ProPhase Labs Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 11, 2023

There are 5 speakers on the call.

Operator

Good day, and welcome to the Prophase Labs, Inc. 1st Quarter 2023 Financial Results and Corporate Update Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded.

Operator

I would now like to I'll turn the conference over to Ted Karkas, CEO and Chairman of the Board of Prophase Labs. Please go ahead.

Speaker 1

Thank you, Sarah, and thank you everybody for joining me Today, before we get started, I would like to remind you of the company's Safe Harbor language. During this presentation, we will make forward looking statements, including statements regarding our strategies, plans, objectives and initiatives and the underlying assumptions. While we believe that these forward looking statements are reasonable As and when made, forward looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties include, but are not limited to, our ability to obtain and maintain necessary regulatory approvals, general economic conditions, Consumer demand for our products and services challenges relating to entering into and growing new business lines the competitive environment and the risk factors listed from time to time and our filings with the SEC Finance. This call will present non GAAP financial measures such as adjusted EBITDA.

Speaker 1

Reconciliation of these non GAAP measures to the most comparable GAAP measures are included in the earnings release furnished to the SEC prior to this call and available on our website. All right. Now that we got forward looking statements out of the way, I want to welcome you all and really appreciate you joining me and appreciate your interest in our company, Prophase Labs. Just a couple of quick shout outs. First of all, we work with a company called Redmark that creates virtual non deal roadshows.

Speaker 1

I do these approximately twice per month. If you are interested in hearing updates on our company, our company is constantly evolving. We are a dynamic company. We are growing In so many different areas, we're working on so many exciting things. There's so much going on.

Speaker 1

And so I like to keep our shareholders up to date. And if you're interested And keeping up to date, please contact Renmark, sign up with them, find out when we have another VNDR And feel free those are video calls and I go through slide presentations and so forth. I should also remind everyone that we We have presentations on our website. We have 2 presentations. 1 is just for our Biotech division And the other is our company presentation that was significantly updated recently.

Speaker 1

So if you haven't looked at it, You might want to go through our company presentation. It was updated, I think, just in the last couple of weeks. So go to our website. It It's really a wealth of information. I also want to just highlight, we are now covered by 4 companies, ThinkEquity, H.

Speaker 1

C. Wainwright, Joshua Levine at Confluence and Diamond and our most recent Diamond Equity Research. All 4 of these analysts that are following our company have us Estimated to lose money this year, while having stock price objectives of roughly $15 to $20 per share, the most recent We updated research report from Diamond Equity as us with a $20 stock price objective. The reason I highlight this is because we are not an earnings story this year. Anybody that's focused on us for earnings, you're invested or following the wrong company unless I guess you're short and you think that you're going to make money shorting our stock while we're developing Underlying assets, which we believe have multibillion dollar potential, that's up to you.

Speaker 1

But The point is, we took advantage of an opportunity with COVID, which was A wonderful windfall for the company and for the shareholders. We got to help people, while making an awful lot of money. We always knew That was not going to be the future of the company, but we took advantage of A 2.5 year bear market or a 2 year bear market in the MicroCap Biotech stocks. And so while we were making all of this money, We were planning for our future by building out the underlying value of our company with some fantastic acquisitions and developing Fantastic technologies. And so that's what we've been spending the last two and a half years doing, not COVID testing.

Speaker 1

COVID testing generated revenues. I look long term. I always tell people, I believe it is my destiny to build a multi $1,000,000,000 company. I believe that we have the platform and the infrastructure now to do so. We didn't have that before.

Speaker 1

And so what the COVID testing did is it gave us that opportunity. The other thing I would point out to you is that when we raised capital with ThinkEquity 2.5 years ago, we did not take that capital for granted. We used that capital to grow a substantial clear lab in New York and clear lab business With the COVID and the flu and the upper respiratory testing, we also use that capital to build out all these businesses that I'm going to Talk about in the coming minutes and all of these subsidiaries that we're developing now. And at the end of the day, we still have more working capital now than what they raised for us two and a half years ago. And so because we executed ThinkEquity and A.

Speaker 1

T. Wainwright and the other investment bankers that we work with trust us and know That we are here to protect the shareholders and develop the underlying value of our company on behalf of the shareholders. I do not take a single dollar in our company for granted. And so we spent these last years Developing these other assets, which now have not only enormous potential, but some of them are starting to generate significant underlying value to our company Right now. So this year will not be an earnings story.

Speaker 1

It's nice that we earned a little money in the Q1. And again, I focus on adjusted EBITDA because we have significant Issues with our net income versus our adjusted EBITDA, I'm sure lots of public companies have this because of acquisitions we made Between expensing stock options, expensing acquisitions that we depreciate over time, even while the value of these assets is growing, There are some issues. We have issues with Nebula Genomics in terms of deferred revenue. And so there are all these complicated issues. So I Personally, I'd like to focus on the adjusted EBITDA.

Speaker 1

We had a wonderful adjusted EBITDA number in the Q1. I am not focused this year on earnings. I'm not even focused On adjusted EBITDA, you can bet that our testing COVID testing and flu Testing revenues, obviously, that's going to slow as the public health emergency is over. Also, we're going into a seasonally weaker period of time, Particularly in the Q2, we historically have been seasonally weaker in virtually every business that we're in. So you can expect that the numbers are going to weaken further.

Speaker 1

But again, we're not focused on earnings this year. We're focused on building the underlying value of our company. Press release, earnings release this morning to you, but just a couple of items to highlight. I've certainly mentioned this on the Renmark call, but we'll make sure we're all on the same page. We have a manufacturing facility that is at capacity for which we have enormous demand.

Speaker 1

We are extremely well thought of in the industry. And from a Lozenges Brands point of view, reliability of supply is critically important. The retailers go ballistic and I know this from turning around and selling the Colby's brand. The number one most important factor to the retailers After having a they want to carry products on their shelves that consumers want to buy, obviously. Then the second most important factor is they want product on the shelves at all times.

Speaker 1

If there is a shelf that is empty, They lose out on profitability. And that's how these buyers at Walgreens, Walmart, CVS and so forth, That's what the reviews are based on. It's making sure that they're generating profits in every square inch of shelf space. So when there is a shelf that does not have product on it, The retailers literally freak. And so there are supply chain issues In the Lozenges business, which is a rather large business globally.

Speaker 1

And so we have Brands, some of the largest brands in the world are coming to us and want us to do their manufacturing. Some of them want us to do all of their manufacturing, not only in the United States, but globally. So the potential for a manufacturing facility is extraordinary. I originally kept this business primarily just to keep our infrastructure and distribution in place so that we Touch all 40,000 Food, Drug and Mass stores in the United States, but this is a business that's actually exploding. It's growing almost 100% per year.

Speaker 1

I've mentioned in the past that I think we have demand for at least $25,000,000 of revenues Next year in 2024. And we're just constrained by how quickly we can build out the additional capacity, which is going to take this year to do so. So Right now, our revenues are running up almost 100% year over year. And realistically, I'd say $25,000,000 for next year. I don't give estimates, but I've already given this number out there, so I may as well continue to do so.

Speaker 1

$25,000,000 is a reasonable target for next year for our manufacturing facility. It's the least interesting business we're developing and even that business has enormous value relative to the market cap of our company. And that's going to be an ongoing theme during this call Is the market cap of our company relative to the various assets that we're developing that have nothing to do with earnings this year, all right? Think about what our manufacturing facility could be worth next year. I estimate in the back of my head, there's no guarantee certainly, but I think our manufacturing facility To be worth $70,000,000 next year, whether that's $65,000,000 or $75,000,000 or some kind of number like that.

Speaker 1

And And then of course, we have $40,000,000 in net working capital and we have tens of 1,000,000 of dollars of equipment. Forget that we even have a COVID testing or an upper respiratory business or any other business, you don't have just the equipment itself That we've acquired is probably in the tens of 1,000,000 of dollars. So we could almost get to our market cap without ever So I just wanted to give you or the full clinical lab business we're building. So let's talk about a few of those things. We have fully diversified our laboratory to have a full clinical lab and then we've also fully diversified it to have a state of the art Genomic Testing Lab.

Speaker 1

We are waiting for the validations, which will take another couple of months, and then we will start to build out those businesses in the second half of this year. With our whole genome sequencing business, right now, we process our specimens abroad. We cannot aggressively build a B2B business until we are processing these specimens in house. So we anticipate building a very nice nebulid genomics business the second half of this year, particularly in the Q4. In the meantime, our revenues are running up more than 100% year over year anyway.

Speaker 1

So, Nebula Genomics understand there are similar businesses that are far behind us. We're probably 3 to 5 years ahead of some of these other businesses. And yet, they have $50,000,000 and $100,000,000 market cap for the start up genomics business. And we believe that we are situated well situated to be the low cost provider of whole genome sequencing in the United States and potentially globally. So our nebulagenomics business, Again, right now, we're only selling direct to consumers.

Speaker 1

We're looking to leverage this business in the second half of this year. I don't know when, But all of the several of the major drug retailers are doing tests right now. The tests are going very well. And at some point, I believe that we will get our whole genome sequencing test on store shelves like Walgreens and CVS and so forth. And then we have this fantastic B2B business.

Speaker 1

I'm not going to explain again what personalized precision medicine is, but it is the future of medicine, it's the future of research And at the heart of it is the whole genome sequencing test, and we expect to be the low cost provider of whole genome sequencing in this country. I believe that that business is going to grow rapidly. So we're already growing 100% year over year. Just imagine the hockey stick acceleration of that growth when our B2B business starts. And of course, that's in addition to retail stores.

Speaker 1

I'm happy in the Q and A if you have specific questions about Nebula Genomics. It is a very valuable business And I'm looking forward to building it further. Again, we have world renowned experts, George Church and Russ Altman from Stanford University. George Church, Of course, it's World renowned Genomics. They're on our advisory board.

Speaker 1

We talk to them regularly. We just had a call with them a couple of days ago. And they are really involved Helping us build this business, introducing us to global players in the genomics field. There's just enormous potential. This is where the Internet was 20, 25 years ago, we are so well situated.

Speaker 1

And so then everyone knows I'm very excited about our esophageal cancer test. In fact, it's really kind of mind blowing that we have the market cap we do and we have a cancer test that literally Could be commercialized early next year that has the potential of our esophageal cancer test. So I just It's interesting. I just happened to note just the other day, there was a company called Biomia actually, I'm going to They have a product called Cologuard, which is a test for colon cancer. We have a test for esophageal cancer.

Speaker 1

We believe that we are going to have CPT codes and be able to commercialize our test early next year. So just to put that in perspective, If our test, our cytogen cancer test, if we're 10% as successful as Exact Sciences, As Exact Sciences, the value of our company would be almost 10 times what it is today. I just want to put it in that perspective for you. And when you look at our test versus theirs, and it's really apples and oranges because they're There are colon cancer tests and it's a test that consumers can take at home. Our test has higher sensitivity and higher specificity.

Speaker 1

In the 200 specimens that we tested, our test was accurate on all 200 to tell you whether or not you were going to get esophageal cancer. It's really a remarkable test. We're just looking to do more studies similar to the ones that we've already done. And then we're looking to commercialize this next year. I don't know what the ramp up looks like, but the potential for our esophageal Cancer test is enormous and put it in the perspective of an exact science, it's really scary.

Speaker 1

And so again, that's why I go back to it's silly to focus on revenues. And earlier I say that I did a I took out into the Midwest a few weeks ago and I met with several institutional investors and they were focused on And if you're going to focus on that, again, you're investing in the wrong company. We're building enormous value. What you should take away For the last two and a half years is that we have yet again executed on behalf of the shareholders. I've been investing in small cap development stage companies for 40 years.

Speaker 1

The one thing I have learned is that 95% of the time, the managements Don't execute on behalf of shareholders. This is all we've done. This is all I've done my entire life. And this is what we're doing right now. And now, We have potential multi $1,000,000,000 assets to develop and execute on.

Speaker 1

Before, they were smaller projects, turning around and selling the Kaldi's brand, we sold it for 50,000,000 That was a huge win for us, huge. But it is going to have the potential of the types of activities that we're working on now. And then we can talk about Linebacker, and I'm not going to go into too much detail, and then I'll open it up for Q and A. And again, you can go to our Renmark presentations You want to hear the full presentation on each of our subsidiaries. But at linebacker, we're continuing to get Really exciting results.

Speaker 1

It's one thing when you acquire technologies and you do your due diligence. It's another thing when you're actually doing the studies yourself. And what I can tell you is that unanimously, every single Scientists, medical doctor, professional, in the biotech industry that we are working with on our esophageal cancer test and on our linebacker cancer compound are Truly excited about what they're working on. Doctor. Chris Hartley at Mayo Clinic He's so excited.

Speaker 1

We will talk to him on almost a daily basis. He's so excited about our esophageal cancer test. And Mayo Clinic is not just based in New York or I'm sorry, in the United States. They're actually but They also have offices in other places around the world, including in Abu Dhabi. And as you all know, We are developing ties into Abu Dhabi and I'll have more to talk about that in the future.

Speaker 1

So there's just so much and if you think about it, what we're developing with esophageal These are all initiatives that should be developed around the world. If we're going to save lives in the United States, why wouldn't we also save lives around the world? And so with our esophageal cancer, In particular, it turns out there are other parts of the world such as in the MENA region where the incidence of GERD and Barrett's Esophagus are actually higher That in the United States, so there's just tremendous potential. And so on the linebacker, as I was saying, we're getting fantastic results. We recently announced very positive results in some initial studies and analysis that we did with Eurofins.

Speaker 1

And I'm looking forward to updating our shareholders further in the coming weeks. With regard to the studies that we're doing at Dana Farber Cancer Institute and Harvard University, Pfizer. So there's a lot to talk about there. And so while I gave the example of Exact Sciences and how that potentially relates to our esophageal cancer test, By the same token, I just happened to notice this the other day, there's a company called Biomia Fusion, BMEA. The stock in last year went from $3 to $30 on some positive Phase 2 results.

Speaker 1

And In fact, in one day, the market value increased by over $500,000,000 Over that year, There, our mark cap went from $100,000,000 to over $1,000,000,000 I put that in perspective with us developing Linebacker Because it's interesting, you always want to argue that the market is efficient. But was the market efficient if the stock was $3 A year ago, now it's $30 It had $100,000,000 mark cap, now it has $1,000,000,000 mark cap, 10 times in 1 year. And we are developing assets with the same type of potential. So I don't really want to focus on stock price, but I do want to let our shareholders know We're developing assets that have the potential to dwarf the market cap of our company. And that's why my suggestion is Focus less on revenues and earnings, this is a transition year.

Speaker 1

I use the word transition in our press release today. Focus on the underlying value of the assets that we're building because that underlying value, I believe, is enormous relative to our market cap. And I believe that long term investors will be well rewarded if you continue to follow our stock. And so that just gives you a little bit perspective on how I'm thinking. I could obviously talk for another half an hour, another hour.

Speaker 1

I'm not going to. I'm sure there are going to be some questions in our Q and A. And again, I just want to thank you all for joining me today. And I hope that there are some good questions out there and we can get more into details on some of these various subsidiaries. So with that, Sarah, I would like to hand it over to you for questions.

Operator

Thank you. We will now begin our question and answer session. At this time, we will pause momentarily to assemble our roster. Our first question will come from Fred McDonald, Investor. Please go ahead.

Speaker 2

Hi, Ted. How are you doing?

Speaker 1

Great. Thank you. Thanks for checking in with me.

Speaker 2

Ted, you mentioned that we were going international. Does this mean we are looking for partners? Are we selling our products directly?

Speaker 1

All right. So we have different subsidiaries. You have to understand, linebacker is a cancer compound that And maybe I should go into this a little bit. And this is why I love questions because kind of motivates me to go into a little bit more detail. And so I'm going to go on a little bit of a tangent, I'm going to answer your question.

Speaker 1

With Linebacker, originally we were focused on this From the point of view that is a great co therapy that could work with some of the leading cancer drugs Like Doxorubicin, where we found that with these other cancer drugs, critically important with the FDA, That use the lowest possible dose that will still generate a therapeutic effect. And the reason for that These cancer drugs, while they're killing cancerous cells, they also kill healthy cells. So they're very dangerous and you want the lowest possible dose. So originally, we focused on Linebacker As a co therapy, because we found that it inhibits the growth of the cancer and we were focused on a growth factor called PIM Kinase, there are multiple different kinases and we found that it worked particularly well on the PIM kinase. And so we found that in combination, You can take a lower dose of doxorubicin and get a better result.

Speaker 1

And of course, this is in preclinical studies. And so this is what we are focused on. The reason why the announcement the other day was so important is that we found that there are other scientists have discovered other kinases And they're screaming as a major pharma to start developing drugs that directly affect these other kinases. There are kinases out there for which there is no known drug or compound, even forget about commercialize, even under development For some of these other kinases and yet we're finding that Linebacker is inhibiting these other kinases up to 99%. My point is there is enormous Potential for Linebacker, not only as a co therapy, but as an individual cancer drug that potentially could work better than many of the multibillion dollar cancer drugs out there.

Speaker 1

The reason I went down this tangent is because this isn't just for the United States. And historically, I didn't think globally. The last thing on my mind was to think globally. I was just when I turned around the cold these, we turned around in the United States. And even with the COVID testing, we're doing that in the United States.

Speaker 1

Now, we're We're developing businesses. Why can't we save lives around the world? Why would we only save lives in the United States? So why wouldn't we collaborate Developing linebacker in other parts of the world. And then the same goes for our esophageal cancer test, Which we're looking to commercialize in the United States next year.

Speaker 1

Why shouldn't we be developing a sausage heel cancer test In other parts, this is life saving. It will change people's lives. I truly believe that. The scientists working on this truly believe it. If you can let somebody know a year or 2 earlier that they're going to get esophageal cancer.

Speaker 1

The current methodology or the current standard of care It's for pathologists to look at a biopsy under a microscope. It's an inexact science. They diagnose you way too late and that's why People are dying in such high percentages, 80% to 90% of people diagnosed with esophageal cancer will die of esophageal cancer. It's because it's an inexact science and the pathologist is recognizing this under a microscope too late. Our esophageal cancer test Recognized esophageal cancer earlier and there's a higher incidence of GERD, which is gastroesophageal reflux disease And Barrett's Esophagus, which is the precursor to esophageal cancer, the incidence on a percentage base is actually higher in other parts of the world, including the Middle East.

Speaker 1

So why aren't we and why shouldn't we develop our esophageal cancer test over there as well? And finally, Nebula Genomics, the world is focused On genomic research, personalized precision medicine, anyone interested in developing healthcare and helping people Developing better science. They're all focused on personalized precision medicine because it's all about learning about how your genetic makeup Plays a role as diseases you're predisposed to and how drugs and therapies work on you. As I say, when 2 people get cancer, They get the exact same cancer, take the exact same drug and it works on one person, it doesn't work on the other, the difference is in your genetic makeup. 2 people get the exact same cancer, they take the exact same drug.

Speaker 1

One needs a higher dose than the other. The difference is in your genetic makeup. It all comes back to your genetic makeup. And So all the research, this is where the Internet was 20, 25 years ago. So if you think about it, if we're going to be the low cost provider of whole genome sequencing test And that's for research universities and our B2B business, But also with our consumers where we're selling a subscription to our library, which is highly proprietary, gets updated twice a week.

Speaker 1

So we have Really 2 or 3 different ways we can go with Nebula Genomics. We can be doing that in other parts of the world at the same time. So all of these businesses Potentially global in nature, the humor string is even our manufacturing facility. We have one of the largest brands in the world that's located in other countries I was very interested in us manufacturing the lozenges, not just in the United States, but potentially around the world. So we have all these businesses that we can now go global with.

Speaker 1

And so it's not a matter of one product or OneService, we have several different subsidiaries that all could potentially go global. And obviously, there's nothing in our market cap. And just one last thing, I'm going on a rant. Anyone on this call, find me another Biotech Microcap Company in this country that's developing multibillion dollar assets that made money. I mean, I think it's almost unheard of.

Speaker 1

So Again, our focus this year is not on earning money. Our focus is on developing these assets and The payback on the development of these assets is huge. I gave the example of BIOMIA 10 times in 1 year because They got a Phase 2 study with some positive results. Exact Sciences, if we're 10% as successful as Exact Sciences, Our company's stock price will be up almost 10 times from where it is. So I just want to give that perspective on what we're developing and the fact that we have a history of execution, there's no reason why we're not going to continue to.

Speaker 1

So I know that, that didn't directly answer your question, but the point is there's no short answer to what we Potentially, you could do globally. There's a lot we can do globally. I have opened up my eyes to working globally. And it's Just a pure coincidence that we hired Sam Beeler, our Chief Strategy Officer, who has strong ties Into Abu Dhabi in the Middle East. And then George Church, William of Credit Nebula, he has bronchized every major genomics company in the world.

Speaker 1

And we're working very closely with both of them. And then it turns out we also have investment bankers who have strong ties into that area. So there's so much potential in other parts of the world in addition to what we're doing in the United States. I hope that answers your question.

Speaker 2

Thanks, Ted. Ted, one more question. When are you going back to Abu Dhabi?

Speaker 1

Listen, I have to be very careful what I say publicly and what I don't. And I'm not sure what I should say at a shareholders' conference call. But I have made it clear, we do have an MOU with G42 Healthcare. G42 Healthcare merged with Mubadala Healthcare to form m42, we're talking about companies worth 1,000,000,000 and 1,000,000,000 of dollars. Mubadol is a $242,000,000,000 company.

Speaker 1

There's enormous opportunity over there. We already have an MOU in place and I am currently traveling back and forth to Abu Dhabi And I hope to have more to share with our shareholders in the short term. In short term, in the coming weeks months. Whether that's weeks or months, I don't want you to hold it. There are I don't want to say any more than that right now.

Speaker 1

But I can tell you that we are not sitting still. We didn't sit still in diversifying our company over the last 2 years, and we're not sitting still And now developing the assets that we've acquired. Thank you, Fred. I appreciate your questions and your support this morning. Okay.

Speaker 1

Thank you. Sarah, next question please.

Operator

Our next question comes from Hunter Diamond with Diamond Equity Research. Please

Speaker 3

Firstly, congrats on the results. So I saw you recently made a senior level hire in diagnostics. Maybe you could talk about within oncology the company's ambitions? And then secondly, how it kind of ties into your existing assets and facilities?

Speaker 1

Sure. So what's interesting is there are synergies between our various subsidiaries. And so what's nice When we work with somebody that brings expertise to developing linebacker, oftentimes this person will also bring expertise in developing our esophageal cancer test. So it's nice that there's some overlap there because we have true experts That can work on both. As the results for Linebacker, because they're so encouraging and they're so positive And have so much potential, we're hiring more people and doing more studies.

Speaker 1

And again, I'm not breaking the bank to do our studies. We're talking 1,000,000 of dollars, not tens of 1,000,000 of dollars to do these studies. And that's why I also said we're focused on Building the underlying value of our company this year, we're not focused on earnings for the rest of this year, although by the Q4, our earnings could start to get very interesting. For the next couple of quarters, we're going to be primarily focused on developing these assets. And so We're hiring people like Doctor.

Speaker 1

Matt Halpern. He has fantastic experience and perspective for developing cancer assets. And knowing it's really, it's a complicated business. It's figuring exactly where you want to focus because there's so many different cell lines and there's So many different directions we can go with Linebacker, just even learning recently that this could be a fantastic Monotherapy as an individual cancer drug and not just as a co therapy and learning that it inhibits These are the kinases for which there's scientists are screaming for major pharma to develop drugs to specifically attack these other kinases. And here we're developing A compound that has that potential.

Speaker 1

So clearly, there's a lot to be done with regards to Linebacker and its future, and we're going to explore that and develop it. We're going to do it while being very mindful of the capital that we have on hand. I always protect the shareholders' interest. I don't make moves that hurt the shareholders. So I always have to balance between how much we're going to spend on research and development versus the bottom line.

Speaker 1

And so, we spend an extra couple of $1,000,000 on linebacker, So be it, it has literally multibillion dollar potential. I also understand it could take 7 years and $100,000,000 to go through the FDA. But that's not to say that we couldn't potentially partner in other parts of the world with other companies, I could co develop it, take on a lot of the expense. But I think this has so much potential. It wouldn't surprise me if a year from now, we have Major Pharma writing us a check for The market cap of our company, just to take over the development of it, but we'll see how our other businesses are doing if our esophageal cancer test takes off, we could be making so much money on that.

Speaker 1

I may not be so quick to give up the rights to the linebacker, even in other countries. So there's a lot to way here, but there's a lot of directions To take it in and on Linebacker, we're just getting started. Esophageal Cancer, on the other hand, isn't 7 years and $100,000,000 away from commercialization. It's a couple of $1,000,000 away and potentially less than a year away from commercialization. So this and it's really sort of mind boggling if you think about it.

Speaker 1

And I've reviewed the numbers in the past, but our initial target market are 2,000,000 endoscopies per year For people with Barrett's Esophagus and potentially 7,000,000 endoscopies per year for people with The more difficult incidence of GERD. And so it's a $2,000,000 to $7,000,000 per year Testing market we're going after and getting reimbursed $1,000,000 $2,000,000 It's a $2,000,000,000 to $14,000,000,000 market with very little competition, Commercialization potentially around the corner for a life saving test for which is nothing like it and Something that would save the insurance companies the enormous amount of money. I've reviewed that before. So it's really incredible looking at our market cap relative to the potential of esophageal cancer. But so we're working on both.

Speaker 1

Some of the same scientists are working on both. We're collaborating and I put it in the press release, I'm not going to review all the names, but we're working with world class Cancer Organizations and Research Universities.

Speaker 3

No, it makes perfect sense. I appreciate the color. That's all I have. It was a fairly comprehensive call. So thank you for taking the question.

Speaker 1

Thank you so much. Next question please, Sarah.

Operator

Our next question comes from Nick Chien with H. C. Wainwright. Please go ahead.

Speaker 1

Good evening, T.

Speaker 4

Hi, Ted. Thank you for taking my questions. My first Question is, could you comment on the current trend of COVID testing probably in the current quarter and also the

Speaker 1

So that's probably the least Interesting part of our business, but of course, it had the majority of the revenues for the last 2 years. So COVID testing is going to continue to slow. The public health emergency has now ended. And so you can expect that the testing volumes And COVID are going to continue to slow. And then also we're going into the summer months where upper respiratory testing is going to continue to slow.

Speaker 1

So Our lab business for the next couple of we're about to go into the seasonally weakest quarters for our company. And this is historically, this is for 25 years. The middle of the year has always been the seasonally weakest part of the year for us. So, think about it, with cold lozenges, No one's buying them in the spring and the summer, and there's no reason to be manufacturing as much in the spring and summer. So our manufacturing would be weaker.

Speaker 1

Certainly, our COVID testing with the PHE being eliminated And with the fact that there's less incidence of COVID, that testing is slowing and our nebulagenomics, that business is growing, although it's at Smaller albeit a smaller base, but again, seasonally, even with our nebulizer actually our nebulizer genomics business, I don't want to get too much into that. That business is growing year over year more than 100%. But there are some factors that play a role in Nebula that have to do with holidays And seasonal promotions and things like that. So I'm giving you kind of a confusing picture. I don't want to get too specific, But it's pretty obvious all the analysts have us losing money this year.

Speaker 1

It's not an unreasonable expectation that we're going to lose money this year, But the underlying value of our assets are growing dramatically, which I believe dwarfs our market cap and dwarfs any issue It was nice that we reported a profit in the Q1, but it really doesn't make a difference in terms of The value of the company that we're building and our objectives, and I'm not managing the company to be profitable. So you can expect the COVID testing is going to continue to slow. Our overall testing is going to continue to slow. Our clinical lab, we're not ramping that up until later this year. We have to complete the validations.

Speaker 1

And then our whole genome sequencing business, I mean, that's really going to take off, I believe, once We get the validations and we're doing the whole genome sequencing. We are doing a part of the whole genome sequencing, the very first steps, which is called extraction, But then we're sending the specimens abroad. Most universities and most businesses don't want their specimen sent abroad. By the same token, it also creates opportunities for us in Other countries that feel exactly the same way to potentially and I don't want to get too much into that now, but there are opportunities abroad that with the expertise now have in whole genome sequencing. We built out a state of the art lab.

Speaker 1

We believe we built out the leading state of the art whole genome sequencing lab in the country. That is a bold statement. I really believe in the business. That business is going to be big. But I think I answered your question regarding the rest.

Speaker 4

Yes. Thank you, Ted. My second question is, you used the Exact Sciences as an example. So I wonder if you can How many sales reps is Exact Sciences is using to market There are colorectal cancer tests.

Speaker 1

It's a good

Speaker 4

question. How many sales reps you think you would need to successfully market The esophageal cancer test. And another related question is for colorectal cancer, It is currently recommended by United States Preventive Services Task Force. I mean, is solvitude cancer Screening tests are recommended by any national guidelines and if not, what the company can do to Get the esophageal cancer test more visibility and recommended by guidelines.

Speaker 1

Right. So these are great questions. I don't want to get too much into Exact Sciences. I really just want and I guess I really don't want to be talking about other companies. And I was really saying this more for our shareholders to give them some perspective in terms of the magnitude of the potential.

Speaker 1

It might be an Case study to see how long it took Exact Sciences to build up into a $12,000,000,000 mark cap company. By the same token, the dynamics are slightly different They have a test that they consent to your home. There are issues with patient adherence. As far as The preventative or the recommendations with esophageal cancer, right now you have gastroenterologists You should get an endoscopy. They're the ones this is going to be driven by the physicians with esophageal cancer.

Speaker 1

You're going to have physicians and with our test understand our initial target market is just on people that are already getting the endoscopy. So we don't have to sell them on getting an endoscopy. We don't have to recommend it. We don't need an institute recommending. We're targeting patients who are already getting the endoscopy.

Speaker 1

All we're doing It's targeting the physicians to say, hey, you're already doing this in that, but you already have 7, 8, 9 Specimens that you're studying under a microscope, we need a sliver of 1 of those specimens, one of those tissue specimens to study with our test to give you much more accurate readings on whether or not your patient is developing esophageal cancer. So we don't necessarily need a huge sales force. What we need are the cancer institutions and key opinion leaders to get behind us and to make it well known to the community of physicians and GIs that they need this test. And that's why we're presenting at the major cancer conferences right now. And a lot of these Conferences are very difficult to get into, but because our results are so fantastic, we're being accepted to present.

Speaker 1

So we're continually presenting at the cancer conferences. And so we're just working on key opinion leaders and major cancer institutes We're working with world renowned institutes in this regard. We're building up The recognition within the community and we're going to continue to do that while we hire an expert that's going to get us a CPT So we're doing all the right things in terms of the sales force. Those are logistics that we'll be developing throughout the course of the year. But I understand the business is a little different because we're dealing with physicians, GIs who are clearly going to hear about our test.

Speaker 1

I would say every GI in the country a year from now is going to know about our test. And so we got the CPT codes, which allows reimbursement by insurance. We believe it's going to be a no brainer. How are GIs if you have a test that can save your patient's life, how are the GIs not going to say, oh, let's add this test on, we're already doing the endoscopy, let's add this test on. And what person who has esophageal cancer is scared to death of dying of esophageal cancer, what person isn't going to want that test, Even if they paid cash for it, what person on the planet isn't going to pay I don't care if you're on welfare.

Speaker 1

If you had to, you could pay $1,000 to $2,000 You could pay $1,000 for a test to find out if you're going to die with esophageal cancer. And if you find out early enough, You can do a simple ablation procedure to destroy the precancerous cells before they become cancer. So the dynamics of the business are a little different than Exact Sciences. I simply point out that look at the success of Exact Sciences, when their sensitivity and specificity, which is the accuracy of With false positives and false negatives, it's significantly less than the accuracy of our test. So all I'm simply suggesting is we have enormous potential And this is initial target market is on the patients that are already the GIs are already recommending that they get the INDUSTA.

Speaker 1

So we don't need A cancer institute or anyone to recommend the endoscopy that's already been done. All we're doing is saying, hey, you're already doing the endoscopy, why not do this simple test, which will give you much more accurate results. I hope that answers your question.

Speaker 4

Thank you, Ted. That's very helpful.

Speaker 1

Great. Thank you, Yi. And Sarah, do we have any more questions?

Operator

Yes. Our next question comes from Lee Alper with Pemex Investors, please go ahead.

Speaker 4

Hey, Ted. Could you give a little more color on what you need to complete the CLIA lab? And How long will it take? Are you waiting for government approvals?

Speaker 1

So the one thing I won't say most proud of because I'm proud of so much within our company. But it's our relationships with New York DOH And for all the regulatory, New York is the strictest State in the country when it comes to CLIA Labs and all the regulatory procedures, we pass everything with Flying callers, we're in great standing and we've built a fantastic LEO lab. It started with COVID testing, which is a high complexity molecular lab, but then as I promised I would do, we completely diversified into a full Clinical lab with blood, urine, toxicology and so forth. And so right now, we're just waiting for the validations to be complete to actually So that business will start to ramp up later this year. What's nice about that business, you got to understand, when we did the COVID testing for 2 years, first of all, everybody thought Last year, we ended up getting a windfall and got an extra year out of it.

Speaker 1

The market never gave any value to that business because they knew it was going to end. When we build the CLIA lab business, the market is going to give value to that because that's a business that's going to be ongoing that we're going to use same expertise to build the COVID business, we're going to use to build the full diverse clinical lab business. However, that business is going to build a lot more slowly than COVID built, but it's going to have a much bigger value. It's a no brainer for us to do this because we already have the state of the art lab. We're in great standing.

Speaker 1

We have all the licenses. And So we're simply waiting for the validation to be completed, which take a couple of months. And the same thing goes with our genomics lab. We have which is in the same location. We have literally world class equipment.

Speaker 1

We have relationships with the leading Global Manufacturers of Equipment and Consumables. And what's interesting is they don't want to compete with the labs that they're The equipment and the consumables too, but there are customers of theirs that are looking for processing. They're looking to get that processing On their specific equipment and on their latest and greatest state of the art equipment, we have all that. And so we believe we are also going to get significant referrals from the companies that we're doing business with that we bought the equipment from and we're buying the consumables from. So there's enormous upside in our lab for the whole genome sequencing.

Speaker 1

And then in addition to that, ultimately, we should be able to provide the esophageal cancer At the end of the day, that's a diagnostic test. So whether you put that into our biopharma subsidiary or you put that into our diagnostics and lab Subsidiary, there is real overlap there. So there's so much more to our lab than simply doing COVID testing. We're going in 3 different directions with And so our genomics business is already growing like wildfire. And then it's just a matter of time, esophageal cancer, that's for next year in terms of commercializing it.

Speaker 1

And in the meantime, we'll also be building a clinical lab and there'll be nice synergies because the lab activities are covered by some of the same people, our lab techs, Our accessioners, our customer service people, our IT platform, there's tremendous synergies between these various businesses. So it's just a no brainer to diversify and develop our clinical lab. But while the equipment is in for clinical lab, we have We built out our genomics lab, we're waiting for validation. And as we speak, we're also bringing in more genomics What we're doing with our genomics lab is truly incredible. In fact, we have a piece of equipment that wouldn't fit in the elevator.

Speaker 1

We couldn't get it up to steps. So they literally I had to cut a hole in our roof and take a crane to put this equipment in. What goes on behind the scenes to building the type of company we're building, there's a lot that goes on behind the scenes, but we're doing all the right things. And I hope that gave you a little color for what we're doing with our lab.

Speaker 4

Yes, a little more than I asked, but thanks.

Speaker 1

You're quite welcome. And Sarah, do we have any other questions? Okay. If there are no more questions, Sarah, then I would just like to wrap up and tell everybody thank you for Being with me for this past hour, if now, 56 minutes, I think I covered a lot. Look, there's a lot I can go into.

Speaker 1

I could spend an hour just talk Subsidiary of our company, you can get a lot more information if you Go to our website and look at the new company presentation, which has been updated and goes into much more detail. And Of course, we also have the Renmark presentations. You're welcome to join us in a few minutes. For Renmark, I want to thank The support of our investment bankers, they've been incredibly helpful in helping our company build. I appreciate your following.

Speaker 1

Yi Chen, of course, always in Ashok Kumar. And our latest to follow, Hunter Diamond from Diamond Equity Research. I appreciate that report that you wrote on us. I'm really looking forward to the future. And thank you all for your time and best of luck.

Speaker 1

Have a great day. And thank you, Sarah.

Operator

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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Earnings Conference Call
ProPhase Labs Q1 2023
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