Sentence Correction

Any medical test will sometimes fail to detect a condition when it is present and indicate that there is one
when it is not.
(A) a condition when it is present and indicate that there is one
(B) when a condition is present and indicate that there is one
(C) a condition when it is present and indicate that it is present
(D) when a condition is present and indicate its presence
(E) the presence of a condition when it is there and indicate its presence

Official explanation says:
In choices A and B, the phrase indicate that there . is one does not grammatically fit with when it is not because it has no referent.

Could someone explain why it does not have any referent. I thought second 'it' refers to 'it' in the first when clause, therefore we know what second it is referring to.