IMDX US Equity☆

UNITED

STATES

SECURITIES

AND EXCHANGE COMMISSION

Washington,

D.C. 20549

FORM

10-K

For

the fiscal year ended December 31, 2023

OR

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,

California92618

(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:

Title of each class Trading Symbol Name of each exchange on which registered

Common Stock, no par value OCX The Nasdaq Stock Market LLC

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.

Large accelerated filer ☐ Accelerated filer ☐

Non-accelerated filer ☒ Smaller reporting company ☒

Emerging growth company ☐

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. ☐

If

securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant

included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate

by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation

received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

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, 2023 was approximately $18.8 million. Shares held by each executive officer and

director and by each person who beneficially owns more than 10% 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 April 3, 2024, there were outstanding 8,273,073shares of common stock, no par value.

DOCUMENTS

INCORPORATED BY REFERENCE

Portions

of the registrant’s Proxy Statement for its 2024 Annual Meeting of Shareholders (the “Proxy Statement”), to be filed with the Securities and Exchange

Commission within 120 days after the end of the fiscal year ended December 31, 2023, are incorporated herein by reference in Part

III of this Annual Report on Form 10-K.

Oncocyte

Corporation

Table

of Contents

December

31, 2023

Page Number

Cautionary Note Regarding Forward-Looking Statements 3

Industry and Market Data 3

Part I. Item 1. Business 4

Item 1A. Risk Factors 22

Item 1B. Unresolved Staff Comments 46

Item 1C. Cybersecurity 46

Item 2. Properties 46

Item 3. Legal Proceedings 46

Item 4. Mine Safety Disclosures 46

Item 6. [Reserved] 47

Item 7A. Quantitative and Qualitative Disclosures about Market Risk 60

Item 8. Financial Statements and Supplementary Data 61

Item 9A. Controls and Procedures 108

Item 9B. Other Information 109

Item 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections 109

Part III. Item 10. Directors, Executive Officers, and Corporate Governance 110

Item 11. Executive Compensation 110

Item 14. Principal Accountant Fees and Services 110

Part IV. Item 15. Exhibits and Financial Statement Schedules 111

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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 Annual Report on Form 10-K for the

year ended December 31, 2023 (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:

● the timing and potential achievement of future milestones;

● our plans to pursue research and development of diagnostic test candidates;

● the potential commercialization of diagnostic tests currently in development;

● our intellectual property position;

● the impact of government laws and regulations; and

● our competitive position.

Unless

the context otherwise requires, all references to “Oncocyte,” “we,” “us,” “our,” “the

Company” or similar words refer to Oncocyte Corporation, together with our consolidated subsidiaries.

The

description or discussion, in this Report, 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.

DetermaIOTM,

DetermaCNITM, and VitaGraftTM are trademarks of Oncocyte, regardless of whether the “TM” symbol accompanies

the use of or reference to the applicable trademark in this Report.

INDUSTRY

AND MARKET DATA

This

Report 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.

PART I

Item

1. Business

We

are a partner in the healthcare and life science field to researchers and physicians through our development and acquisitions of

proprietary molecular technologies in the fields of oncology and transplantation. Through a series of acquisitions, we have built a

portfolio of differentiated content with utility in well-established clinical and research markets.

With

the increased adoption of precision medicine, healthcare providers are relying on advanced testing to identify patients who will

benefit from new, targeted treatments and therapies that are more effective and often have fewer side effects than chemotherapy and

other traditional treatments. In addition to identifying these individualized treatment options, researchers and healthcare

providers are looking to new technologies to rapidly identify when medical or therapeutic interventions are necessary. We are

leveraging our experience in oncology and transplantation to develop and commercialize diagnostic testing at our licensed and

accredited laboratory as well as focusing on the development of distributable kitted formats of these technologies so that researchers may study how these tests can be further utilized in other types of cancers.

Commercialization of these products, which are intended to be sold for research purposes in the United States and labeled “For

Research Use Only” (“RUO”), is expected to occur through a mix of direct sales, partnering and distribution

agreements, and licensing.

We

have a laboratory and pharma services lab, certified under the Clinical Laboratory Improvements Amendment (“CLIA”) and

accredited by the Collage of American Pathologists (“CAP”), in Nashville, Tennessee, and a research and development lab

in Göttingen, Germany. We may sometimes refer to our technologies as “diagnostic tests.” Our laboratory developed

tests (“LDTs”) are intended to help support and inform physician decision-making but are not themselves diagnostic or

prescriptive of treatment decisions. They are critical to our ability to carry out our mission to improve patient outcomes by

providing patient specific insights that inform critical provider decisions throughout the patient care journey. We believe that if

clinicians are given the right information and educational tools, they will make the right choices with their patients.

We believe that the experience of our team with diverse technologies through

our pharma services activities (acquired through Insight Genetics (“Insight”)) (“Pharma Services”), strong scientific

integrity regarding evidence generation and innovation mentality, alongside our flexibility in operations and regulatory strategy, will

drive our success, differentiate us from our competition, and are foundational to our future.

We plan to expand our role in the rapidly evolving healthcare market by

strengthening our positions across our portfolio of capabilities, growing strategic opportunities that drive new business, and differentiating

our unique offerings, capabilities, and financial performance. To do so, we are focusing on executing the technology priorities discussed

below, which have evolved to reflect our operations and strategic vision.

1. Priorities and Resource Allocation

Spin-off

of DetermaRx

As

part of our initial strategy on the broader diagnostic continuum, we launched the DetermaRx test via our majority acquisition of Razor Genomics, Inc. (“Razor”) in September 2019. During February 2021, we acquired all outstanding shares of Razor’s

common stock which made Razor a wholly-owned subsidiary of Oncocyte.

In

February 2023, we sold approximately 70% of the issued and outstanding equity interests of Razor to buyers who are experienced in the

development of early-stage lung cancer diagnostics and the provision of gene-expression-based prognostic tests. As part of the same transaction, we transferred to Razor all of the assets and liabilities related to DetermaRx. We continue to retain approximately

30% of the issued and outstanding equity interests of Razor on a fully-diluted basis. For more information regarding this transaction,

see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” – “Recent Developments”

– “Razor Genomics Purchase Agreement.”

DetermaRx

DetermaRx

is the first and only test to predict patient’s risk of cancer recurrence following surgery and response to chemotherapy in

early-stage lung cancer, and was our first test to be commercialized and reimbursed by Medicare. DetermaRx serves an unmet clinical

need by helping to guide treatment decisions given the 30-50% mortality rate in patients in the absence of timely chemotherapy

treatment. Prior to our transfer to Razor in February 2023 of all of the assets and liabilities related to DetermaRx, we commercialized and performed DetermaRx testing at a CLIA certified laboratory in Irvine.

2.

Expand Biomarker Technologies to Drive Advancements for Patient Management – Oncology

The

field of oncology receives significant investment in research, development, and treatment, yet it remains an area of great unmet medical

need. For patients diagnosed with cancer, immunotherapies, particularly immune checkpoint inhibitors (“ICI’s”) targeting PD-1 and

PD-L1, help recruit the body’s immune system to attack the growing tumor. Current predictive biomarkers, including PD-L1 and Tumor

Mutational Burden (“TMB”), have shown only limited ability to accurately predict which patients will respond to immunotherapy.

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. ICIs are approved in 16 different tumor types, and it is estimated that 4.1 million patients are eligible

for these drugs worldwide. Pharmaceutical companies are continuing to invest heavily in this space, with hundreds of clinical trials

ongoing, and a number of drugs approved by the U.S. Food and Drug Administration (“FDA”), including pembrolizumab (“Keytruda”), nivolumab (“Opdivo”), atezolizumab (“Tecentriq”),

and Imfinzi.

Although

ICI treatments can be highly effective in the right patients, ICI’s can 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 (i) identify responder

populations missed by current biomarkers, (ii) inform the use of ICI’s in combination with traditional cytotoxic chemotherapy, (iii)

support patient stratification clinical trials for next generation immunomodulating therapies, and (iv) provide a reliable measurement

of the tumor immune microenvironment for researchers in biopharma and academia.

DetermaIO

Through the acquisition of Insight in January 2020, we expanded our oncology

portfolio to include a novel gene expression-based test called DetermaIO, which assesses the tumor microenvironment and identifies patients

whose immune system is poised to benefit from immunotherapy. DetermaIO measures the expression level of 27 selected genes which are interpreted

through the use of a proprietary algorithm (patent pending) which computes a quantitative score (“IO Score”) that incorporates

information from the immune inflammatory infiltrates within and around the tumor combined with information from the wound response surrounding

the tumor.

We

successfully completed the CLIA Validation of DetermaIO in April 2020 at our laboratory in Nashville, Tennessee. DetermaIO has

demonstrated in multiple clinical studies, including a gold-standard randomized clinical trial (RCT) to provide incremental utility

beyond established biomarkers used to identify patients who will have a response to ICIs. The test has been successfully validated

in four tumor types and across the four major ICIs (Keytruda, Opdivo, Tecentriq and Imfinzi).

In

the fourth quarter of 2021, this test became available as part of an early access program with leaders in the immuno-oncology

field. A kitted research product format of the underlying technology began proof-of-concept development in the first quarter of

2023.

DetermaIO

as a Clinically Validated Laboratory Test

DetermaIO

incorporates measurement of 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 measurement of these three signals that we believe distinguishes

DetermaIO from most other approaches. An established threshold is used to classify patients as a likely responder or as a likely

non-responder whose association with response to immune therapy has now been validated in several independent clinical studies in

multiple different cancer types.

Based

on our projected reimbursable pricing model, we believe that the clinical use of DetermaIO will address a potential $3.0 billion total

addressable market (“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.

DetermaIO’s

“IO Score” as a Biomarker for Further Research

The

early success of ICIs 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.

We

believe DetermaIO is a direct measure of the status of the tumor immune microenvironment and as such identifies those tumors poised

to respond to the addition of ICI’s. We believe that the integration of the signal from the “Hot” component of the

tumor, the “Cold” immune repressive features, and in some cases the exclusion of immune cells altogether, an immune

desert, is superior to measuring any of these physiologies alone.

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 $1.0 billion market opportunity for immune-therapy clinical trial services to pharma companies developing ICIs which

could be supported by our laboratory in Nashville, Tennessee or through a future kitted RUO product.

DetermaCNI

Therapy

response monitoring is an emerging estimated $6.0 billion clinical opportunity in the United States. The current standard of care,

CT/MRI imaging, can struggle to differentiate between progression and pseudo-progression, where a tumor will appear larger but is

actually a side-effect of the immunotherapy working. Minimally invasive blood-based monitoring technology, like DetermaCNI, provides

physicians a secondary data point to assess the effectiveness of therapy.

The test converts cell-free DNA (“cfDNA”) next-generation sequencing

(“NGS”) results into a proprietary genome-wide copy number instability (“CNI”) score which can be used to monitor

and guide ongoing treatment decisions. This test is differentiated from other monitoring tests in two ways; (i) it does not require tumor

tissue upfront which can be hard or impossible to obtain, and (ii) the test measures copy number variation instead of mutations identified

in a patient’s diagnostic biopsy specimen.

3.

Expand Biomarker Technologies to Drive Advancements for Patient Management – Transplant

Clinicians have limited options in assessing graft health post-transplantation.

Traditional methods to assess transplant organ damage are imprecise, invasive, and/or inadequate. Donor-derived cell-free DNA (“dd-cfDNA”)

is one of the best investigated biomarkers, with an increasing number of clinical validation studies published. Most of these studies

focused on the fractional concentration (percentage) of the total cfDNA in the patients’ plasma (“dd-cfDNA(%)”), however,

changes in host cfDNA, which represents the denominator in the percentage calculations, over time adds an additional source of possible

uncertainty. If the denominator (concentration of total cfDNA in plasma) is not constant, or at least does not have a narrow window under

all conceivable clinical conditions, dd-cfDNA(%) values can fluctuate without a change in the value of the relevant analyte dd-cfDNA

being measured. To remove this variable and cause of uncertainty, we have introduced VitaGraft, a test to measure not only the percentage

of dd-cfDNA, but also the absolute quantification dd-cfDNA, expressed as copies/mL.

VitaGraft

Through the acquisition of Chronix Biomedical, Inc. (“Chronix”),

we gained access to two patents in the field of the detection and quantification of dd-cfDNA

in patients after organ transplantation. The dd-cfDNA biomarker has been shown to be a very valuable tool to the traditional surveillance

of graft health after transplantation and is currently an estimated $2.0 billion reimbursed market in the United States under a blanket

local coverage determination (“LCD”).

VitaGraft

as a Clinically Validated Laboratory Test

In October 2021, our patent filing for the use of digital PCR for the quantification of dd-cfDNA was issued by the United States Patent and Trademark Office (the “USPTO”). We successfully

completed the technology transfer of VitaGraft to our laboratory in Nashville, Tennessee in the second quarter of 2022. The assay is analytically

and clinically validated in three major solid organ transplant types (kidney, liver and heart) by peer reviewed international publications.

We received a positive coverage decision from the Molecular Diagnostics Services (“MolDx”) for VitaGraft Kidney in August

of 2023, and it became commercially available for ordering in January 2024 through our CLIA Laboratory in Nashville, Tennessee. VitaGraft

Kidney is now broadly available to transplant professionals upon request.

VitaGraft’s

dd-cfDNA Quantification as a Biomarker for Further Research

Several

questions remain unanswered in transplant graft management and offer interesting areas for research. Among these are, immunosuppression

dosing optimization, the utility of the absolute quantification of dd-cfDNA in long-term management, and the viability of xenograft and

3-D printed organs. To support these and other areas of groundbreaking research, we have initiated the development of a kitted RUO product,

GraftAssure, and a prototype was completed in the fourth quarter of 2023.

In April 2024, we entered into an agreement to collaborate in the development

and the commercialization of research use only and in vitro diagnostics kitted transplant products. See Note 14, “Subsequent Events,”

to our consolidated financial statements included elsewhere in this Report for additional information.

4.

Billing, Coverage, and Reimbursement for our Laboratory Tests

We

are currently in the process of developing and commercializing DetermaIO, VitaGraft and DetermaCNI.

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. Due to 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 diagnostics tests, Medicare or the Centers for Medicare & Medicaid

Services (“CMS”) reimbursement approval is critical. CMS relies on a network of Medicare Administrative Contractors (“MACs”)

to make LCDs approving a test for reimbursement. The 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 LCDs 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. Delays

in obtaining MAC approval, or any changes made related to any favorable LCDs, could have a material adverse impact on our business.

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 LCD. 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. While these definitions can vary among payers, an in-network provider usually has a contract

with the payer or benefits provider. Such 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 or whether our efforts to appeal

denied claims will be successful. While 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. Adoption or expansion of laws and regulations that limit our ability to bill and obtain reimbursement for the full

costs of our services would have a material adverse impact on our business and on market acceptance of our tests.

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 is www.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 part of this Report.

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 limited resources and 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.

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 the Society for

Immunotherapy of Cancer, suggested that DetermaIO outperformed both PD-L1 and TMB in predicting response to checkpoint inhibitors in patients

with NSCLC. In 2021, we presented data at four major scientific conferences supporting the association of DetermaIO and response to checkpoint

inhibitor therapy and comparing to PD-L1 and TMB. Notably, data presented at both the European Society for Medical Oncology and the San

Antonio Breast Cancer Symposium demonstrated the predictive value of the test.

DetermaCNI

competes with tumor-informed tests that are on market for treatment monitoring as well as blood-only targeted panels. We believe we are

differentiated from the former in that the test requires no tissue. DetermaCNI is differentiated from targeted approaches because it

assesses changes across the whole genome broadly as opposed to changes in a subset of genes and is applicable in both adjuvant and neo-adjuvant

patient scenarios, versus tests that monitor Minimal Residual Disease which are typically only used when the tumor is removed.

VitaGraft

competes with multiple other tests from competitors that measure donor derived cell-free DNA. While our competitors have an

established customer base, we believe that through the use of digital PCR, VitaGraft’s reduced need for batching to achieve

attractive sample economics, fast turnaround time and native absolute quantification will be differentiators in the marketplace.

Based on our research of customer needs, we believe that this fast turnaround time is critical to inform timely, critical medical

decisions.

Facilities

We lease a building located at 15 Cushing in Irvine, California that serves

as our principal executive and administrative offices. We also operate a CLIA certified laboratory in Nashville, Tennessee, and through

the acquisition of Chronix, we also have a research and development facility in Göttingen, Germany, which serves as the

center of excellence for our blood-based monitoring program.

Materials

There

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

tests. Additionally, the chemical reagents used with the testing equipment we choose are available only from the equipment

manufacturer. This situation poses a risk to us. If we were to encounter inconsistent results using testing equipment and

reagents from one manufacturer, we would need to switch to testing equipment from a different manufacturer. If issues were to arise

with the testing equipment or with the reagents we are using, causing us to acquire different testing equipment again, we would need

to conduct additional laboratory studies to determine whether our previous test results can be reproduced using the new equipment.

If similar issues were to arise after commercialization of a test, we could experience a disruption for a period of time in

providing the tests to patients and we would lose revenue 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 United States 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, to protect our intellectual

property rights, and to operate without infringing upon the proprietary rights of others.

Through our acquisition of Insight in January 2020 and Chronix in April

2021, 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, since our acquisition of Insight, filed

our own patents to protect DetermaIO.

Through

our acquisition of Chronix in April 2021, we obtained intellectual property rights to 10 patent families in the field of detection

of cell-free tumor DNA and quantification of donor derived cell-fee DNA, with numerous already issued patents in the United States

and European Union (“EU”), expiring between April 2031 and October 2034. In addition, we obtained trade secrets, registered trademarks,

domain names, copyrights and proprietary software material.

In

addition to relying on patents, we rely on trade secrets, know-how, 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 weigh the biomarkers to produce a score. We 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:

● Changes in government regulations or patent laws; and

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 in Mayo Collaborative Services v. Prometheus Laboratories, Inc. and Association

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. In Mayo Collaborative Services v. Prometheus

Laboratories, Inc., the Supreme Court ruled that patent protection is not available for the simple 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.

In

Association 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,

in Ariosa 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 in Mayo 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 in Mayo 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 USPTO has also issued 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. However, there is no guarantee that such pending patent applications will issue nor that our existing patents

would survive a challenge in light of the above-referenced case law.

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 review 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 lost

if the outcome of the review 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 invalidation of a recently issued patent.

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. Further, should we sue a third-party

infringer for patent infringement, the infringer may assert counter claims and attempt to invalidate some or all of the asserted patent

claims. There is always some risk that such a counter claim could result in invalidation of one or more claims of an asserted patent.

Government

Regulation

CLIA—Clinical

Laboratory Improvement Amendments of 1988 and State Regulation

We expect that DetermaIO, VitaGraft and DetermaCNI will be regulated under

the CLIA as LDTs. 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. Since our laboratory in Nashville, Tennessee meets 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 ours 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. CMS enforces CLIA compliance. CMS granted the CAP Laboratory Accreditation Program deeming authority, which allows CAP

inspection in lieu of a CMS inspection. Our laboratory in Nashville, Tennessee is CLIA-certified and CAP-accredited.

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 had exercised enforcement restraint with respect to most LDTs and had 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.

However, in

recent years, the FDA has stated it intends to end its policy of enforcement restraint and begin regulating certain LDTs as medical devices.

In September 2023, the FDA announced a proposed rule aimed at helping to

ensure the safety and effectiveness of these tests. The proposed rule seeks to amend the FDA’s regulations to make explicit that

in vitro diagnostics (“IVDs”) are devices under the Federal Food, Drug, and Cosmetic Act (the “FD&C Act”),

including when the manufacturer of the IVD is a laboratory. Along with this amendment, the FDA is proposing a policy under which the FDA

intends to provide greater oversight of LDTs through a phaseout of its general enforcement discretion approach for most LDTs.

In October 2023, the FDA published a proposed rule entitled “Medical

Devices; Laboratory Developed Tests.” Following publication of the proposed rule, the FDA received requests for an extension of

the comment period. After considering the requests and other factors, including the extensive background of public comment on this topic

and the public health benefits of proceeding expeditiously, the FDA determined to proceed with the standard 60-day comment period. As

stated in the notice of proposed rulemaking, comments on the proposed rule must have been submitted to the docket by December 4, 2023.

This

rulemaking would amend the definition of “in vitro diagnostic products” in FDA regulations to state that IVDs are devices

under the FD&C Act “including when the manufacturer of these products is a laboratory.” In conjunction with this amendment,

the FDA is also proposing a policy under which the FDA intends to phase out its general enforcement discretion approach for LDTs so that

IVDs manufactured by a laboratory would generally fall under the same enforcement approach as other IVDs. The FDA has also made a preliminary

determination that the general enforcement discretion approach should be phased out in a manner that accounts for the level of public

health concern and the importance of avoiding undue disruption to the testing market, including undue disruption to the provision of

care. Therefore, the FDA is proposing a gradual phaseout to occur in stages over a total period of four years. The FDA anticipates that

this phaseout policy should ultimately enable IVDs offered as LDTs that are supported by sound science to remain on the market. The FDA

also recognizes that some IVDs may need to come off the market, because, for example, the IVD cannot meet applicable requirements under

the FD&C Act and its implementing regulations, or the laboratory chooses not to invest resources to meet those requirements.

While