Q2 2021 Prophase Labs Inc Earnings Call
Good day and welcome to the Prophase Labs second quarter 2021 financial results and corporate update conference call. All participants will be in a listen only mode.
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I would now like to turn the conference every to Jules Abraham with core I R. Please go ahead.
Thank you Carl and good morning, everyone and welcome to the Prophase Labs second quarter 2021 financial results and corporate update conference call.
Before we begin today I'd like to remind everybody that the conference call will contain forward looking statements, including statements relating to the Companys plans expectations future performance and future events, including with respect to the company's new genome sequencing business, which missed.
We announced these statements are subject to risks and uncertainties that could.
Cause actual results to differ materially from those suggested by the forward looking statements.
Additional information concerning factors that could cause results.
Different.
And could cause results to differ materially from those forward looking statements are contained in the earnings release that was issued earlier today as well in the company's public filings with the SEC.
The company undertakes no obligation to publicly update or revise any forward looking statements whether as.
As a result of new information future events or otherwise except to the extent required by applicable law. Finally, the conference call is being webcast and the webcast link is available on the Investor Relations section of the Prophase Labs website.
At this time I'd like to turn the call over to Prophase Labs, Chief Executive Officer, Ted Carcass CAD.
The floor is yours.
Thanks, Joe welcome everybody. Thanks, so much for joining me taking the time out of your day to listen to me talk I Love to talk and then I guess, the one time <unk>.
Actually allowed to without feeling guilty about it.
I should actually to start by highlighting that we hired core I R. Recently is our IR firm that was Jones from Corp. I can tell you that this is a phenomenal firm that they did not ask you to say this but it just occurred to me I'm doing weekly calls with so.
So many people on the call and I'm really pleased and I think that they are actually going to help get the word out on our company to a lot more institutional investors, our investment banks and analysts and so forth. So I'm about to talk about some things that are transformational to our company but.
By coincidence or by design.
I hired core I R.
Support us in these efforts as we move forward.
We announced the other day, what I believe is going to be a transformational acquisition for the company that's nebula genomics.
I always try and keep our shareholders up on what our company is doing I announced I don't know when a couple of months ago that we had formed two new wholly owned subsidiaries Prophase Global health care to attempt to move into other companies with diagnostic testing Covid testing.
And vaccines, we have a partnership with Sputnik vaccine one of the.
Leading vaccines in the world and certainly outside of the United States, but so that's prophase global health care I'm not going to spend a lot of time on that unless or until we actually consummate a transaction.
I just want it all behind the scenes we are working.
On that Division I also announced that we.
We had formed prophase precision medicine I don't do these things by accident I told everyone that we were planning for acquisitions in that.
Division and now we have just announced our first acquisition Nebulae genomics.
Truly believe it's going to be transformational to our company and I'm going to get into that I do think that it's a I said review the second quarter numbers first and.
And then we'll get back to that but also just by way of background. I also announced an addition to prophage precision medicine in Prophase Global Health care that we're also planning on acquiring other laboratories to diversify outside of Covid testing to do all of the more predictable tasking that you'd see a CLIA labs, so I'm going to get into all that that's where the big picture.
Let's let's talk about the second quarter a little bit.
Going back to <unk>.
December we got into the Covid testing business very quickly within a matter of weeks, we were probably doing more COVID-19 testing in the 95% of labs in the country.
The reason I pointed out that way.
Is because I and our management team haven't have a history of executing on behalf of the company we're going in some.
New direct sales to the company now and I can give you my word I'm going to do everything I can to execute in our Madison and team is going to execute on these new direction, they're all synergistic to what we're doing now and I'll explain that to you shortly but so again going back to December.
We got into the Covid testing.
World very very quickly by January we had ramped up I mean, the third week in December when we started testing were doing about 1000 tests a day based on five days a week.
At December 31st I think we had 1500 tests that day and then in January we had 2000 tests and by mid January with 2500, well over 2500 by the end of the month I think we averaged about 2500 tests a day based on five days a week in January numbers were exploding. It looked like they were going to go through the roof, we built out a lot.
The Garden City state of the Art lab, all state of the art equipment.
Any of you wherever the New Yorker long Island area I welcome you to come visit our lab. It's incredibly impressive we had I don't I don't talk about inspections and things of that nature. We rushed we asked New York to come inspect our lab. We wanted done quickly the inspector was incredibly.
Breasts and surprise and the reason I say that is because now that I'm in this business I have visited a lot of other labs labs that we're looking to acquire and I just can't believe they tend to be smooth.
Small in nature, none of them are 25000 square feet, they're usually more like one to 4000 square feet. The they don't have state of the art equipment. So I can't tell you how proud I am up our lab and so we built this out with the idea that we literally could process 50000 tests per day, and we are obviously always very.
Bullish on the company very bullish that the revenue and earnings growth going forward.
We had one of our largest customers, whereas testing across the state of Texas at the time in February.
With the bad weather, while they're testing sites got shut down they kept telling us that they were gonna reopen and I kept expecting them too and then they then and then at the same time the incidence of Covid just kept dropping now interestingly at the time I told everybody that vaccinations historically with flu vaccinations.
That typically only 70% of the population at most get it in fact, they said, 50% to 70% and its typically 50% to 70% effective and so we've been about numbers with 70% of their own.
49% would be protected with Covid, maybe the numbers, we're gonna be a little bit higher but it was going to be the exact same kind of situation interestingly while everybody.
What that our vaccines were so effective we now find out I just read yesterday that the Pfizer vaccine is the only 49% effective.
Against the new Delta variant and in fact, we have people that are Walker's vaccinated for Pfizer and got that got that got COVID-19.
So I see it all all around us and so it's the case I don't we don't know exactly how effective the vaccines are but they're clearly now looking like there are a lot less effective than people thought just a couple of months ago and a part of it is the Covid comes in waves. The same way that flu comes in waves and we're just starting.
I don't know if we're just starting but we haven't even gotten to the cough cold flu season, yet and we now have.
Covid that is rampant so now let's focus on the second quarter, a little bit. So here. We are we built out that there's tremendous lab with its tremendous capacity well all of our customers back in March and April so that they're about to ramp up as a wrap up but.
It's a it's a COVID-19 was dropping faster.
The initiatives that we're working on so we built up these tremendous initiatives. We won some big Rfps. We won the township of Oyster Bay 300000 residents 12 labs competed for this RFP some of the largest labs in the country. We beat them all out because we have a state of the art at our lab, we have state of the art.
And I see is actually even more important I learned once a processing is the best what's actually more difficult as the IP. It's the collection of patient data the reporting of results. We have fantastic IP, we have fantastic customer service.
And truth be told when we win a customer what's interesting is we've we've had customers that do business with four or five labs and we have found that once they do business with us they leave the other labs in and give us all their business.
So I am really proud of our team in terms of what we built here, but I have no control over a macro level issues that affect our business and of course COVID-19 was dropping dramatically.
Dramatically and then we were extremely well positioned to do an enormous amount of business with problems graduations, and weddings and low and behold.
Just before these were about to take place and these were all you know primarily in the state of New York.
The governor changed the rules and said you don't have to test.
There are some interesting question on the timing of why you did that but the fact is COVID-19 Cassidy was dropping rules changed and so the second quarter was a real disappointment from a revenue.
Point of view, because I would've liked to have seen it expected to see even with the drop in Covid, we have the potential to do a lot more revenue, but just even that one regulatory rule change.
Dramatically changed by millions of dollars the amount of business that we would've gotten with a problem weddings and graduation in any event. We had all this overhead set up and even with that yes, we reported a loss, but if you take out the non.
<unk> charges actually would've been a profit.
Our cash levels, we paid out a $4.5 million dividend a special stock dividend when we paid that.
We pay that out of about I don't know I think it was like six weeks of cash flow I mean, the numbers with just a ridiculous for awhile. There. So I was happy to do that.
That was the $4.5 million approximate amount.
I'm out with what we paid and the dividend if you actually add that back our cash levels actually increased by would've increased by $4 million that our net working capital would've been I think around the same so for quarter that.
At I was told you know there's so many long term shareholders that are so bullish on our company that we provide a value for but one one person actually beat me I've said my quarters. The disaster the revenues are a disaster.
It gets a lot for a quarter that was a disaster.
We didn't lose any money on a non-GAAP basis, you know when you take out noncash charges I would love to actually say that as the press release, but then I'll get in trouble for that because you can't talk about non-GAAP I think I can do without the telephone call, but market Brighthouse CFO said no you can't put it into the press release, but when our disaster Quater.
We paid out a four and a half million dollar deal.
Dividends.
And yet our cost levels are.
Our fantastic our net working capital is fantastic and we actually didn't earn any money on a non-GAAP basis and those noncash charges that I should add a good chunk of those noncash charges are because stock options that we issued throughout the year last year, we had.
I'm, sorry, we had nothing in our Aesop, our employee stock option plan and so technically while we are awarded the options you can't book them until they're actually issue and they can't actually be issued until the shareholders.
Approved.
Expanding the employee stock option plan. So what happened is in the second quarter, while the absence of last year, all got expense well all the ones that you know the best it upfront all got expected in the second quarter.
So our big disaster was a noncash charge based on the timing of.
Increasing our employee stock option plan now, having said that I don't want to make light of this obviously, we are disappointed with our second quarter revenue.
They still did you know.
But they were up dramatically from a year ago also our second quarter historically in our manufacturing and dietary supplement business businesses are the weakest.
It's the weakest quarter of the year.
For dietary supplement business is actually growing nicely as I pointed out we got a widespread distribution of our dietary supplements, that's actually really important now not only for our dietary supplement business, but also for the businesses that we're going into because of the dietary supplement business is strong and growing and we have full distribution lawsuit.
Drug or mass tort means that anything else.
But we introduced to the marketplace that we want to put into the same retail stores. We're in an excellent position to do so right now all the major retailers are asking us what else do we have up our sleeve what else are we developing we have a reputation now for developing fantastic dietary supplements because we do actual clinical studies our product.
Have clinical claims on them, which other dietary supplements and so frankly that that's where our lead product has done quite well.
With very little advertising and so they're asking us what we have much say the retailers love their reading our press releases.
Head of sales, Joe Brennan who's been in the business for more decades, and I you know I want to let you know.
But he's giving them more press releases and they're very excited to hear.
What's coming.
So our second quarter I'm happy to answer questions about it at the end but.
If you now look for it.
We're in the exact same it's like Deja Vu all over again, it's like it's December all over again, and it's really kind of scary, because we announced that we did 8000 tests over 8000 tests.
The first week of August last week, which even surprises me because I didn't even know we're really ramping up yet.
<unk> significantly cut back on our overhead so it's the opposite situation from the second quarter, where we had tremendous overhead a tremendous number of people working here.
And very little business the business is drying up.
Our revenues are testing revenues were dropping almost every week the entire quarter and you know as I said I thought we were going to do an enormous amount of problems and weddings and graduation than that disappeared and then also in the quarters over it was like Wow, and even having said that though we still had a significant amount of revenues when there was no COVID-19.
You know there was very very little Covid out there.
So now we're in a situation, where we cut back our overhead significantly I'm proud of the fact that in our non.
Noncash spaces, you know, our if you take out the noncash charges.
We're really about breakeven I think we have about a 1.4 million block, we had about $1.7 million of noncash charges. So and that's what the dramatic amounts of overhead that was in place for a major ramp up in Covid. We had at one point 80, or 100 employees and in our lab.
Now, it's the opposite situation, we've cut our overhead back dramatically and now all of a sudden COVID-19 has ramped it up again as I mentioned, the Pfizer vaccine is less than desired.
Desired for the Delta Varian people are getting COVID-19 all over the place a couple of weeks ago I was telling people that positivity rates had gone up four times.
And the last four or five or six weeks, it's actually the positivity rate has gone up significantly more than four times the amount of Covid in this country has gone up dramatically.
And the amount of testing and inquiries is going through the roof and understand we have a.
Base of customers from last December January that are all coming back to us now that.
That 8000 tests, we did last week that's without.
Our largest customer hardly doing any testing at all on our second largest customer just.
Just starting to ramp up and we have a new customer there may be larger than either of our largest customers from last year that just ramping up. We also have the township of voice Your Bay in Dutchess County for 300000 residents. We won't notice I mentioned notes with huge rfps for us we're going to do an enormous amount of business with them I mean, it's it we should have exploded in.
Business and instead, we got virtually no business out of either one because it was as Covid had dropped off and just got testing stock well guess, what we still won those rfps, they're still there and there are all sorts of indications now coming each township of Oyster Bay in and that's kind of heats up 300000.
Resident and now all of a sudden they're coming back and there's just tremendous potential going forward I'm a little gun shy.
In terms of what I think our revenues and earnings can be for the rest of the year, but it could be explosive and the truth of the matter is I'm not even focused on it because I'm focused on what we're doing longer term.
I think I did a good job of covering on the second quarter I'm happy to talk more about it.
But to be honest with you our focus is on the future of our company I've said this on prior calls.
I am an investor for over 40 years I've invested in hundreds if not thousands of companies and there was one rule I live by its terminal value on a per share basis, which simply means what's a company worth today, what the company can be worth of three years or five years divided by the number of shares outstanding that value better be going up over time.
My long term shareholders, who have stuck with me there are our friends people have known for 510.15, 20 years that have been invested with me and various companies and Barry and invest in our company. They stuck with me even when our stock was 65 cents to a dollar back when we had to turn around the company I took a company that was potentially going bankrupt turnaround the cold these red cells or from $50 million.
They stuck with me bought more stock guess, what since that time, we've now paid a total of $1.80 and dividend.
Based on our stock that we turned around where it was 65 cents to a dollar and we have a stock that trades I don't know, where it's trading today six bucks or whatever it is long term shareholders. We have built value over the time and I'm going to continue to do that I'm the largest shareholder in the company.
In fact actually after that last dividend.
Some more shares were bought on my couch propane in.
And the bottom line is where they might go.
Potentially sell the company in a few years.
For a lot more than where it's trading now.
So if you are a long term perspective, the stock came down from $16 because COVID-19 incidents all but you know fell out of bed. There was no more COVID-19 everybody's always gone for good now it's the opposite situation. Our stock has come all the way down Covid is coming back and in the meantime over the past several months I said that we were going to diversify.
And that diversification strategy.
It was right before our very eyes. So just within Covid I would remind you. We're also offering antigen test and antibody tests. In addition to our PCR tests.
We are looking to acquire other labs that do all the other types of testing pathology blood talks to Europe and so forth.
We've been working on this for seven months I should say several months. The biggest issue frankly is the fact that we're a public company all of these companies are private.
Typically don't have audited financials, and it's really frustrating because if we do a bunch of acquisitions that don't have what are the financials. It would.
Negate our shelf registration with Nick it would tie our hands behind their back.
In the future and so we just have to get through what it is before we can do additional deals, but I will tell you that I've been working on these deals for months now so you kind of anticipate more to come.
Throughout the rest of this year.
So in terms of diversification of our lab I do not intend to just being a COVID-19 testing company longer term, although our revenues and earnings are likely to explode upwards over the last five months of the year.
But I expect to build.
A very strong lab business that a company like quest or Labcorp of bio reference and two years is going to want a bias for a lot more than what will work now that's sort of a longer term.
Methodical approach to building value for our shareholders. We are in the middle of executing our strategy. We've hired some great key executives, who have 20 and 30 years of experience in the lab business bounding building selling labs operating labs I have really some phenomenal people in our company at it took a while.
We'll define the best people and we have found them.
So were in place just on the laboratory the CLIA laboratory side for your traditional types of testing, we're going to continue to build the value of that company and Meanwhile, as I said, we have a stock that's down from 16 defects and Covid testing that that's taking off right before right. At 8000 tests is a lot of test and we don't even have.
Our largest customer from last year it hasn't even started testing out there or thereabouts to at the end of the month all the schools. We are so well positioned with schools. We thought we were testing like 75 to 80 schools last year.
That number could be huge this year and now it's not a matter of whether there is COVID-19 or it's tested it's a matter of whether the schools are even going to open.
How bad it gets at schools are opening we should do an enormous amount of school testing.
And then as I said you know there's so many other initiatives within Covid testing.
Sorry, if I'm spending too much time on it it is absolutely not what I focus most of my day on.
No.
Let's go to the future of the company in the Q&A. If you want to talk more about either second quarter or Covid testing.
I would be happy to.
We announced a transformational.
Acquisition, the other day Nebula, I don't think that the market understood. It.
I don't know, it's the old buyout room or sell a news I've said in prior conferences that we're gonna make genomics acquisition.
Let me be perfectly clear that first of all.
We acquired the business, we announced that a 14 plus million dollars. It came with almost $4 million of net assets or just a little less than that most of that.
Net assets as cash.
So the.
Net of cash we're talking about a $10 million acquisition, a portion of that with cash a portion of it was stock.
The revenue for this business could be huge.
I don't want to compare it to accessory dot com and 23 and me.
I was taught 40.30 years ago in the business relative to don't make any money, but I will tell you that these are exciting businesses that we're getting into and those relatives traded a lot more than you know their trade at a time times revenues or more.
Our internal estimates of nebula, when we acquired them.
It looks like they could be at a run rate. This is non-GAAP over the next year of $8 million to $10 million in revenues, that's based on $300 a whole genome sequencing and let me just go back a step on this George Church.
Is considered the founder of Nebula is also one.
One of the founders and the whole world of genomic research the more I I look into him. We're building an advisory board right now and I am interviewing superstars.
And the world of genomics and when I interview them. The first thing I'd say is George churches could be is the founding member of our advisory board and their responses well have no George Church.
And this is from superstars in the industry and.
Right now several of those superstars in the industry have indicated a sincere interest in getting involved in our company I'm not talking about figureheads.
George Church.
Wanted stock Prophase labs stock as at several leading venture capital firms. They wanted stock instead of cash.
And they took stock at $7 and change that they can't sell for six months and here our stock is trading.
At $6 roughly so if you think the stock is as a sale of six bucks youre betting against leading authorities.
Both in the investment world with venture capitalists, and one of the leading authorities and the world genomic truth who've taken six months restricted stock I don't think technically the term is restricted but they can't sell it for six months and they were actually assistance that they wanted stock George Church is going to help us build the company he's going to attract.
Listen all advisors to our board these are not going to be figureheads.
He has I don't know 80 or 100.
Students at Harvard He is a professor a lot of them are entrepreneurial in nature as our to the founders and executives nebula and.
So basically you have to think of it a lot of them are working I said I should say those 80 or 100 students working a large lab and harbor some of them are entrepreneurial they're incubating new genomics related companies I'm going to have our eye in prophase labs in prophage precision medicine is going.
Have a shot at some of these.
New upstart that have tremendous potential I always say that what Google did better than anybody else too.
Two really smart guys. It had a platform which is what we have now prophase had a platform of capital and stock and every time they saw a body technology with tremendous potential they went out and acquired it.
That is my goal and our goal at Prophase Labs Nebula.
It's just the first step so let's put let's talk about mobile.
A little bit, let's talk about genomics a little bit.
And let me see I haven't looked at my notes once yet.
Nabeel itself whole genome sequencing, unlike 23, and me and ancestry Dot com. The study only a very small part of the genome whole genome sequencing studies. Your entire genetic makeup so to speak and I'm. No scientist. This is in layman's terms that I'm happy maybe on a future call to put our experts.
Our executives of Nebula.
On another call at a later date, but in very simple terms whole genome sequencing provides you with 100 or a thousand times. It's much genetic information historically the reason why other companies didn't focus on whole genome sequencing or WGS is because it was so expensive.
The first whole genome sequencing called $3 billion.
Until even just a few years ago. It was tens of thousands of dollars.
Is it like $1000 right now in this country.
For the most part we've gotten a couple of quotes it's around $600 or $5.50 nebula through a very special relationship.
With a foreign company they.
They are able to have their whole genome sequencing process for $300. They offered to consumers at club. They have proven the model just online with virtually no advertising and they built a very nice business, where the run rate of business. We believe over the next 12 months I believe it's around $8 million to $10 million and that's.
Non-GAAP GAAP it would be a little bit lower than that because in GAAP. You don't recognize revenue until you provide the service and as you understand the business you're actually the customers pay you upfront, they're paying us $300, but and GAAP you actually can't book those revenues until you provide the service.
Which is when the customer sends in the specimen to be process. So because of that time delay and the customer may never sound. Good and they are I believe six months actually send it in until they actually said that and you can't recognize revenue now you'd say why would they sell at a cost.
Because that deal has also proven in the model.
That there are consumers out there that are actually interested in this information they're interested in following up there was actually a library of information that.
That'd be all it provides they provide updates every month based on your genetic makeup and so 50% of.
The people the consumers, who purchased nebulous product their subscribers and I'm not going to go into the details now, but some provide a onetime a lifetime right I'm not others.
Pay annually others pay monthly that subscriber business is what's generating all the profit so again on a non-GAAP basis there are profitable.
On a GAAP basis.
We'll figure it out I'll have to truck the moniker of a little bit more about that I'm not going to get into that but I don't want to count on a cash flow basis. This is a great business for us going forward. Furthermore, that's a $300 WGS with almost no advertising.
And with two entrepreneurs with very little capital there were funded by the minimal amount of capital from venture capitalists from George Church, but then after that time, they did not raise additional capital they didn't spend they spend on advertising and now all of a sudden they come into the fold the prophase, where we have a history with food drug and mass.
Retail stores with marketing, we developed a entire go to market strategy from scratch for Colby proved hugely successful for a brand that was close to bankruptcy that everybody. Many years ago told me it was worth five or $10 billion, even up until when we sold it I was told it was worth 20 million, we felt that the $50 million.
Total Divas, a homeopathic products that 2% to 4% of the country is even interested in buying a and it's and it's a seasonal product you always buy it in the MAU.
In the wintertime and only homeopathic buyers in general by it's a very very small.
Limited market could you imagine what we can do with whole genome sequencing, if we get the price down further and if we market.
Our whole genome sequencing product the way we market colby's. So we have this tremendous food drug and mass distribution, we have a proprietary way that we advertise on TV and radio that's a fraction of what anybody else advertisers, we're going to use that same advertising for nebulous products.
And just to understand whole genome sequencing what are you really learn well guess, what there's like 7000.
Rare.
Genetic mutations.
It sounds where because you say, they're rare genetic mutation, but the 7000 of them.
People have these genetic mutation.
It actually.
Actually that's something typed out here that don't want a retail about modular.
And I think it's easier to read it to me to explain issue.
So I'm going to read a few things here very quickly.
The main point is that high coverage WGS or a whole genome sequencing enabled discovery of rare genetic mutations wild DNA test like 23 in a bind only common mutations over the past years has become very clear that rare mutations sometimes unique to single individuals play a very important role in determining rates and disease risk.
They can also be used potentially to find new drug targets and they were like 7000 rare mutations neb.
<unk> genomics the codes the entire genome, which enables the identification of these rare genetic variant Barrington.
In some instances such rare genetic variants variants can provide insights into human biology, and help identify genes that may be targeted with drugs. For example studies have identified where mutations that disabled certain genes, which confers beneficial traits such as a greatly reduced risk of diseases for GAAP.
Our cardiovascular cardiovascular disease dementia et cetera, the researchers learn from from such discoveries of developing a drug.
Target and deactivate the gene can confirm similar protection from disease as the naturally occurring mutation that's whole genome sequencing of a large number of people officer a path forward.
Towards rational genetics, driven drug development.
Additionally, the Nebula report.
And this is what I was talking about they give you a monthly reporting. They also provide you with a library.
<unk> report provides web based tools for customers to search genes of interest along with annotated genetic variant.
Annotations provide links to additional information research studies that can help customers understand the meaning of their genetic information.
Nebulous, most popular popular reporting tools, so that'd be a library, which enables customers to browse different categories of trades.
Nutrition, and so forth and identify what the latest research is saying about the genetic variance with respect to the relevant categories.
The Nebula Library also provides whats called a polygenic risk score, which summarizes the customers relative genetic predisposition to the trade of interest based on all the relevant borrowed my point of all this is that there's no question.
That.
Genetic research is the future of medicine, we call our division Prophage precision medicine or personalized medicine, the point being if you study your genetic makeup.
And more and more research is developed.
<unk> genetics, and you correlate or tie in your genetic makeup with whether or not let's suppose you have breast cancer or lung cancer or in <unk> melanoma, let's use IV melanoma, that's an easy 150% of people that have I melanoma cancer, the <unk> die from it well guess what with research.
But I am looking into it turns out what or I should say hypothetically.
What if with more than 80% accuracy based on your genetic makeup. It would suggest to you whether you are a part of that 50% that's going to live or die taken a step further.
With various cancers and diseases.
Right now you have a.
Certain types of cancer that suggest you should go get chemotherapy, but a lot of times chemotherapy doesn't work and then the physician country for other drugs and treatments what is based on genetic testing and genetic research.
That we could find out that chemotherapy isn't.
The best plan of action that 80% of people with your genetic makeup chemotherapy isn't going to work through.
But this other drug with 80% accuracy accuracy is going to work through what it isn't that vitally important information now the reason why this is all new and cutting edge and wet wipes.
<unk> aren't really using it is because historically.
Whole genome sequencing was.
Incredibly expensive and so that's why I keep coming back to the 300 dollar price nebula.
A shoestring budget has proven that they can grow this business and that there's interest in it.
Let's suppose we get that number down because 23 main ancestry dot com or more like $200 or less that'd be all has actually done a bunch of research on the price elasticity of demand.
Which simply means that if you drop the price.
This is going to go up dramatically they couldnt drop the price because they couldn't get it at a lower price, but with prophase infrastructure and capital built.
Ability to build this up we believe that we're going to be able to get the price of whole genome sequencing down significantly from $300 I don't want to tell you how much but I think we're going to get it down significantly enough that the average person out there was going to say Oh, let me do a genetic makeup even if just for interest and it's more than simply who your ancestors well.
It's your genetic makeup about your help more and more people care about their health and learning about their health.
And this is going to become more popular in the coming years. This is why I say this is a transformational acquisition for the company. The beauty of it is not only we're leveraging our food drug and mass retail stores.
40000 stores, including Walmart Walgreens.
Cvs and so forth, there's no guarantee we're going to get in there but.
But the quote competitors they do have a retail product in their stores. So I believe that we're gonna blow that's a big food drug and mass storage, but the other part of this is our ultimate goal is wanted to do the whole genome sequencing in our lab.
So we leverage our lab and our abilities and that we're going to work on as well if we do that the two biggest issues.
With whole genome sequencing with.
Consumers and why there are complaints out there and by the way, we're going to clean up the complaints too.
We're professionals in this or complaints, but the two biggest complaints or the price.
I mean, that's really more of a hurdle than a complaint and the other one is turnaround times, because they're using a foreign companies and going for land and customs and all that that's why you know can take six weeks to get your results.
Which is fine if you're just getting the information for out of out of interest but on the other hand, if we're gonna get serious about this and physicians are going to use it you're going to have to turn that down dramatically.
I expect are allowed to be at the cutting edge of providing fast turnaround times and great pricing.
And that's coming and so you know eight to 10 million or a revenue within the next 12 months for Adobe or you can use that as an estimate as you want if we get the price under $200 I am talking to refiners don't quote me on this but you know they think that just getting the price down or the 200 Bucks.
Our triple those revenues and again the model isn't based on what you sell the whole genome sequencing for its the ongoing subscription.
Base of information with people that actually care about their health it want to learn more and they sign up and pay either monthly or annually.
That's at almost no cost to the company. So it's a tremendous earnings model longer term.
Of course this acquisition is.
Just the first of what I believe are going to be many our goal is to do both.
Sell direct to consumer, but then also think about the base of information that is being developed from all of the testing and at the same time, what we want to want to do is get more into the R&D side of working with physician and hospital and so imagine in the future if we have enel.
Their division of Prophage precision medicine, that's working more on the development side in conjunction with all of the data that we're developing at Nabila, that's the future of our company.
All I can tell you in 40 years.
At 40 years of experience at work has gotten to this point in time right now I want to build a multibillion dollar company I never knew how are we going to do it before the CLIA lab Covid testing business took us up a level, we raised a block of money strengthened our capital base, but now we have a real platform here and think of us as a private equity roll up but as a public company.
Alright, and think of what we can do with that think of the fact that we have world renowned experts joining our advisory board that are real that our shareholders that want to work with us and actually build our company.
This is the only step number one we're going to do a lot more and in the backdrop of that is we have a micro cap tremendous amount of assets a tremendous amount of value still have 40 in our worst quarter. Our dollars are casted or network net working capital didn't budge other than the $4.5 million dividend that we paid.
Now we have a backdrop.
Covid testing that looks like it's about to take off and we're extremely well positioned like last year. When we renew the business now we have a huge customer base that continues to build that are all coming back to us because of customer service is so good and our I T support is so good and so we're very well positioned.
Like Deja Vu all over again, so I'm, a little gun shy I don't want to come out with estimates I can only tell you 8000 tests last week, which is a big number of tests for most.
Small labs around the country.
The tip of the iceberg of what we have the potential based on all of these customers that arent, even starting up for another three or four weeks. So there's a lot more to come on the numbers side.
And let me just see if I missed anything before I open it up to Q&A.
Again, our noncash items items were just under $1.7 million for the quarter I think our loss was $1.4 million.
Our stock option costs was one point.
It looks like $1.5 million of that so I mean, there's all stock option costs, all because we didn't have any stock options that are in our ethos.
So that's a matter of numbers.
I turned my computer back on.
So that.
I can opening this up.
Through our Q&A, so bear with me.
We're just one second.
Okay.
And coal if you would like to open it up to the Q&A I would appreciate it.
Certainly and we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
You're using a speakerphone please pick up your handset before pressing the keys to.
To withdraw your question. Please press Star then two.
And at this time, we will pause momentarily to assemble the rush.
Okay.
Yeah.
Okay.
And our first question today will come from Patrick Patterson with Mr. <unk>. Please go ahead.
Okay. Thank you very much. Thank you very much great job, it's sharp signing and just to hear you talk about it.
I'm gonna be a billion dollar company before the end of the year.
I have two questions.
Your lips to God's ears, it might take me two years, but that's the goal.
[laughter] well I'll tell you this our Netherland genomics stylish Israel and Europe.
Getting there my first question is just there's enough known about genomic sequencing already been its been proven highly effective.
Houston Farmer genomics to determine what are the best medications the best choice for pension.
For example, all the mistakes that I made depress.
And people are giving the wrong antidepressant Madison and the same thing with asthma high blood pressure high cholesterol.
Conditions in insurance companies are saying, it's very expensive to Miss prescribed these things. So I guess, what I'm wondering is what is your insight what do you know about what the amount of insurance companies are going to just realize how important genomic sequencing here some insurance companies are going to adopt.
That is a standard just painful to have all of our customers.
Genomic sequencing, one will insurance companies start Penny sure Yeah, No. That's a great question Theres No question. It is inevitable, but you got to understand.
The price of whole genome sequencing just literally a few years ago was a fortune insurance companies didnt want to touch it.
<unk> research.
Moves in step with the quest to sequence.
And so this will all come together the beauty of Nebulae, though is that they dropped the price dramatically lower than anyone else offers whole genome sequencing for we're just going to keep dropping the price further and the beauty of that is for insurance companies to then come around is going to there's no question, it's going to happen.
But I think a part of it really was just how expensive it was and you know insurance companies.
They're all about risk reward and Theyre all about their tables, what is the test cost what is the benefit of it.
What is the benefit of the test.
And so you know years ago, you couldn't really define the benefits and the cost is so much they weren't even there werent having any of it now it's just the opposite with with every year. There is significantly more research I think that research is going to accelerate theres going to be more and more interest every year.
With regard to genetic research and also with regard to people being interested.
And their genetic makeup.
Gonna help get the word out so overtime.
Sure, but I can't tell you if that's one two or three years, but in the meantime, we are getting the price so low that.
Patients can't afford this first of all there they can afford it now on their own and it's going to be much more commonplace.
Over the next several years and certainly I would think over time insurance companies. It's inevitable that they will that there'll be a proving a lot more testing. So it's all going in that direction were just very very early stage, having said that.
This is George churches Dream, you know 10 years ago.
So 10 years 15 years ago right in fact, I remember the.
You know what it was at H D. S. I remember that was like 25 years ago.
We're investing in that company so.
This has been going on for decades, but were right sort of at a turning point right now where the prices come down dramatically. There is significantly more interest as more research being done. So this is all coming together, where we're right. We're right there as this business explodes, and we have the marketing cloud we have the distribution cloud and so we have the ability to take but.
<unk> has started which we took them three or four years to do.
I really believe we're going to blow the sub debt and again. This is not the only acquisition that I believe that we're going to make we're going to continue to make synergistic acquisitions, we're going to build out prophage precision medicine, and while our CLIA lab business.
We should be able to build 100 or $200 million of value.
The next year or two and I'm. Please don't quote me on this and I do want to focus on the forward looking statements that would be very careful and this is what I believe is going to happen I cannot guarantee it but in my heart I believe this.
I can see with our stock where it is right now.
Under 100 million market cap, we have almost 50 million in net working capital a state of the art Logins manufacturing facility, a dietary supplement visits to a state of the art CLIA lab.
One of the best in the country and you know just.
Just the value of our company without earnings.
Could almost be justified by the stock price and now we have COVID-19 business about to explode and we're getting into prophage precision medicine, and we have our.
Our diversification strategy into other types of lab testing, where we're going to build their lab. The reason I went through of attention is because.
I'm committed to acquiring a couple of other labs that fully diversify our lab business and building a business, we have the management and infrastructure in place now to do that and that's sort of a just a methodical business.
Interesting theres, so many mom and pop and I'm, sorry, I'm going off on the tangibles, it's really important theres. So many mom and pop labs out there that just don't have the capital or infrastructure to build and then you have the companies like Labcorp and quest that are just absolutely huge theyre not theyre not.
Going to start out new labs in new business and what they do is when you build up your lab. They then acquire it alright, and so you know you build up the business organically plus acquisitions. You know you do acquisitions around one times revenue you build organically no times revenues. Once you have the license has been charged you build that up and then you felt the Labcorp quest dependent.
Got a big enough they'll pay two or 2.2 times.
It's a really nice business strategy.
A huge arbitrage or GAAP.
Out there between building a lab and then selling the lab and what you can buy a small lab for which as you know it.
It's the reverse of what you would think of small labs small labs golf with somewhere between eight and one times revenue the really large labs go for two or 2.2 times revenue.
It's really interesting as I as I get into that world and so our goal is to build and acquire labs and then sell them for one five or two times revenue tomorrow. So that the business why we're doing that we're going to leverage all of that testing and what's going to get us to the $1 billion. Mark is that has the skill that synergistic leverages everything else, we have in that nebula Gino.
It makes it all the other genomics companies will be planning requirements.
The cost that we're going to SEC I hope that answered all your questions Pat.
Oh.
A second one if you will but yeah. It is.
Could you just give a little overview, how do you see using the 40000 retail outlets you have there's all along we don't have dealer genomics.
Sure. So just really quickly and then we'll move on we have a lot of questions here, they're very simply that'd be alone.
There are new to marketing and they're not they haven't done a lot of advertising, they're only selling online Oh, we have.
Distribution, we have a 25 year history of selling products into.
Food drug and mass retail stores, we have a phenomenal relationship we have some people that have been in the business for 30 years or actually longer.
And so to have an exciting product like nebulous at just the right time to introduce it and if we can get the price down which I believe I'm confident we're going to be able to get the price down significantly from $300.
The next step is getting into food drug and mass retail stores television and radio advertising and make it more commonplace that'd be a little already proved the model.
They're already building the revenue as your revenues grow you know there is a growing number every year, there's more and more people interested the library is going growing their subscriber base is growing the number of people that are interacting with them is growing their database is growing we're going to accelerate that growth with oh, we're going to leverage it with the food drug and mass stores, we're going to lever.
It was the fact that we have the capital to do the advertising that's necessary.
This is just like a little drop.
What they've done so far compared to what I believe we could do with this business over the next one to three years.
Thank you Pat I'm, sorry, we should really move on because there's so many other questions. Yes. Thank you, but I really appreciate your continued support alright. Thank you next question.
And our next question will come from Fred Mcdonald, a private investor. Please go ahead.
Hey, Ted great job.
Hum.
It's kind of mixed sort of apples and oranges here, but there are two companies that are publicly traded 23, and me and us and doing DNA ancestry works.
At 23, and me they've got $3 billion with a market cap 400 being in Chile.
It was $4 a share and then there's us showing at liquidation value can you comment on that.
Well Mike.
Only thing I can cut it we hear it look here's what I'm going to talk in a nutshell alright.
Throughout the time I've been the CEO.
My number one focus build the value of the company and the stock price will take care of itself. We have plenty of capital right now I don't have to worry about the stock price right now.
Logically to be honest with you the only reason I'd cared about the stock prices here as we did a capital raise at 12.50.
And for the long term shareholders, who kept the stock I feel badly. However, what I can do is continue to build the value of the company. So the 12.50, a year from now actually looks like a great investment.
Yeah.
For the people, who traded the stocks I could care less I I I mean, this sincerely I don't care about the traders and a good percentage of the people that bought the stock back in January slipped it when COVID-19, it's pretty obvious our stock went from 16 to under five which is ridiculous and it was all just because every week the incidence of Covid dropped and so.
Every week Taco salt, but guess, what if COVID-19 goes away entirely we still have a strong base of business a strong base of assets and now we're growing nebula has nothing to do with Covid. All the other types of CLIA lab testing that we're getting into had nothing to do with Covid granted we're not there yet but I also understand I've spent a lot.
Six months.
Working on a diversification strategy for our lab business.
So you can bet.
That youre going to see our initiatives developed.
And announced.
In the not too distant future, let's just say over the course of the rest of this year, we're gonna be a full diversified lab business. We have a dietary supplement business is growing that would be where I think we're gonna grow dramatically. So beyond that if people want to sell the stock now because.
There was no COVID-19 around or if they want to look backwards and say, okay. Your second quarter, you didn't earn any money.
They didn't listen to this conference call and they don't understand that.
The losses are actually not because it was noncash stock option and that's at our worst quarter and now all of a sudden our COVID-19 business is ramping up in a big way in a nebulous who's going to wrap up so you can either look backwards and look forwards.
So I don't know if that answers your question.
You know if you're a long term investor and you have capital you know Andy.
By morning here, I think you're going to be very happy overtime, if no trade or I don't know what to tell you I wouldn't even want to give advice to trade or anything and I know you're a long term ive got you. So thank you for your support.
I've got my talk cash dividend, so I'm looking for more down the line. Thank you very much.
Have a great day next question please call.
And our next question will come from Dennis Waldman private Investor. Please go ahead.
Hi, Ted despite the market reaction I'm very excited and bullish on the acquisition of Nebula.
This is going to allow our prophage to partake in the exploding market of genetic medicine.
So I'm a subscriber of ancestry dot Com 23, and me and family tree DNA, each you're probably wondering why three but they each have their own advantage and twenty-three me. It's also are providing health information, which I also subscribe to.
So when I heard about the Nebula acquisition I quickly went to the site and they allow you to download from twenty-three me. Your DNA tests that were done through there and for doing this I was able to look at what they offer a free analysis of your health, which I think is a subset of what you have you would have to pay for and you know what I see and I've looked at competitors.
And there's nobody that is offering what nebula does for the consumer I mean, there's not even close.
Close compared to 23 me, which is very minimalistic when it comes to the health profiles, what what nebulous offering is the rolls Royce.
23.
Okay. Go ahead. There is a question of time so it gets to the question that I'm I'll I'll answer it and the question is is there an opportunity for nebula to be working with companies like twenty-three me to provide a better service.
Yeah, well look at.
Well I don't know 23 may want to acquire.
Six months of Europe, I mean, when you look at their market cap they'd be crazy not to follow.
The analogy of the Google story that I said earlier in this call they'd be crazy not to use that market cap and valuation to acquire cutting edge.
Buddy in genomics companies like ours, I don't know that we're going to be for sale, though.
But to work with them with inter actually it was really interesting is people who purchase those services are coming over to.
The nebula, because they want more information and the biggest difference in my mind between 23 and me and a.
That'd be a lot is that historically whole genome sequencing cost multiples of what twenty-three me cost that's number one and number two historically you know 23 main ancestry dot com did a good job advertising.
But now it's the reverse whole genome sequencing through nebulizer, we're going to drop that price. Our goal is to drop it significantly from here and we're going to bump up the advertising and yeah.
This may be naive, but I think we can I won't say beat them at their own game, but I'll tell you what the CLIA lab business and everyone said, how can you compete with quest and Labcorp. It turns out they couldn't compete with us because they didn't have.
Well the infrastructure in the state of the state.
The state of our equipment that we had because we just bought it were no. They didn't have our turnaround times there were providing.
For seven days to get your Covid results at the peak, we were doing at 20 <unk>. It.
Same thing now with nebulous, we're coming out with what I believe is a significantly better product, so hurdle where price and then the other one is turnaround times I don't want to get our turnaround times down dramatically I would improve our customer service all of those things that are companies that historically, so we're gonna take neck nebulous to the next level and we'll see but again, we don't need to compete with 23.
Me and accessories that come all they did it they prove that there's a monster market caps up out there and monster business out there that would be able to prove that whole genome sequencing as a business model that works. They prove that that consumers are interested in it we're now going to take what what they built and they started and were going to do it with our public.
Company infrastructure capital, we're going to blow it up and take it to the next level.
And I see I had one more question Dennis if you don't mind I really appreciate your support your question in a call if we could get the last question. Please.
Sure certainly and our next question will come from George <unk> with private Investor. Please go ahead, yes. Thanks.
So very much hey, Pat it's George how are you.
Good thank you.
Over time, so I apologize and there was another question I don't like to Miss questions. Because I don't have to if we could make it quick I would appreciate it I'll make it very quick.
Are there any plans.
To strike a deal with.
The city or California for that matter, where they have a mass a vaccine mandates are weekly testing.
Okay.
Yeah, Yeah, yeah, Yeah, that's looked at that but so you've got to understand what's going on in California, that's going on around the country. There is so much COVID-19 testing that and it caught everybody by surprise because we just went through a couple of months, where there was no COVID-19 everybody thought that they would say because of the vaccine.
And I.
No matter, what I said only 50% of the company of the country got vaccinated. So how is it that the country is protected and I was saying at the beginning of the year, There's no way in Hell, 90% of the country is getting back there was a joke.
Only 50% of vaccinated and it turns out the 50% that are vaccinated, we find out now that pfizer against the delta various less than 50% effective.
What's the real protection of vaccinations, what's really going on is we have and it's at a time when nobody's wearing masks anymore.
We're in the midst of a new wave of Covid with a new variant there are other various there are more and more variants to keep common anybody thinks that COVID-19 going away and I'm, sorry, I don't mean to be pessimistic about it COVID-19 is not going away anytime soon so its ramping up our customer base is ramping up whether we specifically do something in California or not the point is there are schools all.
The country, if they want to open up they're going to want to do testing were getting inquiries all over the place I don't know where this all goes gun shy because of what happened in January we had this huge boom and then every week and every month our testing dropped right now it's the opposite is happening I can only tell you that there are enormous.
Numbers of inquiries and interest and people, who want to test with us new customers.
I was just starting to happen to be honest with you. The 8000 tests in the first week actually caught us by surprise I had no idea was that much I don't walk into the lab every day I was like Wow, our business really ramp it up and so right now so that everybody knows we're hiring in every department.
In our lab, that's how that's how well we are doing and that's that's what we anticipate so I was always told you what I see where the company is doing well or poorly go see if their advertising.
Advertising every department.
In our lab right now because our business has taken a while I hope that answers. Your question, let's just call I believe we have one more question I'll call. If you don't mind. Thank you George I appreciate it.
And our next question will come from John <unk> with a farmer John Please go ahead.
And.
Congratulations on being the overnight success on Broadway after spending 10 years upfront.
[laughter] try 20 [laughter]. Thank you. Thank you John.
Is there a question in there I appreciate the comp line and your support.
Here's the question Peter Lynch.
I always think of as you know a lot of reasons.
The sandal stock, but there's only one wondering inside or buy stock.
We think the price is going to rise.
And I understand you have for your last few years, you've been taking a discount on your salary undertaken in options.
Very impressed at all of the directors Nobody has been felt now you know I read there.
So unfortunately that nobody's selling any truck and then when I was very surprised that you bought stock in June it vital kidney.
Good morning.
What happens and what happens when the options.
Oh. Thank you so much. So so first of all this is interesting I actually got into it but I don't know if I'm supposed to talk about the tonight, but all of the directors.
One stock or stock options instead of cash compensation. The problem is the we have the employee stock option pool, that's where employees we have a separate one for the directors and that was running low and to be honest with you.
It's I have to figure out what's best for the company at all times, because the drug yourself what stock options now alright, that's how bullish they are alright and.
So they actually towards the three took all stock options for the next year once oak half cash half stock options honestly that was more because he is our newest director.
And the pool stock options is running low and I don't want to keep going back to the shareholders.
To re up so I'm trying to be very careful again I care about terminal value on a per share basis, if we issued too many stock options.
That's all.
Ultimately that that would dilute shareholders at least dilute their uptime, okay and just to be clear most of these stock options that have been issued in the past year are at higher prices than current stock prices Oh, even.
Even though we get Bang with these.
These noncash charges every quarter, it's actually for stock options that are out of the money and that also drives me a little crazy, but yes, obviously based on the actions I and the directors are all very bullish on the future of the company.
It was kind of a softball question, but I do appreciate it and I think called that's it for questions that was a good question and yes, our management team.
Obviously, our directors, who are all very bullish as I did buy stock it actually was off the dividend.
And I decided to keep that stock I decided whether to keep it or not I kept the stock and.
Look I'm really excited what I'm doing with Nabila. All I can tell you is this a transformational acquisition for the company that people don't understand it now they'll understand it's three months six months 12 months and then they'll look back and you'll say Oh My God. This company went through the new direction, what's interesting about the new direction is not entirely new it's leveraging our company its leverage that are clear.
Lab.
It's leveraging our food drug and mass distribution, which is almost by pure coincidence really scary.
So look I'm excited for the future I'm, sorry, I don't know my supposed to be sorry that the incidence of Covid dropped in the second quarter. We did less testing I don't know I'm, sorry, we didn't have more revenues and earnings even though our revenues were up huge year over year. Our business is growing every month every quarter every year, we're growing the value of our company every quarter. So.
Do you want me to be apologetic for the second quarter.
Apologetic, but all I can tell you that I'm building the company, we're very well positioned for Covid, we're very well positioned.
To leverage our CLIA business with additional acquisitions, and we're very well leverage I mean, we're very well situated now going into the field of genomics, which is going to leverage all the assets. We have at synergistic everything we're doing and I'm excited for the future and I. Thank you all for spending the time, we were a little bit over an hour I hope that it was useful for everybody.
And color you can end the call now.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.
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