Q3 2021 Prophase Labs Inc Earnings Call
Pardon me, ladies and gentlemen, the prophase labs call will begin shortly so please continue to hold again, the prophase labs call will begin shortly so please continue to hold.
[music].
Welcome to the Prophase labs third quarter 2021 financial results and corporate update conference call.
All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone.
To withdraw your question. Please press Star then two.
Please note this event is being recorded.
I would now like to turn the conference over to Jules Abraham with core IR. Please go ahead.
Thank you Eileen and good morning, everyone. During this call management will be making forward looking statements, including statements that address prophage its expectations for future performance or operational results. These.
These include statements regarding the company's expectations with respect to Q4, COVID-19 testing revenues its goal to build a sizable customer base of independent pharmacies that will provide consistent and growing testing revenues, where it's diagnostics business plans.
Players can provide genomics testing with faster turnaround times, and lower price point and ongoing efforts to evaluate and pursue additional strategic and synergistic acquisitions to build the company's precision medicine and genomics research capabilities forward looking statements involve risks and other factors that may cause actual results to differ materially from those statements for more.
Information about these risks please refer to the risk factors described in trophy <unk>. Most recently filed annual report on Form 10-K, and quarterly report on Form 10-Q.
The 8-K filed with the SEC today and posted Prophase Labs press release that accompanies this call, particularly the cautionary statements in it.
The content of this call contains time sensitive information that is accurate only as of today November 12 2021.
Except as required by law Prophase labs disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur. After this call.
It sounds my pleasure to introduce Ted carcass, chairman and CEO appropriate labs okay.
Thank you Joe and thank you Eiley and thank you all for joining me today.
I am in a particularly good mood.
We've gone through a year and I'm just I'm just thinking about this now spontaneously back when I first blocks of proxy contest 12 years ago. It was a year of Hell.
Turning around the company restructuring fiery versus everybody and now this past year I could probably say the same thing getting into a new business.
I can't tell you what's involved in starting a new business from scratch and I happen to think that we're situated in a really good place right now and I'll get more into that.
Let me start by.
It can be a quick background on me I'll make it really great for those of you that I've heard this before on the largest listed shareholder in the company.
I have a history of executing on behalf of our shareholders had been investing in small cap development stage copies for 40 years.
I turned around several companies one of which was quite significant a company that was ultimately sold for $1 $4 billion. When I took over our company with the proxy contest a little more than a decade ago, where stock bottomed at 60.
65 cents I turn I turn and we turned that our management team turned the company around ultimately selling the cold these bread for $50 million.
Our stock now trades between five and $6 a share we paid $1 80 and special stock dividend. Since then we sold the cold These remedy Brad from $50 million. So in my mind, you know for those that have been long term shareholders. They have been very very well rewarded.
But I think that the best is yet to come and to be honest with you I'm just getting started that's the history more recently, we pivoted into Covid testing within a short period of time, we built a substantial business with the state of the art lab in Garden City in New York.
We more recently have significantly diversified our customer base our.
We're growing revenues.
Q4, with a more stabilized customer base.
Our next step is going to be to diversify further with the nebula genomics.
<unk>, which leverages our lab testing facilities.
And our infrastructure selling into 40000 food drug and mass retail stores and that are ultimately our goal is going to be diversify our genomics platform into consistent personalized medicine, which is the future of health care I won't get into all of this that's just the quick overview I'm not going to read the numbers you will have the ability to read the press release.
And the numbers for yourselves and if you have questions at the end about the numbers I'll do the best my best to answer them.
I just want to point out a couple of things. We now are reporting adjusted EBITDA to give you a better sense of what the real earnings are we.
We have stock options in the company and ultimately they're always restructurings the management changes going on there are consultants that I hired a year ago that I no longer work with and options that we gave to them ended up.
We ended up actually canceling them and it's really interesting you issue stock options.
Have an expense every quarter for them when you cancel them you don't reverse that expense. So we actually have these nonexistent expenses I don't want the OCC to get upset with me. They were I guess theoretical expenses at the time that we issued the stock options, but then to cancel the stock option you don't get to reverse that expense. So I thought it was important to start reporting adjusted EBITDA.
Which is which I believe gives you and everyone a better feel for what the numbers actually look like and then the other perspective I want to get to you. We're a small cap growing company.
We're looking to grow into a much larger company or Mark I don't know what our market cap is it's under 100 million dollar you know my goal.
It's ultimately have a market cap of 1 billion or $2 billion in.
In order to do that we are constantly looking at new opportunities. The same way that we pivoted into the Clio lab test the last year and we've acquired Nebula understand this nebula was the culmination of a year's worth of work of reviewing at least 60 different acquisitions that might have even been 100 different acquisition.
At least 20 of them, we did very serious due diligence on this includes investment bankers. It includes attorneys legal fees due diligence consulting accountants you name it there's a significant amount of expense.
In reviewing acquisitions and doing the due diligence and figure it out.
What's real and what has real potential versus what is just the story and that culminated in the acquisition of <unk>, which I'm. So excited about it not only.
Brings tremendous value.
So the company that brings tremendous upside, but it also.
Significantly leverages the infrastructure that we already have in place I'll get more into that in a little while.
But my point being is all of this work is expensive.
And I liken it to when we turned around the cold. These Brad we used to lose I dunno. We'd go back look at our numbers, we used to probably lose a million or $2 million of you're building. The cold. These brand. This is a brand that was potentially going out of business when I inherited it and ultimately we sold that for $50 million, so, losing a million or $2 million year to rebuild the.
Business Best investment I ever made similarly, the investment that we're making and lawyers and investment bankers.
And accountants and consultants and reviewing acquisitions.
It's in my mind. This is an investment towards building the value of the company longer term and as I mentioned at the outset.
I and we have a history of providing.
<unk> value to our shareholders and it's been pretty significant what we've been able to accomplish and we're going to continue along that that route in the coming years, and therefore to look on a quarter to quarter basis and see a loss.
The loss in the third quarter.
Well its primarily due to you know these lawyers and accountants fees and investment banking fees.
And also by way of example, when we acquired Nebula, there was significant investment banking fees legal fees associated with that that's all expense is not capitalized so that hits our bottom line in the third quarter. So when you kind of pull all that well.
What's interesting is even without accounting for all that we were actually profitable for the year on an adjusted EBITDA basis.
You count for these extra expenses, which in my mind or investments.
You can see our numbers are a lot better than what it might look like at first glance. So I just wanted to review got to put that in a little bit of perspective.
Getting into the specific subsidiaries I'll start with the smallest ones first.
First of all our contract manufacturing.
If someone actually asked me already this morning, why was there a dip this year and so just to explain that last year was an aberration and we had a spike in contract manufacturing sales because of Covid as you recall.
Back when Covid first hit everybody rushed out by toilet paper paper towels and guess, what they bought lozenges and they bought a lot of them and our contract manufacturing primarily manufacturers lozenges for about eight company.
And so there was enormous demand out of the blue just an enormous sorry, we could not I mean, we were running our manufacturing lines are round. The clock. So we sold a ton. It was an aberration. It was a spike but then in addition to that we built up an enormous inventory of or I should say, our customers built up and ignore.
Inventory of lots of us going into this year.
When this year hit we didn't have that aberrational demand that spike in demand that we had last year at the same time, we had all this inventory to boardwalk. So while we had an abnormally unusually high spike in sales last year, we had an abnormally low amounts of sales relatively speaking are contract Matt.
Factoring this year going into next year inventory levels were more normalized we're going to get back to growth.
It's not a fast growing business, but we are potentially adding more customers. We're certainly going to have a bounce back in sales and contract manufacturer and when I say certainly that you know keep in mind forward looking statements, but my expectation. So there's no reason why we're not going to have a nice bounce back in <unk>.
<unk> manufacturing sales next year, and that's without even adding any new customers. So we're going to have a bounce back in sales from contract manufacturing.
If we add new customers, which I I hope and expect to then will grow even more so where contract manufacturer who is going to be just fine going into next year with.
With our dietary supplement business, that's a small business, but that's a little bit more visible to understand the revenues in growth just by the distribution. If you have more distribution of classical youre going to have more sales as I mentioned, our dietary supplement businesses.
It started off in Rite aid, so well we got into the Walgreens is beginning of the year, we got into Walmart CBS and all of the major food drug and mass retail stores and so it's only natural just from distribution.
But our product our dietary supplement business is going to grow.
Be it from a small base.
But that business is doing very well, we find that our lead product because we do actual clinical studies that when we put it on the shelves. We can make claims that actually go on the on the package clinically shown.
That is critically important to consumers they loved by dietary supplements that have clinically shown on it so our products honestly tend to sell themselves when they're on the shelf even without advertising. So that business is doing just fine. What's also nice about our dietary supplement business, even though it's doing let's say a few million dollars business. This year, it solidifies and it keeps our <unk>.
Infrastructure and our relationships with all of our.
Major food drug and mass retailers strong it keeps our relationship with her with our major national broker, who is the number one national broker to food drug and mass retail stores keeps our relationship with them strong and everybody's asking us what's next.
In terms of other products because of dietary supplements are doing so well and.
They can see the retailers see that we're not diversifying and we're in the in the CLIA lab business, who are doing COVID-19 testing diagnostic testing they want to know what else are we getting into and they were interested in their next products and I'm going to get into that but the point of all this is that our infrastructure has never been stronger.
So that covers a contract manufacturing at our dietary supplements.
Moving onto our CLIA labs.
We should have more consistency and testing going forward.
While in the past we did a ton of school testing last you know a cough cold flu season.
We started business in December January was the biggest months at the time that we ever had that was a huge percentage of that was in schools. We are no longer relying on schools and no longer rely on mandates as we once were.
We now have a significant amount of our CLIA lab diagnostic testing business, which comes from independent pharmacies and Concierge services. These are places where people can just walk up and get a test for whatever reason without having to go to a doctor's office. It is incredibly convenient people are always going to need to be COVID-19 tested for a variety reasons no.
Different than people going to get a flu test, but obviously COVID-19 is more dangerous than flow. So people are going to be more motivated to get a COVID-19 test.
I can't tell you what testing levels are going to look like next year, but what I can tell you is our customer base is significantly more diverse than it was in January and January that's what our sales peaked and I thought that they were going to continue to grow and then we had a tremendous drop off in February and even bigger drop off in March and I kept thinking it was gonna bounce back in the summer.
We had mandates had said you didn't have to wear masks and you'd have to get tested. So all the testing we thought we're going to have a graduation schools a problem well stated disappeared. So we had a situation over the summer.
Where we had an enormous amount of employees and all of a sudden very little testing and I would simply point out that in that environment, where we had very little testing and significant number of employees at significant overhead our numbers really weren't that bad when you take into context, the adjusted EBITDA and the expenses.
For acquisitions.
And so that's our worst possible quarter. So we just got the brewer worst possible quarter and yet for the year, we're still positive on an adjusted EBITDA basis, and we're going into a fourth quarter that honestly is exciting.
The month of October we announced in the press release, we did more business than the entire third quarter, but also strikingly an amazing neglected to put this in the press release, we did more business in the month of October than we did in the month of January the biggest month in the history of the company.
So we just had the biggest month in the history of the company.
And what I'm, particularly enthusiastic about is that there's no slowdown in sight.
And I would also say that back in January it was based on a panic when positivity rates were unusually high and everyone was in a panic to get tested it's a very different environment now things have settled out positivity rates did spike a few months ago, but they they settled out and even though they've settled down our business has never been stronger than it is right now.
And so I'm.
I'm a little gun shy after what happened in January but all I can tell you is we have a very well diversified customer base, we're not rely just on schools.
You know one two Big awards and two Big counties, and we have all these concierge services and independent pharmacies, and a number of independent pharmacies and growing and I really think that that's the wave of the future at least the part of it is going to be people instead of going to the doctor's office to get tested you walk down the block to your local pharmacy or are you.
Walked down the block to a concierge service or a big pop up 10.
You've got tested our results we are one of the most efficient labs in the country. We consistently turnaround results in less than 24 hours I'm really proud of that fact, our customer services as good as or better than virtually any lab in the industry.
And quite frankly, the big labs can't compete with us because they just can't provide and turnaround results and with the reliability that we do.
So.
I feel really good about our obviously about our testing.
Testing service you can expect I, certainly expect that we're going to have a strong fourth quarter and.
And so.
Looking forward the next steps.
Oh, let me just I'm going to go through some notes I don't want to mix too much here, let's go onto W.
So nebula cells whole genome sequencing direct to consumers the beauty of this business.
First of all it's a fantastic business because over time people are going to be more and more interested in their health traditionally they are interested in companies like accessory dot com and twice where it may.
We're ancestry information, where you might have come from a country you might have come from generations ago, who your SST was it might have been that was kind of interesting you can actually get that information from studying a very small percentage of your genome.
The future of Medicine, However, isn't studying your whole genetic makeup and understanding how your genetic makeup leads you to be predisposed to various diseases and illnesses over time people are going to be more interested in your genetic makeup not just for <unk>, but also for your help and it doesn't mean one has to compete.
With the other whole genome sequencing when that would be what does does provide.
Some basic information.
About your ancestry.
It can't compete right now with ancestry or 23 and me just in terms of their database of people that they tested where they can then link it in.
To figure out your ancestry and give you a little bit more detail on the other handheld genome sequencing can provide as much as 1000 to 5000 times as much genetic information as many of these other tests out there.
The reason why nobody is focused on whole genome sequencing historically is because it's so expensive it was way too expensive I think I put in one of our reports you said the first whole genome sequence for $3 billion.
And more recently with thousands of dollars.
And even now the lowest provider in the U S is somewhere around $600 and that'd be able it provides up to $300.
Moving forward, we can leverage nebula first of all as I mentioned with our food drug and mass retail distribution, we plan on on and the way. This works is you can't sell a $300 product to Walmart or Walgreens, because theyre going to mark it up.
Retailers market up anywhere from 20% to 100% so no one's going into Walmart to buy for a 500 dollar product. However, what we can do is something called low pass.
Which studies.
Which doesn't give you as much information as whole genome sequencing, but we can do it or I don't know what the exact number is going to be we're still working on it but somewhere around 30 or $50. We can offer that the consumer that's a product we can sell in food drug and mass retail stores.
So we have a history of success in selling dietary supplements and other products and the cold. These brand and building that is marketing and distributing to retailers who are doing the advertising doing the execution.
Fulfillment and so forth. There's no reason why we can't do exactly the same thing.
With nebulous products in food drug and mass retail stores at the same time nebula only sells online. There's no reason why we can't use our expertise to us Oh belt sales online in addition to that.
We expect we're negotiating right now to get the price down significantly from $300, we think that the price elasticity of demand.
For this product suggest that if we can get the price down 50 or $100 that the demand is potentially going to double or triple I don't know what the numbers are I can only tell you that I am confident that we're going to be able to grow.
<unk> current business significantly as I mentioned, when we first acquired them.
That they were at a run rate of $9 million.
Run rate over the next 12 months. So I don't know what the numbers are going to be for this calendar year, it's obviously going to be less than that because they're growing.
But we think that that number we can grow that.
Significantly once we get the price down.
Once we fully integrate them once we get more our company's infrastructure.
Infrastructure and people more involved we think we're going to be able to grow the sales online and then ultimately we're working on a low pass product and what's nice about the low priced product because we felt that a food drug and mass stores.
Yeah.
And when consumers purchase that and Theyre going to get some really really good information.
You know a significant them even low pass provides significantly more.
Genetic information about your genetic makeup, but what's nice is that.
Piques your interest and then we will up sell the whole genome sequencing to those same consumers at the same time nebulous model has been a subscription model, where they sell the sequencing of cost and then sell a.
Scripture end, it's a monthly subscription and all of the profits really are generated from the monthly subscription that that monthly subscription cost virtually nothing its just a small team of scientists.
Who has developed a library and then add to the library every month and that information ties into your genetic makeup it's really interesting to get.
To purchase the whole genome sequencing see what your genetic makeup is and then each month you get a report telling you that based on your genetic makeup you might have eight genes that suggests that you're predisposed to breast cancer.
And the average person.
It might have on the average one that might have two or three and you might have eight and that might be on the high end and what's interesting is that will give you.
Apologetic.
Risks risk score or assessment.
Tell you based on our proprietary database and there's not going to get into ASO Nebula has a proprietary database that they've been building they've tested somewhere between 12 and 15000 customers already they have a database of all these people and then they tie it into <unk>.
Clinical studies that are regularly coming out every month.
That people with a high predisposition to breast cancer have this particular genetic makeup so what happens when you get that report each month. It will tell you whether you're in the 90 percents, all tile or the 10th percentile or the 50 <unk> percentile for breast cancer based on your genetic makeup. So it's really interesting information.
And that's sort of.
At the heart of personalized medicine, ultimately personalized medicine has more to do we do with actual clinical studies in diagnostics, where you go into the Doctor's office.
You got your genetic makeup you specifically tie that into your health care Records and you come up with a diagnosis and prognosis and so forth it's much more sophisticated but at the heart of it all starts with a genetic test.
So we have.
Sort of a hidden value and nebulous, but I haven't really talked about before that we're exploring now with other companies and in fact other countries who are interested in our library.
And in particular, our software platform for tying it altogether, it's really unique.
This monthly report that comes out it's unique in the way that we do that and so there's I believe a hidden significant value and that would be a lot of that goes beyond simply selling products direct to consumer.
So I'm really excited about the future of nebula.
I just want to go through a little bit more here.
<unk>.
And I think that covers pretty much what I wanted to cover in the presentation that took just under 30 minutes or 25 minutes.
Love to talk but I also want to open it up.
Two questions the Bottomline before I open it up to questions just to be clear.
I think you all know I'm pretty bullish on our company and I'm really excited we announced a $6 million stock buyback, we announced that we purchased I don't know what the number of shows that it's in the press release.
Our stock down from $16 in January we just had the biggest month in the history of the company not only bigger than the whole third quarter, but in the history of the company was bigger than the months of January and the difference between now and January is that our numbers are still growing.
And our customer base is more diverse and now add to that the nebula business, which.
Which we can leverage has so many synergies to our company between leveraging our food drug and mass distribution and then ultimately we're working on doing sequencing in our lab, which I'm really excited about I'm actually looking to lease more of lots of space.
To actually expand our lab capabilities so I'm.
I'm really excited about that.
Initially, we may try and move low past sequencing into our lab and.
And ultimately we may do all whole genome sequencing or lab as well.
All of that is based on price, but I can tell you I'm confident that we're going to be able to get the price down from $300. I'm also confident the other issue is turnaround times.
Right now turnaround times are the number one thing that customers complain about with whole genome sequencing that it's just a fact that it's <unk>.
Difficult to turn around quickly, but I do believe that with the partners, we're working with and the Timeframes. We're working on that our turnaround times are going to improve dramatically as well. So if we get the price that improves the turnaround times, we think we're gonna grow the whole genome sequencing business.
If we introduce low pass, which has a much lower priced product in food drug and mass store, that's going to get more consumers interested in genetic makeup and then we can upsell both the subscription which is where all the profit is made anyway as well as upselling whole genome sequencing to those same consumers.
There's tremendous potential with Nebula and then the last thing I'll leave you with is that I'm not stopping there.
We are working diligently on many other acquisitions, we're looking to diversify leverage continue to leverage our infrastructure and continue to grow the company. We're just starting out.
We're well capitalized we're growing we're going to have what I believe is going to be very strong fourth quarter. Our outlook is bright.
And I'm looking forward to the future and and I appreciate your support.
And with that I leave I would like to.
Ill turn it over to questions.
We will now begin the question and answer.
To ask a question you May Press Star then one on your Touchtone phone.
If you are using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
Our first question today comes from E Chen with H C Wainwright.
Hey, How's it going thank you for that wonderful overview. This.
This has changed on behalf of <unk>.
Just a quick question on <unk> I know you spoke about no pass.
The product to be introduced first is that similar or different to the basic product that it's that's being.
Uh huh.
He'd been stood right now by Nebula Nebula has three different products on its web site. So.
Are you asking are you referring to the BC product or is it does.
That's an excellent question. So the low priced product is the product yes. They do offer a low pass product, we're probably going to move the processing of the low priced product into our lab, we're going to significantly improve the turnaround times also we're going to position that product very differently.
The way, it's positioned right now right now.
People go to the web the nebula website, and they're like Oh, I'm going to do this I want to you know I'm going to spend the $300 plus two to $500 for the subscription they don't really think about it in terms of 30 or $50.
The $30 is more that could be an impulse item that's sold in food drug and mass stores. So it's yes, it's similar but we're going to do the processing ourselves, we're going to get the price down and we're going to position it very differently.
Thank you so much and lastly from me and pardon me for my ignorance, but.
How do you look at subscription in this segment do you he has been a lot of.
Interest from consumers when it comes to subscription Martin or.
Is that the norm across on all your competitors. Thank you yeah. So sure. So the way the subscriptions work with Nebula Nebula does not make any money on selling the whole genome sequencing are basically selling it at cost.
As I as I mentioned.
Price elasticity of demand plays a huge factor in the sales and you dropped the price by even a little bit it's going to significantly boost sales and this is already a high priced item. So they could not build a profit margin and when they were selling it for.
For $300. So they basically sold at a cost, but then they sell a subscription that goes with it and anybody that's going to bother to spend the money to get whole genome sequence is going to want to know that information on a monthly basis as it gets updated so you can learn more and more about your own genetic makeup, particularly how it.
It's tied in two new clinical studies as they evolve and Theres, new clinical studies coming out every few weeks and so nebulous constantly updating the library. So that information is critically important so you've got an initial report when you order the whole genome sequencing for $300, but that library and that update and that additional information as it comes every month.
<unk> is is really valuable and really interesting because tumors. So the idea is to just get the consumer.
To become a customer.
To get sequence.
To get their genetic makeup and then they sign up for the subscription and they have subscriptions that go anywhere from you can pay monthly two annually to lifetime subscription, we're doing away with a lifetime I don't like the way that set up.
But so yeah, well all the profits in the subscription and.
That's.
Where the game is in and for people that are actually interested in their genetic makeup who take this seriously, particularly as it pertains to their health, they're going to want to they're going to want to subscription I can't speak to the other companies that are providing ancestry. Once you have your ancestry why I'm not sure why you would sign up for a subscription.
For some update on your ancestry.
So I don't study those companies they don't really care.
Definitely a.
Room for nebula to grow significantly as more and more people become interested in their genetic makeup from the point of view of health care and not just they are desperate.
I hope that answers your question.
Absolutely. Thank you so much for them so and.
Congrats on all the amazing work.
I appreciate it and just to clarify you're working with each and at H C. Wainwright.
Exactly.
Okay. Thank you so much for your questions and your interest.
Next question please.
Our next question comes from Patrick Patterson private Investor.
Oh, Yeah can you hear me okay.
Ratings are absolutely.
Alright, well I Wanna quite presentation I always wanted just covered everything I mean that was the best one I heard so interest.
Captured when you talked about these independent pharmacies can you just go over how big is the market for independent farmers, Susan how do you go about recruiting them to be.
Customers.
Sure. Okay. So let me let me tell you a little bit about our infrastructure I've I've kind of been low key about this and I really haven't talked.
About management and this really isn't a question about management.
But our management has evolved and we have basically three people.
Who I consider to be Evep's within our lab business, it's our head of IP Sergio Marias and then it's Alex Leroy and Jason Carcass, who happens to be my son, Alice adjacent basically oversee the entire lab business from the point of view of Alice has been.
<unk>.
He's been in the business I don't know 15, 20 years that some of the biggest labs in the world and she's just unbelievable at what she has died and organizing our lab and our lab operations, we've really evolved over the course of the year.
I can't tell you and I'm going off on some tangents, but I promise you I'm going to tie it back in my mind is still struggling up I can probably back in at the beginning of the year. We've just gotten into the business. We hired people. So quickly we hired 100 people in four weeks I barely attribute any of them. So just imagine the chaos that it were.
<unk> was involved a year ago and look at how we have evolved so with valassis completely organized in terms of our licenses are clear licenses are inspections, which are gone incredibly well as of late overseen our validation work as well as overseeing the whole lab processing and Jason oversees our entire customer.
He he has been with me.
B since before we were in the CLIA lab business. He founded the first lab with me back in New Jersey last year back. We were meeting we were flying out to Utah to meet with spectrum solutions before we ever going to get into the CLIA lab business.
He has overseen and now built the entire customer business. So he oversees.
No it doesn't different large companies many of which are in effect health care companies or marketing companies or a combination of the two and these health care companies and marketing companies. They go out and they collect specimens how do they do that.
So he oversees one company that primarily tests at school. So this is a a.
Tremendous marketing organization that is in the health care field that has.
You know registered nurses and and other specimen collection.
Collection professionals working for them they have a huge network they're testing schools.
Around the country.
And then.
He is also overseeing the build out of other companies one of which is marketing to independent pharmacies and so the number of independent pharmacies, we sign up each month grows those independent and average independent pharmacy.
Might only do 10 specimens of day, you know think about it you have a pharmacy down the block 10 people a day walk in to get tested for whatever reason they need a report to get on an airplane. They have a little cost they're like Oh My God could this be Covid, Let me go get tested and it's all free that's all insurance covers this and so if we have.
150, I don't know to be honest I haven't checked the number recently I think the last time I gave an update we have like 100, but the pharmacy, but if we just had 150 independent pharmacies and an average of 10 people a day.
800 tests a day.
That's a tremendous amount of business I can't tell you how much. This is 1500 tests a day is $150000 a day or $175000 a day of revenues just from those hundred 50 pharma independent pharmacies.
That built the 300 independent pharmacies, where 500 independent pharmacies.
There are thousands of independent pharmacies around the country. We now have our prior head of sales working with Jason who works with the food drug and mass stores, who worked on cold He's worked on their dietary supplements and he's talking to our national broker, we're talking about potentially plan to work with connections to 1000 or 2000 independent pharmacies, now where that all goes.
I can't tell you I can just tell you that that business has grown.
Jason I'll also overseas another marketing organization that setting up concierge services, they're setting up tents.
You can walk up and get tested in and these are popping up all over the state of New York.
This business is growing literally every week, it's scary the potential of it. So we have these different businesses. Unlike last year last January we had two core customers one with testing over the across the state of Texas and the other was testing schools.
And then Texas, they're testing sites shut down never reopen and the schools.
After we got through the first quarter. They started closing they start testing.
And all of a sudden spike our two biggest customers were testing and we were scrambling now we're in a situation, where we have a well diversified base of customers. That's growing so our customer base first of all our marketing partners or partners.
Our growing.
And their businesses are growing and so our distribution is growing and it's so it's a more diversified distribution of customers. It's a much steadier business.
And so while I can tell you is like I said the month of October we did more business than we did the most business in the history of the company.
I don't I don't want to give predictions I can only tell you that our business dropped off significantly in February and in March and right now our business is to drop it off it's still growing and that's with relatively low positivity rates relative to the to the peak a few months ago. So it's not just based on positivity rates any longer.
So it's an interesting business, but again I expect to be a well diversified company next year, we now describe ourselves with the biotech a genomics company that Leverages, our CLIA lab, that's the way I want to think about it.
We just happened to be driving significant revenues right now and and.
So it's very profitable revenue.
So unlike the summer months.
Where we had an enormous amount of employees and a low level of business.
We then had to clean house, we probably left 50 people go restructure the whole company over the summer.
Now we're in a situation, where we've been hiring but we've been taking our time hiring the right people the right way so our employee staff and our management has evolved into us at infrastructure.
Structure within a company that's much stronger and what's nice is we bought the supplement it with tempered with temps with temporary employees. These are people that you hire you pay a little bit more for them on an hourly basis.
Understood that their tests, whether they work for you for a day a week a month or six months and they understand we can let them go we can bring them back there no issues.
And so we have a nice balance between full time employees.
In terms, so that if our business flows unlike the summer when it slowed.
We will be able to cut our overhead.
Instantaneously, so there'll be more in line with the level of testing so that hopefully even in the slow months, we'll still be profitable.
And again I, you know I I expect as we move forward.
Look testing levels overall in the country may drop positivity rate rates may drop although they already have in our business is growing despite that.
But I expect a steady level of business I don't know what that is but if we have a steady level of business thats, even a third of what we're doing right now will be very profitable and very happy.
I hope that answered your question I went on a bunch of pansies that covered a lot of information. So thank you for.
I'm asking.
Oh, Thank you very much.
Alright, and have a great day, Pat Eileen next question. Please.
Our next question comes from Fred Mcdonald private Investor.
Hi, Ted Hey, Ted how are we making progress in becoming a full service lab.
That's an excellent question I've I've probably.
I don't know probably looked at two dozen.
Labs to acquire.
And to be honest with you.
[laughter] the lab industry is fraught.
With undesirable and it's very difficult to find a clean lab, where it actually makes sense to acquire it and I'm not going to acquire just for the sake of acquiring it.
There are opportunities, which we are still studying and I'm on the fence on a few but I can't guarantee.
The only going to do.
But the best way to answer the question is and I've said this on most calls I didn't say it on this one but I will say.
Again now.
I'm a huge believer as an investor in terminal value on a per share basis, that's all I care about and all that what that means basically every strategic decision I make has to increase the value of the company on a per share basis, So I'm not going to acquire a lab just because it sounds good or because we're going to get a spike in the stock I can tell you people come.
But oh by my company look its going to spike the stock sales in spite of your stock and I'm like yes, but there's no.
Underlying value, where I'm not going to do it.
It has to be the right acquisition and in the meantime.
We are diversified by no other reason immediately.
<unk> genomics by doing genetic testing, which we're.
We're going to be doing in our lab and then the other types of testing I will do if the right opportunity comes along but as I. Just said we're also looking to.
Rent out additional space, we already have 25000 square feet in Garden City, we're actually looking to expand that so we're looking to expand our testing I'll get more into that in the next quarter.
I Hope you know.
Don't want to speak out of line. So I hope that that's a good enough answer for you for now there are lots of opportunities out there to diversify our lab business, but what's more important to me is how to build the value of our company and how to diversify and grow our entire company not just a lab business I don't want to be viewed as the lab and I don't want to be dependent.
And just lab testing.
I think that the other businesses that we're diversifying into like the genomics are exciting and have multi $100 million, if not $1 billion potential and so follow the follower and that'd be on the platform.
Enormous underlying value to.
<unk> Nebula, and what we're going to do with that next and with the synergies between our lab and our food drug and mass distribution.
And then watch what we do next it could be another lab it could be something more in the field of.
<unk> biotech.
It's all going to come together very nicely and you're going to see I expect that our company's can be a lot more valuable and 369 and 12 months from now.
I hope that answers your question without answering it directly.
Good answer thank you Ted.
You are quite welcome Eileen next question. Please.
Next question comes from John <unk> with a farmer John.
Net nice job is usually answer I appreciate it thank you.
Yeah.
Hi.
One of the things about Prophage this is only <unk>.
17 million shares fully diluted.
23, and me is about 100 million shares and all that I got a little concerned when I saw the other day, you did a $300 million shelf.
You don't plan on raising anything down here.
Okay.
One thing that does 50 million shares at $6 and another thing to do 10 million shares at $20.
Right.
Great question and I'm glad you asked it so let's put this in perspective first of all we're in the middle of a stock buyback would we be raising capital if we're doing a stock buyback obviously now that's number one.
Number two we actually had a $75 million shelf.
Outstanding previously in fact, that's what we use back in January we had a 75 million shelf I didn't have to do any I should've left that alone.
The reason I did this is because frankly I had big plans.
For the future of the company and I'm optimistic for the future of the company and to put this in a little perspective.
Since January while our stock came down from 16, I could list literally 100, other micro cap and small cap companies in the life Sciences.
Whether biotech or genomics or anything related to COVID-19 or anything related to diagnostic all those stocks are down 50% to 75% since January I mean, we have as far as I'm concerned I don't know if its a technical bear market, but.
For all intensive purposes been a bear market for all these microcap stocks ours is one of them.
That's going to change at some point I can tell you if it's going to change in a month or in nine months, but that's going to change at some point at the same time, we are growing our business, we're diversifying and we have tremendous potential in so many areas. Obviously, we do not need capital right. Now we are not raising capital right now we had a $75 million shelf in place already.
So if I was looking to raise capital right now I could just use the 75 million shelf and obviously I'm not raised $150 million with $200 million, what our home market cap isn't even $100 million.
So you can read between the lines.
If I decided that I wanted a $300 million shelf, which is good for three years instead of $75 million shelf.
You got to believe that I believe their market caps could be a lot larger one day and if we have a 20 or a $30 stock and I can raise 100 or $200 million that would be the time to raise the capital and only if it's needed and as Boeing it's to do something bigger and so to put that in perspective.
A year ago, where we were we are a dollar and a half stock.
Without any direction, we had a contract manufacturing business and a small dietary supplement business, which is going to do whatever it's going to do there's no reason to raise any capital for any of that look at where we are now our platform.
It's multiples of the size of what it was just a year ago.
And so now we have significantly more capital we have significantly stronger revenue base.
Aye.
I'm very confident we're going to be profitable for the year and that we're going to have a huge fourth quarter would be very profitable and I believe that we're going to build the nebula business and I believe we're going to diversify further and so I believe that there are exciting opportunities for our company I don't even know all the opportunities.
That may come to us a year from now or six months from now I can tell you. Our platform has gone up three levels from where it was a year ago and I want that platform to be three levels greater a year from now which means that we're going to be a different market cap. We're gonna be we're not we're not going to be the mini micro cap that we are now and hopefully will go from like Microcap.
The small cap.
Depending on your definition.
And so this is really planning for the future.
It has nothing to do with raising capital now.
Clearly not raising capital of five or six to seven Bucks a share that's just.
Silly that that's not even in the realm of possibility that I would consider we don't need capital for anything that we're doing right now in fact, as I said I expect us to earn money in the fourth quarter were buying back stock now so our company is well capitalized financially very strong company.
I think it's very difficult to find a microcap company our size that actually has the amount of capital that we have that is the growth characteristics that we have that has such a small market cap and such potential. So no. We're not doing anything with the $300 million I wanted that in place whether that's whether we use it in three months or three years I don't have a crystal ball.
But if we do have the things that I think we're going to do over the next year there might be a time when our stock price is significantly higher I want the shelf already in place. So that we want to raise capital will be able to do so.
We have some fantastic.
That's a banking relationships think equity did a phenomenal job of raising capital for some January we have a great relationship with bank equity and I'm confident they can raise any amount of capital.
We would ever.
Want them toward need them to their big believer in our in our company and so at the right time and the right opportunity we'll sit so that's it.
It's a great question I'm glad you brought it up no one has to be careful we're not raising capital not even considering right now and it certainly wouldnt be doing it while we're in the middle of a stock buyback obviously.
I hope that completely answered your question do you have another one or are we good.
No I appreciate your visibility that you always provide thank you.
Thank you Jonathan.
We have one more question Ali.
Our next question comes from George <unk> private Investor.
Hey, Todd it's George how are you.
Good morning, good. Thank you George Thanks for joining US today, Yes of course, thanks for all the information is always two quick questions for you. When do you guys expect nebula to be fully integrated and revenue counted towards the quarters.
Okay, so actually it.
The revenue is counted.
As of the date that we acquired it. So there was a small piece of nebula that showed up in the third quarter.
Not anything that significant to revenues or earnings.
So, but there was no.
There was a small amount of revenues in there, but I understand there was also a significant accounting and investment banking fees and auditors' fees for the acquisition debt.
Far outweighed any contribution from <unk> in the quarter.
So I mean, they're fully integrated from a financial standpoint, now for the fourth quarter now there'll be fully integrated into the company because we have not we will have owned them for the entire quarter.
Got it thank you and the second one is easy.
$16 a share again sometime soon.
Oh, that's the easy question.
Yeah.
I'm not I'm not gonna be aware I'm going to answer that question is go back to my answer to Mr. Lai gums.
The previous question I Didnt file a $300 million south because I don't think we're getting $60, whether we get there or not that is not for me to predict it.
It is a very we're in a very different period of time.
Microcap stocks today versus last January so I can't I can't compare it to January back then their stocks running for a variety of reasons. What I can tell you is we're building the underlying value and in the next upswing in Microcap stocks.
Certainly expect that we will perform amongst them since we will be growing. Unlike some companies that were just pure COVID-19 plays.
I'll give you examples or antibody there was an antibody company I was interested in acquiring and they just wanted too much and then the stock dropped and I don't know if it will ever come back.
Because there anybody tests they were stellar for $80 and now we can buy an antibody test results for.
For $8, whereas there were selling for $80.
Companies like that are going to struggle to ever bounce back.
But companies like ours that are growing that have underlying growth not only revenues, but earnings even in our toughest times, we're still profitable for the year in the fourth quarter, we should be very profitable.
We're going to be growing and diversifying and we have exciting times ahead, but what happens to restock that's up to the shareholders I don't care I just want to keep building the underlying value.
And if I do I know that in the long run the stock price will take care of itself. The same way. It has rewarded our long term shareholders over the last five to 10 years understood. Thank you very much I. Appreciate it. Thank you and have a great day. Thank you George.
Back to you I don't believe there are any further questions. So I just wanted to say thank you. All we I you know I like to talk but we were able to keep this under an hour.
I sincerely appreciate the support of all our shareholders I always say to our employees.
I'm very loyal to employees.
Especially the ones that are loyal to the company and our loyal to doing a good job, but I always say to our employees. Our shareholders are the owners of the company and our shareholders will always come first our employees are very close second so to our shareholders who are the owners of our company I really appreciate your loyalty.
I will do my best not to let you down and thank you all for joining us on the call today I Lee you can you can and the cold mill.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.