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

The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our unaudited condensed financial
statements and related notes included in this Quarterly Report on Form 10-Q and
the audited financial statements and notes thereto as of and for the year ended
December 31, 2020 and the related Management's Discussion and Analysis of
Financial Condition and Results of Operations, both of which are contained in
our Annual Report on Form 10-K for the year ended December 31, 2020, filed with
the Securities and Exchange Commission on March 31, 2021. Past operating results
are not necessarily indicative of results that may occur in future periods.

Company Overview

We are a molecular oncology diagnostics company that develops and commercializes
proprietary clinical diagnostic laboratory assays designed to identify rare
tumor cells and cell-free tumor DNA from either blood or cerebrospinal fluid
(CSF). The identification of circulating tumor cells, or CTCs, and circulating
tumor nucleic acid including circulating tumor DNA, or ctDNA, and circulating
tumor RNA, or ctRNA, deriving from solid tumors such as breast cancer or lung
cancer using a standard blood sample has been described as a "liquid biopsy."

Effective January 2020, we also adapted and validated this technology for
commercial use in cerebrospinal fluid, or CSF, to identify tumor cells that have
metastasized to the central nervous system, or CNS, in patients with advanced
lung cancer or breast cancer. In April 2021, we rebranded our CSF version of the
cell-based Target SelectorTM assay as CNSide™. As the blood and CSF compartments
are distinct and separate, to distinguish tumor cells derived from these sample
types we often refer to tumor cells in CSF as CSF-TCs rather than CTCs.

In June 2020, to respond to a national public health emergency precipitated by
the COVID-19 pandemic, we introduced molecular testing for SARS-CoV2, the virus
responsible for COVID-19, using a United States Food and Drug Administration, or
FDA, Emergency Use Authorization, or EUA, based "RT-PCR" method developed by
Thermo-Fisher.

In June 2020, we entered into a development agreement with Aegea
Biotechnologies, Inc., or Aegea, focused on the co-development by us and Aegea
of a highly sensitive PCR-based assay designed by Aegea for detecting the
COVID-19 virus. Pursuant to the development agreement, we receive compensation
for development services performed based on time and materials expended. In
February 2021, we entered into a supply agreement with Aegea for the PCR-based
COVID-19 assay kit. Under the supply agreement, Aegea will supply the COVID-19
assay kit to us for validation in our high-complexity molecular clinical
laboratory that is certified under the Clinical Laboratory Improvement
Amendments of 1988, or CLIA, and licensed by the California Department of Public
Health, and accredited by the College of American Pathologists, or CAP, and
subsequent commercialization of a laboratory developed test, or LDT.

Our current and planned blood and CSF assays are intended to provide information
to aid healthcare providers by identifying tumor cells associated with
progression or metastasis, and identifying specific oncogenic alterations that
may qualify a subset of cancer patients for targeted therapy. These assays may
also be used for monitoring response to treatment or to identify specific
resistance mechanisms.

"Liquid biopsies" are intended to supplement or replace the need for additional
invasive surgical tissue biopsies or repeated lumbar punctures to find tumor
material (intact cells or tumor derived nucleic acid known as ctDNA and ctRNA)
in blood or CSF. Our molecular assays are also designed to help find molecular
alterations in situations where tumor tissue or CSF cytology samples are
insufficient and/or unable to provide the molecular subtype information
necessary for clinical decisions.

Our assays have the potential to provide faster, more contemporaneous
information regarding therapy response or the characteristics of a patient's
disease when compared with surgical tissue biopsies which must be scheduled or
radiographic imaging which may take a month or more to illustrate progression.

Our current assays and our planned future assays focus on key solid tumor
indications utilizing our Target-SelectorTM liquid biopsy technology platform
for the biomarker analysis of CTCs and ctDNA from a standard blood sample or
CSF-TCs and cell-free tumor DNA and RNA from a CSF sample. Our patented
Target-Selector™ tumor cell platform assays are based on an internally developed
microfluidics-based cell capture and analysis platform, with features that
enable quantitative tumor cell counts and molecular assays related to these
tumor cells, informing clinicians of changes in response to treatment and
biomarkers in tumor cells that can inform physician treatment decisions,
particularly as the tumor characteristics may change over time with clinical
progression or metastasis.

In addition, our patented Target-Selector™ molecular technology enables
detection of mutations and genome alterations with enhanced sensitivity and
specificity, and is applicable to a broad range of diagnostic applications
including detection of tumor-derived cell-free nucleic acid (ctDNA/RNA), and
could potentially be validated for other sample types such as bone marrow, or
tissue (surgical resections and/or biopsies).

In January 2019, we began offering research use only, or RUO, liquid biopsy kits
containing our patented and proprietary ctDNA Target SelectorTM molecular
(PCR-based) testing for certain specific cancer genes to laboratories and
researchers worldwide. In March 2020 we released an update for our RUO EGFR
Target SelectorTM Kit which expanded the sample types validated to include both
blood and

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formalin-fixed paraffin-embedded, or FFPE. In March 2020 we also released a RUO
BRAF Target SelectorTM validated for both ctDNA and FFPE.

At our corporate headquarters facility located in San Diego, California, we
operate a clinical laboratory that is certified under CLIA, licensed by the
California Department of Public Health, and accredited by CAP. At this facility
we perform our current assays, and we continue to perform research and
development for our planned future assays. In addition, we currently manufacture
our microfluidic channels and various chemistries used in our testing process,
however, we have identified and have been working with a manufacturer to
outsource certain manufacturing activities in the near term to reduce costs and
improve efficiency.

The assays we offer and intend to offer are classified as CLIA laboratory
developed tests or "LDTs" under CLIA regulations. CLIA certification, and state
licensure in California and certain other states under the supervision of a
qualified laboratory medical director is required before any clinical
laboratory, including ours, may perform testing on human specimens for the
purpose of obtaining information for the diagnosis, prevention, or treatment of
disease or the assessment of health. In addition, we participate in and have
received CAP accreditation, which includes rigorous bi-annual laboratory
inspections and requires adherence to specific quality standards.

Our primary sales strategy is to engage medical oncologists and other physicians
in the United States at private and group practices, hospitals, laboratories and
cancer centers. In addition, we market our clinical trial and research services
to pharmaceutical and biopharmaceutical companies and clinical research
organizations. We also market and sell molecular assay kits which enable
laboratories other than Biocept to perform our testing in house. Sales of these
kits began in the first quarter of 2019. Further, sales to laboratory supply
distributors of our proprietary blood collection tubes, or BCTs, commenced in
June 2018, which allow for the intact transport of liquid biopsy samples for
research use only from regions around the world.

Our revenue generating efforts are focused in three areas:

• providing laboratory services to medical oncologists, neuro-oncologists,

and other physicians or healthcare providers treating patients with cancer

        or COVID-19 who use the biomarker information we provide in order to
        determine the best treatment plan for their patients;

• providing laboratory services using both our CTC and ctDNA and ctRNA

assays in order to help pharmaceutical and biopharmaceutical companies run

        clinical studies establishing the use of novel drug therapies used to
        treat cancer; and

• licensing our proprietary technology and selling our distributed products,

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


We plan to grow our business by directly offering our CNSideTM and
Target-Selector™ liquid biopsy CTC and molecular assays to medical oncologists,
neuro-oncologists, and other physicians or heath care providers who treat
patients with cancer. Based on our product development data, as well as
discussions with our key collaborators, we believe that our planned future
assays, particularly those related to CSF, should provide important information
and clinical value to physicians.

Following the full commercial launch of our CSF assay, CNSide™, we submitted an
initial application for Breakthrough Device Designation to the U.S. Food and
Drug Administration ("FDA"). While the initial submission in early 2021 was
denied, we continue to pursue options related to a future Breakthrough Device
Designation for CNSide™ , including pursuit of larger clinical trials that would
provide more clinically detailed data to support an FDA filing. The test is
currently marketed as a Lab Developed Test in the Company's CLIA certified and
CAP accredited lab. CNSide™ is designed to improve the clinical management of
patients with suspected metastatic cancer involving the central nervous
system. By comparison, the current "standard of care" diagnostic triad of
cytology, radiology and clinical examination has significant limitations of both
sensitivity and specificity for identifying brain metastasis and response to
therapy.

Furthermore, using our CNSide and Target-Selector assays, cells in CSF or blood
can be further interrogated to find various molecular alterations or
"biomarkers" that can deliver important, actionable information used for better
treatment decisions. These molecular alterations, such as HER2 amplification,
are not readily provided by other clinical tools unless patients undergo a
surgical brain biopsy or biopsy of other metastatic tumor sites, while other
competing "liquid biopsy" techniques are also limited. For example, the now
historic FDA approved CellSearch® test which provides CTC enumeration in blood,
is not approved for use in CSF or to perform biomarker analysis in blood or CSF.
Other ctDNA based methods may not reliably capture certain molecular alterations
such as copy number variations, including for example HER2 amplification, found
in rare tumor cells.

We believe our ability to rapidly translate insights about the utility of
cytogenetic, immunocytochemical and molecular biomarkers to provide information
to medical oncologists, neuro-oncologists, and other physicians for treatment
decisions in the clinical setting will improve patient treatment and management,
and that these assays will become a key component of the standard of care for
personalized cancer treatment.

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Assays, Products and Services

We currently offer and conduct our commercialized diagnostic assays and offer
our clinical trial services at our CLIA-certified, CAP-accredited and
state-licensed laboratory. We have commercialized our Target-Selector™ assays
for a number of solid tumor indications such as: breast cancer, NSCLC, gastric
cancer, colorectal cancer, prostate cancer, pancreaticobiliary cancer, and
ovarian cancer. These assays utilize our dual CTC and ctDNA technology platforms
and provide biomarker analysis from a patient's blood sample. In addition, to
assist with the United States' urgent need for widespread COVID-19 testing, we
launched our RT-PCR COVID-19 testing at our laboratory during the second quarter
of 2020.

Our current assays and clinical trial services include:

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

cancer diagnostic assays are based on our Target-Selector™ technologies.

After completing testing, we or our partners provide our customers with an

easy to understand report that describes the results of the analyses

performed, which is designed to help medical oncologists, neuro-oncologists,

surgical oncologists, urologists, pulmonologists, pathologists and other

physicians make better decisions about the treatment of their patients.

• Clinical Trial Services. We plan to utilize our clinical laboratory and

translational research capabilities to provide clinical trial and research

services to pharmaceutical and biopharmaceutical companies and clinical

research organizations to improve the efficiency and economic viability of

their clinical studies. Our clinical studies and translational research

services could leverage our knowledge of CTCs and ctDNA and ctRNA and our

ability to develop and implement new cytogenetic, immunocytochemical and

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

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

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

during the course of treatment or disease progression. Demonstration of

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

adopted in standard clinical practice, helping physicians select the most

appropriate therapy for their patients.

• RT-PCR COVID-19 Testing. We are currently performing RT-PCR testing for

COVID-19 and have received more than 640,000 samples for processing to

date. We believe that our RT-PCR COVID-19 testing will be an important aspect

of our business until the COVID-19 pandemic subsides.

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

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

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

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

In August 2017, we announced that we had executed a distribution agreement for
our proprietary blood collection tubes with VWR International, LLC which can
preserve intact cells (such as CTCs) for up to 96 hours and ctDNA for up to 8
days, allowing for the intact transport of RUO liquid biopsy samples from
regions around the world.

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

We launched the first of our RUO Target Selector kit products, ctDNA EGFR, in
January 2019. Additionally, we plan to evaluate opportunities for licensing of
our products and proprietary technologies to partners in the United States and
abroad.

In December 2018, we entered into a Software License and Laboratory Data Supply
Agreement with Prognos, Inc., an innovator in predicting disease by applying
artificial intelligence, or AI, to clinical laboratory diagnostics. Under the
agreement, we will supply de-identified data from its liquid biopsy testing to
Prognos, which will leverage its AI capabilities to help its pharmaceutical
clients ensure that the right patients receive the right therapies. This
agreement could provide revenue sharing opportunities in future periods.

In May 2019, we announced the launch of the Target-Selector™ NGS lung cancer
panel. We are working to gain payment for our assay with Palmetto MolDx, who is
contracted by CMS to vet new technologies and assays. This means that they must
determine that our test is reasonable and necessary for the care of patients
diagnosed with late-stage Non-Small Cell Lung Cancer.  This is the first step in
gaining reimbursement for a proprietary test, and we are in the process of
negotiating coding and pricing. Once that is finalized, Noridian (the Medicare
carrier for our region) must review and accept the recommendation for payment
from Palmetto.  If they agree with the recommendation from Palmetto MolDx, then
Noridian will adopt the payment and reimbursement recommendation or develop
their own, and we can then receive payment from Medicare for our lung cancer
panel.

In June 2019, we announced launch of the Target-Selector™ NGS breast cancer
panel, a multi-gene liquid biopsy panel specifically developed for breast
cancer. This panel is being marketed to physicians and cancer researchers for
the detection and monitoring of actionable genomic biomarkers associated with
breast cancer.

In November 2019, we announced launch of our liquid biopsy test to detect TRK
biomarkers in the blood of patients diagnosed with cancer. Identification of TRK
protein enables physicians to rapidly and cost-effectively identify the
potential presence of NTRK fusions used to inform on treatment options.

In April 2020, we announced the availability of RUO kits that can allow
molecular laboratories around the world to utilize Biocept's Target-Selector™
molecular assay kits to detect key oncogene mutations through the analysis of
both Formalin-Fixed Paraffin-Embedded (FFPE) tissue gained from surgical
biopsies as well as circulating tumor DNA (ctDNA) gained from blood-based liquid
biopsies. In addition, we announced the award of CE (Conformité Européene)-IVD
Mark for our Target-Selector™ molecular assay EGFR kit.

In May 2020, we announced the availability of a Target-Selector™ molecular assay
RUO kit for the detection of BRAF mutations in ctDNA and FFPE samples.

We launched our RT-PCR COVID-19 testing business during the second quarter of
2020. We have received more than 640,000 samples for processing through our
RT-PCR technology at our laboratory through the date of filing and we believe
that performing highly accurate RT-PCR testing for COVID-19 will be an important
aspect of our business until the COVID-19 pandemic subsides.

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

In April 2021, we announced full commercial launch of our CNSide™ cerebrospinal
fluid assay to address unmet needs of patients with metastatic brain cancer.
The CNSide™ cerebrospinal fluid assay is designed to better detect and manage
treatment of metastatic cancers involving the central nervous system (CNS).

In June 2021, we announced a collaboration with Quest Diagnostics to provide
laboratory testing services to Quest patients using our Target SelectorTM
NGS-based liquid biopsy targeted lung cancer panel. Quest Diagnostics is the
leading provider of diagnostic information services, including advanced
diagnostics.

In July 2021, we received a positive final Local Coverage Determination (LCD)
that expands Medicare coverage for use of our Target SelectorTM assay to
identify the HER2 biomarker from circulating tumor cells (CTCs). This coverage
determination from the Centers for Medicare & Medicaid Services (CMS) Molecular
Diagnostics Program (MolDx) was effective July 4, 2021.

Pharmaceutical, Research and Health Economic Collaborations

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

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As a follow up to the CTC findings published in Cancer Medicine, we were
involved in a clinical study led by investigators at the Dana-Farber Cancer
Institute. Study enrollment was completed. During the screening phase of this
study, our CLIA-certified, CAP accredited laboratory tested blood samples from a
cohort of patients with HER2 negative tissue status, with the aim to identify
individuals with HER2 amplified CTCs. These patients were then assigned to
chemotherapy plus Herceptin®. Additional CTC testing with HER2 FISH biomarker
analyses were performed at subsequent time points. At the December 2014 San
Antonio Breast Cancer Symposium, we presented findings of 311 patients tested
with HER2 negative tissue status, where 22% had CTCs with HER2 gene
amplification at disease progression. HER2 gene amplification subsequently
categorized these patients as potential candidates for anti-HER2 therapy as the
cancer evolved. Moreover, our multi-antibody CTC capture method identified a
substantial subset of patients who would not likely have had detectable CTCs
with commonly used CTC capture technologies. This added 10% (included in the
22%) to the number of women who were candidates for this highly specific
targeted therapy.

With our cooperation, researchers at Columbia University published a study in
the journal Clinical and Translational Oncology in January 2015. The study
demonstrated the high correlation (79%) of circulating tumor cells, primary
tumor tissue biopsy and metastatic tumor tissue biopsy in the determination of
hormone receptor status, or ER/PR, of breast cancer patients. The investigators
also found that this high correlation was strongest when comparing metastatic
tissue biopsy to CTCs (83%). The conclusion of the study was that determining
ER/PR status in CTCs using our platform is feasible, with high concordance in
ER/PR between tumor tissue (as determined with immunohistochemistry, or IHC) and
CTCs (as determined with immunocytochemistry, or ICC). The authors suggest a
larger trial to determine the prognostic significance of these findings.

In September 2015, we presented the clinical validation data of our ctDNA assay
in collaboration with the University of California, San Diego. The results
demonstrated a very high level of concordance to tissue results (88%), together
with >95% analytical sensitivity and 99% analytical specificity, supporting our
offering of a validated, robust non-invasive solution for mutation
identification and monitoring in patients with lung cancer. Subsequent FDA
approval of Tagrisso®, a third-generation tyrosine kinase inhibitor, presented
an opportunity for patients to be monitored using a ctDNA and ctRNA assay.

In April 2016, we announced a study collaboration with Dr. Giuseppe Giaccone at
the MedStar Georgetown University Hospital to assess resistance biomarkers in
non-small cell lung cancer, or NSCLC, patients treated with EGFR inhibitors or
chemotherapy. Later in 2016, we announced another collaboration involving a
study presented at the European Society for Medical Oncology, or ESMO, Annual
Congress in October 2016, evaluating the detection of EGFR alterations (del19,
L858R and T790M) by our Target-Selector™ liquid biopsy. Subsequent to this
study, we have earned business in both Mexico and Columbia for EGFR gene
mutation testing in blood to qualify patients for a pharmaceutical company's
targeted therapy. The relationship also resulted in a study initiated during the
following year that includes peripheral blood CTC assessment of PD-L1 protein
expression in patients undergoing chemotherapy as a monotherapy or in
combination with a checkpoint inhibitor.

In December 2016, we announced a clinical study agreement with Columbia
University Medical Center to evaluate the clinical utility of our
Target-Selector™ platform to diagnose leptomeningeal metastases, or LM, in
breast cancer patients. This work was expanded in the fourth quarter of 2018 to
include patients with other primary solid tumor types. Dr. Kevin Kalinsky leads
this study to test CTCs in cerebrospinal fluid and blood, where CTC analysis
will be compared to standard methods for confirming LM diagnosis. In September
2020, Dr. Kalinsky moved to Emory University in Atlanta, but his work with
Columbia University on this project continues.

In May 2017, we entered into a clinical study agreement with the University of
Texas Southwestern Medical Center. Led by recognized oncologist and ALK
alteration researcher, Dr. Saad Khan, the study is designed to evaluate the
clinical utility of our Target-Selector™ platform for patients diagnosed with
ALK-positive NSCLC and treated with ALK-inhibitor therapy. A second arm of the
study evaluated patients with rare cancers such as anaplastic thyroid cancer to
determine if genetic drivers such as ALK gene rearrangements can be identified
and treated with targeted therapy to improve patient outcomes.

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

In collaboration with Dr. Shilpa Gupta from the Masonic Cancer Center at the
University of Minnesota, a poster was presented at the April 2018 American
Association for Cancer Research annual meeting. The results demonstrated
proof-of-concept use of our Target-Selector™ CTC platform, correlating CTC count
with clinical responses in refractory testicular cancer patients undergoing
therapy. This work is part of a Phase 2 clinical trial of brentuximab vedontin
(an anti-CD-30 antibody) with bevacizumab in refractory CD-30 + germ cell
tumors. The capability for our Target-Selector™ CTC platform to monitor this
rare cancer type presents the potential for a precision medicine-based approach
to guide treatment decisions for these patients.

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

In July 2018, we announced a collaboration involving two studies with the
University of California, San Diego. Each of the two studies will enroll 100
patients with solid tumors, for a total of 200 patients. One study will assess
the feasibility of using our CTC and ctDNA methodologies to predict
post-resection disease recurrence in patients with Stage II or III cancer, and
the other study will use our technology to predict response to therapy in
patients with metastatic disease. Dr. Rebecca Shatsky and Dr. Razelle Kurzrock
are the investigators key to both studies.

In August 2018, we announced a Quality Improvement Initiative with Highmark
Health to help improve molecular testing rates of NCCN Category I Guidelines for
NSCLC. The Initiative aims to improve health outcomes by using liquid biopsy to
more rapidly assess a patient's actionable biomarker status towards selecting
appropriate therapy, while reducing the overall cost of care. The project will
evaluate at least 100 patients in the Highmark Health-affiliated Allegheny
Health Network, or AHN, Cancer Institute. Patients will receive our CTC and
ctDNA testing in addition to tissue biopsy with the goal of obtaining biomarker
status results for a higher percentage of patients compared to standard testing.

Two scientific posters featuring the Target Selector™ CTC and ctDNA platforms
were presented in September 2018 at the International Association for the Study
of Lung Cancer, or IASLC, 19th World Conference on Lung Cancer. Data from these
clinical studies demonstrate the ability of our technology to detect and monitor
CTC counts and actionable biomarkers in both blood and cerebrospinal fluid, or
CSF, of patients with advanced NSCLC. The first poster described interim results
of a collaboration with Dr. Janakiraman Subramanian at the Saint Luke's Cancer
Institute in Kansas City, Missouri. This study evaluates CTC enumeration in
advanced stage NSCLC patients before and during the course of chemotherapy.
Interim data suggest that CTC counts may have prognostic and predictive
potential to assess therapeutic benefit. The second poster was in collaboration
with Kadmon Corporation, featuring CTC and ctDNA analyses and monitoring in the
CSF of NSCLC patients with LM who were treated with tesevatib in Kadmon's
clinical trial KD019-206. In this study, alterations detected in the CSF of
patients were concordant with original tissue biopsies, and serial monitoring of
CTCs and ctDNA biomarkers in CSF were consistent with the overall clinical.

A case series was published in the January 2019 issue of the peer reviewed
journal, Clinics in Oncology. The work highlights the clinical utility of liquid
biopsy to stratify patients who may benefit from targeted therapy, describing
three patients with metastatic NSCLC for whom tissue biopsy was insufficient for
molecular profiling. In all three cases, our ctDNA liquid biopsy analyses
detected an activating EGFR mutation. EGFR tyrosine kinase inhibitor therapy
subsequently was initiated. Complete response lasting approximately two years
was observed in one patient. For two patients, our ctDNA testing was performed
at signs of clinical progression and Osimertinib was administered upon our
liquid biopsy identification of the EGFR T790M resistance marker. In sum,
patient survival was dramatically extended in all cases presented where targeted
therapies were prescribed based on liquid biopsy results.

In April 2019, we presented a poster at the annual meeting of the American
Association for Cancer Research. The work describes analytical validation of
Target Selector ESR1 Next Generation Sequencing, or NGS, ctDNA assays with
single copy mutant detection. The assays have a limit of detection, or LOD,
0.03% or better, with >99% sensitivity for mutant allele fractions, or MAF,
ranging from greater than 5% down to 0.03%. ESR1 gene mutations are associated
with acquired drug resistance in up to 55% of patients with estrogen receptor,
or ER, positive metastatic breast cancer, or mBC, who received anti-estrogen
treatment. Detection of ESR1 mutations may enable the prediction of treatment
failure and disease progression in these patients. As new therapies are
developed that antagonize ER activity by mechanisms that differ from current
drug treatments, ESR1 mutation testing can be a helpful tool to identify
patients who may benefit from these alternative agents.

In October 2019, we announced the publication of a peer-reviewed journal article
featuring the analytical validation results demonstrating the high sensitivity
of our Target SelectorTM testing for EGFR, BRAF, and KRAS mutation in plasma
circulating tumor DNA (ctDNA). The article was published in the journal, PLOS
ONE, Volume 14, October 2019, and will also be included as part of a special
collection of topical articles, entitled Targeted Anticancer Therapies and
Precision Medicine In Cancer.

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In November 2019, we presented clinical data highlighting performance of our
Target SelectorTM tests and kits for detecting actionable oncology biomarkers at
the 2019 Association for Molecular Pathology, or AMP, Annual Meeting held at the
Baltimore Convention Center, in Baltimore, MD. The content of our posters will
be published in The Journal of Molecular Diagnostics.

In December 2019, we presented clinical data supporting the use of our Target
Selector TM CTC platform as an aid in the monitoring and treatment of breast
cancer in a poster session at the 2019 San Antonio Breast Cancer Symposium, or
SABS. The data demonstrated the Target SelectorTM platform's ability to
accurately detect, enumerate, and interrogate CTCs in a cohort of over 1,500
patients, representing various clinical and treatment stages of breast cancer.

In March 2020, we announced publication of clinical data in the peer-reviewed
Journal of Clinical Pathology that further validates the Company's Target
Selector™ qPCR Assay using "Switch Blocker" technology to identify
cancer-related mutations in liquid biopsy samples. The study examined 127
clinical assays for mutations commonly associated with cancer found in the EGFR,
BRAF and KRAS genes. Each Target Selector™ assay in the study demonstrated
extremely high accuracy, sensitivity and specificity when compared to results
obtained from tissue samples, showing a 93%-96% concordance to blinded tissue
samples across all assays.

In October 2020, we announced results from a prospective study comparing our
Target Selector™ CSF testing to conventional cytology in patients with non-small
cell lung cancer, or NSCLS, and LM showing that our Target Selector™ CSF testing
may provide a more robust method for detecting lung cancer metastasis in CSF
than the current standard of cytology analysis.

In November 2020, we announced results of a study analyzing CSF samples in
patients with primary lung or breast cancer with either brain or LM disease. The
findings indicate that Target Selector™ CSF assays are a viable and sensitive
platform for CTC detection and molecular analysis compared to the current
standard of care, CSF cytology, which is typically used to establish or confirm
LM disease when cytology imaging findings are suspicious or equivocal.

In December 2020, we announced results from a prospective study showing Target
Selector™ was highly accurate in monitoring HER2 alterations in patients with
metastatic breast cancer. The results were featured in a poster presentation at
the virtual 2020 San Antonio Breast Cancer Symposium.

In February 2021, we presented data at the Molecular Med Tri-Con Virtual
Conference, showing that our Target Selector™ molecular assay kit detects
mutations in up to 50% of tissue biopsy specimens, from patients diagnosed with
non-small cell lung cancer, that were deemed quantity not sufficient (QNS) by
conventional methods.

In February 2021, we announced establishing a research collaboration with
Protean BioDiagnostics, Inc. to research the ability of our Target Selector™
molecular assay to determine EGFR status in non-small lung cancer (NSCLC)
patients.

In August 2021, we presented data at the Society of NeuroOncology (SNO) Brain
Metastasis conference related to our CNSide experience on several non-small cell
lung cancer (NSCLC) cases from one institution, the University of
Utah. Recently, we had other abstracts accepted for poster presentation at the
upcoming annual November meeting of the Society of Neuro-Oncology (SNO) in
Boston and the annual San Antonio Breast Cancer Symposium in December.

Provider Agreements

In January 2017, we announced that we had secured an in-network provider
agreement with Blue Cross Blue Shield of Texas, the largest provider of health
benefits in Texas. In addition, we entered into a national master business
agreement with the Blue Cross Blue Shield Association, a not-for-profit trade
association that provides multiple services for its 38-member Blue Cross and
Blue Shield health plan companies across the U.S., including forming national
strategic vendor partnerships. We were selected by the Blue Cross Blue Shield
Association based on a rigorous request-for-proposal progress. This agreement
establishes pricing for our Target-Selector™ liquid biopsy testing service
through the Blue Cross Blue Shield Association's group purchasing organization,
CareSourcing Workgroup. The pricing offered by the CareSourcing Workgroup group
purchasing organization is available to those Blue Cross and Blue Shield member
health plans that have, or may seek, in-network agreements with us.

In June 2017, we entered into a participating provider agreement with
MediNcrease Health Plans, LLC and a preferred provider agreement with Scripps
Health Plan Services, Inc., both establishing pricing for our Target-Selector™
liquid biopsy testing service.

In December 2017, we signed an agreement with Wellmark, Inc., the largest health
insurer in Iowa and South Dakota. The agreement marks our third Blue Cross Blue
Shield contract and enables patients diagnosed with cancer the ability to access
our proprietary testing services in-network under their Wellmark health plan.



In August 2018, we entered into a quality initiative program with Highmark and
Alleghany Health Network as a result of the Caresourcing Workgroup. The focus is
to improve access to molecular testing to members with a diagnosis of lung
cancer. Enrollment began in August 2018 and has been steadily increasing.

In July 2019, we announced that we entered into a Laboratory Services Provider
Agreement with Beacon Laboratory Benefit Solutions, Inc., a nationally
recognized premier provider of laboratory benefit management technology
solutions to health and managed care companies in the United States.

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In February 2020, we announced that we entered into an agreement with a
California-based independent physician association, or IPA, to provide our
liquid biopsy testing services to physicians and patients in their network. Our
Target SelectorTM offering includes the choice of individual biomarker tests or
a larger liquid biopsy panel, enabling physicians to select the best approach
for each patient.

In June 2020, we announced that we entered into a managed care provider
agreement with Medical Cost Containment Professional LLC (MCCP), to process
out-of-network claims for Biocept's Target SelectorTM liquid biopsy testing.
MCCP is a reference-based pricing insurance network that includes more than
150,000 providers nationwide.

In August 2020, we announced the expansion of our agreement with MultiPlan, Inc.
to include COVID-19 testing services at a pre-negotiated price per
test. MultiPlan is a healthcare cost management company offering payment
integrity, network-based and analytics-based services. With the expanded
agreement, our RT-PCR COVID-19 testing, in addition to our liquid biopsy
oncology testing services, are now accessible to consumers who have access to
the PHCS and MultiPlan Networks, MultiPlan's national primary and complementary
networks. More than 1 million healthcare providers participate in MultiPlan's
networks and 60 million health plan members have access to the company's
services.



In addition, in August 2020, we entered into an agreement with a healthcare
group to provide RT-PCR COVID-19 testing to skilled nursing facilities. The
group operates and supports more than 50 facilities in multiple states, with
most located in California, the state with one of the most stringent COVID-19
testing regulations in the United States.

In September 2020, we announced that Highmark, America's fourth largest Blue
Cross Blue Shield affiliate, has made a positive coverage determination that our
Target SelectorTM liquid biopsy assay has been accepted for medical coverage for
use in the diagnosis and treatment of patients with NSCLC. In addition, we
announced that we entered into an agreement with Health Net Federal Services LLC
to be an in-network provider for Target Selector™ liquid biopsy oncology
platform testing for cancer patients in the TRICARE West (TriWest) region
network. TriWest provides healthcare services to approximately three million
members of the U.S. military and their families.

In December 2020, we announced entering into laboratory services agreements with
two Southern California regional independent physician associations (IPAs)
providing physicians and patients in-network access to our full array of Target
Selector™ liquid biopsy assays and services. Both IPAs are headquartered in San
Diego and combined they serve more than 70,000 covered lives in the Southern
California region.

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

Patents and Technology

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

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

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

We have issued patents with broad claims covering our blood collection tube,
antibody cocktail approach, microchannel, CTC detection methodologies, and ctDNA
analysis. In addition to issued patents in the U.S., we have patents for our
proprietary microchannel in China, South Korea, Europe, Hong Kong, Canada and
Japan, and for our antibody cocktail in Australia, Europe, Canada, China, Hong
Kong and Japan. Our patent estate continues to evolve, and in addition to the
broad patent estate around our CTC platform, we also have issued patents in the
U.S., Australia, Brazil, Europe, Hong Kong, Japan, China and South Korea for our
novel switch blocker technology, solidifying our proprietary enrichment
methodology for detecting ctDNA with very high sensitivity. We also have
recently issued patents in the U.S. Australia, Japan, and Korea for a unique
primer switch technology which can be used for detecting rare genetic
alterations, and for improving the performance of PCR based amplification
assays. Our CTC platform patents were filed from 2005 through 2012, and we
expect to have patent protection into the 2030s. Our CTC patents and
applications cover not only cancer as a target, but also prenatal and other rare
cells of interest. Recently granted patents in the U.S. cover the capture of any
target of interest on any solid surface using our

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

As of September 30, 2021, we owned 53 issued patents and have nine patent
applications pending related to our core business. Of these, 13 were issued U.S.
patents and three were pending patent applications in the U.S., while 40 were
issued patents in non-U.S. territories and six were pending patent applications
in non-U.S. territories.

Coronavirus (COVID-19) Pandemic

The COVID-19 pandemic continues to evolve, and the extent to which COVID-19 may
impact our business will depend on future developments, which are highly
uncertain and cannot be predicted with confidence, such as the ultimate
geographic spread of the disease, the duration of the pandemic, the emergence
and impact of variants, vaccinations, travel restrictions and social distancing
in the United States and other countries, business closures or business
disruptions, and the effectiveness of actions taken in the United States and
other countries to contain and treat the disease. We estimate that the COVID-19
pandemic led to an approximate 15 to 25% decline in commercial volume from
current customers for the year ended December 31, 2020, and has also impacted
opportunities for us to gain new customers with the closing of many physician
offices and labs. We are continuing to vigilantly monitor the situation with our
primary focus on the health and safety of our employees and clients.

In April 2020, we announced that we verified a COVID-19 molecular diagnostic
test and that we would begin accepting physician-ordered testing requests. The
testing volume was initially limited by the national shortage of specimen
collection kits. On June 22, 2020, we announced the availability of 10,000
specimen collection kits for COVID-19 testing for physician ordering. Collected
specimens are shipped to our high-complexity, CLIA-certified, CAP-accredited and
BSL-2 safety level laboratory in San Diego with results returned to ordering
physicians in an estimated 24 to 48 hours. We have received more than 640,000
samples for processing through our RT-PCR technology at our laboratory to date
and we believe that performing highly accurate RT-PCR testing for COVID-19 will
be an important aspect of our business until the COVID-19 pandemic subsides.

On June 3, 2020, we entered into a development agreement with Aegea focused on
the co-development by us and Aegea of a highly sensitive PCR-based assay
designed by Aegea for detecting the COVID-19 virus. In February 2021, we entered
into a supply agreement with Aegea for a new PCR-based COVID-19 assay kit
designed by Aegea and co-developed by Aegea and us. Under the supply agreement,
Aegea will supply the COVID-19 assay kit to us for validation in our
CLIA-certified, CAP-accredited high-complexity molecular lab and subsequent
commercialization of a laboratory developed test (LDT).

In January 2021, we signed an agreement with the Foundation for California
Community Colleges to make COVID-19 testing available to the 116 California
community colleges and their more than 2.1 million students. Through the
Foundation's CollegeBuys program, our PCR-based COVID-19 test is now available
for community colleges to purchase for students, faculty and staff.

In June 2021, we announced a collaboration with CLEARED4, a market leader in
pandemic health and safety solutions, to develop a system for tracking and
managing COVID-19 testing requirements and test results for our customers.

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Results of Operations

Three Months Ended September 30, 2020 and 2021

The following table sets forth certain information concerning our results of
operations for the periods shown (dollars in thousands):

                              Three months ended September 30,                   Change
                                 2020                  2021                $                %

Net revenues                $         6,586       $        17,470     $     10,884              165 %
Cost of revenues                      5,859                10,292            4,433               76 %
Research and development              1,088                 1,303              215               20 %

expenses

General and administrative            3,023                 3,434              411               14 %
expenses
Sales and marketing                   1,434                 1,938              504               35 %
expenses
(Loss)/income from                   (4,818 )                 503            5,321             (110 %)

operations

Interest expense                        (60 )                 (74 )            (14 )             23 %
(Loss)/income before income          (4,878 )                 429            5,307             (109 %)

taxes

Income tax expense                        -                     -                -                0 %
Net (loss)/income           $        (4,878 )     $           429     $      5,307             (109 %)


Net Revenues

Net revenues were approximately $17.5 million for the three months ended
September 30, 2021, compared with approximately $6.6 million for the same period
in 2020, with the increase attributable primarily to RT-PCR COVID-19 testing.
Revenues for the three months ended September 30, 2021 included $17.4 million in
commercial revenues, with $16.5 million attributable to RT-PCR COVID-19 testing,
$34,000 in development services test revenue and $71,000 in revenue for
distributed products, Target Selector™ RUO kits, CEE-Sure® blood collection
tubes and payments from Aegea for services associated with the development of a
COVID-19 assay. Revenues for the three months ended September 30, 2020 included
$6.4 million in commercial test revenue, which includes $5.7 million
attributable to RT-PCR COVID-19 testing, $47,000 in development services test
revenue and $154,000 in revenue for distributed products, Target Selector™ RUO
kits, CEE-Sure® blood collection tubes and payments from Aegea Bioscience for
services associated with the development of a COVID-19 assay. The increase in
net revenues is due to an increase in overall accession volumes, which is
attributable to the COVID-19 testing business, which was launched during the
second quarter of 2020, resulting in approximately 47,000 and 152,000 delivered
accessions during the quarter ended September 30, 2020 and 2021, respectively.

The net estimated revenue per commercial accession delivered during the three
months ended September 30, 2021 was $114, based on 152,796 commercial accessions
delivered, while during the three months ended September 30, 2020 it was
approximately $133, based on 48,109 commercial accessions delivered. The
decrease in net revenue per commercial accessions delivered was primarily due to
lower payor reimbursement rates recorded on our COVID-19 testing business.

The following table sets forth certain information regarding commercial
accessions received during the three months ended September 30, 2020 and 2021:



                                   Three months ended September 30,               Change
                                        2020                2021           # / $            %
# Commercial accessions delivered           48,109           152,796        104,687            218 %
$ Value estimated per commercial   $           133       $       114     $      (19 )          (14 %)
accession delivered




Additionally, overall development revenues stayed relatively flat as compared to
the same period in the prior year. The net revenue per accession decreased
primarily due to the lower average number of biomarkers ordered per test during
period as compared to the same period in the prior year as follows:

                                          Three months ended September 30,                   Change
                                           2020                      2021             # / $            %
# Development services accessions                 113                       120              7              6 %

delivered

$ Value per development services      $           412           $           284     $     (128 )          (31 %)
accession delivered


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Costs and Expenses

Cost of Revenues. Cost of revenues was approximately $10,292,000 for the three
months ended September 30, 2021, compared with approximately $5,859,000 for the
same period in 2020, representing an increase of $4,433,000, or 76% primarily
resulting from increased revenues related to our RT-PCR COVID-19 testing
business. As we continue to leverage the fixed components of our costs, our cost
of revenues as a percentage of net revenues decreased by approximately 30% for
the three months ended September 30, 2021 as compared to the same period in the
prior year. Cost of revenues are comprised of, but not limited to, expenses
related to personnel costs, materials, shipping and other direct costs, as well
as equipment depreciation and software amortization expenses.

Research and Development Expenses. Research and development expenses were
approximately $1,303,000 for the three months ended September 30, 2021, compared
with approximately $1,088,000 for the same period in 2020, an increase of
$215,000, or 20%. The increase is primarily due to higher material and supply
costs in the three months ended September 30, 2021 related to materials used in
our laboratory to advance our research programs costs as compared to the same
period in the prior year. Research and development expenses are comprised of,
but not limited to, personnel costs, material, shipping and other direct costs,
computer and laboratory equipment maintenance and facility related costs.

General and Administrative Expenses. General and administrative expenses were
approximately $3,434,000 for the three months ended September 30, 2021, compared
with approximately $3,023,000 during the same period in 2020, an increase of
$411,000, or 14%. The increase was primarily due to headcount additions and
other costs related to COVID-19 testing. General and administrative expenses are
comprised of, but not limited to, personnel costs, facilities, depreciation,
repairs and maintenance costs, stock-based compensation expenses, patent and
legal costs, accounting and audit fees, as well as insurance, office and other
expenses.

Sales and Marketing Expenses. Sales and marketing expenses were approximately
$1,938,000 for the three months ended September 30, 2021, compared with
approximately $1,434,000 for the same period in 2020, an increase of $504,000,
or 35%. The increase was primarily attributable to higher sales commissions due
to higher revenues during the current period. Sales and marketing expenses are
comprised of, but not limited to, personnel costs, which include commissions,
trade show and other marketing related expenses, as well as office and other
costs.

Interest Expenses. Interest expenses were approximately $74,000 for the three
months ended September 30, 2021 compared with approximately $60,000 for the same
period in 2020, an increase of $14,000 or 23% reflecting interest recognized on
leases initiated since the same period in the prior year.

Income Tax Expense

Over the past several years we have generated operating losses in all
jurisdictions in which we may be subject to income taxes. As a result, we have
accumulated significant net operating losses and other deferred tax assets.
Because of our history of losses and the uncertainty as to the realization of
those deferred tax assets, a full valuation allowance has been recognized. We do
not expect to report a provision for income taxes until we have a history of
earnings, if ever, that would support the realization of our deferred tax
assets.

We have not completed a study to assess whether an ownership change has occurred
or whether there have been multiple ownership changes since our formation, due
to the complexity and cost associated with such a study, and the fact that there
may be additional ownership changes in the future, however, we believe multiple
ownership changes likely occurred. As a result, we have estimated that the use
of our net operating loss is limited and the remaining net operating loss
carryforwards and research and development credits we estimate can be used in
the future remain fully offset by a valuation allowance to reduce the net asset
to zero.

                                       33

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Results of Operations

Nine Months Ended September 30, 2020 and 2021

The following table sets forth certain information concerning our results of
operations for the periods shown (dollars in thousands):

                               Nine months ended September 30,                   Change
                                  2020                  2021               $                %

Net revenues                $          8,950       $       47,273     $     38,323              428 %
Cost of revenues                      11,324               26,760           15,436              136 %
Research and development               3,989                3,483             (506 )            (13 %)
expenses
General and administrative             6,839                9,805            2,966               43 %
expenses
Sales and marketing                    4,233                5,806            1,573               37 %
expenses
(Loss)/income from                   (17,435 )              1,419           18,854             (108 %)
operations
Interest expense                        (172 )               (219 )            (47 )             27 %
Warrant inducement and                (2,102 )                  -            2,102             (100 %)
other expenses
(Loss)/income before income          (19,709 )              1,200           20,909             (106 %)
taxes
Income tax expense                         -                    -                -                0 %
Net (loss)/income           $        (19,709 )     $        1,200     $     20,909             (106 %)


Net Revenues

Net revenues were approximately $47.3 million for the nine months ended
September 30, 2021 compared with approximately $9.0 million for the same period
in 2020, with the increase being attributable to significant RT-PCR COVID-19
testing volumes during the nine months ended September 30, 2021.

Revenues for the nine months ended September 30, 2021 included $47.0 million in
commercial test revenue, which includes $45.5 million attributable to RT-PCR
COVID-19 testing, $107,000 in development services test revenue and $167,000 in
revenue for Target Selector™ RUO kits, CEE-Sure blood collection tubes and
payments from Aegea Bioscience for services associated with the development of a
COVID-19 assay. Commercial revenues for the nine months ended September 30, 2021
were reduced by $1.1 million as a result of an increase in reserves for aged
accounts receivable balances. Revenues for the nine months ended September 30,
2020 included $8.5 million in commercial test revenue, which included $5.7
million attributable to RT-PCR COVID-19 testing, $145,000 in development
services test revenue and $261,000 in revenue for Target Selector™ RUO kits,
CEE-Sure blood collection tubes and payments from Aegea Bioscience for services
associated with the development of a COVID-19 assay. The increase in net
revenues is due to an increase in overall accession volumes, which is
attributable to the COVID-19 testing business which was launched by the Company
during the second quarter of 2020, which resulted in 47,000 and 395,000 billed
accessions from RT-PCR COVID-19 testing during the nine months ended September
30, 2020 and 2021, respectively.

The net estimated revenue per commercial accession delivered during the nine
months ended September 30, 2021 was $118, based on 398,197 commercial accessions
delivered, while during the nine months ended September 30, 2020 it was
approximately $170, based on 50,140 commercial accessions delivered.

The following table sets forth certain information regarding commercial
accessions delivered during the nine months ended September 30, 2020 and 2021:

                                      Nine months ended September 30,                 Change
                                        2020                  2021             # / $            %
# Commercial accessions delivered          50,140                398,197        348,057            694 %
$ Value estimated per commercial   $          170       $            118     $      (52 )          (31 %)
accession delivered


Additionally, overall development revenues stayed relatively flat as compared to
the same period in the prior year. The net revenue per development services
accession decreased primarily due to the lower average number of biomarkers
ordered per test during period as compared to the same period in the prior year
as follows:



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                                        Nine months ended September 30,                   Change
                                        2020                      2021             # / $            %
# Development services cases                   353                       355              2              1 %
delivered
$ Value per development services   $           412           $           301     $     (111 )          (27 %)
accession delivered


Costs and Expenses

Cost of Revenues. Cost of revenues was approximately $26,760,000 for the nine
months ended September 30, 2021, compared with approximately $11,324,000 for the
same period in 2020, representing an increase of $15,436,000, or 136%, primarily
resulting from increased revenues related to our RT-PCR COVID-19 testing
business. As we continue to leverage the fixed components of our costs, our cost
of revenues as a percentage of net revenues decreased by approximately 70% for
the nine months ended September 30, 2021 as compared to the same period in the
prior year. Cost of revenues are comprised of, but not limited to, expenses
related to personnel costs, materials, shipping and other direct costs, as well
as equipment depreciation and software amortization expenses.

Research and Development Expenses. Research and development expenses were
approximately $3,483,000 for the nine months ended September 30, 2021, compared
with approximately $3,989,000 for the same period in 2020, a decrease of
$506,000, or 13%. The decrease was primarily attributable to lower facilities
and cost of revenue allocations to research of development during the nine
months ended September 30, 2021. Research and development expenses are comprised
of, but not limited to, personnel costs, material, shipping and other direct
costs, computer and laboratory equipment maintenance and facility related
costs.

General and Administrative Expenses. General and administrative expenses were
approximately $9,805,000 for the nine months ended September 30, 2021, compared
with approximately $6,839,000 during the same period in 2020, an increase of
$2,966,000, or 43%. The increase was primarily due to headcount additions and
other costs related to COVID-19 testing. General and administrative expenses are
comprised of, but not limited to, personnel costs, facilities, depreciation,
repairs and maintenance costs, stock-based compensation expenses, patent and
legal costs, accounting and audit fees, as well as insurance, office and other
expenses.

Sales and Marketing Expenses. Sales and marketing expenses were approximately
$5,806,000 for the nine months ended September 30, 2021 compared with
approximately $4,233,000 for the same period in 2020, an increase of $1,573,000,
or 37%. The increase was primarily attributable to higher sales commissions due
to higher revenues during the current period. Sales and marketing expenses are
comprised of, but not limited to, personnel costs, which include commissions,
trade show and other marketing related expenses, as well as office and other
costs.

Interest Expenses. Interest expenses were approximately $219,000 for the nine
months ended September 30, 2021, compared with approximately $172,000 for the
same period in 2020, an increase of $47,000, or 27%, primarily reflecting
interest recognized on leases initiated since the same period in the prior year.

Warrant Inducement and Other Expenses. There was no warrant inducement expense
recognized in the nine months ended September 30, 2021 compared to approximately
$2,102,000 for the same period in 2020. Warrant inducement expense was
recognized in the first quarter of 2020 related to the fair value of the
inducement warrants issued in January 2020 and warrant modification costs.

Income Tax Expense

Over the past several years we have generated operating losses in all
jurisdictions in which we may be subject to income taxes. As a result, we have
accumulated significant net operating losses and other deferred tax assets.
Because of our history of losses and the uncertainty as to the realization of
those deferred tax assets, a full valuation allowance has been recognized. We do
not expect to report a provision for income taxes until we have a history of
earnings, if ever, that would support the realization of our deferred tax
assets.

We have not completed a study to assess whether an ownership change has occurred
or whether there have been multiple ownership changes since our formation, due
to the complexity and cost associated with such a study, and the fact that there
may be additional ownership changes in the future, however, we believe multiple
ownership changes likely occurred. As a result, we have estimated that the use
of our net operating losses is limited and the remaining net operating loss
carryforwards and research and development credits we estimate can be used in
the future remain fully offset by a valuation allowance to reduce the net asset
to zero.

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Liquidity and Capital Resources

Cash Flows

Our net cash flow from operating, investing and financing activities for the
periods below were as follows (dollars in thousands):

                                Nine months ended September 30,
                                   2020                  2021

Cash provided by/ (used in):
Operating activities         $        (18,684 )     $        2,127
Investing activities                      (64 )               (982 )
Financing activities                   26,305               12,185
Net increase in cash         $          7,557       $       13,330


Cash Used in Operating Activities. Net cash provided by operating activities was
$2.1 million for the nine months ended September 30, 2021, compared to net cash
used in operating activities of $18.7 million for the same period in 2020. The
net decrease in cash used was primarily related to revenues generated from our
COVID-19 testing business during the nine months ended September 30, 2021.

Cash Used in Investing Activities. Net cash used in investing activities of
approximately $982,000 and $64,000 during the nine months ended September 30,
2021 and 2020, respectively, was related to purchases of fixed assets used in
our laboratory operations.

Cash Provided by Financing Activities. Net cash provided by financing activities
was $12.2 million for the nine months ended September 30, 2021, compared to net
cash provided by financing activities of $26.3 million for the same period in
2020. Our primary sources of cash from financing activities during the nine
months ended September 30, 2021 consisted of $13.5 million in net proceeds from
our sale of common stock through our at-the-market equity facility, partially
offset by $911,000 of payments related to finance leases for equipment used in
our laboratory operations, and $412,000 of payments related to supplier and
other third-party financing transactions. Our primary sources of cash from
financing activities during the nine months ended September 30, 2020 consisted
of $660,000 in net proceeds from exercise of overallotment warrants from the
December 2019 warrants in January 2020, net proceeds of $24.2 million from our
sale of common stock in three equity financing transactions in March and April
2020, and $2.4 million in proceeds from exercise of common stock warrants. Net
proceeds from financing transactions were partially offset by $0.5 million of
principal payments made on finance leases and indebtedness.

Liquidity, Capital Resources and Expenditure Requirements

We expect to continue to incur substantial operating losses in the future. We
expect that we will use the net proceeds from our sale of equity securities, if
any, cash received from the licensing of our technology, if any, and our
revenues from operations to hire sales and marketing personnel, support
increased sales and marketing activities, fund further research and development,
clinical utility studies and future enhancements of our assays, acquire
equipment, implement automation and scale our capabilities to prepare for
significant assay volume, for general corporate purposes and to fund ongoing
operations and the expansion of our business, including the increased costs
associated with expanded commercial activities. We may also use the net proceeds
from our sale of equity securities, if any, cash received from the licensing of
our technology, if any, and our revenues from operations to acquire or invest in
businesses, technologies, services or products, although we do not have any
current plans to do so.

During the nine months ended September 30, 2021, we received net cash proceeds
of approximately $13.5 million from the sales of 3,266,032 shares of our common
stock at a weighted average sale price of $4.32 per share, using the Company's
at-the-market equity facility initiated in May 2021.

As of September 30, 2021, our cash totaled $27.7 million. The COVID-19 testing
revenue during 2020 and through the third quarter of 2021, has provided us with
increased levels of cash inflows from operations, and it is expected to
continue, albeit at lower and declining levels, throughout at least the next
twelve months. As a result, we believe that based on our current and planned
cash usage, along with current COVID-19 testing revenues, our cash balances will
support our operations through the fourth quarter of 2022. As such, we
determined that it is not probable based on projected cash flows that
substantial doubt about our ability to continue as a going concern exists for
the one-year period following the date that the financial statements for the
three and nine months ended September 30, 2021 were issued. The COVID-19
pandemic continues to evolve, and the extent to which COVID-19 may impact the
Company's business will depend on future developments, which are highly
uncertain and cannot be predicted with confidence, such as the ultimate
geographic spread of the disease, the duration of the outbreak, travel
restrictions and social distancing in the United States and other countries,
business closures or business disruptions, and the effectiveness of actions
taken in the United States and other countries to contain and treat the disease.
While the Company experienced increased revenue levels in 2020 and 2021 related
to its COVID-19 testing business and attained net income for the first time in
its operating history in the fourth quarter in 2020, and then again in the first
and third quarter in 2021, these results are not expected to be indicative of
future results as the COVID-19 pandemic subsides.

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In May 2020, the SEC declared effective a shelf registration statement filed by
us. The shelf registration statement allows us to issue any combination of our
common stock, preferred stock, debt securities and warrants from time to time
for an aggregate initial offering price of up to $100.0 million.

In May 2021, we entered into a Controlled Equity OfferingSM Sales Agreement (the
"Sales Agreement") with Cantor Fitzgerald & Co. (the "Sales Agent"), under which
we may issue and sell from time to time up to $25,000,000 of our common stock
through or to the Sales Agent, as sales agent or principal. Any sale of shares
of our common stock under the Sales Agreement will be made under our shelf
registration statement on Form S-3, which was declared effective by the SEC in
May 2020. Sales of our common stock under the Sales Agreement are made at market
prices by any method that is deemed to be an "at the market offering" as defined
in Rule 415(a)(4) under the Securities Act of 1933, as amended. Each time we
wish to issue and sell common stock under the Sales Agreement, we notify the
Sales Agent of the number of shares to be issued, the dates on which such sales
are anticipated to be made and any minimum price below which sales may not be
made. Once we have so instructed the Sales Agent, unless the Sales Agent
declines to accept the terms of the notice, the Sales Agent has agreed to use
its commercially reasonable efforts consistent with its normal trading and sales
practices to sell such shares up to the amount specified on such terms. The
obligations of the Sales Agent under the Sales Agreement to sell our common
stock are subject to a number of conditions that we must meet. The Sales Agent
is entitled to compensation from us at a fixed commission rate equal to 3.0% of
the gross sales price per share of any common stock sold under the Sales
Agreement. During the nine months ended September 30, 2021, we sold and issued
3,266,032 shares of our common stock at a weighted average purchase price of
$4.32 under the Sales Agreement and received net cash proceeds of approximately
$13.5 million after deducting sales agent commissions. As of September 30, 2021,
$10.9 million of our common stock remained available for sale under the Sales
Agreement.

We expect that we will need additional financing to execute on our current or
future business strategies beyond the next twelve months. Until we can generate
significant cash from operations, including assay revenues, we expect to
continue to fund operations with the proceeds from offerings of our equity
securities or debt, or transactions involving product development, technology
licensing or collaboration. For example, we have an effective shelf registration
statement on file with the SEC which allows us to issue any combination of our
common stock, preferred stock, debt securities and warrants from time to time
until expiration in May 2023. The specific terms of additional future offerings,
if any, under this shelf registration statement would be established at the time
of such offerings. We can provide no assurances that any sources of a sufficient
amount of financing will be available to us on favorable terms, if at all. If we
are unable to raise a sufficient amount of financing in a timely manner, we
would likely need to scale back our general and administrative activities and
certain of our research and development activities. Our forecast pertaining to
our current financial resources and the costs to support our general and
administrative and research and development activities are forward-looking
statements and involve risks and uncertainties. Actual results could vary
materially and negatively as a result of a number of factors, including:

  • the impact of the COVID-19 pandemic on our business;


  • our ability to secure financing and the amount thereof;


  • the costs of operating and enhancing our laboratory facilities;

• the costs of developing our anticipated internal sales and marketing

capabilities;

• the scope, progress and results of our research and development programs,

including clinical utility studies;

• the scope, progress, results, costs, timing and outcomes of the clinical

utility studies for our diagnostic assays;

• our ability to manage the costs for manufacturing our microfluidic channels;

• the costs of maintaining, expanding and protecting our intellectual

property portfolio, including potential litigation costs and liabilities;

• our ability to obtain adequate reimbursement from governmental and other

third-party payers for our assays and services;

• the costs of additional general and administrative personnel, including

accounting and finance, legal and human resources, as a result of becoming

        a public company;


   • our ability to collect revenues; and


  • other risks discussed in our other filings with the SEC.


We may raise additional capital to fund our current operations and to fund
expansion of our business to meet our long-term business objectives through
public or private equity offerings, debt financings, borrowings or strategic
partnerships coupled with an investment in our company or a combination thereof.
If we raise additional funds through the issuance of convertible debt
securities, or other debt securities, these securities could be secured and
could have rights senior to those of our common stock. In addition, any new debt
incurred by us could impose covenants that restrict our operations. The issuance
of any new equity securities will also dilute the interest of our current
stockholders. Given the risks associated with our business, including our
unprofitable operating history and our ability or inability to develop
additional assays, additional capital may not be available when needed on
acceptable terms, or at all. If adequate funds are not available, we will need
to curb our expansion plans or limit our research and development activities,
which would have a material adverse impact on our business prospects and results
of operations.

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Off-Balance Sheet Arrangements

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

Critical Accounting Policies and Significant Judgments and Estimates

For a discussion of accounting policies that we consider critical to our
business operations and understanding of our results of operations, and that
affect the more significant judgments and estimates used in the preparation of
our financial statements, please see the information listed in Part II, Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Critical Accounting Policies and Significant Judgments and Estimates"
contained in our Annual Report on Form 10-K for the year ended December 31,
2020. There have been no material changes to our critical accounting policies
and estimates from the information provided in our Annual Report on Form 10-K
for the year ended December 31, 2020.