncertainties and costs surrounding the prosecution of our or our collaboration partners’ patent applications and the enforcement or defense of our or our collaboration partners’ issued patents, all of which could harm our business, results of operations and financial condition.

Other companies or organizations may challenge our patent rights or may assert patent rights that prevent us from developing and commercializing our diagnostic test.

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-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. Aninter partes review proceeding allows third parties to challenge the validity 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 Leahy-Smith 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. Further, 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, our patents may not be comprehensive enough to provide us with meaningful patent protection against our competitors.

If we are unable to protect the confidentiality of our trade secrets, the value of our technology could be materially adversely affected, and our business would be harmed.

In addition to patents, we rely on trade secrets, know-how, and continuing technological advancement 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. These measures, however, may not 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.

We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time-consuming and unsuccessful.

Competitors may infringe our patents, trademarks, copyrights or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming and divert the time and attention of our management and scientific personnel. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that we infringe their patents, in addition to counterclaims asserting that our patents are invalid or unenforceable, or both. In any patent infringement proceeding, a court may decide that a patent of ours is invalid or unenforceable, in whole or in part, and that we do not have the right to stop the other party from using the invention at issue. Even if the validity of such patents is upheld, the court may construe the patent’s claims narrowly or decide that we do not have the right to stop the other party from using the invention at issue on the grounds that our patent claims do not cover the invention. An adverse outcome in a litigation or proceeding involving our patents could limit our ability to assert our patents against those parties or other competitors, and may curtail or preclude our ability to exclude third parties from making and selling similar or competitive products. Any of these occurrences could adversely affect our competitive business position, business prospects and financial condition. Similarly, if we assert trademark infringement claims, a court may determine that the marks we have asserted are invalid or unenforceable, or that the party against whom we have asserted trademark infringement has superior rights to the marks in question, in which case, we could ultimately be forced to cease use of such trademarks.

Even if we establish infringement, the court may decide not to grant an injunction against further infringing activity and instead award only monetary damages, which may or may not be an adequate remedy. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, some of our confidential information could be compromised by disclosure during litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of shares of our common stock. Moreover, we may not have sufficient financial or other resources to file and pursue such infringement claims, which typically last for years before they are concluded. Even if we ultimately prevail in such claims, the monetary cost of such litigation and the diversion of the attention of our management and scientific personnel could outweigh any benefit we receive as a result of the proceedings.

We may not be able to enforce our intellectual property rights throughout the world.

Filing, prosecuting and defending patents, if issued, on our diagnostic test candidate in all countries throughout the world would be prohibitively expensive. The requirements for patentability may differ in certain countries, particularly in developing countries. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we may obtain patent protection, but where patent enforcement is not as strong as that in the United States. These products may compete with our diagnostic test in jurisdictions where we do not have any issued or licensed patents or where any future patent claims or other intellectual property rights may not be effective or sufficient to prevent them from competing with us.

Moreover, our ability to protect and enforce our intellectual property rights may be adversely affected by unforeseen changes in foreign intellectual property laws. Additionally, laws of some countries outside of the United States and Europe do not afford intellectual property protection to the same extent as the laws of the United States and Europe. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of some countries, including India, China and certain developing countries, do not favor the enforcement of patents and other intellectual property rights. This could make it difficult for us to stop the infringement of our patents or the misappropriation of our other intellectual property rights. For example, many foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. Consequently, we may not be able to prevent third parties from practicing our inventions in certain countries outside the United States and Europe. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we have patent protection, if our ability to enforce our patents to stop infringing activities is inadequate. These products may compete with our diagnostic test, and our patents, if issued, or other intellectual property rights may not be effective or sufficient to prevent them from competing.

Proceedings to enforce our patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert our efforts and resources from other aspects of our business. Furthermore, while we intend to protect our intellectual property rights in major markets for our diagnostic test, we cannot ensure that we will be able to initiate or maintain similar efforts in all jurisdictions in which we may wish to market our diagnostic test. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate.

If we are sued for infringing intellectual property rights of third parties, such litigation could be costly and time consuming and could prevent or delay us from developing or commercializing our diagnostic test.

There is a substantial amount of intellectual property litigation in the biotechnology and pharmaceutical industries, and we may become party to, or threatened with, litigation or other adversarial proceedings regarding intellectual property rights with respect to our current or future diagnostic test, including interference proceedings before the USPTO, misappropriation claims, or other allegations. The outcome of intellectual property litigation is subject to uncertainties that cannot be adequately quantified in advance. For example, the biotechnology and pharmaceutical industries have produced a significant number of patents, and it may not always be clear to industry participants, including us, which patents cover various types of products or methods of use. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform. If we were sued for patent infringement, we would need to demonstrate that our diagnostic test or methods either do not infringe the patent claims of the relevant patent or that the patent claims are invalid or unenforceable, and we may not be able to do this. Proving invalidity is difficult. For example, in the United States, proving invalidity requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents.

In addition, several of our employees have executed proprietary rights, non-disclosure and non-competition agreements, or similar agreements with their previous employers, who may allege these employees have used or disclosed intellectual property, including trade secrets or other proprietary information. Even if we are successful in these proceedings, we may incur substantial costs, and the time and attention of our management and scientific personnel could be diverted in pursuing these proceedings, which could significantly harm our business and operating results. We may also not have sufficient resources to bring these actions to a successful conclusion.

If we are found to infringe a third party’s intellectual property rights, we may have to pay monetary damages, lose valuable intellectual property rights or personnel, or be forced to cease developing, manufacturing or commercializing the infringing diagnostic test. Alternatively, we may be required to obtain a license from such third party in order to use the infringing technology and continue developing, manufacturing or marketing the infringing diagnostic test. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our diagnostic test or force us to cease some of our business operations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business.

Patent terms may be inadequate to protect our competitive position on our diagnostic test for an adequate amount of time.

Given the amount of time required for the development, testing and regulatory review of new diagnostic tests, patents protecting such candidates might expire before or shortly after such candidates are commercialized. We expect to seek extensions of patent terms in the United States and, if available, in other countries where we are prosecuting patents. In the United States, the Drug Price Competition and Patent Term Restoration Act of 1984 permits a patent term extension of up to five years beyond the normal expiration of the patent, which is limited to the approved indication or any additional indications approved during the period of extension. However, the applicable authorities, including the FDA and the USPTO in the United States, and any equivalent regulatory authorities in other countries, may not agree with our assessment of whether such extensions are available, and may refuse to grant extensions to our patents, or may grant more limited extensions than we request. If this occurs, our competitors may be able to take advantage of our investment in development and clinical trials by referencing our clinical and preclinical data and launch their product earlier than might otherwise be the case.

Risks Related to the Covid-19 Pandemic

The ongoing COVID-19 global pandemic and the worldwide attempts to contain it could harm our business and our results of operations and financial condition could be adversely impacted by such pandemic.

The ongoing global outbreak of the coronavirus COVID-19, and the various attempts throughout the world to contain it, have created significant volatility, uncertainty and disruption. The COVID-19 pandemic has had, and may continue to have, significant effects on our operations, ability to generate revenues, and financing activities. In response to government directives and guidelines, health care advisories and employee and other concerns, we have altered certain aspects of our operations. A number of our employees have had to work remotely from home and those on site have had to follow our social distance guidelines, which could impact their productivity. COVID-19 could also disrupt our operations due to absenteeism by infected or ill members of management or other employees, or absenteeism by members of management and other employees who cannot effectively work remotely but who elect not to come to work due to the illness affecting others in our office or laboratory facilities, or due to quarantines. COVID-19 illness could also impact members of our Board of Directors resulting in absenteeism from meetings of the directors or committees of directors, and making it more difficult to convene the quorums of the full Board of Directors or its committees needed to conduct meetings for the management of our affairs.

The pandemic is affecting our revenue-generating activities. During the COVID-19 pandemic, we have not been able, and may continue to not be able, to maintain our preferred level of physician or customer outreach and marketing of our diagnostic testing and Pharma Services, which may have negatively impacted, and may continue to negatively impact, our potential new customers’ interest in our tests and services. Because of COVID-19, travel, visits, and in-person meetings related to our business have been severely curtailed or canceled and we have instead used on-line or virtual meetings to meet with potential customers and others.

The concern over available hospital, staffing, equipment, and other resources, and the risk of exposure to the virus, has led to early stage lung cancer surgeries being delayed, and the continued deferral of lung cancer surgeries could result in delayed or reduced use of DetermaRx™ in the near term. Even if COVID-19 related restrictions are relaxed and lung cancer surgeries are performed at or close to pre-pandemic levels, any growth and anticipated adoption of our diagnostic tests may not occur due to reasons other than COVID-19.

The consequences of the COVID-19 pandemic have led to uncertainties related to our growth and our ability to forecast the demand for our diagnostic testing and Pharma Services and resulting revenues, as we have not had time to establish a base of customers, revenues or other relevant trends. We have had no commercial revenues until the first quarter of 2020 when we launched of our first commercial diagnostic test, DetermaRx, and acquired the Pharma Services business of Insight. We had expected that initial DetermaRx™ revenues would be constrained by the lack of Medicare coverage. Medicare reimbursement pricing approval for DetermaRx™ did not become effective until September 2020. Deferrals in lung cancer surgeries due to COVID-19 may have reduced demand for DetermaRx™, but because of the lack of historical DetermaRx™ revenues, with or without Medicare reimbursement, we are unable to determine the extent to which the deferral of those surgeries impacted our DetermaRx™ revenues. Resurgences in COVID-19 cases could cause additional deferrals of lung cancer surgeries during the course of the pandemic. The lack of in-person interaction with healthcare providers for our promotion of the use of DetermaRx™ has also placed a constraint on our ability to market that test, but we cannot determine the extent to which that has impacted our revenues due to the absence of historical revenues. Similarly, our Pharma Services revenues commenced with our acquisition of Insight during the first quarter of 2020 and because we do not have a prior history of Pharma Services revenues we cannot assess how COVID-19 may have impacted those revenues, although we are aware that certain planned clinical trials of new pharmaceuticals for which we had expected to provide Pharma Services were delayed due to the pandemic.

Although we have not yet experienced COVID-19 related supply chain disruptions impacting our testing capacity, if the vendors of equipment and reagents used in our diagnostic laboratories experience supply, operational, or financial disruptions due to the COVID-19 pandemic, we could experience supply constraints in the future that could cause increased costs or delays in performing DetermaRx™ tests and Pharma Services and in continuing the development of new diagnostic tests, including DetermaIO™.

Additionally, the anticipated economic consequences of the COVID-19 pandemic may adversely impact financial markets, resulting in high share price volatility, reduced market liquidity, and substantial declines in the market prices of the securities of some publicly traded companies. Volatile or declining markets for equities could adversely affect our ability to raise capital when needed through the sale of shares of common stock or other securities. Accordingly, we cannot assure that adequate financing will be available on favorable terms, if at all. If we are not able to raise the capital we need, we could be forced to modify, curtail, delay, or suspend some or all aspects of planned operations. Sales of additional equity securities could result in significant dilution of the interests of our shareholders.

It is possible that impacts of COVID-19 on our operations or revenues or our access to capital could prevent us from complying, or could result in a material noncompliance, with one or more obligations or covenants under material agreements to which we are a party, with the result that we would be in material breach of the applicable obligation, covenant, or agreement. Any such material breach could cause us to incur material financial liabilities or an acceleration of the date for paying a financial obligation to the other party to the applicable agreement, or could cause us to lose material contractual rights, such as rights to use leased equipment or laboratory or office space, or rights to use licensed patents or other intellectual property the use of which is material to our business. Similarly, it is possible that impacts of COVID-19 on the business, operations, or financial condition of any third party with whom we have a contractual relationship could cause the third party to be unable to perform its contractual obligations to us, resulting in Oncocyte’s loss of the benefits of a contract that could be material to our business.

The full extent to which the COVID-19 pandemic and the various responses might impact our business, operations and financial results will depend on numerous evolving factors that we will not be able to accurately predict, including: the duration and scope of the pandemic; governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic; the availability and cost to access COVID-19 tests, vaccines and therapies; the effect on our potential customers and their demand for our diagnostic testing and Pharma Services; and the effect on our suppliers and their ability to provide the necessary equipment and materials to support our tests and services. In addition to the direct impacts to our business operations, the global economy is likely to continue to be significantly weakened as a result of actions taken in response to the COVID-19 pandemic and to the extent that such a weakened global economy impacts customers’ ability or willingness to purchase and pay for our tests, our business and results of operation could be negatively impacted. Due to the uncertain scope and duration of the COVID-19 pandemic and uncertain timing of any recovery or normalization, we are currently unable to estimate the resulting impacts on our operations and financial results. We will continue to actively monitor the issues raised by the COVID-19 pandemic and may take further actions that alter our operations, as may be required by federal, state, local or foreign authorities, or that we determine are in the best interests of our employees, any customers and stockholders. It is not clear what the potential effects any such alterations or modifications may have on our business, including the effects on our financial results.

Risks Related to Our Common Stock

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.

The price of our stock may rise and fall rapidly.

The market price of our common stock, like that of the shares of many biotechnology companies, may be highly volatile. The price of our common stock may rise or fall rapidly as a result of a number of factors, including:

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.

The implementation of a newA FASB accounting standard could increase the risk that our future financial statements could be qualified by going concern uncertainty.

In August 2014, theUnder 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.

Because we do not pay dividends, our stock may not be a suitable investment for anyone who needs to earn dividend income.

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 or 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.

Securities analysts may not initiate coverage or continue to cover our common stock, and this may have a negative impact on the market price of our shares.

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. Certain securities analysts 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.

You may experience dilution of your ownership interests if we issue additional shares of common stock or preferred stock.

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 90,000,000155,000,000 shares of capital stock consisting of 85,000,000150,000,000 shares of common stock and 5,000,000 “blank check” shares of preferred stock. At December 31, 2019,2020, there were 57,031,65469,116,802 shares of common stock outstanding, 3,383,913 shares of common stock reserved for exercise of warrants and 7,363,7788,428,821 shares of common stock reserved for issuance upon the exercise of options under our employee stock option 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 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.

LineageOur former parent company, may sell its Oncocyte shares to raise capital to finance its operations.

Prior to February 17, 2017, Oncocyte was a consolidated subsidiary of its former parent company Lineage Cell Therapeutics, Inc., formerly known as BioTime, Inc. (“Lineage”). Based on its most recent report of beneficial ownership on Schedule 13D, as of January 8, 2021 Lineage holds 6,041,154held 3,297,401 shares of Oncocyte common stock. Lineage has been periodically selling shares of Oncocyte common stock from its holdings and has announced its intention to continue to sell Oncocyte shares. The sale of such shares could have a depressing effect on the market value of Oncocyte common stock and the prices at which we can sell our own shares of common stock to raise capital to support our operations.

We are an “emerging growth company,” and may elect to comply with reduced public company reporting requirements applicable to emerging growth companies, which could make our common stock less attractive to investors.

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

NoneNot applicable.

Item 2. Properties

Our principal executive and administrative offices are located in an office and laboratory facility of leased space in Irvine, California. The Irvine lease expires in 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 willexpire on March 31, 2023, and the lease of the Nashville, Tennessee CLIA laboratory space will expire in April 2024.

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.

Item 4. Mine Safety Disclosures

Not applicable

PART II

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

Market Information

OurBeginning on March 8, 2021, our common stock isbegan trading on the NASDAQ Global Market under the symbol “OCX”, and prior to that date our common stock was traded on the NYSE American under the symbol “OCX”.same symbol. As of March 4, 2020,8, 2021, there were 62,471,12288,914,144 shares of our common stock outstanding.

Holders

As of March 5, 2020,9, 2021, we had approximately 254262 holders of record of our common stock. This number does not include shareholders whose shares of Oncocyte 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, 20192020 (in thousands, except weighted average exercise price):

Additional information concerning our 2010 Employee Stock Option Plan and our 2018 Equity Incentive Plan and stock options may be found in Note 811 to the Financial Statements.consolidated financial statements found elsewhere in this Report.

Recent Sales of Unregistered Securities

None.

Item 6. Selected Financial Data

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, 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 Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide information necessary to understand our audited consolidated financial statements for the years ended December 31, 20192020 and 2018,2019, and highlight certain other information which, in the opinion of management, will enhance a reader’s understanding of our financial condition, changes in financial condition and results of operations. These historical consolidated financial statements may not be indicative of our future performance. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risks described throughout this filing, particularly in “Risk Factors.”

Emerging Growth Company Status

The Jumpstart our Business Startups Act of 2012 (“JOBS Act”) permits an “emerging growth company” such as Oncocyte to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. However, we elected to comply with newly adopted or revised accounting standards when they become applicable to public companies because our financial statements were consolidated with those of Lineage, which is not an emerging growth company under the JOBS Act and is therefore not permitted to delay the adoption of new or revised accounting standards that become applicable to public companies. This election under the JOBS Act to not delay the adoption of new or revised accounting standards is irrevocable.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

We were incorporated in September 2009are a molecular diagnostics company focused on developing and commercializing proprietary laboratory-developed tests or LDTs to serve unmet medical needs across the cancer care continuum. We have prioritized lung cancer as our first indication. Lung cancer remains the leading cause of cancer death in the stateUnited States, despite the availability of California.molecular testing and novel therapies to treat patients.

Our first commercial diagnostic test is a proprietary treatment stratification test called DetermaRx™ that identifies which patients with early stage non-small cell lung cancer may benefit from chemotherapy, resulting in a significantly higher, five-year survival rate. We are currently devoting substantially allalso developing multi-gene molecular, laboratory-developed diagnostic tests that we have branded as DetermaIO™. DetermaIO™ is 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). DetermaIO™ is presently available for research use through our Pharma Services operations but one of our effortsgoals is to developingcomplete development of that assay and planningto make it available for clinical use later this year. We also perform other assay development and clinical testing services for pharmaceutical and biotechnology companies through our Pharma Services operations.

Other tests in our development pipeline include DetermaTx™, a test that we are targeting for commercial launch later this year and that is intended to compliment DetermaIO™ by assessing the commercializationmutational status of DetermaDx™a tumor to help identify the appropriate targeted therapy. We also plan to initiate the development of DetermaMx™ as a blood based test to monitor cancer patients for recurrence of their disease. We plan to add to our diagnostic test pipeline the DetermaCNI™, DetermaRx™ and DetermaIO^TM. a patented, blood-based test from Chronix for immunotherapy monitoring, if we complete the merger with Chronix.

The inherent uncertainties of developing and commercializing new diagnostic tests for medical use make it impossible to predict the amount of time and expense that will be required to complete the development and commercialization of those tests. There is no assurance that we will be successful in developing new technology or diagnostic tests, or that any technology or diagnostic tests that we may develop will be proven safe and effective in diagnosis of cancer in humans, or will be successfully commercialized.

We believe we have sufficient cash, cash equivalents, and marketable equity securities and access to additional capital through an agreement with an investment banking firm to offer and sell up to $25 million of our common stock from time to time in at-the-market transactions, to carry out our current operations through at least twelve months from the issuance date of our consolidated financial statements included elsewhere in this Report. We expect that our operating expenses will continue to increase as we conduct our planned clinical trial of DetermaRx, and if we successfully complete the development of DetermaDx™DetermaIO™, DetermaTx™ and DetermaIO™, conduct clinical trials of those tests and DetermaRx™,DetermaMx™ and commercialize those tests and DetermaRx™.tests. We have hired a sales and marketing team, we are expanding the capacity of our CLIA laboratories to perform a larger volume of cancer diagnosticrelated tests by constructing a new primary clinical laboratory facility in Irvine, California, which is expected to be completed in 2021. We also plan to acquire a laboratory in Germany through our planned merger with Chronix and we are preparingwill incur additional expenses resulting from the commercial launchintegration of DetermaRx™.Chronix operations with our existing operations, including costs related to adding the European laboratory and an increase in headcount. We are continuing to seek other opportunities to acquire ownership of or marketing rights to additional diagnostic cancer tests. Because of the expected time frame to apply for and receive Medicare reimbursement approval for our diagnostic tests, our pre-Medicare approval revenues from commercialization of our diagnostic tests and revenues from services we perform for pharmaceutical companies are not expected to cover our operating expenses. We will need to obtain additional financing for our operations until such time as we generate sufficient revenues from the commercialization of our diagnostic tests to cover our operating expenses. Our determination as to when we will seek new financing and the amount of financing that we will need will be based on our evaluation of the progress we make in our research and development programs, any changes to or the expansion of the scope and focus of our research, progress and results of commercializing our diagnostic tests after completion of development, progress in receiving Medicare and other payor reimbursement approval, and our projection of future costs. See “Liquidity and Capital Resources” for a discussion of our available capital resources, our need for future financing, and possible sources of capital.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”), requires management to make estimates and assumptions that affect the reported amounts in our consolidated financial statements and related notes. Our significant accounting policies are described in Note 2 to our consolidated financial statements included elsewhere in this Report. We have identified below our critical accounting policies and estimates that we believe require the greatest amount of judgment. On an ongoing basis, we evaluate estimates which are subject to significant judgment, including those related to the going concern assessments of our consolidated financial statements, allocation of direct and indirect expenses, useful lives associated with long-lived intangible assets, machinery and equipment, loss contingencies, valuation allowances related to deferred income taxes, and assumptions used to value stock-based awards, debt or other equity instruments. Actual results could differ materially from those estimates. On an ongoing basis, we evaluate our estimates compared to historical experience and trends, which form the basis for making judgments about the carrying value of assets and liabilities. To the extent that there are material differences between our estimates and our actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.

We believe the assumptions and estimates associated with the following have the greatest potential impact on our consolidated financial statements.

Going concern assessment

With the implementation of FASB’s standard on going concern, ASU No. 2014-15, we assess going concern uncertainty in our consolidated financial statements to determine if we have sufficient cash and cash equivalents on hand and working capital, including available loans or lines of credit, if any, to operate for a period of at least one year from the date our consolidated financial statements are issued, which is referred to as the “look-forward period” as defined by ASU No. 2014-15. As part of this assessment, based on conditions that are known and reasonably knowable to us, we consider various scenarios, forecasts, projections, and estimates, and we make certain key assumptions, including the timing and nature of projected cash expenditures or programs, and our ability to delay or curtail those expenditures or programs, if necessary, among other factors. Based on this assessment, as necessary or applicable, we make certain assumptions around implementing curtailments or delays in the nature and timing of programs and expenditures to the extent we deem probable those implementations can be achieved and we have the proper authority to execute them within the look-forward period in accordance with ASU No. 2014-15.

Business combinations

We account for business combinations, such as the Insight Merger, in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, which requires the purchase price to be measured at fair value. When the purchase consideration consists, in part or entirely of our common shares, we calculate the purchase price by determining the fair value, as of the acquisition date, of shares issued in connection with the closing of the acquisition. We recognize estimated fair values of the tangible assets and intangible assets acquired, including in-process research and development (“IPR&D”), and liabilities assumed as of the acquisition date, and we record as goodwill any amount of the fair value of the tangible and intangible assets acquired and liabilities assumed in excess of the purchase price.

Contingent consideration liabilities

ASC 805 requires that contingent consideration be estimated and recorded at fair value as of the acquisition date as part of the total consideration transferred. Contingent consideration is an obligation of the acquirer to transfer additional assets or equity interests to the selling shareholders in the future if certain future events occur or conditions are met, such as the attainment of product development milestones. Contingent consideration also includes additional future payments to selling shareholders based on achievement of components of earnings, such as “earn-out” provisions or percentage of future revenues, including royalties paid to the selling shareholders based on a percentage of revenues generated from DetermaIO™ and Insight Pharma Services over their respective useful life.

The fair value of milestone-based contingent consideration was determined using a scenario analysis valuation method which incorporates our assumptions with respect to the likelihood of achievement of the Insight milestones, as defined in the Merger Agreement, credit risk, timing of the contingent consideration payments and a risk-adjusted discount rate to estimate the present value of the expected payments, all of which require significant management judgment and assumptions. Since the contingent consideration payments are based on nonfinancial, binary events, management believes the use of the scenario analysis method is appropriate.

The fair value of royalty- or revenue share-based contingent consideration was determined using a single scenario analysis method to value those payments. The single scenario method incorporates our assumptions with respect to specified future revenues generated from DetermaIO™ and current Insight Pharma Services over their respective useful lives, credit risk, and a risk-adjusted discount rate to estimate the present value of the expected royalty payments, all of which require significant management judgment and assumptions. Since the royalty-based contingent consideration payments are based on future revenues and linear payouts, management believes the use of the single scenario method is appropriate.

The fair value of all contingent consideration after the Merger Date is reassessed by us as changes in circumstances and conditions occur, with the subsequent change in fair value recorded in our consolidated statements of operations. Changes in key assumptions can materially affect the estimated fair value of contingent consideration liabilities and, accordingly, the resulting gain or loss that we record in our consolidated financial statements. See Note 5 to our consolidated financial statements included elsewhere in this Report.

Goodwill and intangible assets

In accordance with ASC 350, Intangibles – Goodwill and Other, in-process research and development projects acquired in a business combination that are not complete as of the acquisition date are capitalized and accounted for as indefinite-lived intangible assets until completion or abandonment of the related research and development efforts. Upon successful completion of the project, the capitalized amount is amortized over its estimated useful life. If a project is abandoned, all remaining capitalized amounts are written off immediately. We consider various factors and risks for potential impairment of IPR&D assets, including the current legal and regulatory environment, uncertainties posed by the ongoing COVID-19 pandemic and the competitive landscape. Adverse clinical trial results, significant delays or inability to obtain local determination coverage (“LCD”) from the Centers for Medicare and Medicaid Services (“CMS”) for Medicare reimbursement for a diagnostic test, the inability to bring a diagnostic test to market and the introduction or advancement of competitors’ diagnostic tests could result in partial or full impairment of the related intangible assets. Consequently, the eventual realized value of the IPR&D project may vary from its fair value at the date of acquisition, and IPR&D impairment charges may occur in future periods. During the period between completion or abandonment, the IPR&D assets will not be amortized but will be tested for impairment on an annual basis and between annual tests if we become aware of any events occurring or changes in circumstances that would indicate a reduction in the fair value of the IPR&D projects below their respective carrying amounts.

Goodwill represents the excess of the purchase price over the fair value of net identifiable assets and liabilities. Goodwill, similar to IPR&D, is not amortized but is tested for impairment at least annually, or if circumstances indicate its value may no longer be recoverable. Qualitative factors considered in this assessment include industry and market conditions, overall financial performance, and other relevant events and factors affecting our business. Based on the qualitative assessment, if it is determined that the fair value of goodwill is more likely than not to be less than its carrying amount, the fair value of a reporting unit will be calculated and compared with its carrying amount and an impairment charge will be recognized for the amount that the carrying value exceeds the fair value. We continue to operate in one segment and considered to be the sole reporting unit and, therefore, goodwill is tested for impairment at the enterprise level.

Accounting for warrants

We determine the accounting classification of warrants we issue, as either liability or equity classified, by first assessing whether the warrants meet liability classification in accordance with ASC 480-10,Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, then in accordance with ASC 815-40,Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock. Under ASC 480, warrants are considered liability classified if the warrants are mandatorily redeemable, obligate us to settle the warrants or the underlying shares by paying cash or other assets, and warrants that must or may require settlement by issuing variable number of shares. If warrants do not meet the liability classification under ASC 480-10, we assess the requirements under ASC 815-40, which states that contracts that require or may require the issuer to settle the contract for cash are liabilities recorded at fair value, irrespective of the likelihood of the transaction occurring that triggers the net cash settlement feature. If the warrants do not require liability classification under ASC 815-40, in order to conclude equity classification, we also assess whether the warrants are indexed to our common stock and whether the warrants are classified as equity under ASC 815-40 or other GAAP. After all such assessments, we conclude whether the warrants are classified as liability or equity. Liability classified warrants require fair value accounting at issuance and subsequent to initial issuance with all changes in fair value after the issuance date recorded in the statements of operations. Equity classified warrants only require fair value accounting at issuance with no changes recognized subsequent to the issuance date. We do not have any liability classified warrants as of any period presented. See Note 710 to our consolidated financial statements included elsewhere in this Report.

Stock-based compensation

We recognize compensation expense related to share-based payments in accordance with ASC 718,Compensation - Stock Compensation(“ASC 718”), which requires the measurement and recognition of compensation expense for share-based payment awards made to directors and employees based on estimated fair values. We estimate the fair value of employee stock-based payment awards on the grant-date and recognize the resulting fair value over the requisite service period on a straight-line basis. For stock-based awards that vest only upon the attainment of one or more performance goals, compensation cost is recognized if and when we determine that it is probable that the performance condition or conditions will be, or have been, achieved. We utilize the Black-Scholes option pricing model for determining the fair value of stock options. Our determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. These variables include, but are not limited to, expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. For the years ended December 31, 20192020 and 2018,2019, we estimated the expected volatility using our own stock price volatility to the extent applicable or a combination of our stock price volatility and the stock price volatility of stock of peer companies, for a period equal to the expected term of the options. The expected term of options granted is based on our own experience and, in part, based upon the “simplified method” provided underStaff Accounting Bulletin, Topic 14, or SAB Topic 14, as necessary. The risk-free rate is based on the U.S. Treasury rates in effect during the corresponding period of grant. Although the fair value of employee stock options is determined in accordance with FASB guidance, the key inputs and assumptions may change as we develop our own company estimates, experience and key inputs including our expected term, and stock price volatility based on the trading history of our stock onin the NYSE American.public market. Changes in these subjective assumptions can materially affect the estimated value of equity grants and the stock-based compensation that we record in our consolidated financial statements.

Leases

On January 1, 2019, we adopted Accounting Standards Update 2016-02,Leases(Topic 842, “ASC 842”) and its subsequent amendments affecting Oncocyte: (i) ASU 2018-10,Codification Improvements to Topic 842, Leases,and (ii) ASU 2018-11,Leases (Topic 842): Targeted improvements, using the modified retrospective method. Under ASC 842, we are required to recognize right-of-use (“ROU”) assets and lease liabilities on the balance sheetWe account for those leases classified as operating leases, by present valuing the lease payments using a discount rate determined in accordance with ASC 842. Under the standard, we are also required to make certain disclosures to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.842, Leases. We determine if an arrangement is a lease at inception. Leases are classified as either financing or operating, with classification affecting the pattern of expense recognition in the consolidated statements of operations. When determining whether a lease is a finance lease or an operating lease,Under the available practical expedients for the adoption of ASC 842, does not specifically define criteria to determine “major part of remaining economic life ofwe account for the underlying asset”lease and “substantially all ofnon-lease components as a single lease component. We recognize right-of-use (“ROU”) assets and lease liabilities for leases with terms greater than twelve months in the fair value ofconsolidated balance sheet. ROU assets represent the underlying asset.” For lease classification determination, we continueright to use (i) 75% or greater to determine whetheran underlying asset during the lease term is a major part ofand lease liabilities represent the remaining economic life ofobligation to make lease payments arising from the underlying assetlease. Operating lease ROU assets and (ii) 90% or greater to determine whetherliabilities are recognized at commencement date based on the present value of lease payments over the sumlease term. As most leases do not provide an implicit rate, we use an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when it is readily determinable. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is substantially ofrecognized on a straight-line basis over the fair value of the underlying asset. We use either the rate implicitlease term. Operating leases are included as right-of-use assets in machinery and equipment, and ROU lease liabilities, current and long-term, in the consolidated balance sheets. Financing leases are included in machinery and equipment, and in financing lease orliabilities, current and long-term, in the consolidated balance sheets. We disclose the amortization of our incremental borrowing rate as the discount rate in lease accounting, as applicable, to present value theROU assets and operating lease payments.payments as a net amount, “Amortization of right-of-use assets and liabilities”, on the consolidated statements of cash flows.

UponOn January 1, 2019, the adoption date of ASC 842, and based on the available practical expedients under thatthe standard, we did not reassess any expired or existing contracts, reassess the lease classification for any expired or existing leases and reassess initial direct costs for exiting leases. We also elected not to capitalize leases that have terms of twelve months or less.

The adoption of ASC 842 did not have a material impact to our consolidated financial statements because we did not have any significant operating leases at the time of adoption. Our accounting for financing leases (previously referred to as “capital leases”) remained substantially unchanged. During the yearyears ended December 31, 2020 and 2019, we entered into various operating leases and an embedded operating lease in accordance with ASC 842 discussed in Notes 54 and 1014 to ourthe consolidated financial statements included elsewhere in this Report. Our accounting for financing leases (previously referred to as “capital leases”) remained substantially unchanged.

Impairment of long-lived assets

We assess the impairment of long-lived assets, which consists primarily of long-lived intangible assets, machinery and equipment, whenever events or changes in circumstances indicate that such assets might be impaired and the carrying value may not be recoverable. If events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and the expected undiscounted future cash flows attributable to the asset are less than the carrying amount of the asset, an impairment loss equal to the excess of the asset’s carrying value over its fair value is recorded.

Income taxes

We account for income taxes in accordance with ASC 740,Income Taxes, which prescribes the use of the asset and liability method, whereby deferred tax asset or liability account balances are calculated at the balance sheet date using current tax laws and rates in effect. Valuation allowances are established when necessary to reduce deferred tax assets when it is more likely than not that a portion or all of the deferred tax assets will not be realized. Our judgments regarding future taxable income may change over time due to changes in market conditions, changes in tax laws, tax planning strategies or other factors. If our assumptions and consequently our estimates change in the future, the valuation allowance may be increased or decreased, which may have a material impact on our statements of operations.

The guidance also prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not sustainable upon examination by taxing authorities. We will recognize accrued interest and penalties, if any, related to unrecognized tax benefits as income tax expense. No amounts were accrued for the payment of interest and penalties as of the financial statement periods presented herein. We account for uncertain tax positions by assessing all material positions taken in any assessment or challenge by relevant taxing authorities. We are currently unaware of any tax issues under review.See Note 912 to our consolidated financial statements included elsewhere in this Report.

Revenue recognition

Prior to January 1, 2020, we generated no revenues. Effective on January 1, 2020, we adopted the revenue recognition standard ASC Topic 606, Revenue from Contracts with Customers (ASC) 606. Pursuant to ASC 606, revenues are recognized when control of services performed is transferred to customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services. ASC 606 provides for a five-step model that includes, (i) identifying the contract with a customer, (ii) identifying the performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to the performance obligations, and (v) recognizing revenue when, or as, an entity satisfies a performance obligation.

Shared Facilities AgreementDetermaRx™ testing revenue

From October 2009In the first quarter of 2020, we commercially launched DetermaRx™ and commenced performing tests on clinical samples through December 2019, Oncocyteorders received from physicians, hospitals and Lineage were partiesother healthcare providers. In determining whether all of the revenue recognition criteria (i) through (v) above are met with respect to DetermaRx™ tests, each test result is considered a Shared Facilitiessingle performance obligation and is generally considered complete when the test result is delivered or made available to the prescribing physician electronically and, as such, there are no shipping or handling fees incurred by us or billed to customers. Although we bill a list price for all tests ordered and completed for all payer types, we recognize realized revenue on a cash basis rather than accrual basis when we cannot conclude that all the revenue recognition criteria have been met. Because this is a novel test and there are no current reimbursement arrangements with third-party payers other than Medicare, the transaction price represents variable consideration. Application of the constraint for variable consideration is an area that requires significant judgment. For all payers other than Medicare, we must take into account the uncertainty of receiving payment, or being subject to claims for refund, from payers with whom we do not have a sufficient payment collection history or contractual reimbursement agreements. Accordingly, for those payers, we expect to continue to recognize revenue on a cash basis until we have a sufficient history to reliably estimate payment patterns or have contractual reimbursement arrangements, or both, in place. In September 2020, we received a final pricing decision for DetermaRx™ from CMS and with Medicare coverage in effect, we commenced recognizing revenue when DetermaRx™ tests are performed for Medicare patients, or when payment was approved by Medicare in the case of certain tests performed prior to September 2020, rather than on a cash basis.

Pharma Services Agreement (the “Shared Facilities Agreement”revenue

Through our Insight subsidiary we provide a range of molecular diagnostic services to pharmaceutical customers referred to as “Pharma Services” including testing for biomarker discovery, assay design and development, clinical trial support, and a broad spectrum of biomarker tests in Insight’s CLIA-certified laboratory. These Pharma Services are generally performed under individual scope of work (“SOW”) arrangements with specific deliverables defined by the customer. Pharma Services are generally performed on a time and materials basis. Upon completion of the service to the customer in accordance with the SOW, we have the right to bill the customer for the agreed upon price (either on a per test or per deliverable basis) and we recognize the pharma service revenue at that time. We generally identify each sale of its pharma service offering as a single performance obligation.

Completion of the service and satisfaction of the performance obligation under a SOW is typically evidenced by access to the report or test made available to the customer or any other form or applicable manner of delivery defined in the SOW. However, for certain SOWs under which work is performed pursuant to the customer’s highly customized specifications, we have the enforceable right to bill the customer for work completed, rather than upon completion of the SOW. For those SOWs, we recognize revenue over a period of time during which Oncocyte usedthe work is performed using a portionformula that accounts for expended efforts, generally measured in labor hours, as a percentage of Lineage’s officetotal estimated efforts for the completion of the SOW. As the performance obligation under the SOW is satisfied, any amounts earned as revenue and laboratory facilitiesbilled to the customer are included in accounts receivable. Any revenues earned but not yet billed to the customer as of the date of our consolidated financial statements are issued are recorded as contract assets and are included in prepaids and other current assets as of the financial statement date. Amounts recorded in contract assets are reclassified to accounts receivable in our consolidated financial statements when the customer is invoiced according to the billing schedule in the contract.

We establish an allowance for doubtful accounts based on the evaluation of the collectability of Pharma Services accounts receivables after considering a variety of factors, including the length of time receivables are past due, significant events that may impair the customer’s ability to pay, such as a bankruptcy filing or deterioration in the customer’s operating results or financial position, and historical experience. If circumstances related to customers change, estimates of the recoverability of receivables would be further adjusted. We continuously monitor collections and payments from customers and maintain a provision for estimated credit losses and uncollectible accounts, if any, based upon historical experience and any specific customer collection issues that have been identified. Amounts determined to be uncollectible are written off against the allowance for doubtful accounts. As of December 31, 2020, we have not recorded any losses or allowance for doubtful accounts on accounts receivables from Pharma Services.

Cost of revenues

Cost of revenues generally consists of cost of materials, direct labor including benefits, bonus and stock-based compensation, equipment and infrastructure expenses, clinical sample related costs associated with performing Pharma Services and DetermaRx™ tests, and license fees due to third parties, and also includes amortization of acquired customer relationship intangible assets. Infrastructure expenses include depreciation of laboratory equipment, allocated rent costs, leasehold improvements and allocated information technology costs for operations at our CLIA laboratories. Costs associated with performing diagnostic tests and Pharma Services are recorded as the tests or services are performed regardless of Lineage administrative personnel. Since October 1, 2019, Oncocyte has relied on its own administrative personnel rather than the serviceswhether revenue was recognized with respect to that test or pharma service. Royalties or revenue share payments for licensed technology calculated as a percentage of Lineage personnel, and effective December 31, 2019 Oncocyte terminated its use of Lineage’s office and laboratory facilities and equipment.

Under the Shared Facilities Agreement, Lineage charged Oncocyte a “Use Fee” for services rendered and Oncocyte’s use of Lineage facilities, equipment, and supplies. Use Fees wererevenues or determined based upon an allocationon achieving certain aggregated amounts of Lineage’s costs for providing personnel, equipment, insurance, office and laboratory space, professional services, software, supplies and utilities, plus a 5% markup. In additionrevenues generated using the associated technology are recorded as expenses at the time the related revenues are recognized. As discussed above, we generated no revenues or cost of revenues prior to the Use Fees, Oncocyte reimbursed Lineage for any out of pocket costs incurred by Lineage for the purchase of office supplies, laboratory supplies, and other goods and materials and services for the account or use of Oncocyte based on invoices documenting such costs. Oncocyte’s research and development expenses and general and administrative expenses for the periods presented in this Report include allocations of Use Fees and other amounts paid to Lineage under the Shared Facilities Agreement, in addition to costs incurred directly by Oncocyte for its own personnel, service providers, equipment, supplies, insurance, and similar expense, and for use and operation of its own leased facilities.

January 1, 2020.

Research and development expenses

Research and development expenses include both directare comprised of costs incurred to develop technology, and include: salaries and benefits, including stock-based compensation; laboratory expenses, incurred by Oncocyteincluding reagents and indirect overhead costs allocated to us byLineagethat benefit or support oursupplies used in research and development functions of Oncocyte. Direct researchlaboratory work; infrastructure expenses, including allocated facility occupancy costs; and development expenses consist primarily of personnel costscontract services and related benefits, including stock-based compensation,other outside consultants and suppliers.costs. Indirect research and development expenses are allocated to us byLineageunderthe Shared Facilities Agreement(see Note 4to our financial statements included elsewhere in this Report), are primarily based on our headcount, or space occupied, as applicable, and include laboratory supplies, laboratory expenses, rent and utilities, common area maintenance, telecommunications, property taxes, and insurance. Research and development costs are expensed as incurred. For periods prior to January 1, 2020, indirect research and development expenses included overhead costs incurred and allocated by Lineage to us under the Shared Facilities Agreement as expenses that benefited or supported our research and development functions. The Shared Facilities Agreement was terminated as of December 31, 2019.

General and administrative expenses

General and administrative expenses include both direct expenses incurred by Oncocyteus and, prior to January 1, 2020, indirect overhead costs incurred by Lineage and allocated to us by Lineageunder the Shared Facilities Agreement as expenses that benefitbenefited or supportsupported our general and administrative functions. Direct general and administrative expenses consist primarily ofof: compensation and related benefits, including stock-based compensation, for executive and corporate personnel, andpersonnel; professional and consulting fees.fees; rent and utilities; common area maintenance; telecommunications; property taxes; and insurance. Indirect general and administrative expenses allocated by Lineage to us by Lineage under the Shared Facilities Agreement, (see Note 4to our financial statements included elsewhere in this Report) arewhich was terminated as of December 31, 2019, were primarily based on our headcount or space occupied, as applicable, and include costs for financial reporting and compliance, rent and utilities, common area maintenance, telecommunications, property taxes, and insurance.

Sales and marketing expenses

Sales and marketing expenses consist primarily of personnel costs and related benefits, including stock-based compensation, andtrade show expenses, incurred for trade shows and booths, branding and positioning expenses, and outside consultants. Indirect salesconsulting fees. Sales and marketing expenses also include indirect expenses for applicable overhead allocated by Lineage, primarily based on our headcount, or space occupied, as applicable,and include allocated costs for rent and utilities, common area maintenance, telecommunications, property taxes, and insurance, incurredinsurance. Prior to January 1, 2020, a portion of the expenses allocated by Lineage and allocated to us under the Shared Facilities Agreement.

Agreement were designated by us as sales and marketing expenses to the extent we determined that such expenses were fairly allocable to sales and marketing functions, including overhead.

Results of Operations

The ongoing global outbreak of COVID-19, and the various attempts throughout the world to contain it, have created significant financial volatility, economic uncertainty, and changes to the way Oncocyte conducts certain aspects of its operations. The COVID-19 pandemic has had, and may continue to have, significant effects on our operations, ability to generate revenues, and financing activities. In response to government directives and guidelines, health care advisories and employee and other concerns, a number of our employees have had to work remotely from home and those on site have had to follow our social distance guidelines, which could impact their productivity. Travel and visits related to our business and business meetings, including planned or expected travel and in-person meetings to market DetermaRx™, have been eliminated or severely curtailed. Although employee absenteeism due to COVID-19 illness has not had an adverse impact on our operations as of the date of this Report, we face the risk of losing, at least temporarily, the services of employees if they become ill.

The consequences of the COVID-19 pandemic have led to uncertainties related to our growth and our ability to forecast the demand for our diagnostic testing and Pharma Services and resulting revenues, as we have not had time to establish a base of customers, revenues or other relevant trends prior to the outbreak of COVID-19. We had no commercial revenues until the first quarter of 2020 when we launched our first commercial diagnostic test, DetermaRx™, and acquired the Pharma Services business of Insight. We had expected that initial DetermaRx™ revenues would be constrained by the lack of Medicare coverage. CMS Medicare reimbursement pricing approval for DetermaRx™ did not become effective until September 2020. Deferrals in lung cancer surgeries due to COVID-19 may have reduced demand for DetermaRx™, but because of the lack of historical DetermaRx™ revenues, with and without Medicare reimbursement, we are unable to determine the extent to which the deferral of those surgeries impacted our DetermaRx™ revenues. Resurgences in COVID-19 cases could cause additional deferrals of lung cancer surgeries during the course of the pandemic. The lack of in-person interaction with healthcare providers for our promotion of the use of DetermaRx™ has also placed a constraint on our ability to market that test, but we cannot determine the extent to which that has impacted our revenues due to the absence of historical revenues. Similarly, our Pharma Services revenues commenced with our acquisition of Insight during the first quarter of 2020, and because we do not have a prior history of Pharma Services revenues we cannot assess how COVID-19 may have impacted those revenues, although we are aware that certain planned clinical trials of new pharmaceuticals for which we had expected to provide Pharma Services were delayed due to the pandemic.

The pandemic is affecting our revenue-generating activities. During the COVID-19 pandemic, we have not been, and may not be, able to maintain our preferred level of physician or customer outreach and marketing of our diagnostic testing and Pharma Services, which could negatively impact our potential new customers’ interest in our tests and services. Even if government and other COVID-19 related restrictions are relaxed and lung cancer surgeries are performed at or close to pre-pandemic levels, any growth and anticipated adoption of our diagnostic tests may not occur. Although we have not yet experienced COVID-19 related supply chain disruptions impacting our testing capacity, if the vendors of equipment and reagents used in our diagnostic laboratories experience supply, operational, or financial disruptions due to the COVID-19 pandemic, we could experience supply constraints in the future that could cause increased costs or delays in performing DetermaRx™ tests and Pharma Services and in continuing the development of new diagnostic tests.

The full extent to which the COVID-19 pandemic and the various responses might impact our business, operations and financial results will depend on numerous evolving factors that we will not be able to accurately predict, including: the duration and scope of the pandemic; governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic; the availability and cost to access COVID-19 tests, vaccines and therapies; the effect on our potential customers and their demand for our diagnostic testing and Pharma Services; the effect on our suppliers and their ability to provide the necessary equipment and materials to support our tests and services; disruptions or restrictions on our employees’ ability to work and travel; interruptions or restrictions related to the distribution of our tests in foreign markets, including impacts on logistics of shipping and receiving patient samples; and any stoppages, disruptions or increased costs associated with development, production and marketing of our diagnostic tests. In addition to the direct impacts to our business operations, the global economy is likely to continue to be significantly weakened as a result of actions taken in response to the COVID-19 pandemic and to the extent that such a weakened global economy impacts customers’ ability or willingness to purchase and pay for our tests, our business and results of operation could be negatively impacted. Due to the uncertain scope and duration of the COVID-19 pandemic and uncertain timing of any recovery or normalization, we are currently unable to estimate the resulting impacts on our operations and financial results. We will continue to actively monitor the issues raised by the COVID-19 pandemic and may take further actions that alter our operations, as may be required by federal, state, local or foreign authorities, or that we determine are in the best interests of our employees, our customers, and our shareholders.

Revenues for the Year Ended December 31, 2020

The year ended December 31, 2020 is the first year in which we generated revenues. We currently derive our revenues from Pharma Services generated by our wholly owned subsidiary, Insight, which we acquired on January 31, 2020, and from the sale of our novel lung cancer stratification test, DetermaRx™, which we commercially launched in early 2020.

The following table shows our revenues for the years ended December 31, 2020 (in thousands).