ProPhase Labs Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 10, 2023

There are 5 speakers on the call.

Operator

Good day, and welcome to the Prophase Labs Second Quarter 2023 Financial Results and Corporate Update. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the call over to Ted Karkas, CEO and Chairman of Prophase Labs.

Operator

Please go ahead, sir.

Speaker 1

Thank you very much, and thank you all for joining today for our 2nd quarter Conference call. Look, I like to talk a lot, but I also explained an awful lot in Press release this morning, I really don't want to read the press release. I'm going to presume that you've all read it. Having said that before, I start let me start by reading the forward looking statement. I would like to remind you of the company's Safe Harbor language.

Speaker 1

During this presentation, we will make forward looking statements, including statements regarding our strategies, plans, objectives and initiatives and underlying assumptions. While we believe that these forward looking statements are reasonable as and when made, Forward looking statements are based on expectations and 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 approval, 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 filings. This call will present non GAAP financial measures such as adjusted EBITDA. 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.

Speaker 1

And with that, I always like to give a couple of shout outs at the beginning of the call. First of all, Renmark does a great job on the retail investor side. We do a virtual non deal roadshow or presentation. We're currently doing them about once a month. So any shareholders on this call would ever want an update about what's going on with the company.

Speaker 1

I don't provide material non public information. I have to be very careful about that. But I do give overviews about our company, what we're working on to give you better perspective And to understand how I'm thinking, I am an open book. I really am here for the shareholders. I'm the largest shareholder in the company.

Speaker 1

But I don't just do this for myself. I do this for all the shareholders. I really want to continue to build value in the company. I and our management team have had a history of success in doing so for more than a decade. Really, Honestly, our management team has been incredibly successful over the last decade in building value in our company.

Speaker 1

Even now, with the stock pulling back a little bit today, We're still up significant multiples over the last few years while paying out Significant amount of stock dividends. So anybody that's been with us, first of all, over the last 3 or 4 years, the returns have still been phenomenal. Anybody who's been with us over the last 10 years, the results and returns have been even more phenomenal. Interestingly, we're at a point in time right now where My expectations and what I really believe for the future is going to be significantly greater than anything we've accomplished In the past, we have support from not only Renmark, but also We have a number of analysts that follow us and investment bankers that we're working very closely with. ThinkEquity did a phenomenal job in raising capital for us a couple of years ago.

Speaker 1

They also have done a great job in showing us opportunities over the last couple of years, acquisitions, some of which We made we probably reviewed a couple of 100 acquisitions targets and we picked the absolute best to cherry pick. Those are the assets that we're now developing that I'm going to be talking about shortly. A. C. Wainwright also does a great job of following us On the analyst side and then also Joshua Levine of Third Screen Research and also Diamond Equity Research has done a phenomenal job recently covering it.

Speaker 1

So if you want to follow our company, you can also follow the analysts and their updates as we move forward. So that's a little background. I really don't want to read the press release again, but I really want everybody to be on the same page so that you understand if you're going to be an investor in our company, What to expect? As I mentioned in the press release, we turned around and sold the Colby's brand many years ago. From that, we then pivoted into COVID testing.

Speaker 1

We knew that when we pivoted into COVID testing, it was not Going to be a long term proposition. However, we decided to get into the business in late 2020. We bought a small lab for $2,500,000 is probably only worth $400,000 That's sort of the running joke. And we built a $200,000,000 business out of that. And we quite frankly, In the Q1, we were in the business.

Speaker 1

In Q1 of 2021, we outperformed 95% of the labs in the country. The reason I bring that up is Not because of anything having to do with COVID, but it's incredibly similar to what we're working on right now with Nebula Genomics. Nebula Genomics, of course, was founded by George Church and his 2 PhD students 5 years ago. George had a vision 20 years ago. He's been a world renowned in genomics for literally the last 20 years.

Speaker 1

He had a vision that one day every single person in the country would be tested, Potentially every baby when they're born would be genetically tested to know about genetic predispositions And all the research is going into your genetic predispositions and I'm going to get into that a little bit more. But What's eerily similar and the reason I bring up the COVID testing because we're no longer a COVID testing company. The reason I bring it up is because we got into the COVID testing business After not knowing anything about the lab business, but we saw an opportunity and yet we outperformed 95% of the labs The Q1, the very first 3 months that we were in the business and over that 1st year, I don't remember what we generated, but over those 1st 2 years, we generated over $200,000,000 in revenues. So what's interesting is we're now in the exact same place with Nebula Genomics. We've just built out this State of the art laboratory.

Speaker 1

So of course, we have a state of the art, high complexity molecular laboratory that not only does COVID test, it does all upper respiratory. We just built out a fantastic clinical lab. And now we have this literally world class lab for doing genetic testing. And We provide whole genome sequencing at a lower cost than anybody in the country. So, just imagine, we're in the same place now with Nebula Genomics We were with COVID testing 2.5 years ago.

Speaker 1

The difference is everybody thought that COVID was going to last for 6 months or a year. It ended up lasting for 2 years. Now, by the way, there is another round of COVID coming around, but people aren't taking it seriously. They're not testing like they were. And I'm not focusing on the company on it.

Speaker 1

If we get some COVID testing, great, but that's not the focus of the company. But my point is now we're getting into something We are literally in the 1st inning with genetic testing, and we're the leading lab already. Now, instead of getting into a business we have no experience. We have 3 years of experience in the lab business, where and you got to understand, when we first started that business, I hired a bunch of people with great resumes that were not great employees, but they helped build the lab initially. And then, I worked on weeding out the weaker employees and hiring better employees.

Speaker 1

We have a Team here that I would put up against any lab team in the country. And we just had an inspection. I don't know that I'm really allowed to talk much about it, but it went fabulously well. And I can't tell you the compliments we got from our inspectors Regarding our lab team. And so now this what I think is a world class lab team is focusing on building a world class Genomics Lab, we're essentially a leader in the space.

Speaker 1

So, we're a leader in the space of selling whole genome sequencing Direct to consumers. And maybe more importantly, and that's really been sort of the focus, we're now also a leader In providing the sequencing to businesses. And so, we just built a lab. We literally just finishing the validations now. We're literally just Starting to do testing in our lab.

Speaker 1

And the types of calls and inquiries we're getting, it's really interesting. My son, Jason, who is the President of Prophase Diagnostics, he started the lab business with me. And we decided together when we were exploring it back in 2020. And we were traveling the country and looking at opportunities. And we literally were just talking in the last 2 days.

Speaker 1

We're like, oh, my God, This is deja vu. The sense that we're getting from the interest levels of companies that want to do business with us is eerily similar To the sense that we got about the COVID business. The difference is the genomic business, we're in the first inning. This is a business that's going to be a huge growth industry For years, if not decades to come, all the medical research is going in this direction towards personalized precision medicine. And again, for those of you who don't know and most of you probably do at this point if you've been on my other calls, personalized precision medicine.

Speaker 1

All about studying your genetic makeup and how that plays a role in diseases that you're predisposed to, The risk, what we call polygenic risk scores, which are the reports that we provide to you when you get tested, tells you about your gene mutations, Tells you about diseases you're at high risk of. And then if you know you're at high risk of a dangerous disease, hopefully, you'll do things preventative To prevent you from getting that disease. That all starts with knowing your genetic makeup. Maybe more importantly though, if you get a disease, how do you treat it? Turns out drugs work differently on different people depending on your genetic makeup.

Speaker 1

The research is literally just starting in this field. And in order to do this Research, you need data. That data comes in the form of whole genome sequencing test. And that's what we do best. So what's interesting is not only do we see opportunities in the United States, we are also seeing opportunities in other countries.

Speaker 1

So we just have to decide how much we want to focus on The other countries versus how much we want to just focus on our business in the United States. So we have a direct to consumer business, But what could be really explosive in the direct to consumer business is obviously growing. We have we're growing over 100% year over year. And honestly, we're just getting started in the direct to consumer business and we're growing 100% year over year. And as prices come down, that only helps us even more.

Speaker 1

Because as prices come down, we're making our money in the consumer business on selling subscriptions to our library where we provide the polygenic risk scores And we provide updates twice a week on all of the clinical research going on around the world, some of which is related The disease that your risk of, your gene mutations, it's really interesting stuff and our subscribers love it and the profit margins Are very, very high for the subscription. So that's a great business model in and of itself. But the B2B model, The volume that we see, the potential volume that we see is enormous. And so we built out The state of the art lab, but what's interesting, I am spoiled and we're spoiled by when we were doing COVID testing because The amount of tests you can do on one machine in COVID testing is quite large, whereas with whole genome sequencing, it's significantly less. So for us to get the kinds of volumes, to do the kinds of revenues that we want to generate Means buying more equipment and building out potentially a larger lab.

Speaker 1

The only reason we would do that is because The potential demand that we're seeing is awfully significant. So right now for the lab that we have in Garden City, I see that most of that Capacity is going to be used up by our current customers and our B2C business That is growing. But if we want to do a substantial B2B business, we're going to want to continue to expand, which is a good thing Because we can make an enormous amount of money and we won't have success just in the short term like COVID testing, we'll have success in the long term. So I'm happy to talk more about Nebula Genomics in the Q and A, if you want to ask about it. That's a little bit of background.

Speaker 1

I gave a lot more I think in the press release. I also just want to touch, people have asked me in recent quarters about our accounts receivable. So I just want to clarify that, so there's no confusion. We are not the least bit concerned about our accounts receivable. So when somebody asks, At year end, we had 37 approximately $37,000,000 of accounts receivable.

Speaker 1

As of the end of June, we had 38,000,000 we'll overrate 38,000,000 in accounts So, everyone's like, oh my god, what's wrong with your accounts receivable? What you don't understand is of that $37,000,000 in accounts receivable at year end, we already collected a $19,000,000 So, it's not a substantial amount that's left. So, we're talking about from 2022, we're talking About $18,000,000 That's on a $200,000,000 roughly $200,000,000 coated business. We have $18,000,000 left to collect. So you understand why don't we collect it?

Speaker 1

First of all, accounts receivable, it's with the highest quality payers, it's with insurance So we're not really worried about collecting. The issue was with collecting the patient data. So understand, we did and I don't know what the Number is if we did 2,000,000 COVID tests over 2 years, that means that's 2,000,000 times we had to collect the specimen, we had to collect Patient data. And unlike a patient that goes into a doctor's office that sits for 20 minutes with the receptionist and you get the Driver's license and you get the insurance card information. And if everything doesn't check out, you don't even get to see the doctor until everything checks out.

Speaker 1

We couldn't do that with COVID testing when we were collecting specimens. Our specimen collection partners We're basically setting up tents on streets in New York City. That was a big part of our business. And you just had people randomly walking up. You also had from HRSA at the time, HRSA was the government funded and anybody that didn't have insurance, HRSA would Reimburse.

Speaker 1

That all ended last year. And when that ended, you had people who still wanted to be tested. So sometimes they wouldn't give They're correct information. They wouldn't have their insurance information with them. We would still test them.

Speaker 1

And now we're collecting on all that. It just takes time. But you have to understand, we have So, one by one, go through every single one of those claims. So, even on roughly $15,000,000 We're talking about tens of thousands of tests and we have to go through each one individually. So we hired a company who were experts.

Speaker 1

I mentioned this a couple of months ago, they've made enormous progress in collections and they had about 25 people in another country Working on this, going through literally every single claim. So I just wanted to say that our cash receivable is not an issue. Obviously, As we're doing business and we were doing some COVID business in the Q1, that created new accounts receivable and replaced the accounts receivable that we collected on last year. So not an issue. We're making a lot of progress in the accounts receivable.

Speaker 1

And I'm not really worried about it. While we did a write off at the end of last year, small write off. I think it's $5,000,000 or $6,000,000 It's kind of $200,000,000 business. So we're pretty set there. Separately, before I get to Questions.

Speaker 1

Obviously, I talked a lot without even covering a lot. PharmaLize, The potential of Pharmalyze, our manufacturing facility is enormous. What's interesting is when I first sold the Colby's brand, I didn't even care. I don't know. If they wanted to acquire a manufacturing facility, I wouldn't have put up a big fight.

Speaker 1

That is now becoming an enormously Valuable business. I mentioned on a previous call that 1 or 2 of the largest lozenge Brands in the world want to do business with us. Capacity is tight all over the place and the most important thing For a Lozenge brand, when it comes to selling, if you're selling to a Walgreens, Walmart, CVS, and obviously, we have a lot of experience there, critically important That you don't have empty shelf space. When the buyer at Walgreens sits down with you and goes over the plan, they're responsible for every square inch A shelf space in their department. If a shelf is empty, if that space is empty, it's not generating a profit.

Speaker 1

They look really, really bad. So what happens is with Lozenge brands, as with any consumer product, If you don't deliver the product on time, the retailers get really upset and they cut back your shelf space. And so we have major brands Who need the reliability and we have the best reputation in the industry when it comes to large manufacturing. And so we have large brands that want to do business with us That would be very profitable to our manufacturing facility. And so we are now working on building out that capacity.

Speaker 1

One thing we're doing is purchasing. We already ordered another Lozance line that's being manufactured. But in addition to that, there's other pieces of equipment that we can buy to increase our capacity, which we're doing now, and it's a wrapper and it's other types of machinery. And quite frankly, we never Really upgraded to new equipment and never really built it out before. It wasn't a big focus for the company before.

Speaker 1

But now the potential is Really enormous. We can go from a roughly breakeven type of business to a business that literally we put in Our press release, that could be earning $10,000,000 That's just on the new business plus the existing business. We're in the process of raising prices And also making our facility more efficient. So the opportunity at formalized It's enormous over the next 12 months. And so anybody worried about us building value in the company, first of all, in Nebula, to me that's a lay And we had this attitude with COVID, if you build it, they will come and they came.

Speaker 1

Well, if you build it in the genomics business, I can already see they're coming. And what's interesting is a lot of the companies you have, first of all, you have consumer product companies That are selling genetic testing. I'm not only talking about whole genome sequencing. I'm also talking about the type of testing that Ancestry companies provide. And they're only studying a very, very small percentage of your genome compared to whole genome sequencing.

Speaker 1

But even those companies We could do testing at our lab. None of them want to be in the lab testing business. And what's interesting, particularly with Academic institutions doing research, some of them have small labs. They don't want to invest in an expensive lab and have expensive equipment To do whole genome sequencing, they would rather outsource it because they're only doing testing on whatever research they're doing. They're not doing Nobody is doing enough testing individually to support building out the type of lab that we're building.

Speaker 1

And so that's why For a company like ours, we now have a phenomenal reputation in the industry in the lab business. As I said, the inspections in New York New York is one of the most stringent, difficult from a regulatory perspective, states in the entire country. And we are literally one of the top labs in the state of New York from a regulatory point of view. And I'll leave it at that. I won't talk more about the inspection, but it went incredibly well.

Speaker 1

And I'm really pleased with our lab. And so now we have this great reputation. We now have the best equipment. We're working with literally the leading global leaders In the equipment that is used, they manufacture the equipment and they manufacture the consumables that are needed in order for us to process The whole genome sequencing test. And we have relationships with literally every major company in the world.

Speaker 1

George Church was part of it, he made a lot of those introductions. A lot of it we inherited when we acquired Nebula Genomics. They were Nebula was when we acquired Nebula, I don't know, Like 2, 2.5 years ago. They were already doing business with some of the largest, and we've now developed those relationships both. So I'm really excited About these 2 subsidiaries, Canadian revenues now and the revenue growth, I believe, is going to be dramatic Over the next 6, 12, 18 months.

Speaker 1

And the earnings associated with it next year are going to be significant. And so we're using this year to invest, to build out the equipment, to build out the labs, to purchase more license manufacturing Purchase more, genetic testing equipment, hiring lab techs. I mean, we're hiring very sophisticated lab techs To build this business. And so, you got to understand, yes, of course, we're going to lose money for a couple of quarters. We're hiring we built out the state of the art lab.

Speaker 1

We have Some of the best lab techs in the world now working at our company, and we weren't doing any genetic testing in our lab because it wasn't validated yet. So obviously, there's going to be wasn't short term. That's what Developing, that's what it means to be a development stage company. But what's nice about us is the amount of money we're losing, tells in comparison to the value of our company, Our networking company, the value of the assets we have and the potential for growth. So those are 2 businesses that I mentioned, Esophageal cancer, I could spend the whole call just talking about esophageal cancer.

Speaker 1

I'm not going to. I'm happy to in the Q and A. Everything is going really well there. We're working with an independent professional statistics company called Stat King That did a full analysis of all the testing we've done so far. And the idea is not to do more, Not to run the clinical study any further than we have to.

Speaker 1

And how you determine the number of We need in the clinical studies is based on the statistical analysis. So we have an independent company right now calculating how many specimens We need to process in order to apply for CPT codes and in order for physicians and the various Cancer organizations around the country and around the world to accept us for commercialization. And so We believe that with the number of specimens that have been coming in recently and that we're studying now, we should be in really good shape Later this year. And so I'm just looking forward to completing the current studies, which are being done exactly the same as the studies that were done on the first And so we are highly optimistic that we're going to get the same results and then we're going to be able to run with this. And again, I think By itself, it has multi $1,000,000,000 potential.

Speaker 1

Happy to go into the numbers if anybody wants to. I don't want to do it in my presentation, but in the Q and A, I'm happy to cover what anybody wants to cover. So that gives me background. I want to stop. It's 11:29.

Speaker 1

I probably spoke for a little over 20 minutes just to give you A little bit of background and update on our company. I'm happy to move this over to the Q and A. And I'll hand it back over to our conference call company to start the Q and A. And my actually in my there we go, my computer just froze. Okay.

Speaker 1

Vaisnavi, if you want to start the Q and A, I'd appreciate it.

Operator

Sure. Sure. Thank you. We will now begin the question and answer session. Our first question comes from Adam Waldo with Lismore Partners.

Operator

Please go ahead.

Speaker 2

Yes. Good day, Ted. Thanks very much for taking our questions. You have a lot of very attractive shots on goal here on which you're working as we look out over the next year or 2 and pretty decent probability that Several of them are going to score. But in the next several quarters, there isn't a lot of visibility, I think, for investors into the Cash trajectory, liquidity trajectory of the company, right?

Speaker 2

You're sort of at a cash burn run rate of around $14,000,000 $15,000,000 annualized based on the first You have cash and marketable securities on the balance sheet of about $9,000,000 You could factor your accounts receivable, there are other things you could do in terms of, if you will, bridge financing if you need it. Can you lay out for people How you're thinking about bridge financing opportunities if needed? But more importantly, can you lay out what you see the cash progression liquidity progression looking like over the next 3 to 4 quarters?

Speaker 1

Sure. That's a great question. I don't know I don't have the Q1 numbers in front of me. Well, when I look at our cash burn, I like to focus more on our adjusted EBITDA than anything else. Our adjusted EBITDA It was negative, I think, dollars 2,200,000 in the second quarter, and it was much better than that in the Q1.

Speaker 1

So I'm not sure where you get your numbers from. If we burn cash, it's to buy equipment. If we buy equipment, we certainly have the ability to Finance that equipment. So cash doesn't become a major obstacle for us. If you're asking me, am I thinking about doing a raise for prophase labs?

Speaker 1

The answer is no. At these prices, I don't know what's appropriate to say or not say, but I think Nebula Genomics is it could be worth right now more than the entire market cap of our company by itself. And especially if you include our net working capital, then it's just those two things. We had nothing but Nebula And our net working capital, I'd tell you that our stock is probably undervalued. When you include our PharmaLabs manufacturing facility, Look at the type of numbers.

Speaker 1

I really think we could generate $10,000,000 in pre tax profits Just from the new business we're going to so even if we say to breakeven, but the truth of the matter is we're increasing our gross margins, we're increasing our pricing, We're getting more efficient. We're I don't want to go too much into it, but there is some short things short term things we brought in Efficiency Expert. There's some short things firm things that we can do to even increase the profitability right now in our current business. But with the business that we're adding and with the negotiations That have taken place. I've been told that a manufacturing facility that private equity loves Manufacturing facilities and we'll pay 10 or 15 times EBITDA.

Speaker 1

So we potentially and I'm not saying that Pharma is going to be worth $100,000,000 $150,000,000 but in a year, but it could be worth $75,000,000 in a year. And then meanwhile, more importantly, Nebula Genomics, that business is exploding and all the things we're doing. So if we want to do something creative, It wouldn't be raising capital through Prophase Labs. As I mentioned on the call already, The accounts receivable isn't an issue. Cash flow is flowing into that.

Speaker 1

Also, since our COVID testing slowed, it actually improves Our cash flow and our accounts receivable going forward, because as our accounts receivable slows, you see the issue as I explained Earlier in the call, we had significant accounts receivable at year end and it looked like our accounts receivable actually grew a little bit 6 months later. It looked like we didn't make any progress. We made a lot of progress. We collected on more than 50% of our accounts receivable, but we had new accounts receivable that was generated, Particularly in the Q1 from the new COVID testing business that we're doing. So now we're in a situation and understand we're paying a lot of expenses Upfront when we do the COVID testing and then we're getting paid on the back end when the insurance companies reimburse us.

Speaker 1

And of course, for the specimens That are associated with faulty patient data, it takes a lot longer to collect. And so on those, All those expenses go out upfront and we get paid later. So now we're in a situation where we're doing significantly less COVID testing. We have accounts receivable Coming in, where we're starting to collect that now for the second half of the year, while at the same time, we don't have the expenses going out On new COVID testing, because we've downsized that business significantly. So our cash flow It's actually pretty good.

Speaker 1

And we have plenty of opportunities. First of all, hypothetically, if I want to I want to finance Pharmalize. We have this amazing Building, amazing business operations. But even besides the business operations, just the building itself, and it's on 12 acres across from Walmart, we could take out a mortgage on that very, very quickly. We could finance your accounts receivable.

Speaker 1

So the last thing I'm going to do All that I want to do is to do a dilutive round of financing at Prophase Labs. At the same time, we have subsidiaries and I can't really talk about this, but We just might have a subsidiary that, as I mentioned, by itself might be worth the marked cap of the company. So, just think of and you got to understand, my background is on Wall Street. So with the background on Wall Street and with these great investment bankers that we're working with, there are all sorts of creative ways We can finance this company without doing a dilutive round of financing with a secondary for prophase last. And I don't want to go into it more and I don't know, we'll see where this goes and I really shouldn't talk about it more.

Speaker 1

But I can just tell you, I have plenty of opportunities if I want to bring out The underlying value in our company. And at some point, at the right time, in the right market conditions, it's quite possible that I would do that. And we'll just have to wait and see. I don't want to say more than that. I'm not interested in getting trouble with the SEC.

Speaker 1

But I just wanted you to know that I have plenty of options That don't include anything to do with dilutive rounds of financing. That's the way I manage the company. The way I manage the company, again, I'm the largest shareholder in the company. Personal friends of mine are also large shareholders and I believe in watching their backs even more than watching my own. And the one thing I understand is Raise capital when the stock market is hot and there's lots of capital around and stock prices are high.

Speaker 1

When stock prices are low, You buy back stock and you pay dividends. And so I have a history of doing exactly what I just described. There's no reason why I want to do anything to all of a sudden change my style from what it's been for the last dozen years, which have been Very, very successful. So it's really the Warren Buffett style to some point. I really think long term in terms of just building long term value for the company.

Speaker 1

I hope that answers your question. I went on a bunch of tangents, but I think I brought it all together.

Speaker 2

No, I think that's helpful. And you'd asked early in your answer The source of the cash flow commentary. That's just your first half free cash flow from your press release today annualized. So you had to say your free cash flow about 1,000,000 in the first half of the year. Back to the envelope symbol math, you analyzed it's $14,000,000 ish.

Speaker 2

So I was trying to get a sense of bridge for the next 3 or 4 quarters. I think what I've heard you say and again clarify if you think it's appropriate as you think appropriate, but I think what I've heard you say is, Look, we have $39,000,000 of AR that we could securitize or factor. We have the ability to mortgage the put a mortgage on the The loss and contracting business, PharmaLaws. We have the ability to do various and sundry things in the capital markets that might Unlock value in our 5 main business 1 or more of our 5 main business lines. And We see obviously the PharmaLaws business ramping quite significantly next year, plus the genetic testing business.

Speaker 2

And so the business should be solidly Free cash flow positive in 2024. Is that a fair summary?

Speaker 1

Yes. I was I'm really impressed, Adam. I don't know what you do for a living, but you might want to come work for us if you're looking for a job because that was really well done. Yes, that's the excellent summary. Thank you.

Speaker 1

Okay. Thank you. All right. Do you have any other questions or should we move on? Vice Navi, let's go to our next question, please.

Operator

All right. The next question comes from Fred McDonald, a Private Investor. Please go ahead.

Speaker 1

Chad, you say the value of Nebula is greater than our market cap, but the market isn't recognizing that. Would you consider doing an IPO on Nebula? Or is there some other ways that you could get it the true value of Nebula be recognized? Yes. So what's interesting, it's a great question.

Speaker 1

I alluded to it from the last caller's questions. I'm not allowed to talk about things like IPOs. But what I can tell you, and again, I said this before, it's so eerily similar, it's almost Gary, what happened 2.5 years ago, where we raised the block of money with ThinkEquity, led by ThinkEquity, We built out this tremendous lab. We built tremendous capacity. And then we did this enormous business.

Speaker 1

And so It really is a deja vu. We're in the exact same situation now, almost exactly 3 years later. But it's with the business Nebula Genomics where the upside is dramatically greater than COVID And it's an upside that's going to last potentially for not only for years, but for decades. I mean, this is the future of personalized precision medicine. So, as I said, my background is on Wall Street.

Speaker 1

So, I am really tell me I'm terrible at everything I do. The one thing I can tell you is I understand Wall Street And I understand the value of Nebula and I understand the best ways to bring out that value as needed. So to me, the real issue is I want to build we already have a state of the art whole genome sequencing facility, But now I want to build capacity. I want to be the leading laboratory in the country. It's not in the world for whole genome sequencing and for all genetic testing.

Speaker 1

And not only from the point of view of having the best equipment, which we have, we have the best equipment in Right now, we have equipment in this country that nobody else in the country has. We're the first one to get the latest leading state of the art Whole genome sequencing equipment. But now I want to build the capacity, so that the bigger deals, we are the lab of choice for the bigger deals. And I believe there's an opportunity right now to do it right now. That opportunity may not be there in 3 years, but it's there right now Because we're first in, because George Church had the vision 5 years ago to found this company With his 2 PhD students, who by the way work for us and they're great guys by the way.

Speaker 1

Kamal and Dennis, you can see they're in our company profiles. Great guys. Really happy they came and joined us. And we're building this great company. And to be honest with you, we have a whole team that's doing a phenomenal job of building Nebula.

Speaker 1

So I'm sorry, I can't directly answer your question. And I'm not saying we're going to do something, we're not going to do something. But also the previous caller Asked about cash flow. Well, I mean, certainly, if I wanted to, I could raise capital off the value of Nebula. And there's multiple different ways that I could do that if we want to do that.

Speaker 1

And we'll just have to see. We'll explore things over time. So my point is I have lots of options without having to do a dilutive round of financing for propane. And if I did some sort of financing, as I said, I could Finance formalized with the mortgage or I could do something with Nebula. And I don't want to go into more detail now.

Speaker 1

But the answer is yes. We have lots of options to explore. See, the beauty is when you build a company that has significant underlying value and we do with multiple So, Dario, it gives you options for how to finance going forward. So, to me, the real question is, do I want to do a financing In order to scale up Nebula because the opportunities are so large and that we just have to balance. What I don't want to do is a dilutive round of financing at Prophase Labs.

Speaker 1

All right. So and we'll just have to see it. But the same way we built out a COVID testing lab And outperformed 95% of labs in the country. I expect to do the same thing with whole genome sequencing, except I expect to My goal is to outperform 100 percent of the labs in the country. And that's our goal.

Speaker 1

And I think I've also mentioned that we have significant Not only in the United States, but abroad. But what's interesting over the last couple of weeks and I've been talking about our opportunities abroad for a while. What's interesting over the last couple of weeks is the interest level is so high for Nebula Genomics for our lab, For B2B business, and we're literally just starting. We're barely even in the business yet. And The interest level is high from some of the largest testing companies in the world.

Speaker 1

And so it's really interesting. We'll see where this goes. But I can tell you, if we build it, they will come. I really believe that that's applicable to Nebula Genomics. And I believe that's here right now and that opportunity is here right now.

Speaker 1

And I'm really looking forward to taking advantage of that opportunity. Hope that answers your question. Thank you, Ted. All right, great. Let's now be on to the next question, please.

Operator

Our next question comes from Dennis K. Waldman with Barrett Productions. Please go ahead.

Speaker 3

Hi, Ted. Thanks you for taking my call. I have about 3 or 4 questions, if you don't mind. I'm trying to wrap my head around Q1 versus Q2. In Q1, you did about $19,000,000 and here you did about $13,000,000 I would assume that the consumer products, the Nebula and the Pharmalyze increased from Q1 to Q2.

Speaker 3

And I see that diagnostic testing in Q1 was $120,000 with an average price of about $121 In Q2, it went up to 126,000, about 5% increase. So I'm trying to understand how we have a 30% drop in revenue where we had increases Gross, at least unit volume in diagnostic testing unless the price went down per test?

Speaker 1

I I apologize. I would have to get back to you on an answer to that question. Our testing was definitely down in Q2 versus Q1. It will be down in Q3 Reverse Q2. It's not the future of the company.

Speaker 1

It's not my focus. And your numbers, we're also doing a lot of Antigen testing, which is different from laboratory PCR testing, antigen testing is done At the point of service, when you go up to the 10th, the numbers I'd have to go back and look at the numbers. We are Our COVID revenues are definitely going down every quarter. Now having said that, the Q4, they may pick up substantially. I hear that there's more COVID around.

Speaker 1

The question is, are the positivity rates are going up? I believe and we believe that's because People who actually have COVID are getting tested, but nobody else is. Whereas before everybody was getting when a few people you heard about somebody getting tested We're having COVID, you immediately went down and got tested too. So for every person that actually had COVID, you probably had 15 other people who went and got tested. Now people are getting COVID again, but the people around them aren't.

Speaker 1

So the testing is a lot less, the opportunity is a lot less. It's really not the focus of the company. I apologize. I'll get back to you offline to get more into the numbers. But there's no question our COVID revenues are going down.

Speaker 1

But the market never gave any value to our COVID revenues anyway. As I said, it actually improves our accounts receivable if we're doing less COVID business. And our Nebula Genomics business and our formalized business are growing. Certainly year over year, They're growing. 2nd quarter is seasonally by the way, 2nd quarter is typically the seasonally slowest quarter of the year for all of our businesses.

Speaker 1

And they're going to be growing, but I'm less concerned with the quarter to quarter because there Various things we're doing in the various businesses that affect the quarter to quarter, but the year over year growth is tremendous in both and that's going to continue. I hope that answers your question. If you need to offline, I can get back to your other question. Yes, I

Speaker 3

appreciate you getting back to me on that. And I was going to bring up the fact that the positivity rates have tripled In the last month and a half, I'm hearing that's because everybody is traveling overseas now. And even though it hasn't hit the mainstream media, A lot of the other articles I've been reading are saying that there is a tremendous concern that we're going to have another virus, another upswing. This is the worst positivity rates we've seen in over 18 months. So I was wondering if you've seen any uptick at all?

Speaker 1

Yes, yes, yes. No. So you just though indirectly pointed to the fact that the mainstream media isn't even picking up on it. They're not picking up on it because people don't care. And the positivity rates, without an explanation, doesn't mean anything.

Speaker 1

And as I explained, the positivity rates are high because only people that actually have COVID are being tested. So therefore, the positivity rates don't mean anything. What would matter is the total number of people testing positive Now versus previously. So is it up ticking? Yes, it's up ticking.

Speaker 1

Yes. Is it coming from abroad? Yes. Was there a new big COVID spread In China, over the last few months, yes, there was. So there's definitely going to be some positive upticks here.

Speaker 1

It will lead to some business, but I'm not focused on the COVID business. I don't even want to focus anymore on this call on the COVID business. It's a waste of time. It's not where we're focused on, it's not what we're doing. So let me jump

Speaker 3

yes, let me jump you had last week you made a great announcement at Linebacker and the relationship with Certus. In there, I just want to read, it says, with this extensive data set now in hand, prophase will proceed to the next level. So, I'm just curious what level was linebacker at and what level is it going to?

Speaker 1

Yes. So, the best way and look, I'm not a scientist, but the best way I can Explain this is that it's always a case of balancing between how much money you want to spend, how many clinical studies you want to do, How much time you want to take before you go into humans? You can go into humans quickly Or you can go into humans 10 years from now. And my point is with a compound like Linebacker, it has Several different opportunities for commercialization to make a meaningfully a meaningful difference In the world of cancer and treating cancer. And so the question is how many cell lines do we want to test?

Speaker 1

How many different types of Test that we want to do. We originally thought of this test just as a co therapy because it works so well with multibillion dollar drugs like Doxorubicin and others. And we found that it works significantly better. Doxorubicin works significantly better with linebacker than without. And we know like, wow, this will be a great co therapy.

Speaker 1

But then we found in certain cell lines and there's so many different types of cancer. So what do you want to do? Do you want to test in preclinical You want to test linebacker with every single type of cancer, so you have to narrow it down to which cancers do you want to focus on, both in terms of commercial opportunity, also in terms of which one is going to be most effective. And that's why you do clinical studies to begin with, preclinical studies, I should say. So we're doing preclinical studies.

Speaker 1

We're now working with an AI leader to help perfect The path to commercialization to figure out exactly which cell lines we want to focus on In humans. And which directions we want to go in. And so that's the stage now. So our goal is to be in humans next year. And once we go into humans next year, you start with Phase 1 human clinical study.

Speaker 1

And once you complete that, I am optimistic that Linebacker, we could end up doing a licensing deal that would be extremely valuable for it. So as I've mentioned on previous calls, when you acquire assets and you first start to develop them, you can do all the due diligence in the world. It's very difficult or it's not the same when you actually acquire the asset, you hire the CROs, Research organization, you do the research yourself and you see the actual results yourself. And I can just tell you, we have been pleasantly surprised every step of the way with linebacker so far. I don't like to focus on it on these calls because it's the future.

Speaker 1

The stock market isn't going to give us any value for linebacker Anything we're doing long term with cancer. And so all I can tell you is we have a very promising compound. If it's successful, it will dwarf the value of our company down the road. We could potentially do a licensing deal for the value of our company 12 months from now. That would be a nice surprise.

Speaker 1

I'm not guaranteeing. I'm not betting on it. But we're not spending a lot of money either. We're using AI to perfect the path to commercialization. As I mentioned, we're talking about spending $3,000,000 over the next 12 months to get us to a point I believe we could be in licensing negotiations after spending another $3,000,000 Hope that answered that question.

Speaker 1

We do have a bunch more calls. If you have a quick one? I have

Speaker 3

a quick one. Equivir, kind of excited to see that on the market. What is your worst case scenario where we'll see it on the store shelves?

Speaker 1

I'm sorry, Equivir?

Speaker 3

Equivir, yes.

Speaker 1

Yes. No, it's pronounced Equivir. Equivir, I'm sorry. There's a difference between store shelves and commercializing it online. We're doing studies, the first set of studies.

Speaker 1

The preliminary results will be good enough for us to finalize claims that we put on packaging to sell 2 consumers online. And then we have a second round where it's really the same clinical studies, But additional as we get through the complete clinical study, we're actually doing a prophylactic study and a therapeutic study. And I'm really looking forward to the results that will be done over the winter. And then with those results, we'll be able to put very powerful claims on the packaging. As far as putting it into the stores, that's we're up to the mercy of the stores.

Speaker 1

We're not ready to introduce it to the stores yet because I wanted to finalize Claims on the packaging, a package sitting on a store shelf will not sell if it doesn't have good claims on it. I know that from the Colby's days, all right? I am an expert in that. And Just take my word for it because I turned around the Colby's brand myself. I was very involved in that.

Speaker 1

And so with Equivir, we got to get the claims right. So we're doing that now in the coming months, Then we'll sell it. We're talking about Q4 introducing it online. And as far as the stores, we're really talking about next year. I can't tell you the timing.

Speaker 1

A part of that is going to be based on how strong the claims are, how excited the retailers get and the timing And when they're doing their planograms, there's a number of variables out of our control. But the potential for this is huge. And I just want you to know there's long term potential with Equivir because Immune Defense products, really good immune defense products, that's a great Business in the dietary supplement category, if you come out with a great immune defense product like Equivir, I think it could be very valuable. And Historically, that was our business. And so we have a whole infrastructure for making that a very successful product.

Speaker 1

But again, first step is It is the preliminary results so we can get some claims on the packaging and start selling that to consumers online. And then the bigger Push will be in stores. Interestingly, we actually have some other countries that are potentially interested in distributing that as well, but I don't want to get too much into that on this call.

Operator

Okay. Our next call question comes from Yi Chen with H. C. Wainwright. Please go ahead.

Speaker 1

Hi Ted. Thank you for taking my questions. Thank you.

Speaker 4

My first question is, so For the Q2 within the Q2 revenue, is there any significant revenue actually has Coming from the Navigianomics?

Speaker 1

Well, when you say significant, I don't

Speaker 4

Let's do over $1,000,000 over $1,000,000 coming from Navigeneomics? Yes, of course.

Speaker 1

We're in a run. See, now the problem is, and I probably said this in the last quarter too, it gets complicated and we sorted this out. We have two sources of revenue when we sell a whole genome sequencing test. There's selling the There is selling the test itself for which we do the sequencing. But then also there's The sale of a subscription to our library.

Speaker 1

And so, of course, when we sell a test, we get that money upfront And we recognize that as revenue immediately. When we sell a subscription to a library, The SEC is really tough, where even though we're getting the cash upfront and the accountants are very tough on this, they want us to Recognize that revenue over the course of the subscription. So, if it's a 3 year subscription or if it's a lifetime subscription, they want us to recognize that revenue over 3 years even though We get it upfront. So if we sell a subscription today and we collect $200 they want us to recognize that $200 So even though we collected that $200 today and there's so what we've done is we've been we've spent months now with our attorneys Working out the language in terms of what we offer to the consumer, so that it's recognized as a setup fee as Opposed to an ongoing subscription, we think we have perfected that language. As we perfect that language, we will be able to recognize The revenues in the quarter in which they're generated as opposed to having spread it out.

Speaker 1

So there are some timing issues there right now, but our revenues are significant. I don't want to be quoted with numbers, but off the top of my head, ballpark, I guess we're on a shareholder conference call. My off the top of my head, we're at like a $15,000,000 plus run rate at Nebula right now, but that's probably a non GAAP number. But that number is growing. And it all depends on how quickly we ramp up Our Garden City lab.

Speaker 1

But as soon as we ramp up the Garden City lab, our profitability for selling these tests goes up significantly. We'll also be able to drop our Pricing even further for the whole genome sequencing, which will drive even more volume. And with the higher volumes, the bigger the volume, the more subscriptions We sell on the subscriptions where the margins are. So it's actually good for us if we drop price because it drives volume, which in turn Drives more subscriptions, more revenue and more profits. So and we're in a we're literally in the infancy of growing this business right now.

Speaker 1

And again, for the others out there that are listening, there are genomics companies out there with no revenues with $50,000,000 $100,000,000 valuations that are years behind us in development. So we're already a revenue generating company, but the run rate of those revenues, I believe, Besides growing dramatically year over year, they're growing every day. I mean, the numbers we got just in the last couple of weeks from some New, ads that we ran, the volumes were significant. Some of the largest volumes we've ever received in fact, I think the largest volumes we ever Received on a daily basis. So there's no question.

Speaker 1

This business is growing by leaps and bounds. We haven't even started in a significant way with the B2B business, and that's all coming. Hope that answers.

Speaker 4

Actually, that's related to my second question. So as you wrap up the volume of sequencing services going forward, Will the will your main target customer be consumers or businesses or both?

Speaker 1

So there's sort of an internal debate going on. It's a great question because if you ask George Church, He'll tell you and we're working very closely with George Church at Harvard and Russ Altman at Stanford. And George's vision has always been for every single person in the country and in the planet on the planet to be tested. And that's what In the UAE and Abu Dhabi, that's what they're doing with the Emirati genome program. They're testing 1,000,000 residents.

Speaker 1

That's 1,000,000 residents out of 9,000,000 residents in the UAE. So think about if we did the same percentages here, we're talking about 30,000,000, 35,000,000 people testing. We're a multi $1,000,000,000 company if we committed to the same type of program here. But the point is we're literally Just testing the surface. And then the question is, how much of that is direct to consumer?

Speaker 1

I still think only 1% of consumers even know what personalized precision benefit and whole genome sequencing are. I didn't know what whole genome sequencing was 2 years Before we acquired Nebula. And I think most of the country doesn't even know what it is. So the question is how quickly They learn consumers in the United States and around the world learn about whole genome sequencing and learn how important it is and learn How important the difference is between whole genome sequencing and what the ancestry companies do, where they test less than 1% of your genome, which is great for ancestry information, but pales in Harrison, if you want health related information. And so it's only a matter of time.

Speaker 1

I think the consumer business is literally it's in its infancy. It's where the Internet was 20 years ago. But then on the business side and with academic institutions and other types of businesses, they can bring enormous business to us right now. And so this really is what I was talking about earlier on this conference call is now that we've built this lab, we're starting to get inquiries that are scary large. And I have the utmost confidence that we build a large capacity lab, we will fill it with an enormous amount of business.

Speaker 1

So you can focus on whatever business we're doing now. I think I put in the press release what our capacity is In our current lab, for Nebula, it's around $40,000,000 I want to build A lab that potentially has the capacity to do 5 or 10 times that. And I believe if we do, I believe we'll fill it. So we're talking about an opportunity with Nebula to be a multibillion dollar company We're in the right place, right time. We're already in the business.

Speaker 1

We're already growing quickly. We already have all of the relationships. We have everything. We have the entire Infrastructure, the entire relationships to build an incredibly successful genomics business. And so you can focus on our current revenues.

Speaker 1

But again, I mentioned there may be ways that we could bring out value in Nebula, and I think it would be substantial, and that would just be the starting point.

Speaker 4

Yes. My next question is, could you comment could you provide a rough timeline as to With respect to the bSmart esophageal cancer test, in terms of when it could be commercialized?

Speaker 1

Sure. Okay. So there's a difference between commercializing without CPT codes as commercializing with the CPT codes. There's a major conference in the Q1 of next year. We have an expert consultant who is confident That we will get the CPT codes at that conference.

Speaker 1

So Q1 of next year, we're looking for CPT codes. We can commercialize without it. And so basically, our lab here and again, we have a world class lab team working here And headed by Alice Lioy. And Alice said, as soon as we do these next 300 Specimens, 200 of which we're doing right now, 100 is supposed to come in, in the next couple of weeks. So within the next month or 2, when we complete those 500 That should be enough data to then do a validation for what's called research use only.

Speaker 1

And this would not be reimbursed by This would be a cash based test. And I'm not really focused on it as a cash based test Once we get the CPT codes, the key is to get the key opinion leaders and the cancer institutions behind you and then That brings in the physicians wanting to order the test. So there's a whole ramp up we can do where this could build up Into an incredibly valuable test very quickly. But this is really a 2024 project. But it's a 2024 project that could be very big.

Speaker 1

And I'll also tell you there's a possibility that there are very large companies out there who might love to have our esophageal cancer test A part of their portfolio as opposed to us building out the infrastructure ourselves. So the opportunities here Our enormous next year once we get the CPT codes. Actually, it's not even so much the CPT codes. Once we complete the current studies And STAT King does their independent analysis to show that we have studied enough specimens That it's all based on confidence levels. That at the 95% confidence level, our sensitivity and specificity are the following numbers.

Speaker 1

And the bottom line is so far our numbers have been fantastic, much better than Most of the other cancer tests on the market. And so I'm very confident that we're going to get commercialized and ultimately get some CPT codes. And once we I've outlined this previously. There's a potential multi $1,000,000,000 market out there. And then Phase 2 is Develop this test where it doesn't have to be performed on people that got adopted.

Speaker 1

Then it becomes an even larger, exponentially larger business Because ultimately, you could go into a doctor's office with a brush technology. You take a brush down your throat, it picks up cells, it picks up the Proteins that we need to test in order to tell you whether you're at high risk or low risk of esophageal cancer, whether you have esophageal cancer right now. And so that test, then it becomes ridiculous. Everybody going to a GI, Before you even get an adoptee, does everybody go into GI that has GERD to say, hey, what's going on? And the physicians should say, hey, let's do this quick test To see if you have esophageal cancer right now or if you're at high risk or low risk.

Speaker 1

And based on that, we can determine next steps, whether you need an endoscopy and so forth. And our test is more yes, okay, I'm sorry. Go ahead. And your next question?

Speaker 4

Yes. My last question is, I wonder if you can comment on what would be the baseline level

Speaker 1

of diagnostic revenue if COVID testing is completely gone? So we're not yet doing clinical lab testing. And so just very, very quickly, We've developed and this again was led by Jason, who is the President of our diagnostics business and he built a multi $100,000,000 COVID business, he has and we have significant relationships in the industry. We are dying to Exploit those relationships to build out a clinical lab. The gating issue or factor is getting in network with insurance COVID testing, you didn't have to be in network, especially during the public health emergency.

Speaker 1

So now it's a completely different business. Turns out, it's somewhat of a the insurance I'm sorry, the lab business is somewhat of a monopoly. It's really incredible. I've never seen such It's really disappointing, and I don't want to pick fights with anyone. But if you're not in network with some of the major insurance providers, Then the physicians don't want to send you the specimen because if they send you the specimen, then the patient is going to have to pay out of pocket and then the complaints to the physician.

Speaker 1

So it's all linked between the physicians want to see that the lab is in network. And meanwhile, the insurance companies are like, if you're already If you aren't a big customer of ours, we don't want to let you network. And so you have insurance companies that for the exact same test, 2 labs will perform the 3 labs will perform the exact same test from the exact same patient. 1 lab will get $300 for that test, lab will get $100 for the test and 3rd lab won't get reimbursed at all. Of course, it will be the exact same one.

Speaker 1

And so it's really important to be a network. So we have some opportunities right now to get in network by acquiring and I'm looking for the right small lab, but we have some opportunities right now. I don't want to get too much into it. But I am optimistic that we will get in the network with the full acquisition in the not too distant future. Then as soon as we do, We will build out our clinical lab business in a significant way.

Speaker 1

But for now, I would say the main focus of our revenues is going to be our nebulagenomics business and Got it. Thank you very much. Yes, sure. And what I just throw out there, you didn't really ask the question. Nebula Genomics, again, if the capacity of our lab is $40,000,000 I'm telling you that we're thinking about building out a significantly larger lab.

Speaker 1

It gives you the kind of idea of what the revenue run rate should be for Nebula Genomics for next year just for Marrowave. And I think that our demand is going to be significantly greater than what's in our lab. We also have the ability to outsource Specimens, which is what we've been doing now, so we built up the lab anyway. So without even building another lab, we're building more capacity. We have the potential to be at a run rate of more than 40,000,000 In revenues for Nebula next year.

Speaker 1

And then of course, once we build out more capacity, those numbers could only go up from there. So that's on the Nebula side. On the formalized side, I think I've mentioned previously that we want to build our capacity $25,000,000 or $35,000,000 And I think that we would have no problem filling most of that capacity when we do so. So there's equipment that we're bringing in right now short term to increase capacity and then a whole new lodging line, essentially we might want to bring in 2 more lodging lines. There's room for it.

Speaker 1

And so building our capacity of $25,000,000 $35,000,000 next year Seems like, it should be straightforward and quite frankly, it might be more than that next year. And again, our pre tax profits The new business that we're talking about bringing in could generate $10,000,000 of profit by itself next year. So I'm really looking for Nebula and PharmaLaz, the revenues to be Really quite substantial next year and the earnings associated with both to be quite substantial next year. And I'm sorry, it's really just the next 6 months Figuring out the ramp up. And it really has more to do with ramping up the capacity, ramping up the businesses coming into Nebula and how quickly we ramp up formalize in terms of the capacity And increasing prices so far.

Speaker 1

Thank you so much. I appreciate you on the call. All right. And let's try and get to the last questions quickly as possible. I thought this was going to be a shorter call.

Speaker 1

Next question please.

Operator

All right. The next question comes from Lee Lapper with Hammock. Please go ahead.

Speaker 4

Thanks, Jay. Thanks. The last couple calls, you were excited about what was happening over the UAE. You did not mention anything today. Can you give

Speaker 1

us some color? And we'll Sure. So here's what's interesting about UAE. So, a couple of things. I have to weigh that's actually a great question.

Speaker 1

Yes, there's a lot Potentially going on in UAE. I'm trying to be careful to not talk about things until this sort of set in stone. So we have Some major companies that are very interested in Nebula Genomics and potentially interested in Joint venture opportunities for us to actually build a Nebula Genomics laboratory in their country. Most countries don't want to send their specimens Outside the country. It's one of the reasons why we built a lab in New York even though we had access to relatively inexpensive whole genome sequencing Abroad.

Speaker 1

Now, of course, we have we can offer even lower pricing doing it in our lab because we're getting, I believe, some of the best prices in the world For the consumables. So we have opportunities and then it's a question of how do we want to how thin do we want to spread ourselves. The opportunity in our own lab is so huge. I really want to focus on that more than abroad. The other Aspect of this is joint venturing our esophageal cancer test.

Speaker 1

And we already have a clinical research organization that's There's a Mayo Clinic and a Cleveland Clinic actually in the UAE that wants to work with us. We have specimens lined up. But I'll only do that if there's a joint venture partner upfront. Otherwise, I could do a study over there and then all these companies over there will jump on And want to commercialize it, but I think we'll make a lot more money that we commercialize in the United States first and then have them come scrambling for us. But on the Nebula side, yes, there's lots of opportunities over there.

Speaker 1

I just don't want to get too far ahead of myself. There's so much opportunity with what we're doing right in the United States. And I can touch it, taste it, feel it, and that's what we're building. But in parallel, we are working with investment bankers In the UAE, in both the UAE and Saudi Arabia, there's ongoing discussions. And I would just like to leave it at that for now.

Speaker 1

I don't I always want to under promise and over deliver. And so there's definitely opportunities. We're definitely following up on them. But The other thing I've just noticed, and this is true of all small cap companies, they all move slowly. And so in the UAE, the biggest companies, they move even slower.

Speaker 1

So they're all interested. They all want to do deals, but I don't have time. There's an enormous opportunity right now with Nebulae Genomics today. And that's why literally we had one of the world class genomics manufacturers in our laboratory, This is literally a few business days ago and we were discussing, hey, we got to build out something 10 times the size. There's just too much demand out there.

Speaker 1

There's just too many large players out there that want to bring us business. Why do I have to go build a lab another even a joint venture, even if I have a $1,000,000,000 company abroad that says, hey, We'll pay for the lab. You build it. We'll pay for it. We'll joint venture in the profits.

Speaker 1

I'm interested in doing that, but I saw. You know, nebulasomics could be a $1,000,000,000 company pretty quickly right here in the United States. So I just have to weigh opportunities and How attractive they are today versus down the road? I know that was sort of a long winded answer to your question. Yes, I'm so excited about the UAE, But I have other opportunities at the same time that I can touch, taste and feel today.

Speaker 1

Okay, thanks. Yes. All right, you're quite welcome. And I think we have one more question.

Operator

Yes. We have a follow-up from Adam Waldo with Lismore Partners.

Speaker 2

For the follow-up here, I should vest it on the front end. But during the quarter, you made And unsolicited all cash offer for a business unit of NAVB, Navidea Pharmaceutical Biopharma. Can you say anything publicly about where that stands? Is that a dead letter at this point? And or could that still come back around?

Speaker 2

And In a general sense, are you still looking at opportunities with your resource base or are you You're really focused on the 5 you have and bridging the liquidity you have to really get Strong revenue and cash flow generation from those in 2024. Thanks.

Speaker 1

I really like Your question was A or B. I really like B. I really like the latter. That's really what I'm doing. I want to focus on our assets.

Speaker 1

And to some extent that dovetails into The last caller who just asked about the UAE. We have lots of opportunities over the in the UAE. I don't want to spread myself too thin. I don't want to spread our company too thin. So I want really great opportunities or I don't want to focus on them because I have great opportunities.

Speaker 1

Just what we if we do nothing, but just focus Forget about linebacker, okay? Forget about Equivir, all right? If we just focus on nebulent genomics, pharmaLAZ And Esophageal Cancer, we should be a blockbuster company over the next 1, 2 years. We could be unicorn in a couple of years, all right? And so that's my focus.

Speaker 1

As I said that, there are opportunities. So with the company you talked about, I really don't want to talk about that company, Except that they happen to have an asset that is underutilized that we could commercialize. We happen to have these phenomenal relationships We can commercialize it today and it happens to be an asset that fits in perfectly with the MENA region in that region. So It just happens to be a perfect fit. It's still a perfect fit.

Speaker 1

I don't want to say more about it. But the one thing I will say in general, small cap companies, in general, most of the managements perform and I'm not saying anything about this company, but in general, I looked at hundreds of acquisitions over the last couple of years. They settled on 2 or 3. They were based on how great the assets were and the opportunity was. But it was also partially based on whether or not we could work with the management teams.

Speaker 1

So the question is, can we work with this management team? And it's I can't I don't know why a management team wouldn't want to exploit the assets that they have unless there's Ulterior motives that the shareholders don't know about. So that's all I can say about that. But the bottom line is they have assets that I think that we could exploit to be worth An awful lot of money very quickly. But if we don't acquire the assets, we don't acquire them.

Speaker 1

So am I open to it? Yes. What I particularly liked about it is it fit in really well. My scientific team at Prophase could be able to handle this. I wouldn't have to hire other people and the relationships we have Are already developed and I think we could roll out very quickly.

Speaker 1

And that's why I looked at that opportunity. In general, I'm not looking for acquisitions unless it builds upon And accelerates the growth of the subsidiaries we already have. So for example, if I can find a small lab because it's in network for insurance so that we can accelerate the development of our clinical lab, I'll do that because we have the fantastic clinical lab that's ready to go. So that's a perfect example.

Speaker 2

Right. No, that makes sense. So again, for all intents and purposes, should we assume NAVB is a dead letter? Or I mean given that the company continues to have significant cash burn, their financing options look to be increasingly limited. Could that potentially morph into a more advantageous deal down the road?

Speaker 2

Or we'll just have to wait and see.

Speaker 1

That's that you said it perfectly. I couldn't have said it better myself. Look, I don't I certainly don't control the company. I don't know what they are thinking and we'll just have to play it for a year. I don't know if you have an investment there or if you have an interest there.

Speaker 1

I don't know if you do or not, you don't have comments on that. The bottom line is there's an opportunity And that's the only reason why Prophase Labs got involved and made the offer letter in the first place. And so No, that's fair.

Speaker 2

We're not involved in the stock, but it just obviously came across your press releases And I look at the financials, this company's cash runway is not very long. So I don't know what we're doing, right?

Speaker 1

Yes. Well, look, we acquired the esophageal cancer test under similar circumstances. The company that owns it Couldn't finance it. We were in a bear market and they couldn't finance the company. And they were under a lot of pressure, but they were great management team to work with.

Speaker 1

In fact, the gentleman who was the acting CEO at the time that we acquired the Esophageal Cancer Test, Jed Latkin, is working for us As a senior consultant, he's very involved with our company and with the developer right now. That deal worked out great, but a part of it was because the management Was amenable to working with us. And the asset is fantastic. I mean, since we acquired Atopic Hill Cancer, I'm so Excited about the developments in that. It's a lifetime opportunity, quite frankly.

Speaker 1

Of course, there's nothing in our market cap for it, but it's a lifetime opportunity And it's all systems go. So I'm just excited about that for the future. And again, people some people don't like it when I make this reference because it's night and day, but Exact Sciences. I've been talking about them since they were $10,000,000,000 $11,000,000,000 company. I don't know they're a $15,000,000,000 company.

Speaker 1

They have a their primary business is Cologuard It's a colon. It's a test for colon cancer. We have a test for esophageal cancer, right? Theirs requires you to make a bowel movement. Ours right now are on people that are already getting endoscopy anyway, so they don't have to do anything extra.

Speaker 1

And ultimately, maybe a test where you just put a brush on your truck. And we believe that our sensitivity and specificity may be greater than Cologuard. And so I'm not looking for our company to be Sabineal Cancer would be a $15,000,000,000 company, even a $1,000,000,000 company. All right, what if it's $100,000,000 in revenues that would still triple the value of our company? So the opportunity there is enormous.

Speaker 1

Anyway, I think I pretty much answered your question.

Speaker 2

My question on ABB, though.

Speaker 1

You're quite welcome. Have a great day. I really appreciate everybody joining the call today. Vice Navi, I'm sorry. I hand it back over to you.

Speaker 1

Obviously, I'm really excited about the future of the company. And I thank you all for joining today. I'm looking forward to a lot of progress in the next 3, 6, 9 12 months. Thank you, Sam.

Operator

All right. Thank you. This concludes our Q and A session and the call as well. You may all now disconnect. Thank you for

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Earnings Conference Call
ProPhase Labs Q2 2023
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