Q1 2020 Interpace Biosciences Inc Earnings Call

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At this time, all participants are in listen only mode.

A brief question and answer session will follow the formal presentation.

As a reminder, this conference is being recorded and will be available on the interface website at www Dot interplay stock.

During this call the company will make forward looking statements.

We caution you that any statement that is not a statement of historical fact is a forward looking statement.

This includes remarks about the Companys financial projections expectations plans beliefs and prospects. These statements are based on judgment and analysis as of the date of the conference call and are subject to numerous important risks and uncertainties that could cause actual results could differ materially from those described in the forward looking state.

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These risks and uncertainties associated with the forward looking statements made in the conference call are described in the Safe Harbor statement in todays earnings release, as well as interplay spiral sciences public periodic filings, including the discussion and the risk factor section in our form 10-K filed with the FCC on.

April 22nd 2020, which includes discussions in the section on forward looking statements.

Investors or potential investors should carefully read and considered these risks and her pace bio sciences assumes no obligation to update these forward looking statements to reflect future events or actual outcomes and does not intend to do so.

In addition.

To supplement the generally accepted accounting principle worked out numbers. We have provided non-GAAP information. We believed that this non-GAAP information provides a meaningful supplemental information and may be helpful and assessing the company's performance.

A table reconciling the non-GAAP information a table rectify the GAAP information to non-GAAP information is included in the company's earnings release, which will be available on its website.

I'd now like to turn the call over to the President and CEO of interface bile Sciences Jacks Dover.

Thank you Diego and thank you all for joining us this afternoon.

Fred and I will focus on our first quarter financial progress and provide a general business update following that we will open the call for questions.

First quarter revenue was 9.2 million near the top end of our previously announced revenue range.

During the first quarter, we continued to grow our clinical in pharma services businesses. However, our clinical services business was impacted by the pandemic beginning in the second half March.

We also took immediate action to protect our employees from exposure.

Reduced discretionary nonessential costs accelerated operations integration.

Despite seeing improvements through mid June we do anticipate the impact of the Corona virus will continue through the remainder of 2020 and perhaps beyond.

Our focus for the rest of the year, we'll be continuing to respond to changing conditions, while positioning ourselves for growth and expansion improving business processes and integrating our service offerings.

I mentioned in our earnings release, we are preparing to launch our Surajit anti body lives are testing for covert 19 at our CLIA lab in Pittsburgh, Pennsylvania.

Required acceptable kitchen reference samples validation is complete and we are now offering this testing to our employees and customers.

Remember the importance of serology testing is to determine who has developed antibodies to the virus and we believe that this is an important component of the process of reopening workplaces.

Now I would like to hand, the call off to threaten knechtel, our CFO to discuss in more detail our financial highlights for the quarter right. Thank you Jack.

Good afternoon, everyone.

Today, I would like to focus on key elements of our financial performance and position.

As previously mentioned, our first quarter Twentytwenty net revenue was 9.2 million.

30, 53% from the 6 million in the first quarter of 2019.

Clinical services first quarter Twentytwenty net revenue was approximately 60% of total revenue.

And pharma services was approximately 40%.

In the first quarter of 2019, 100% of our revenue was due to our legacy clinical services. Since we did not acquire the bio pharma business of cancer genetics and so early in the third quarter of 2019.

The business was impacted by lower than expected clinical service volume.

Beginning in mid March, which we believe resulted from the reduction in nonessential testing procedures in connection with the covert 19 pandemic.

Overall clinical services gross margin averages and access a 50%.

Pharma services gross margin is currently in the low 30% range and is expected to improve with revenue growth and the success of our planned integration activities.

Total business gross profit for the first quarter of Twentytwenty was $3.1 million.

Gross margin was 34%.

First quarter 2019, gross profit was 3.4 million well gross margin was 56% and was all related to our legacy clinical services business.

Operating expenses for the first quarter of Twentytwenty was $9.2 million as compared to $6.7 million in the first quarter of 29 team.

Operating expenses were lower than the 9.5 million in the fourth quarter of 2019, resulting from cost initiatives put in place late in the first quarter.

In March we reduced lap cost discretionary and nonessential spending.

<unk> decreased salaried employee wages by 10% to 15% starting in mid April.

We expect operating expense to be further reduced in the second quarter of 2020, well volume is expected to remain a reduced levels.

As the benefit of integration activities in the second quarter I realized we will be reorganizing and streamlining recurring finance and accounting cost and the third and fourth quarter of 2020.

It should be noted that integration other pharma services labs in the latter part of the year may require the temporary addition of resources to support these activities.

Which we anticipate realizing benefit in the first quarter of 2021 and beyond.

First quarter 2020, adjusted EBITDA was negative $4.1 million.

First quarter 2019 was negative $1.8 million.

The increase of two point Threemillion is related principally to the addition of pharma services losses not included in the first quarter of 2019.

We used 7.1 million of cash from operating activities.

Compared to 3 million in the first quarter of 2019.

The increase cash was due to 2.3 million a pharma services losses, and 1.8 million of increased working capital related to the acquisition.

As of March 31st 2020.

Our cash balance was $13.4 million with 1.2 million of borrowings under our line of credit with approximately 2.6 million of availability under the line.

During the first quarter up 2020, we raise 19.5 million net from the issuance of additional series B preferred stock.

And restructured the previously issued series a preferred stock now all under the series B preferred stock.

We also issued approximately <unk> point $4 million net of common stock under our ATM.

And pay down 1.8 million under our bank line of credit.

In April 2020, we received a 650000 dollar grant from the Department of Health and human services related to covert 19 virus and anti body testing.

And a 2.1 million dollar cash advance for future Medicare billing reimbursement.

As of June 17th 2020, we had a cash position of approximately $16.2 million.

And borrowings under our line of credit amounting to $3.4 million.

The optimize the pharma services lab operations, we are transitioning lab work from rather for New Jersey to our state of the art left facility in Morrisville North Carolina.

We will be investing to facilitate the move transfer personnel.

Buildout facilities and validate processes over the next several months.

We are confident this investment will transition.

And transition will result in reduced operating costs and provide a more robust platform for our customers in the future.

With that let me turn the call back over the Jack first closing statements.

Thanks Fred.

During June we are seeing that our business, while down approximately 30% from where we were just prior to the pandemic hitting is recovering nicely and largely as we anticipated.

We feel that the worst is behind US. However, there is still much uncertainty related to the Corona virus pandemic.

We're pleased to announce launch of our Surajit testing to assist in transitioning back to normal.

We do believe that one of the important global impacts of the pandemic is an increased awareness of the importance of the role diagnostics play. We're confident that we are well positioned to take advantage of this opportunity with our diversification focusing on improving diagnosis and customized assays solution.

Issuance for physicians patients and pharmaceutical and biotech companies developing products.

At this time due to uncertainties, we are not a position abrupt provide you with a confident revenue projection for the remainder of 2020. However, we are projecting net revenue for the second quarter of 2020 to to be between 5.5 and $6 million.

Now, let me turn the call over to Diego for Q1 day.

Thank you Sir at this time will be conducting a question and answer session. If you'd like to ask your question. Please press star one on your telephone keypad a confirmation tomo indicate your line is in the question Q You Me Press Star followed by the number two if you'd like to remove your question from the Q.

Our first question comes from Jeffrey Cohen with Ladenburg Thalmann. Please their question.

Oh hijacking Fred how are you.

Good how are you.

Just fine so I'm I wanted to drill down a little bit as far as ER for do you have some commentary on the opex.

For us we saw Q2 or the year can you give us a little better flavor on a Q2 versus Q1 or the opex and how that comes out and then for the balance sheet here and then also can you correlate that with.

Margins for the second corridor and then.

Let me out or how.

How do you think the looks for the back half senior <unk>.

Okay. So operating expense was 9.5 million in the fourth quarter of 2019, and we reduced that to 9.2 with some of the actions that we took later in the quarter and then we expect that with the actions that we haven't place that operating expense will be down another.

Okay.

In Q3, and then Q4 not down another 10% in Q4, but 10% in Q3, and then probably leveling off and what will identify if there's other things that we may need to do depending on what happens with the next round. The pandemic says is still a lot of uncertainty and well continue them.

Match, our cost very closely depending how volume is coming in our door when we get better clarity probably later in the third quarter.

Joe and can you give us Jack a little better flavor on what you're seeing and hearing out there as far as our trends that are going on for your origin of your attests to the patients and visiting the docs and see under clinics what are you hearing.

That's great question, Jeff and you know, we garner data and as a management team we meet almost every day on exactly that subject.

And so we're seeing and hearing is that and experiencing is basically the turnaround and I'm talking about the diagnostic business alone.

So on the on the diagnostic business, what we're seeing is in the last three or four weeks.

Our sales reps have gone from only 20% a that have been free to operate in their marketplace to now in excess of 50%.

That was as of yesterday and as you know with the virus breakouts that we're seeing.

The change in the volatility continues day to day as an example, we have a large lab in North Carolina.

And we have people that go back and forth between Rutherford in North Carolina, and now they're basically a being sequestered.

You know because the breakout happening in North Carolina. So we're concerned about sort of the general timing.

Have a of what we're seeing in terms of recovery. So that that's kind of front and center. What we have done is or what we are seeing is the the positive impact of the alternative methodologies that we've been able to use you know in terms of being able to reach doctors and reach a.

Offices.

You know with our offering an answer questions and continue to bring in.

You know packages or a biopsies effectively at a rate that as I said is probably around 30%.

Less than the optimum that we had experienced all that being said.

We believe that and we're seeing improvement almost every day, what our concern is Jeff and I say this all the time to our people is that I want to make sure that we're seeing solid.

Upside recovery as in fact, a recovery and we're not just pulling in units or biopsies that have languished a because a lot of people haven't been able to get to physicians in the last.

Month, two months or three months.

So we're pretty optimistic on the diagnostic side on the pharma side.

We recently added a new sales rep in the Boston marketplace. So we have a full complement what we won't have as of July 1st the full complement of a of sales reps and we're watching the a the backlog if you will have.

Conversions that those Oh business development people are are doing and that seems to be going very well. The the concern in the piece that we watch it is the pull through as it relates to a pharmaceutical and biotech companies.

That are actually progressing now more aggressively with clinical trials.

And as you know over the last month or two or either shut down clinical trials were delayed them. Yeah. We operate probably in a 30 to 60 day delay on both parts of our business such that when things were getting more difficult in the second half of March you know, we didn't see the impact of that in April.

Because of the operating activities and when we collect cash somewhat the same situation exists on the bio pharma side too I know, that's a long answer but I hope. It gives you a little color that you know we're seeing the recovery. We're excited about what we're seeing where we're cautiously optimistic and.

Yeah, we're managing our costs appropriately, meaning we're not out there trying to increase costs until we're sure that we have the a the growth in the the full recovery that we're hoping for.

No I appreciate it that's extremely helpful and one more if I may just housekeeping item. The the 2.1 Medicare was from the 29 to Medicare billings for the I knew or is that correct those to 10% or 29, she Medicare billing.

So I'm sorry, those work that was in advance.

On future Medicare collections.

So we didn't apply for that Jeff basically my assumption is that a Medicare through the met them the government.

Mechanism had evaluated and determined.

Because they are substantial part of our business, what those what that that cash decrease could be under the.

Under the pandemic and if I'm not mistaken Fred August is really the timeframe that they had targeted for the utilization of that cash for us yet August I think maybe closer to October but in that yeah. It later in the third third quarter.

Does that make sense.

They deposited money in our account.

With the understate with the expectation or business was going to be down, but they also know that there's a delay from you know the selling side to the actual you know cash side of Oh getting paid by Medicare Yeah, Jeff and I think you're right I don't remember the exact calculation, but it was based on past billings. It was a percentage on it to us it really equated to I think.

Two and a half months three months worth of billings, yet I think that's right.

Okay, but that's included on the balance sheet into 16.2, you referenced some current yes correct.

Got it perfect Okay, but those are for me thanks for taking the questions. Thanks, Jeff.

Our next question comes from Kevin Degeeter with Oppenheimer. Please state your question.

Hi, guys.

Any comment on just six backlog for the pharma business and how you're thinking about that and I think part of the logic of acquiring that asset from for cancer genetics is there there is really hadn't band.

You know adequate selling support for the program are for the for the services and there was a pretty modest amount of investment you'd be able to see a step up there.

Obviously, the world change change quite a bit but no we're not saying that in the revenue currently but here are how can you can you can tax tries to change in backlog that perhaps might be a informative on thinking about second half trends for biopharma, yeah, it's sort of Kevin we don't specifically disclose as you know.

Backlog per Se you know in terms of what we're looking at but let me tell you. The general what's going on first of all we're seeing good solid with the commercial team increase.

We're seeing a good solid increase in the yet in the overall backlog that's a really good sign of a potential for the future, but also a healthy business as well.

Two things, though impact that one is the pull through related to the trials themselves and when that backlog gets recognized.

And certainly that's one of them in but the other part of that is as we enter Q3 in Q4, you know we're transitioning from a relatively large lab in new Jersey to a single lab in North Carolina.

Primarily around the cost issues related to making that transition.

But if I could tell you from the bookings point of view that we're really pleased with the the bookings in terms of weather, what they're putting up.

And you know, we're very optimistic what that means for us in the future as well by the way the other piece and we don't disclose this but I can tell you that we're pleased with it is the average the average value of a contract on the bio pharma side, our average our average contract size before we acquired a bit.

This was less than $100000 and I can tell you that it's a it's growing nicely and again a sign of a not only a robust business, but also a healthy business as well.

Absolutely fair enough appreciate the disclosure I guess really just two other quick items for a first on the diagnostic side. You have you provided some helpful context for for growth trends in that business, but can you kind of break that down by paying for gen and thyroid or should we think about.

The rebounds, there is being sent more are there a divergence and sample volume pick up between those two product lines.

Let me tell you what we're seeing currently and and we're we're looking to evaluate it and if you break it out you know pancragen is mostly.

Presented through a hospital and basically the thyroid businesses, mostly presented through you know physicians offices et cetera. So those are two very different kind of commercial points are thought was our expectation was the pancragen would recover more.

Slowly than thyroid wood and that hasn't been the case, our packaging business as it is recovering really at a higher rate and our thyroid businesses, but they're both what they're both recovering pretty nicely and again I think that's a that's sort of that's a pretty good side in terms of where we are we get.

We get caught up and I think its oftentimes difficult to assess the difference between units and revenue.

Because revenue is tied to price and net realizable value and timing of that and you're familiar with.

Some of the adjustments we've had in the prior year that you know can get confusing when you're trying to compare you know how are we doing against a particular point in time.

But I think you can take a fair degree of confidence it pancragen is recovering at a higher rate and thyroid is also recovering and in fact as I think Fred said basically two thirds of our business continues to be thyroid and one third of our business a little more than one third.

As a is bankruptcy.

Got it and then just lastly from me.

We have previously you provide some context is how to think about a path towards cash flow breakeven benchmark for the company. Once again a lot has changed.

Since some of those comments were made particularly in and around the time of the acquisition of the pharma services any updated thoughts either too you know a general timeline to cash flow breakeven or.

The inputs. So do you think are most relevant for you'd have clarity on to than be able to provide on a more contacts that.

Yeah, I think about provide some comments on that but.

From an EBITDA point of view right, we are driving to get to EBITDA breakeven as soon as we possibly can we probably have lost a quarter as it relates as it relates to the Corona virus. The last time, we spoke.

We weren't sure <unk>, what the impact of it was going to be so as I said earlier, we've certainly gained a lot more confidence around that.

And you know we have some challenges in terms of you know rebuilding the business to a stable level and then growing beyond that but our expectation is that a you know Q4.

Yeah, we'll see most of the recovery I think does we see the volatility in the marketplace. We recognize this isn't going away though.

We're going to continue to have to work our way around it and both in terms of not just on the revenue side, but also on managing the cost side in may and actually managing the cost side might be equally as him as important.

So again optimism, but cautious optimism and that's why we're really in spite of the fact that were almost.

Halfway through the year, we're still being careful about what we actually project for the remainder of the year.

Makes sense, thanks for taking my questions Yep. Thanks, Kevin.

Our next question comes from Yi Chen with H.C. Wainwright. Please state your question.

Thank you for taking my questions. My first question is what you see that the koby 19 impact on the testing revenue and the pharma services.

Oh, hi, being similar and when you see recovery do you see.

Either because after he is recovering faster than the other.

Oh I'm sorry are you on that second half of your question, what covering Fastow cuts do you see you set that you'd have seen start to see recovery. So do you see that whether to testing scepter testing revenue sector or the pharma services revenue. So segment is a one one.

Then he is recovering faster than the other yeah. That's good question. Let me answer your first question on the on the cobot activity.

We really are just announcing you know the completion of all the validation work and.

Hardware work et cetera on the cobot 19, Surajit work. So we're not projecting are anticipating any significant revenue.

Remainder of the year, but we do have customers that have an interest.

In addition to that we recognize that once we do announce that up like other companies.

You know there seems to be up a pretty.

Important need for quality testing, which obviously a lab like ours.

You know would be providing.

On the on the second question in terms of the cycle, it's really a very interesting cycle because as we in as we were seeing you know around the beginning of the pandemic in March what we saw very quickly by the middle of March through the end of March and into April was the impact and articulate.

Stick business, we follow the units down in that period and I think we've discussed that you know we've had a drop in a units in excess of 50% on the pharma side because of the timing issues at the same time or diagnostic business was slowing up pretty dramatically our pharma.

Business was doing very well and so part of the benefit of having you know those two kind of different revenue cycles, but I'd say that currently.

We're pacing.

And in a very similar way in terms of the recovery of both diagnostic and and pharmaceutical.

Got it. Thank you second question is.

You mentioned that you have several large good times.

King.

Do you think potential revenue from the past could make up what have been lost from the diagnostic side and also according to the yet you sell logical tests, but probably my team is mostly is recommended to detect past infections, but not running you recommend it to detect.

Oh, that's kept infection, so molecular PCR tests and entity.

Given it to exhibit section so they didn't have any plan for those kind of yeah.

Yeah, we've been we've been working with a he potential partner.

On the peace upon the PCR testing opportunity to marry that with basically a you know what we're doing in the antibody or this rollups you've test and when we agree we think the combination is important obviously the surajit test is focused on the the creation of the antibody but.

You know we recognize ourselves as we're beginning to get back to work you know the more current or the more common approach.

It's going to be the the PCR the diagnostic test the molecular test. So yeah. We agree in terms of the revenue expectation too early to make that determination and Ah I think we want to just be cautious about that we have our hands full.

As we are rebuilding our business from you know the damage that was done to up to you know the Oh, the commercial activities and we're spending all of our time, making sure that that comes back in a a in a secure in a confident way and.

Good news is we are moving forward with astrology test, but I would say, it's certainly secondary and I don't think it's going to make up you for you know the up the the changes you know that we've had impacted by the the virus.

It may in the future, but not in the short term for sure.

Got it and my last question is would you. Please comment on the cover 90 impact on the Barragan study the timeline or potential commercial much.

Yes, I don't think that covert 19 has impacted anything we're doing with Barrington.

Except.

For basically a quarter, you know weve reduced resources to essential activities and as we're dealing with health care centers and garnering samples et cetera, you know everybody's focus has been on.

The other recovery of of the overall business and with healthcare institutions, obviously dealing with Covance 19 patients not necessarily worried about providing samples around barge and but the margin activities continue to move forward you know, we're expecting and no study results.

We think will be you know supportive of the beverage an assay and we're still very excited about the opportunity, but coven 19 has had a nominal effect on their engine.

Got it thank you.

Our next question comes from Ben Haynor with a line Global partners. Please state your question.

Hi, Brad.

If you just see.

Hello.

We are you're breaking up a little bit.

Does that start.

Hi, Thanks up keep Oh, sorry, sorry about that I'm just.

On the M&A opportunity front, a you don't have you seen anything is there any change in your strategy first off or given the impact from covidien slowing things down potentially or are there more opportunities out. There. They are you guys are looking at just because you know there might be some other.

Labs out there are other entities out there with Ah interesting assets that might be in dire Straits financially. The you guys can pick up on on attractive terms.

You know, it's interesting ban or in a in the March timeframe and maybe April timeframe, we were getting some inbound calls do do I think mostly uncertainty.

With some potential competitors are opportunities.

I'd say that slowed down and you know we've been so internally focused in terms of rebounding, our business and getting to EBITDA and cash flow breakeven.

That we really haven't been focused on external activities and by the way not being able to travel to do things face to face et cetera. I think has had an impact and by the way I think there was an expectation to there was going to be a lot of difficulty you know in the small cap market for company smaller than us.

Raising money and that hasn't happened either you know a company seem to be doing pretty well in terms of raising capital.

That's kind of an odd situation, but that's the sounds turned out.

And and then just ER.

Thank you know this might be on the left field, but.

You know just switched with a lot of these procedures out there, though that had been delayed and insurers, having you know quite a bit of money on the that as flowing in and premiums that hasn't been span.

Do you get a sense at all that the there might be so.

A willingness to entertain or reimbursement on some of the things that you guys might be doing that hadn't been.

Considered in the past.

Yes.

It's time to be such a quantitative process.

Meaning that you know it's it's study based it's prospective data based it's analytically based that it's hard to kinda leap frog that process.

And I'd say that the only thing I can say is that.

Being in the business longer you know being more stable having more data.

Certainly opens those doors and no with Jeff softening that we brought on just on a very good job of converting some of the agreements to contracts.

And so you know I don't know if it's if it's you know a function of you know sort of the cash position to these insurance companies, but I'm really pleased with the progress that he and Greg or making in that area.

Okay. So things are moving along on that Yep.

Good that's all I had gentlemen, thanks for taking the questions.

Thanks Ben.

Thank you.

With that being or last question.

I would like to thank you on behalf of inter pace Bio sciences for joining the call today. Thank you all parties may disconnect.