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Business Combinations | 6 Months Ended
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Jun. 30, 2023
Business Combination and Asset Acquisition [Abstract] |
Business Combinations | 3. Business Combinations Acquisition of Insight Genetics, Inc. On January 31, 2020 (the “Insight Merger Date”), Oncocyte completed its acquisition of Insight pursuant to the Insight Merger Agreement. Contingent consideration is an obligation of the acquirer to transfer additional assets or equity interests to the selling shareholders in the future if certain future events occur or conditions are met, such as the attainment of product development milestones. Contingent consideration also includes additional future payments to selling shareholders based on achievement of components of earnings, such as “earn-out” provisions or percentage of future revenues, including royalties paid to the selling shareholders based on a percentage of revenues generated from DetermaIO and Insight Pharma Services over their respective useful life. Accordingly, Oncocyte determined there are two types of contingent consideration in connection with the Insight Merger, the Milestone Contingent Consideration and the Royalty Contingent Consideration discussed below, which are collectively referred to as the “Contingent Consideration”. There are three milestones comprising the Milestone Contingent Consideration, collectively referred to as the Milestones, in connection with the Insight Merger which Oncocyte valued and recorded as part of Contingent Consideration as of the Insight Merger Date (see table below), which consist of (i) a payment for clinical trial completion and related data publication (“Milestone 1”), (ii) a payment for an affirmative final local coverage determination from CMS for a specified lung cancer test (“Milestone 2”), and (iii) a payment for achieving specified CMS reimbursement milestones (“Milestone 3”). If achieved, any respective Milestone will be paid at the contractual value shown below, with the payment made either in cash or in shares of Oncocyte common stock as determined by Oncocyte. There can be no assurance that any of the Milestones will be achieved. The following table shows the Insight Merger Date contractual payment amounts, as applicable, and the corresponding fair value of each respective Contingent Consideration liability (in thousands): Schedule of Fair Value of Contingent Consideration Liability
|  |  |  |  | Fair |
|  | Contractual |  |  | Value on the |
|  | Value |  |  | Merger Date |
Milestone 1 |  | $ | 1,500 |  |  | $ | 1,340 |
Milestone 2 |  |  | 3,000 |  |  |  | 1,830 |
Milestone 3 (a) |  |  | 1,500 |  |  |  | 770 |
Royalty 1 (b) |  |  | See(b) |  |  |  | 5,980 |
Royalty 2 (b) |  |  | See(b) |  |  |  | 1,210 |
Total |  | $ | 6,000 |  |  | $ | 11,130 |
(a) | Indicates the maximum payable if the Milestone is achieved.
(b) | As defined, Royalty Payments are based on a percentage of future revenues of DetermaIO and Pharma Services over their respective useful life, accordingly there is no fixed contractual value for the Royalty Contingent Consideration.
The fair value of the Contingent Consideration after the Insight Merger Date is reassessed by Oncocyte as changes in circumstances and conditions occur, with the subsequent change in fair value recorded in Oncocyte’s condensed consolidated statements of operations. As of June 30, 2023, based on Oncocyte’s reassessment of the significant assumptions noted above, there was a decrease of approximately $2.5 million to the fair value of the Contingent Consideration primarily attributable to revised estimates of the timing of the possible future payouts and, accordingly, this decrease was recorded as change in fair value of contingent consideration in the unaudited condensed consolidated statements of operations for the six months ended June 30, 2023. The following tables reflect the activity for Oncocyte’s Contingent Consideration for the six months ended June 30, 2023 and 2022, measured at fair value using Level 3 inputs (in thousands): Schedule of Contingent Consideration, Measured at Fair Value
|  | Fair Value |
Balance at December 31, 2021 |  | $ | 7,060 |
Change in estimated fair value |  |  | 1,400 |
Balance at June 30, 2022 |  | $ | 8,460 |
|  | Fair Value |
Balance at December 31, 2022 |  | $ | 5,370 |
Change in estimated fair value |  |  | (2,500 | )
Balance at June 30, 2023 |  | $ | 2,870 |
Contingent consideration is not deductible for tax purposes, even if paid; therefore, no deferred tax assets related to the Contingent Consideration were recorded. Asset acquisition of Razor Genomics, Inc. On February 24, 2021, Oncocyte completed the purchase of all the issued and outstanding shares of common stock of Razor. As a result of Oncocyte is the sole shareholder of Razor. On December 15, 2022, the Company entered into a Stock Purchase Agreement in which the Company agreed to sell approximately 70% of the issued and outstanding equity interest of Razor on a fully-diluted basis. On February 16, 2023, the sale of Razor was completed. See Note 16 for additional information. Development Agreement On December 31, 2019, in connection with Oncocyte’s purchase of 25% of the outstanding equity of Razor, Oncocyte entered into a Development Agreement with Razor and Encore Clinical, Inc. (“Encore”), a former stockholder of Razor (the “Development Agreement”). Under the Development Agreement, Razor reserved as a “Clinical Trial Expense Reserve” $4.0 million of the proceeds it received at the Initial Closing from the sale of the Razor Preferred Stock to Oncocyte, to fund Razor’s share of costs incurred in connection with a clinical trial of DetermaRx for purposes of promoting commercialization. The Development Agreement was terminated on February 16, 2023 in connection with the Razor Stock Purchase Agreement. See Note 16 for more details regarding the Razor Stock Purchase Agreement. Sublicense Agreement On December 31, 2019, in connection with Oncocyte’s purchase of 25% of the outstanding equity of Razor, Oncocyte entered into a Sublicense and Distribution Agreement with Razor and Encore Clinical, Inc. (“Encore”), a former stockholder of Razor (the “Sublicense Agreement”). Under the Sublicense Agreement, Razor granted to Oncocyte an exclusive worldwide sublicense under certain patent rights applicable to DetermaRx in the field of use covered by the applicable license held by Razor for purposes of commercialization and development of DetermaRx. The Sublicense Agreement was terminated on February 16, 2023 in connection with the Razor Stock Purchase Agreement. See Notes 16 for more details regarding the Razor Stock Purchase Agreement. Acquisition of Chronix Biomedical, Inc. On April 15, 2021 (the “Chronix Merger Date”), Oncocyte completed its acquisition of Chronix pursuant the Chronix Merger Agreement. Contingent Consideration As additional consideration for holders of certain classes and series of Chronix capital stock, the Chronix Merger Agreement originally required Oncocyte to pay “Chronix Contingent Consideration” consisting of (i) “Chronix Milestone Payments” of up to $14 million in any combination of cash or Oncocyte common stock if certain milestones specified in the Chronix Merger Agreement are achieved, (ii) “Royalty Payments” of up to 15% of net collections for sales of specified tests and products during the five-to-ten year earnout periods, and (iii) “Transplant Sale Payments” of up to 75% of net collections from the sale or license to a third party of Chronix’s patents for use in transplantation medicine during a seven-year earnout period. On February 8, 2023, the Company and equity holder representative entered into Amendment No. 1 to the Merger Agreement (the “Chronix Amendment”), pursuant to which the parties agreed that (i) Chronix’s equity holders will be paid earnout consideration of 10% of net collections for sales of specified tests and products, until the expiration of intellectual property related to such tests and products, (ii) Chronix’s equity holders will be paid 5% of the gross proceeds received from any sale of all or substantially all of the rights, titles, and interests in and to Chronix’s patents for use in transplantation medicine to such third party, and (iii) the Chronix Milestone Payments, 15% Royalty Payments and Transplant Sale Payment obligations were eliminated. The fair value of the Chronix Contingent Consideration after the Chronix Merger Date is reassessed by Oncocyte as changes in circumstances and conditions occur, with the subsequent change in fair value recorded in Oncocyte’s condensed consolidated statements of operations. As of June 30, 2023, based on Oncocyte’s reassessment of the significant assumptions noted above, there was a decrease of approximately $14.0 million to the fair value of the Contingent Consideration primarily attributable to revised estimates of the timing of the possible future payouts and, accordingly, this decrease was recorded as a change in fair value of contingent consideration in the unaudited condensed consolidated statements of operations for the six months ended June 30, 2023. The following tables reflect the activity for Oncocyte’s Contingent Consideration for the six months ended June 30, 2023 and June 30, 2022, measured at fair value using Level 3 inputs (in thousands): Schedule of Contingent Consideration, Measured at Fair Value
|  | Fair Value |
Balance at December 31, 2021 |  | $ | 69,621 |
Change in estimated fair value |  |  | (12,415 | )
Balance at June 30, 2022 |  | $ | 57,206 |
|  | Fair Value |
Balance at December 31, 2022 |  | $ | 40,292 |
Change in estimated fair value |  |  | (14,012 | )
Balance at June 30, 2023 |  | $ | 26,280 |
Goodwill - Goodwill is calculated as the difference between the acquisition date fair value of the Aggregate Chronix Merger Consideration transferred and the values assigned to the assets acquired and liabilities assumed. Goodwill also includes the $2.2 million of net deferred tax liabilities recorded principally related to the VitaGraft discussed above. Oncocyte recognized approximately $9.5 million of goodwill related to the Chronix acquisition. None of the goodwill recognized is expected to be deductible for income tax purposes. Goodwill is not amortized but is tested for impairment at least annually, or more frequently if circumstances indicate potential impairment. During 2022, the Company identified circumstances that could indicate a potential impairment and after a valuation of the Company’s assets and liabilities was performed, management concluded that goodwill was impaired as of December 31, 2022. (see Notes 2 and 4).

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 805 -SubTopic 20 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147479907/805-20-50-5 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 805 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//805/tableOfContent + Details
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