Q3 2020 Interpace Biosciences Inc Earnings Call

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Greetings and welcome to the inner Peace Biosciences third quarter financial and business results Conference call.

This time all participants are in a 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 the inner peace dot.

Dot com.

During this call the company will be making forward looking statements. We caution you that any statement that is not a statement of historical fact is a forward looking statement.

And this includes remarks about the company's 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 risks and uncertainties. The cause actual results to differ materially from those described and the forward looking statements the.

Risks and uncertainties associated with forward looking statements made in this call are described in the Safe Harbor statement in today's earnings release, as well as and a piece of all sizes public periodic filings, including the discussion and the risk factors section and our form 10-K filed with the SEC on April 22nd 'twenty and 'twenty as amended and the.

Forward looking statements section of our form 10-Q filed with the SEC effective January 20th.

And that's the investors or potential investors.

Carefully read and consider these risks and a piece of all science 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 or GAAP numbers, we have provided non-GAAP information.

We believe that this non-GAAP information provides meaningful supplemental information and may be and may be helpful and assessing the company's performance.

A table reconciling the GAAP information to non-GAAP information is included and the company's earnings release, which is available on its website.

I'd now like to turn the conference call over to President and CEO of the interface Biosciences Thomas for now.

Thank you Devin and thank you all for joining US. This afternoon for a review of interfaces financial results and business highlights.

With me on the call today is Fred Knechtel, our Chief Financial Officer, and Tom Free burden, our Chief Accounting Officer.

Fred and I will make some brief comments on our third quarter and year to date financial progress and provide a general business update.

Following that we will open the call for questions.

But before we get started I'd like to take the moment to wish Jack Stover, well and his retirement.

I'm excited about the opportunity to be leading a company that was so that Jack was so instrumental and creating.

Together with the continued support of our private equity investors and our common shareholders.

We will accelerate our goals.

As market conditions improve through 'twenty and 'twenty one.

I'd like to briefly introduce myself I can come to interface with 25 years of leadership experience, having led clinical diagnostics and pharma services Laboratory services and health care.

Biotechnology and nutrition services company.

Companies, having worked in multiple areas of the health care spectrum.

Coupled with the strength of the existing corporate resources.

And I'm confident that interface will continue to excel and it's a core strength of supporting patient care.

Physicians and novel drug developments.

It is our expectation to align the company with its lab operations and.

In order to create sustainable profitable revenue growth.

We.

Dissipate presenting 'twenty 'twenty, one goals and objectives when we meet again to review the 2020 full year results in March.

We're pleased with our third quarter per farmer performance as market conditions improved from the second quarter lows as a result of the Covid pandemic slowdown.

Net revenue was $8 $2 million up 52% relative to the second quarter and exceeded the top end of our range.

The critical services molecular testing volume.

Thyroid and your price increase.

And higher payer reimbursement rates were significant contributors to the third quarter improvements.

Which continued into the fourth quarter.

In addition, this month, we began realizing reimbursement on the Medicare Cryogenics price increase.

Which was effective as of December 13th data service.

However, our pharma services testing business and testing activity slowed in the third quarter and continued down and the fourth quarter.

Given these recent trends, we expect fourth quarter net revenue to be and the 9 million to $10 million range.

Now I would like to hand, the call off the fried to discuss in more detail our financial highlights for the quarter Brett. Thank you Tom and good afternoon, everyone.

Third quarter 2020, net revenue was $8 $2 million up 7% from the $7 7 million and the third quarter of 2019.

Our year to date net revenue was $22 8 billion of.

The 14% from the same period and 2019.

Which included the pharma services business starting in early Q3 of 2019.

Clinical services revenue represented 68% of total net revenue in the third quarter.

Third quarter net revenue was 52% higher than the second quarter increased revenue was driven by higher and molecular test volume.

And we recovered from the pandemic lowest and the second quarter.

Net of reimbursement rates and realization of our theory and their price increase.

The pharma services revenue decline through the third quarter and continued down in the fourth.

Third quarter 2020, gross profit was $3 $1 million and total gross margin was 37 per cent.

Compared to $2 9 million gross profit and 37% gross margin and the third quarter of 2019.

We are pleased to announce as of December 19, we have successfully transitioned the testing capabilities from a Rutherford New Jersey lab to our Morrisville North Carolina led.

The Rutherford lease terminates March 'twenty 'twenty one.

The North Carolina Lab offers and end to end solution, all under one roof, allowing for optimization and efficiency and supporting our pharma and CRO partners.

In addition.

We completed finance and accounting integration activities related to the acquisition and have focused on building business backlog.

Third quarter operating expense was $9 $1 million dollars.

$9 million lower than 10 million and the third quarter of 2019, but one $7 billion higher and $7 4 million and the second quarter of 2020.

As clinical services volume improved through the third quarter, we added back and play cost which were reduced in response to lower volume due to the pandemic.

And it costs included reinstatement of the 10% to 15% reduction and employee salaries.

And call back of Furloughed employees.

And the third quarter, there was 1.1 million of nonrecurring expense related to the billing investigation and form of lab transition.

Third quarter 2020, adjusted EBITDA loss of $2 $9 million.

Improvement and EBITDA is primarily driven by the higher clinical services revenue and lower operating expense, which was adjusted for nonrecurring expenses.

On February on January seven we successfully closed on a $5 million secured bridge loan with our existing equity investors Ampersand capital partners and 13, 15 capital partners, which further demonstrate their commitment as a strategic partner to the company.

And currently we terminated the SBB line of credit, which had no borrowing availability.

As of January 15th.

We had a cash balance of $6 $1 million net of restricted cash.

During the first nine months of 'twenty and 'twenty, we used $12 4 million and cash from operating activities as compared to $12 6 million per the comparable period of 2019.

On January 19th the company filed an amended form 10-K, and two amended form 10, Qs, which reflected restated financial statements and connection with an impairment charge and amortization expense is recorded primarily from our <unk>.

<unk> intangible asset.

Which impacted fiscal years 2014 through 2019.

Barraging is currently and the clinical evaluation program under which we continue to gather information from physicians.

Using it to assist us and collecting clinical.

Relative to the safety and performance of the test and also provide us with data that will potentially support future payer reimbursement.

The current net value auto.

On our books for the Barragan. After these recorded charges of approximately $1 million.

While we still believe barraging as a viable asset and we continue to support commercialization and reimbursement efforts. There's no guarantee that we will be successful and fully launched and the test and realizing revenues.

As a result of the impairment and amortization charges, our net loss year to date and stockholders' equity on September 30 of 2020 is negative $21 $8 million and we are currently not in compliance with nasdaq's $2.5 million minimum stockholder.

The equity listing requirement.

We are currently exploring options to improve our liquidity position and also meet the $2 5 million dollar minimum stockholders' listing requirement. However, there can be no assurance <unk> debt, we will successfully and remediated the deficiency.

Tom back to you for closing statements.

Thank you Brad.

Over the course of the past six weeks that I've been associated with the interface I have worked with the interface team and the board to gain a solid understanding of the details of this business.

My observations of the company as a quality driven.

Technology based commercial organization.

With a strong platform to support patient care as well as novel drug development.

The focus will be the continued to leverage the current foundation, while simultaneously aligning our resources with the needs of the company to support revenue and profitability growth.

It certainly was a challenging year and time for the company and it adjusted to the implications caused by the COVID-19 pandemic.

Our reimbursement of investigation as well as accounting issues.

If the remains a strong platform for growth and improve profitability.

We have strong support from our shareholders and investors to support our growth.

And I am currently working with the board to evaluate all of our options to capitalize the company.

Consistent with our growth strategy.

And I intend to keep you all updated on our progress as we finalize our options.

We're pleased with the improving business trends that we saw and the third quarter and are continuing to see and the fourth quarter.

As well as the progress, we are making and streamlining our pharma services business and.

And improving overall operational efficiency of our diagnostics business.

We will continue to be responsive to changing conditions, while proactively improving business processes and further integrating our service offerings.

So with that I'd like to turn it back over to the operator for Q&A.

Thank you Thomas at this time, we will be conducting a question and answer session. If you'd like to ask the question. Please press star one on your telephone keypad.

Mitch until indicate your line is and the question queue. You mean per start to if you would like to remove your question from the queue.

One moment, please as we poll for questions.

We do have a question from the line of the Chen with H C. Wainwright. Please proceed with your question.

Alright. Thank you for taking my question. My first question is what would be the main go all remain strategy for the company and towards 'twenty one.

Thank you for the question the focus and strategy for the company and 2021 is to put itself from the position to achieve cash flow breakeven.

Through a number of actions that would.

The allow us to grow our diagnostics business and grow our Biopharma services business, and North Carolina and align our resources along.

With those laboratories to allow that to happen.

And do you think.

Which of which segment has the biggest potential during this year is at the the diagnostic testing service or is it the biopharma services.

Hey, this is Fred how are you.

And definitely thank you. Okay. I think we have some really exciting things that are going on and the diagnostics business, We just announced.

And if you picked up on it the size of your next price increase and the <unk>.

And it's gonna be a nice contributor of particularly as volume start to improve through the year.

And it's quite a substantial increase for us it's going up to $2900. So now book Biogen and the extent fiber Amir are priced at 2900 so.

That's going to provide some really good upside opportunity.

As we continue to go through.

Packaging continues to be pretty strong for us and reimbursement.

And we're seeing improved reimbursement rates across the board really are and Medicare due to the price increase but also Medicare advantage and we're starting to see a lot of pull through on the Medicare advantage, we signed quite a few contracts, particularly in the blues. The this year that will continue to foster some good growth into 2000 and.

20, so 2021.

And so we see a lot of exciting opportunities and.

Not just on the front end, but also and making our lab much more efficient as Tom alluded to there's some nice projects around automation that will improve our gross margins going forward and with the higher volume, we should really be able to leverage that more efficient footprint quite nicely through the end of the year.

Okay.

In terms of the Biopharma services do you think that has the potential to.

Oh growth the testing service.

So the way.

And that's certainly not in the near term, we're seeing some rapid growth and diagnostics.

The pharma business is seeing still a little bit of and impact from Covid.

With participation and getting started with where we operate and.

And we continue to build the backlog and the backlog is with some bigger contracts and the longer term contracts that will provide some nice revenue for us as we go through the year and we'll see that business continue to grow through the end of next year, but still I think of little challenge. This year. So it really is.

It's probably not until later in the year and 2022 that we're really going to start seeing that form of business catch ups and diagnostics.

Got it so within the first half of 2021, what catalysts for sure and can we expect to occur.

Okay.

Cut catalyst as far as catalysts.

And currency.

For the company.

So I think for.

And for example.

The additional additional agreement with Payors.

Okay.

Yes.

Yes.

So yeah, and some of the cat and the main catalyst is watching how some of the regions start to recover from Covid and that's.

We're starting to see a little bit of slowness in the some of our important regions like Florida, California, and Midwest and more recently in New York.

They're less and less patients or more COVID-19 patients and the clinics and hospitals and some of the screenings are starting to slow down.

So as the vaccine comes in and I think we learned to operate a little bit more freely.

That's going to be a big catalyst is how we recover particularly in the first quarter.

And as we're starting to see signs of a slowness slowing down and then and the pharma business. The catalyst is going to be continue to build the backlog and some contracts with some of our bigger customers.

Particularly in the first quarter and focusing a lot more on that year on year revenue and maybe shorter term contracts quicker contracts.

Debt, we're able to leverage our state of the art facility and North Carolina, and now that it's all consolidated into one lab.

See you will start seeing some good margins that we're operating on a lower cost footprint and which lowers our breakeven point. So as we produce some of the more year on year revenue, we're going to see the margins and that business improve probably quite dramatically going into the second quarter.

Got it got it thank you.

And once again as a reminder, if you would like to ask the question. Please press star one on your telephone keypad. Once again, if you'd like to ask the question. Please press star one on your telephone keypad one moment. Please.

Okay.

Since there are no further questions at this time I would like to thank you on behalf of inner peace Biosciences for joining the call. Today you may now disconnect your lines and have a wonderful day.

Okay. Thank you everyone.

Yeah.

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