Good day, and welcome to the Oncocyte conference call to discuss the s econd quarter 2022 financial results. Today's call is being recorded. At this time, I would like to turn the call over to Caroline Corner with ICR. Please go ahead.
Thank you, operator, and thank you everyone for joining us on today's conference call to discuss Oncocyte's Second Quarter 2022 Financial Results. If you're not seeing today's financial results press releases, please visit the company's website on the investor page. Joining me on today's call are Ronnie Andrews, President and Chief Executive Officer, and Anish John, Chief Financial Officer. I would like to remind you that during this conference call, the company will make projections and forward-looking statements regarding future events. Any statements that are not historical facts are forward-looking statements. We encourage you to review this company's SEC filings, including, without limitation, the company's Forms 10-K and 10-Qs, which identify the specific risk factors that may cause actual results or events to differ materially from those described in these forward-looking statements.
These factors may include, without limitation, risks inherent in the development and/or the commercialization of potential diagnostic tests, uncertainty in the results of clinical trials or regulatory approvals, the capacity of Oncocyte's third-party supplied blood sample analytical systems to provide consistent and precise analytical results on a commercial scale, the need to obtain third-party reimbursements for patients' use of any diagnostic tests the company commercializes, our need and ability to obtain future capital, the maintenance of IP rights, risks inherent in the strategic transactions, such as failure to realize anticipated benefits, legal, regulatory or political changes in the applicable jurisdictions, accounting and quality controls, greater than estimated allocations of resources to develop and commercialize technologies, or failure to maintain any laboratory accreditation or certification, and uncertainties associated with the COVID-19 pandemic and its possible effects on our operations.
Therefore, actual outcomes and results may differ materially from what is expressed or implied by these forward-looking statements. Oncocyte expressly disclaims any intent or obligation to update these forward-looking statements except as otherwise may be required under applicable law. With that, I'll turn the call over to Ronnie.
Thanks, Caroline, and welcome everyone. Today, I'll begin by reviewing recent decisions and actions we're taking to reduce our operating expenses and cash burn, enabling us to weather the current market conditions while still delivering on the important product launches that will deliver significant shareholder value. Beginning in Q1, our leadership team began working on a reprioritization of our product investments to identify ways to reduce our cash burn while preserving the important short-term value-creating programs. That reprioritization was completed in Q2 and allowed us to rightsize the resources required to deliver on the new priorities as we enter the second half of 2022. The resulting savings are expected to reduce our headcount carrying costs by more than $4.5 million when annualized.
When combined with the operating savings from the reprioritization process, reduced headcount, and the imminent monetization of some of our assets through licensing and strategic activities, we anticipate being able to reduce our annual operating costs by over $12 million over the next year and have improved line of sight to how our cash will last into 2024, but still allowing us to deliver on VitaGraft, DetermaIO, and DetermaCNI product launches. In order to allow us to divide and conquer with a lean organization, I'm happy to announce that Gisa Paulsen has been promoted to President and COO, and Anish John has been promoted to the role of CFO from his previous role as interim. These moves will allow me to focus on corporate business development and investor relations while they operate the company day to day.
Both promotions are well deserved, and I look forward to working with this core team to deliver Oncocyte through the current market storm and emerge as a leaner, focused company delivering products that fulfill our mission. I'd like to start today's progress update discussing our compelling revenue opportunity in transplant rejection monitoring. For those who've been following the story since our acquisition of Chronix Biomedical, you'll also notice that we've rebranded the test from TheraSure to VitaGraft, branding we believe is more reflective of the intended use in transplant. As you likely recall, last fall, we set out to complete the technical transfer of the test from our German R&D team into our CLIA lab in Nashville, and then validate our laboratory test for liver patients with an ambitious goal for the end of first half of 2022.
I'm very proud of the focused effort by our CLIA lab team and the transplant R&D team in Germany for their combined effort to deliver on this important milestone ahead of schedule in early April. This expedited effort also allowed us to complete the clinical validation required to submit our dossier to CMS for liver reimbursement, which we accomplished in late April. We filed that submission with our kidney dossier in late June. With our liver test now clinically validated, we have entered our early adopter program phase of launch and have already signed on one of the largest liver transplant centers in the U.S., who will begin sending our first samples later this month. The responses from key opinion leaders have been resoundingly positive.
Since today, there's no routine molecular monitoring test in use to monitor for rejection of a transplanted liver, we're encouraged by the KOL interest and believe our test will become very important to the liver transplant community. Our vast experience in polymerase chain reaction, or PCR, has allowed us to develop a streamlined workflow delivering an incredibly efficient digital PCR application that allows us to consistently process and report patient monitoring results within one to two days when we launch the product. We've now confirmed with numerous KOLs in liver that our turnaround time is indeed expected to deliver the fastest donor-derived cell-free DNA monitoring results in the industry. This, of course, is something we set as a goal on our test workflow redesign and a product attribute that we believe will differentiate Oncocyte from the competition.
We've also made progress on the IVD process by creating a kit to democratize the transplant market, and we'll soon begin development of a kitted version of the monitoring test across liver, kidney, and ultimately heart. We're fortunate to have several instrument systems that work with our assay and are working with the best platforms through feasibility to ensure we have the best results and cost position for our democratization efforts. For strategic reasons, we will not be speaking specifically about our potential instrument partner's platform performance until we're ready to publish and announce the data. We are on track for completion of feasibility and trial initiation by early 2023. There are several milestones to watch for our liver program coming in the next few months as we commercialize our VitaGraft products.
First, we'll continue to onboard KOLs from the liver transplant community as part of our early adopter program. Second, we expect reimbursement decision from CMS this fall. Third, we expect to initiate a full market launch of VitaGraft Liver and Kidney in Q4 once reimbursed. Finally, fourth, we plan to complete platform feasibility for the IVD kit product by end of year and site enrollment for the clinical trial so that we can commence that trial in early 2023. Now let's turn next to our flagship oncology program, DetermaIO. To remind you, this is our gene expression test to help physicians assess tumor microenvironments to determine which patients are suitable candidates for immuno-oncology therapies. Our early adopter program continues to underscore to us the need for this test across a slate of cancers.
Previously, we've shared the valuable insights as to the importance of Determa IO test in early-stage triple-negative breast cancer and late-stage non-small cell lung cancer. We now have solid data from various meetings, including results from the NeoTRIP randomized trial in TNBC that was presented at ESMO last fall. In second quarter at the AACR meeting, we presented data supporting its use in metastatic bladder cancer, our third tumor type, and now have had our peer-reviewed paper accepted for publication. We see this as a major milestone and feel well-positioned as we prepare Determa IO for CMS submission for reimbursement this fall. Adding to our growing datasets, in June at the American Society of Clinical Oncology, or ASCO meeting, we released results from the GONO Clinical Trials Group where Determa IO was tested as a biomarker on the AtezoTRIBE study.
As a reminder, AtezoTRIBE is a randomized clinical trial on metastatic colorectal cancer where patients receive placebo or the standard of care, plus the Roche drug Atezolizumab. If you hadn't had a chance to review the data and the subsequent comments to the AtezoTRIBE principal investigator, I encourage you to do so. The key takeaway is that DetermaIO found a new patient population in metastatic colorectal cancer that no other biomarker found. Today, these patients are not eligible for immunotherapy. DetermaIO is expected to expand the market for ICI use in metastatic colorectal cancer and may allow for enrollment of a whole new population of patients into a life-saving treatment protocol. Also at ASCO, we released data on DetermaIO and metastatic triple-negative breast cancer, or TNBC, using the Merck drug Keytruda. The data presented at ASCO confirmed all the previous dataset findings.
Determa IO has demonstrated superior accuracy to predict response to immune checkpoint inhibitor therapy and is agnostic to which branded immune checkpoint inhibitor a physician uses. Finally, at ASCO, we released new data in gastric cancer, the third leading cause of cancer death outside of the U.S. We feel that this indication is important now that we have solidified our platform and channel partner for rest-of-world markets and are already working on the kitted version of Determa IO. Determa IO has now been validated in over 1,100 patients in six tumor types and across all four major immune therapies. Our early adopter program continues to provide valuable use cases for CMS submission and market launch, and our volumes have continued to double each quarter during our limited launch.
EAP clinicians are reordering the test for multiple use cases across multiple tumor types, and we remain incredibly enthusiastic about the future of DetermaIO. In Q2, we also began refining the priorities for our kit strategy with our platform partners. We made a decision to focus these relationships on short-term ROI projects that require less investment but still have significant market impact. The two product efforts we've settled on are a kitted version of DetermaIO for submission for regulatory approval in the EU and ultimately here in the U.S., and our VitaGraft digital PCR transplant monitoring test for liver and kidney for U.S. FDA submission. We've already initiated the work to move both projects forward to keep us on track to meet the aggressive timelines we've set for IVD development team.
We look forward to updating you on our progress in this incredibly important strategic effort as we join you in future calls. Despite the ongoing macro environment challenges in the second quarter, we continue to make solid commercial progress with DetermaRx, our lung cancer stratification test. Since its launch in mid-2020, DetermaRx has now touched well over 1,100 patients' lives. These patients had stage one tumors, and without our test information, may have gone untreated, and statistically, half of them may not be with us now. Recently, we were introduced to one of the first patients to utilize the test when it was first developed and in use prior to our acquisition. Jamie was only 34 years old when diagnosed with early stage non-small cell lung cancer.
Jamie told us her greatest fear at the time was not being able to be there for her kids, not being able to be there for their milestones and seeing them grow up, and not being able to grow old with her husband and see her grandkids someday. Her surgeon ran DetermaRx to see if she was high risk for recurring tumor. When it came back positive, she said she didn't hesitate to opt for the single round of chemo. Today, Jamie remains cancer free after ten-plus years, enjoying life with her family, celebrating anniversaries and graduations, and is a fantastic advocate for DetermaRx. She believes every early stage lung cancer patient deserves to know if they're high risk for recurring metastatic disease. It's stories like hers that inspires our team to continue on our mission. I encourage you to watch Jamie's story on our website.
DetermaRx is now the standard of care in large lung cancer surgical programs like Florida Oncology and others, and continues to gain momentum in its usage. I'm pleased to report that in second quarter, DetermaRx sample volumes were 66% above prior year, driving us towards our stated goal of doubling 2021 volumes and revenues here in 2022. We're also able to expand our pool of onboarded physicians, which now stands at 549 practitioners, which is up 16% year-over-year. In sum, we're really pleased with the traction our small but extremely effective sales team has secured, and of course, we're thrilled that Oncocyte is positively impacting treatment plans and outcomes for lung cancer patients.
In closing, I want to reemphasize, when you combine the cost reduction activities I mentioned earlier with the anticipated attractive gross margins of VitaGraft and DetermaIO revenue streams in 2023, you can start to understand our confidence in our ability to bring Oncocyte through the challenging market environment leaner and stronger. Some key revenue-based milestones to keep an eye on for the next six months include the anticipated receipt of reimbursement for VitaGraft and the subsequent full market launch of our test. Expected submission to DetermaIO and DetermaRx for reimbursement and planned monetization of assets through strategic licensing of our tissue-based assays. I'm grateful for your support as we advance our products through the various development cycles to deliver on our mission. At this point, I'd like to turn the call over to Anish John to review our financials. Anish?
Thanks, Ron, and hello, everyone. Our consolidated revenues for the second quarter of 2022 were approximately $2.1 million, up $0.7 million quarter-over-quarter and a slight increase as compared to the same period a year ago. Second quarter revenues associated with DetermaRx were $0.8 million, down $0.2 million sequentially and up $0.2 million year-over-year. We received $1 million in licensing-related revenues in the second quarter from the final Burning Rock milestone payment. Our pharma services business generated $0.2 million in the second quarter, a decrease of $0.1 million quarter-over-quarter and an increase of $0.1 million year-over-year.
As we have discussed previously, revenues in pharma services depend on our partners' ability to enroll patients for trials which continue to face headwinds and will likely continue to fluctuate from quarter to quarter. We do have a pipeline of work from our diagnostic development partners, QIAGEN and Thermo Fisher, which we believe will grow and be more predictable in future quarters. Cost of revenues for the second quarter were approximately $2.4 million, including $1.4 million from the cost of diagnostic tests and testing services we performed for our DetermaRx and pharma services customers, providing revenue deliverables under our license agreements and $1 million in non-cash amortization expenses of DetermaRx and pharma services-related intangibles. Research and development expense for the second quarter of 2022 was $5.6 million, an increase of approximately $3 million from the same period a year ago.
The increase in R&D expense was related to site start-up costs for our PADMA trial for DetermaRx and headcount as we prepare to begin the IVD development in order to kit DetermaIO and VitaGraft liver and kidney to fulfill our platform partnerships. We also continued R&D activity to support ongoing clinical trials to gain statistical power to our current DetermaIO datasets to ensure success as we submit to CMS for reimbursement. Additionally, we completed the CLIA validation for our new VitaGraft product offering in preparation for the Q3 launch of our new transplant business.
Sales and marketing expense for the first quarter of 2022 was $3.5 million, an increase of $0.9 million year-over-year, primarily attributable to an increase in headcount and continued ramp in sales and marketing activities to prepare for commercialization of our transplant business as well as support the commercialization efforts of DetermaIO and DetermaRx. General and administrative expense for the second quarter of 2022 was $5.5 million, a decrease of $2.4 million for the same period in 2021, primarily due to one-time acquisition related costs of Chronix Biomedical in the same period of the prior year. Excluding this one-time prior year cost, general and administrative expenses were maintained year-over-year, inclusive of increases in stock-based and cash compensation for our new hires and a standard cost of living increase for many employees.
Non-GAAP operating loss, as adjusted for the second quarter of 2022 was $11.2 million, an increase of $3.4 million as compared to the same period a year ago. GAAP operating loss, as reported for the second quarter of 2022 was $8.6 million, a decrease of $1.3 million quarter-over-quarter, and a decrease of $5 million as compared to the same period a year ago. We've provided a reconciliation between these GAAP and non-GAAP operating losses in the financial tables included with our earnings release.
For second quarter of 2022, we reported a GAAP net loss of $8.3 million or $0.07 per share, as compared to $10.3 million or $0.11 per share, a decrease of $2 million quarter-over-quarter and $10.5 million, an increase of $2.2 million as compared to the same period a year ago. Turning now to the balance sheet. As of June 30th, we had cash equivalents, restricted cash and marketable securities of $47.1 million. Early in the second quarter, we raised $32.8 million in net proceeds from an underwritten offering of common stock priced at market. We received the first of two $5 million tranches of preferred stock offering proceeds in the second quarter, with the final tranche expected in the fourth quarter of this year.
Additionally, we are currently reviewing several options for non-dilutive forms of capital, including capital lease lines and licensing tests in ex-US markets, as well as commercial partnerships and the monetization of certain assets. We feel confident that our current balance sheet, combined with these non-dilutive opportunities, provide us with sufficient cash to take the company into 2024. Over the first half of 2022, we have proactively prepared for continued market headwinds and reprioritized our investments in our product portfolio by focusing on shorter term revenue opportunities and instituting a more sequential approach to product development and test launches. Specifically, we plan to reduce the number of clinical trials we invest in over the next 18-24 months and rely on the data collected to date to support the submission for reimbursement and any subsequent product launches.
We also plan to reevaluate timing of several capital-intensive investments, including the planned sales force expansion to launch DetermaRx and DetermaIO. The expense reductions, combined with the anticipated revenue growth once our tests receive reimbursement, is expected to have an immediate impact on reducing our cash burn. Since the end of the first quarter, we have right-sized our organization to match the more focused priorities and have taken a definitive step to reduce our headcount carrying cost by over $4 and a half million on an annualized basis. In Q3, we expect to incur a severance charge of approximately $2 million as a result of these actions. Net cash used in operations for the quarter was $11.3 million.
Net cash used in operations decreased sequentially due to focused efforts to control hiring and optimize our use of cash, primarily by reducing clinical trial spend and marketing investment beyond the $1 million milestone payment from the Burning Rock licensing agreement. In summary, management has taken numerous actions in the first half of 2022 to focus investments and reduce our cash burn without impacting the long term potential enterprise value of Oncocyte. In future quarters, we expect to benefit from the anticipated wind down of several studies and trials, the right sizing of the organization to better match the new prioritization and revenue growth from our high margin major product launches planned for the coming quarters.
We remain confident that the combination of these activities will allow us to enter the first half of 2023 with a quarterly cash burn rate below $10 million, and we expect the burn to decline below $8 million by the second half of 2023. We are committed to weathering the current market headwinds with a well-constructed plan that we believe will position us to deliver on critical product launches over the next six to eight quarters. That concludes my remarks concerning our financial highlights. Operator, please open the call for questions.
Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star and then one on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star and then two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Our first question is from David Westenberg of Piper Sandler. Please go ahead.
Hi. Thank you for taking the questions here. I really liked all the color here on the transplant, you know, the incremental submission, you know, all the way to commercialization. Can you just give me some color on what or maybe rank order what's under your control versus kind of what's out of your control? You know, I'm just trying to think about, you know, what could go wrong in terms of the things that are outside of your control. You know, sticking with that liver and kidney thing, you know, you submitted at two different time frames. Do you expect to receive reimbursement at the same time, or is that gonna be laddered the way you know, you reimbursed?
Yeah, David, great questions, and thanks for those. Let me start with the last one first. I think it'll be easier. We knew that liver today does not have any test covered to date. Even though the LCD was written as somewhat of a blanket LCD for kidney and heart, and those were established pricing at about $2,700-$2,800, we knew that liver had not been through that process. We wanted to bring liver through early, so that we could submit liver and go ahead and get the first round of questions, which we have already received and have already begun responding to. We received those questions last week. We were...
We're answering those questions this week, and we expect to have the return of those questions back to CMS next week. We expect kidney, that you know, we'll always get some questions, so we expect kidney as well. We'll have some follow-up questions, but we don't expect them to be as intensely centered around clinical utility, which is where the liver questions were mostly centered. It's important that we have our KOLs, who've been very kind and gracious and very excited about what we're doing in liver. They'll be part of our response on the utility, but we don't expect kidney to have, you know, as many of those types of questions. We submitted them, you know, liver first and then kidney, hoping that we end up somewhere in the September-October timeframe getting responses for both.
You asked what's in and out of our control. What's in our control right now is, we've redone the workflow. It is, you know, I've been doing PCR for a long time since we incubated in water baths, and I'm really excited about our team and what they put together. This is a really, really solid workflow. Our CLIA lab workflow in the cloud is well less than a day. It's the logistical parts around that that push it over a day. We're excited we can control that. What we can control is the outreach we've had to the current high-value targeted liver centers, which has been very solid there. We can control obviously our sales launch of this and how we actually execute on the test performance.
What we can't control, as you've already mentioned, is the timing for CMS. Under the blanket LCDs, you guys are well aware of this, but just for everyone on the call, under a blanket LCD, typically, there is a timeframe of 60-90 days when you get the review, and you get your questions and you get an answer. Given, you know, how backed up Palmetto is and just given the current environment, we did see those questions for liver come in within the timeframe they committed. We're hoping that we're on those timeframes, but we can't obviously predict those timeframes. Hopefully that's a good thorough answer, David, but that's what we're focused on.
Yep.
This execution, and we just hope that when you know CMS can respond as soon as they claim they want to.
Yep. Maybe let's go back to the liver, 'cause you know, in that answer it's implied it's on different timelines. After submission, I mean, it's not the 60-90 days. I know it's not Palmetto. It's
Yeah, you get.
Time frames.
Yeah, you get 60 days.
Yeah.
Yeah, you get 60 days. They typically answer you for the first round in 60 days, then you have a chance to respond, and then they have another 60 days from that point. You know, we got their answers. We're very happy that they got them to us at the timing they did for liver. We're answering our questions this week. They'll get them back next week. Somewhere 60 days from next week, we hope to hear back from them, if not sooner.
Got it. Okay. I appreciate it. You know, you touched on some changing of roles here. I believe you said that you're gonna be kind of backing away from everyday operations. Just wanna confirm that I heard that correctly. Can you maybe take a layer, another layer back.
Yeah.
In terms of what that means.
Yeah.
Other than just kinda investor relations and biz dev kinda outlook.
Yeah.
Can you talk kinda a little bit more about your day-to-day?
Absolutely, David. I don't want anyone to get the impression I'm not gonna be very active. I am very active. You know, we're at a point where we have an incredible operating professional in Gisela Paulsen. She, you know, came with all the experience she had from Roche to Nitto Denko and Exact Sciences years. It just really is. She's been here since the fall, and we're at a point where from, you know, project management, program management, internal operation, lab oversight and all that, she can take on a lot of what I was doing. That frees me to do more corporate development work, more time with investors, and certainly more time, you know, with strategy and some things that are important.
It gives me more time to be in the field. I'm personally gonna oversee the transplant launch and program, since I have so much product launch experience and, you know, I'm old and I've been doing this a long time. I've launched a lot of products in the PCR world, so I'm gonna be very active with that. Having Gisa step in to sort of manage the, you know, as COO, she was already doing most of the operations, but she'll take on a little bit more now, and then I'll get to go do more focus on growth of the company and revenue, you know, revenue execution around revenue generating opportunities. Anish, obviously, we're very excited.
He stepped into the interim role for a couple months and he loved what he was doing, and we loved having him. He is now gonna step in and be full-time CFO, which we're all very grateful for. He has incredible background in operating finance, which is what we need as a company right now.
Got it. All right, I appreciate it. You know, I just 'cause I'm given that I'm first, I don't wanna take any of the questions. I think my next one's gonna be really short 'cause it's probably me just mishearing something. Did I hear on Determa it's a little bit delayed because you need more patients? I don't know if I heard that correctly in the prepared remarks or not. Maybe I misheard that. Can you just clarify that?
Yeah, yeah. Let me clarify. DetermaIO is on track to submit this fall. We have it powered and we believe in three tumor types. We are waiting on the acceptance of these data in a peer-reviewed publication. That's the last criteria that we have to check the box we have to check before we can submit. Those manuscripts are out. We've actually had one accepted, and we are hoping to see the other two for non-small cell lung and for triple-negative get accepted as well. Once those are all three, bladder, TNBC, and lung accepted, we'll go. We don't need any more statistical power necessarily.
Okay.
We'll always want more statistical power.
Got it.
We are ready for that. We are not going to. I think the message that we sent last quarter, and David, just so you guys, as you think about modeling, we're gonna go to market with those three indications. We did have a really superior output in colon at ASCO, and we're following up with lots of different opportunities there. We will need to get more data on the colon before we can submit a paper and then add that to the list.
Got it. Appreciate it. Thank you very much. I'll hop out of queue.
Thanks, David. Yeah, appreciate it.
Our next question is from Mike Matson of Needham & Company. Please go ahead.
Yeah, thanks for taking my questions. I got a few on VitaGraft, I guess. You know, in terms of when you actually launch it, I guess first it's gonna be kind of a CLIA test that you're doing in your own lab and then you'll eventually have a kitted version. You know, do you think there's gonna be a kind of a difference in terms of how the sales or the rate at which they ramp for the CLIA offering versus the kitted offering? You know, is it gonna be kind of limited in the early days when you're doing it yourself or and then really take off with the kit?
Do you think it could take off pretty strongly just with, you know, the initial launch?
Yeah. The feedback we've gotten from the market is there is no one using liver. You know, thanks to a couple of the pioneering companies that have sort of created the market in kidney and heart, we benefit from the kind of the overflow, if you will, of people knowing how to use these types of tests now in liver. When we did our outreach, we got some very positive feedback from some very high-profile centers. Our goal in the early, you know, right now, the early adopter phase, Mike, is to get as many of those sites onboarded as we can to really play through our logistics, our turnaround time, our lab, and we'd ultimately like to get it to within a day or within 24 hours.
But that's gonna require overnight shifts and logistics that today are, you know, we're putting in place, but we haven't tested yet. Ultimately, we think that once we're ready to go full market, hopefully by October, November, when we get reimbursement, the idea would be that we would open it up to all centers in liver. Assuming we get kidney, obviously, you know, that's a very competitive market. We'll do our best to go after the kidney market. I think the real opportunity for us though, honestly, we'll create a nice business as a lab developed test product. But the participation in economics that are afforded by democratization to the transplant centers themselves and to pathology labs serving transplant centers are significant.
The turnaround time plus those new economics that they don't receive today because as a central lab, we get those economics. Sharing those economics, we do expect that, and our all our market research says that will be the sort of the catalytic event for market growth in for our kits. We'll see how that goes. We're planning on going full bore with liver, and we do expect a rapid revenue ramp in 2023 into 2024 on liver before we get to a kitted product.
Okay. Got it. And then, in terms of the I just had a follow-up question on something that Anish said on the cash burn. I think he said it would be under $10 million a quarter and then fall to under $8 million a quarter. I didn't get the timing on all that and the reasoning that it's gonna decline. Is that because you're gonna start to have more revenue or? Apologize, went through it real quick there.
Yeah. No, it's fine. It's a combination. I'll let Anish give the call or commentary. It's actually a combination of reductions in headcount that we made recently, reprioritization of projects, and we defunded some things that we were funding. We're winding down some clinical studies now so that we can. You know, I think you guys know this, and I've had conversations with most of our analysts who follow us. You don't just go unplug these studies 'cause these are very high-profile accounts, very high-profile key opinion leaders, who want to complete the study and then publish. The last thing we want to do is we have a very, very solid brand of high science with amongst the oncology community today, and the last thing we wanna do is ruin that.
We are gonna continue the current trials that we have going in studies. Those will bleed off over time as you head into next year. The combination of that with the reduction in headcount, with some, you know, priority decisions we've made. We'll reduce it to about a $12 million operating expense reduction. Then from there, you add revenue on top of that, and that revenue, even nominal revenue that we've modeled, takes us under $8 million in burn as you enter the second half of 2023. Anish, any comments on that?
Yeah. Just to confirm the timing also, the under $10 million burn rate per quarter is really in the first half of 2023, just so that's clear too.
Yeah, got it. Okay. All right.
I mean, Mike, we're really trying to give you guys incredible transparency and visibility now. I think it's important given the market environment. We went from $13.3 million to $11.3 million in operating burns, Q1 to Q2. That was a nice reduction for us based on a lot of stuff we've done internally. We can't do 15% every quarter getting to 10 because we do have a severance charge from the reduction in headcount this quarter as well, as we need to bleed off some of these studies. We're committed to this. We do believe that we've got a line of sight and, you know, modest revenue gets us really significant impact on burn next year once the infrastructure costs is reestablished toward the new levels.
Okay. Just one on pharma services. I mean, is that, you know, it's running, I guess it was like $300,000 or something. Is that a focus for the company? I mean, is that something that can grow into something more material, or is it just more, you have some drug companies approaching you wanting to use your tests, and you're kind of playing along with that, but you're not really out there actively trying to build that business?
As part of our reduction in expenses, we did sort of pull back on the commercial. Those are expensive headcount on the commercial effort there. However, we have long-term relationships, most of us with certain, you know, areas within pharma, and we do have two arrangements, one with QIAGEN and one with Thermo, that are long-term contracts to do validation, verification, what we call V&V, as well as some development work for them. Those projects will continue. The good news for us is we don't really have a dedicated pharma services lab team. This is the lab team that is in R&D in Nashville and R&D here doing things around either DIO or doing things, you know, around, C&I and transplant in Nashville.
What we do, though, is when we get a project, those folks can flex and perform the pharma project when they need to and when they have time from their activities though, that they're, you know, working on every day because pharma turnaround time is not as essential as a transplant patient turnaround time. Because we have flexibility there, we're able to get pharma work done with the headcount we already have, and it doesn't, it really doesn't mean we have to increase our headcount to grow our pharma business. We do have a nice pipeline over $2 million of pharma service contracts. Our biggest problem is pharma isn't enrolling patients as fast as we need them to so that we can complete our studies and get and we can bill for it. That's the big challenge we're having right now.
Okay, got it. Thank you.
The next question is from Thomas Flaten of Lake Street Capital Markets. Please go ahead. Apologies. Our next question is actually from Mason Carrico of Stephens. Please go ahead.
Hey, guys. Just wanted to ask a couple on DetermaRx here. Great to see the volume growth year-over-year, but it seems like ASP may have declined sequentially. I was just hoping to get some color there in terms of what drove the decline and then what your expectations are from an ASP standpoint, going forward throughout 2022 and then maybe as we start to get closer to 2023.
Yeah, Mason, thanks for asking that because when you just take the raw numbers and divide it by the revenue, it doesn't show the average AUP, because we actually do it by billing class. Some of those samples are unbillable. Let me give everyone the breakdown. In the quarter, about 90% of our volume that was billable was Medicare and Medicare Advantage. Medicare and Medicare Advantage at 90% rendered somewhere around a $3,000 AUP, and about 10% of our samples were commercial samples, meaning they were not Medicare, which means when you blend that AUP in at a much lower AUP, which is somewhere in the, you know, $1,800 range, you end up with about a $2,972 per case revenue, collectible revenue from Rx.
That is a very solid number for us. We have been tracking that number over time. It's come up from the high, you know, $1,800-ish into the low $2,000s and now over $2,500 and now to $2,290. We do see that we're getting past our challenges. We have a billing backlog, as you might imagine, 'cause it takes us a little while to get some of the commercial payers to pay us. That billing backlog has increased as we've increased our sample volumes. That doesn't show up in our AUP because the revenue doesn't match the same period as the samples come in. Hopefully that gives you some clarity about the AUP. Our Medicare Advantage samples are consistently coming in around $3,000.
That is the majority of our revenue push. You know, as you think about modeling, obviously you need to model the commercial payers as well, which is much less, but it's not a high percentage. The product mix or the payer mix right now is really advantageous for us, given we're getting such high AUPs for Medicare and Medicare Advantage.
Got it. Okay. You know, maybe just on the large transplant center that you talked about signing on. Sorry if I missed some of this commentary, but any incremental detail you can give around that, maybe the level of volumes they're doing in terms of liver transplants and if there's any stipulation about, you know, the number of patients that you're gonna be able to capture and, you know, any qualitative or quantitative color you can give there would be helpful.
Yeah, that's. This account probably does somewhere between 300 and 500 livers a year. I'm not trying to be coy. Mason, it's a hyper-competitive environment, and we'd like to keep these KOLs, you know, under wraps for a while just because they've been so gracious to help us out so much. We have a number of these that are interested in joining the early adopter program and being part of the program. If you think about liver, the utility is gonna be different in liver than kidney. You're looking, you can say about, you know, if you say they have 300 a year, let's say they do 300 a year, they do probably 500 total transplants, so 300 of those are. I'm sorry, 500 liver cases.
About 300 are total transplants. 300 of those a year, if you get two samples or two tests for every liver patient, that's about, you know, 600 tests a year. You can start thinking about, you know, $2,000 per reimbursed test. That's what kidney and heart are, you know, 27, 28. You can start to build a case for there's about 70 of these types of centers in the United States. You start to think about, you know, liver at, I think, around 8,500 liver cases a year, somewhere in that neighborhood. You got a nice market for liver, but, you know, kidney becomes very important to us as well as heart.
Obviously we have a nice competitive advantage in liver since we're sort of the first out and we have, you know, a very rapid turnaround time.
Got it. Thanks, Ryan. That's helpful.
Thanks, Mason.
Ladies and gentlemen, just a final reminder. If anyone else would like to ask a question, you're welcome to press star then one. We will pause a moment to see if we have any further questions. Ladies and gentlemen, we have reached the end of the question and answer session, and I would like to turn the call back to Ron Andrews for closing remarks. Please go ahead, sir.
Thanks, everyone, and we appreciate your time today. We certainly appreciate the questions, and we're eager to obviously to see many of these milestones unfold over the fall. We look forward to speaking at numerous conferences through the fall and updating you guys on our progress. Thanks for your time today.
This concludes today's conference. Thank you for joining us. You may now disconnect your lines.
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