Q4 2023 ProPhase Labs Inc Earnings Call
And I'll get to as many questions as possible I hope to have a.
A lively Q&A. So please don't hesitate to send your questions in I, often forget to say things in the presentation, but it all comes out in the Q&A so with that.
Also like to highlight.
Just very quickly we also have a fantastic relationship with think equity our investment bankers.
Who we have had a three and a half year relationship where they raised a bunch of capital for three years ago, but they were also instrumental in helping us to buy additional make additional acquisitions that are now going to bear fruit as we go forward, that's what I'm going to be getting into in today's call. Also appreciate H C Wainwright, who follows us.
On an analytical basis.
They do excellent research as well as Diamond equity research and the latest to the table, Dave gentry at Red Chip just to call out there, creating some fantastic P. R, which is going to bring great brand awareness not only to prophase labs, the public company, but also to nebula genomics. So.
I think it's going to be a win win and I think youre going to start to see that.
In the coming weeks.
Youre going to start to see amongst other things and different initiatives that include.
Some presence on C N B C and so I'm really excited for what's to come and so with that let's let's get into the presentation.
So first of course forward looking statements I'm sorry, you have to read this at least our attorneys. This year gave me a shorter version.
Before we get started I'd like to remind you of the company's safe Harbor language. During this presentation, we will make forward looking statements, including statements regarding our strategy plans objectives and initiatives and underlying assumptions. While we believe that these forward looking statements are reasonable as and when made forward looking statements are based on expectations that involve risks and uncertainties that.
Could cause actual results to differ materially. These risks and uncertainties include but are not limited to our ability to obtain and maintain necessary regulatory approvals general economic conditions consumer demand for our products and services challenges relating to entering into and growing new business lines, the competitive environment and the risks back.
<unk> listed from time to time in our filings with the SEC filings. This call. We will present non-GAAP financial measures such as adjusted EBITDA reconciliation of these non-GAAP measures to the most comparable GAAP measures are included in the earnings release furnished to the SEC prior to this call and available to our website alright.
This is a much shorter slide presentation than I, usually get its more focused on what's going on this year for.
For those of you that haven't seen the presentation I'd say probably half of you have half of you have not this is fine tuned it is updated.
With all the latest information there are some really nice updates and I'm excited to talk about so first of all I always like to say our best is yet to come we have a we have a performance track record that I would put up against most you can always find the one in 1000 companies that becomes a multibillion dollar company. Greg If you found the right Tech company 10 years ago, they probably.
Formed is in fact, even some of the great ones, having outperformed that in the last 10 years for all the other Microcap company, we've outperformed 95% of them to.
To make a long story short I turned around the company that was virtually going bankrupt in 2012 I did the same thing with a company called the IV biomedical, which instead of going bankrupt the cell to glaxosmithkline for $1 $4 billion I was instrumental in the turnaround there and without experience I did the same thing here. We had a 65 said stock about 11 or 12 years ago.
We now have paid out $2 40, and special dividends the stock's up nine times. So overall were up about 11 times. If you include the special dividend and.
In 11 years, not not a bad track record more more recently about three years ago. So we turned around the cold. These brand sold it for $50 million kept the manufacturing facility I'm going to talk about that very shortly we got into Covid testing.
And we had never been in the lab business before we've never been in the Covid testing business before.
And we got into it my son, Jason Carcass within a short period of time, you went from a consultant to a salesman to basically taking over we moved out the senior executives who weren't getting the job done Jason took over built at roughly $200 million business over two years unheard of very few companies in the country did anything similar and we have never been in the business be.
Sure. So let me say a history of execution and it's like Deja Vu because now we're going to do the exact same thing with nebula genomics that we did with the Covid testing.
So in addition to that so to.
To be clear, what we did differently from what other microcap companies that think equity where they did a fantastic job raising capital for three plus years ago back then we were in the Super Bowl market, where just based on a story. We had this high flying stock price. They raised a bunch of money for us, but unlike all the other companies that spent all that money in or out of business now or the stock.
We're down to 10 cents.
We strategically transitioned and plan for the future that included with think equity and making acquisitions, one of which was a nebula genomics and other which is R. B smart esophageal cancer tests. Another one is equity or we're going to be talking about all of those over the next 20 minutes. It in the Q&A. So all of this we've been.
Strategically planning for several years and now we transition from a COVID-19 testing business, which ended early last year to now as we go into 'twenty 'twenty four and 'twenty five we expect to have some very explosive businesses, which I'm going to get into a momentarily. So we have a history of executing on behalf of the shareholders.
And as I like to say the best is yet to come.
Alright, so, let's start with formulas, which I actually find kind of humorous because.
Historically formalized was a sleepy business I never really even used to focus on it when we sold the cold. These brand humorously if the company that acquired Colby's from us at Asper formulas I might've thrown at it in this five years ago. So we maintain formalized because it kept.
Our infrastructure in place for selling products into 40000, food drug and mass stores, we can do not only manufacturing we can do packaging distribution logistics you name it.
We can do soup to nuts, we have a turnkey solution for selling products into retail stores around the country. That's why we kept it but what's interesting is.
The global demand for lozenges has gone through the roof and the capacity.
Globally as well as in this country has actually shrunk, especially when we're talking about reliable capacity. It doesn't exist. We have global brands that literally are panicking trying to figure out.
How to solve their problem, they're basically given mandates what do we do in the United States and North America to solve our lack of losses manufacturing capabilities.
So what's interesting is we've started to build our capacity and as we build it.
The same if you build it they will come it's already happening.
So just to go over a few bullet points.
We raised prices on every single customer last year fourth quarter last year those price increases all took effect in the first quarter. So we went from being an unprofitable to a profitable business with increased revenue just by increasing prices.
In addition to that in January we announced two new important new lozenge lines that takes our revenues up so our revenues historically have been around a $10 million last year. They were little over $9 million. So with our price increases we went up to let's say $11 million now, we just got them $5 million of new business one of those two customers.
We've already started manufacturing for them the other ones should start shortly so right away as we entered the second quarter, we should be at a $15 million to $16 million run rate instead of losing money, we should be making at least 20% to 25% net profit margin. That's just the starting point.
So just based on that whereas we're $3 million to $4 million of profitable business.
Just entry on an annualized run rate just entering the second quarter. What also happened is we purchased automation equipment.
Its arrive, which we install it turned out the automation equipment works better than we expected I give our COO Jed lacking.
Who joined US originally he joined US because he represented he's worked with multiple companies as CEO CFO COO. He was representing the company that he was turning around that sold us the beef smart esophageal cancer test. He came in as a consultant last year. He got involved with formalized he became full time consultants that he became our full time senior.
The level of executive and C. C O O and so he's had thought he actually has a lot of experience in the manufacturing world by pure coincidence and so he got involved we started building additional capacity we brought on some high level senior level executives to work in the company as well as a high level consulting company to work with.
To build a master plan to build that capacity over the next 123 years and so forth and so.
Jed, Florida, Germany.
To get the best automation equipment in the World, we installed it and our capacity now we had capacity estimates so.
To put this in perspective.
We estimated a month or two ago that by the third quarter, we have a second license line being installed and by the way that license line, we order that more than a year ago, you have to understand it's not like their lives inch lines out there to be purchased this house tight the capacity as you. If you wanted to purchase laws with one license line today.
They have to manufacture it by the time, they manufacture and ship. It to you you install it could be a year and a half so I understand that the license line that's about to be installed.
Late in the second quarter early third quarter.
We planned on this more than a year ago I just at the time, we were losing money it wasn't an exciting business, but understand behind the scenes we've been working on formalized and building this expansion for a year and a half at the same time, we were talking to to global brands since the beginning of last year as well. So all of this has been in the works. This isn't something new this is all about.
Those two come together and bear significant fruit right now going forward. So it turns out our automation equipment works better than we expected. When we include the lozenge line being installed.
And in the coming months, we expect by at some point in the third quarter, we won't be at a run rate of 30 to 35 million of capacity will be a run rate of $45 million of capacity.
This is an astounding number when you think about the historical value of formalized and what it will be now and understand we might not get to $45 million.
Run rate of revenues immediately that a lot of that has to do with how quickly we sign on new customers, but we've been pushing customers away up until recently, because we didn't have the capacity for them.
And that's why every single customer we have accepted a price increases and.
We announced a month or two ago that we have these two major global brands that are interested in doing business with us we've been doing all their formulation work. We're in the final stages, we got the FDA inspection with flying colors and no citations, we had to go through audits. All these different things. There's so much bureaucracy involved bottomline is you know it is.
The 11th hour, so we're going to see what happens with these two major global brands.
What's interesting since I last announced the two major global rim Theres another two.
Significant brands out there that wants to do business with us. So I don't know the timing of how this all plays out but farm losses profitable already and growing and I couldnt be more excited about it and so our goal our longer term goal. We already ordered in addition to the license line coming in in a few months at Walden.
He is hillary what it makes it equipment and so forth that we need we have two more lives which lines coming in by year end that we're gonna install early next year that will take us to 90 or $100 million or more in capacity and what's interesting that's based on a three and a half day work week.
You have to have downtime for cleaning of equipment, and so forth, but that three and a half days. If the labor is available it's possible, we could bump it to four and a half days that 90 or $100 million capacity number could easily become a 110 $120 million. The numbers are so large though.
That it really is irrelevant.
Even at.
The $45 million run rate, if we get to a $45 million run rate and we're generating 20% to 25%.
Net profit margins, we're talking about more than $10 million.
The value of formalized it could be 50 or 100% more than the entire market cap of our entire company right now right now we have a market cap of 18 $90 million I think within months the value of formula is going to be worth more than the entire market cap of our company depending on how long, we keep it and I'm going to have all sorts of.
T Chek alternatives, if I choose to go in that direction, when I say I. Its me its our management team, it's our board of directors.
We're going to have lots of options on what to do with US I'm focused on formalized first because this isn't even what I'm excited about but it gives you an idea of the risk reward of investing in our company that if we have one asset here that I believe is potentially worth more than the entire market value of the company in the coming months and potentially could be worth double the market cap of our cup.
If we keep it for a year or year and a half and we got these major lozenge brands, we have executives fly more.
From around the World just to meet in Lebanon, Pennsylvania, It's really exciting what we're doing there. So I'll leave it at that for formalized I wanted to give you that as the background. So when we talk about nebula genomics and our beef sport cancer tests in equity or these have enormous potential going forward, but the beauty is you have there.
Tremendous asset value protecting your downside risk, which in some cases, the most important thing when you invest in Microcap companies.
So with that.
Let's get into nebula, a little bit.
Founded by George Church critically important because he's been world renowned in the field that genomics for 15 or 20 years and he has relationships with every virtually every major.
Global player in the field of genomics. He has introduced us to so many major players that we are collaborating with it truly helps us and building nebula genomics I'm going to get into some details about at the moment I'll. Just tell you. He is such a big believer nebula. He had a choice of cashing out taking cash when we acquired the company's co founder.
And instead, he chose to take stock at about $7.50 a share.
The reason why whole genome sequencing has become.
So exciting now is because the prices dropped dramatically all the ancestry companies.
Historically had to do the SNP based testing, where they analyzed less than 1% of your data they had to do that because whole genome sequencing is too expensive.
Even a $1000 for whole genome sequencing in order to make a profit between the lab and their markup to consumers. They would have start to $2000 nobody's paying $2000 for an accessory tests, but now pricing has come down.
So while the ancestry companies built a whole platform on a different type of test we can now provide whole genome sequencing.
With tremendous in depth health insights in addition to accessory tests and we are now.
Getting to a point, where we're going to be able to provide a competitive products to the ancestry tests, while giving phenomenally more.
Data about your health.
It's a really exciting opportunity it's been a work in progress you're going to see the fruits of our labor play out over this year now that we're getting into the b to B business.
I just want to explain a little bit more about it and then I'll talk about the opportunities in the <unk> World and why we're going in the direction. We're going in just to explain in addition to ancestry. What we provide in health first of all we have an incredible database, which has an amazing hidden.
Asset value. It is a gem that I will be talking to you further about in the coming weeks not for this call.
But understand.
If an ancestry database study in less than 1% of your DNA is valuable just imagine whole genome sequencing, what studies virtually 100% greater than 99% of your DNA, providing between 1005 thousand times more data points than an accessory tests imagine.
Our database could be worth.
So I hope to update you in the coming weeks on that but so understand we also built a proprietary.
Reporting system.
Bio informatics based on this tremendous database that we've already built.
We don't know of any other bioinformatics and the world that compare to worse. So we have these be to be businesses that are all over us for a number of reasons, including our reporting. So this is an idea. These are two of our reports.
I gave one example, I changed up the examples gastro esophageal reflux disease a guard.
GERD leads to esophageal cancer.
<unk> is the first day of this asset in your stomach it eats away at the bottom of your stomach.
It can create.
Cancer cells precancerous cells, that's a condition.
One is barratts esophagus, one in 50 to one in 100 people can develop esophageal cancer I'm going to get more into that when we talk about our cancer test.
That we're developing but the bottom line is if you know you're at high risk.
Like this person in this example is in the 92nd percentile you might want to go to your GI more often you might want to really check on that asset in his stomach and not just take tums sport.
And you might want to get an endoscopy once in wireless who are at high risk.
Because within endoscopy, hopefully you can learn if you have a salvage kill cancer at an earlier stage and hopefully save your life. So that's just one example, knowing that you're at high risk based on your DNA makeup. Another example of it.
Based on your genetic makeup you're at high risk of breast cancer.
Going to be motivated to get your checkups, much more often or colon cancer, you'll get colonoscopy is more often and at an earlier age. The list goes on and on and on so we provide these fantastic reports, but.
Let's get more into the actual.
Opportunities from a business point of view. So as you all know we have been historically, a direct to consumer seller of whole genome sequencing, we've completely revamped our marketing campaigns, which is all going to rollout in the next few months.
And at the same time, we've built out a lab. The reason we built out the lab.
Is because we started going to these genomics conferences and Theyre. All these businesses that never did whole genome sequencing, but there are directly related to it through the health care systems and they're like Oh, My God, we have to offer whole genome sequencing to where customers. So we have a lab in New York. So your specimen.
Doesn't have to leave the country.
We have some of the best pricing not only in the country, but in the world. This all started because we've been in the business for six years and we have the best relationships there are companies genomics.
Companies in other countries with some of the best equipment and consumables in the world that are willing to partner with us and build with us because they want a presence in the United States and we are the first lab in the country to have some of their highly efficient high capacity equipment. It gives us the ability to work with large business.
<unk>.
And potentially offer them high capacity low priced whole genome sequencing a lot of these businesses have never offered it to their customers before.
So when we went to these genomics conferences, we were like Oh My God. This is such a big opportunity we made the strategic decision.
To exit our initiative with the clinical lab business, we could have been very successful in the clinical lab business.
But maybe in a few years it would be a 10 or $20 million business and it could be worth $30 million or $40 million. Whatever it is we were going to do it there's a real opportunity there, but the opportunity Nebula genomics is 10 times that and so we have all these businesses that we're in late stage negotiations with that could literally explode.
<unk> our business going forward.
So.
As I mentioned, we have we used to have 300 reports and then 325 reports now 340 reports and growing.
Are the labs around the world most of them pale in comparison, we're now getting reports that there are other labs, even in this country that are providing whole genome sequencing. They promised a certain turnaround time on their website theres no reality to it. Furthermore, they advertise certain prices on their website, but theres no reality to that either because they need to.
By the reports you have to buy individual reports, we provide 300 to 340 reports they'll provide 10 reports when you add their 10 reports of their cost of whole genome sequencing it turns out to be dramatically greater than our offer so.
So we are price competitive we have highly efficient turnaround times.
We're responsible reliable we have this fantastic proprietary reporting system. So the sky is the limit so Jason carcass now became president Nebula, what he did with Covid testing and he is now doing with nebula.
And I can tell you that the response has been enormous we announced the first deal today, we didn't get too specific about it. We just signed the contract literally I don't know 24 48 hours ago. There are more coming we will get into more details and some of the other contracts were working on suffice it to say summer siggi.
Difficult.
Some are very significant one example, one contract in late stages, we're talking about a $10 million to $20 million.
Our run rate of revenues the first year and then growing from there. Another one the numbers could be even dramatically larger we're talking to a telemedicine platform with 2000 physicians in six to 8 million patients.
Do you understand if they turn on the switch and say go to these 2000.
The owner says we're going to reach out to these 2000 physicians and next time you meet with your patient suggest to them to order and Nebula genomics test kit do you have any idea how large this could be this is this is what we're working on going forward. So that's a little bit about the nebula roadmap I can discuss.
More on that in the Q&A.
I I already mentioned, our be smart test a little bit we have this cutting edge tests I'll talk more about it in the Q&A.
If somebody asked the question the bottom line as I said, our guard becomes Barratts esophagus, which becomes a sausage youll cancer. We have a test that will tell you now understand when you get an endoscopy they take seven to nine.
Tissue biopsies out of your esophagus.
Two different pathologist study the same specimen under the same microscope. One I'll tell you have esophageal cancer. They only tell you dump it's incredibly inexact science. Meanwhile, it's one of the deadliest cancers, 80% to 90% of people.
Once diagnosed will die of esophageal cancer, if there's definitely it's right up there with pancreatic cancer. So it's amazing how deadly it is and how inexact sciences for diagnosing. It we have a test that will tell you with 99% certainty whether or not you have esophageal cancer right now or not but what's interesting is we met with the heads.
Many of the leading insurance companies, they said, what's more important to them.
Is telling them whether.
Patient is at high risk or low risk. So we've isolated the eight key proteins.
That are responsible for when they shift that gives you the signal that.
That youre developing esophageal cancer. This is proprietary to us through our test and so what we're doing right now and while the studies we've been doing we've been going back and going through all the studies have been done over the last number of years.
And we're actually creating a green yellow orange red.
Strike zone for our test for reporting so that if your grain all systems clear you don't have esophageal cancer, you're at low risk or no risk at all you don't have to get an endoscopy every year.
And I understand endoscopies are close to the $4000 or people getting endoscopies once a year the insurance companies reimbursing for.
Just the market for just people with Barrett esophagus, or where the significant amount of guard at 7 million tests right now insurance companies are paying up to $28 billion $14 billion to $28 billion reimbursing for Endoscopies just for these people now imagine if you add our test to it.
And we tell you.
You're not at any risk at all Youre not going to go back to that enough me, that's going to save the insurance can be $4000 or euro.
Or we say that your low risk.
You don't have to go back for an endoscopy or you're at high risk in which case you immediately go for procedure called an ablation. It destroys the pre cancer yourself all the GI is out there wants to do oblations.
On their patients the insurance companies won't reimbursement.
But if we give them a test to tell them that there's a reason to do the ablation all of a sudden the ablation procedures will go up significantly the insurance companies will save a fortune because they're now saving patients lives that otherwise are getting cancer and dine in all the hospital bills that all the surgeries.
Because they do a simple ablation procedure.
And at the same time, the number of Endoscopies goes down dramatically. So our initial target of 7 million Endoscopies. We think we might get reimbursed 1000 to $2000 at the $7 billion to $14 billion market with no competition out there for a test that's the potential.
We're more moving forward Echo here.
Can talk about this in the Q&A I really want to get to the Q&A. We've been developing this this is another one of the products that we acquired during our phase when we were doing Covid testing, we were looking to the future. We're now looking to rollout Eklavya. Later this year, we've had fantastic preclinical studies, we're almost done we did a substantive.
Number of clinical studies with a lot more patients a lot of times dietary supplements, we'll do 20 patients 40 patients.
The gold standard is a 100 patients and a lot of times companies will split that up into two studies I learned this from my days of turning around the cold These brand and suffering through class action lawsuits, which we would win but I learned exactly what you need if you Wanna be Golden and that's two 100 patient study.
We're doing a total of over 300 patients were halfway done our results have been great. We'll be done with the other half shortly that will bolster our claims give us the best chance of success in rolling out the product, we're looking to roll that out second half of the year. It's a broad based anti viral just looking for the studies to be completed.
We're on a great track there.
I mentioned, our managed mid team I already called out Jed lacking is doing a phenomenal job with formalized without him. We wouldnt be there with formula. He is also leading the charge is a biotech background. He represented be smart salvage you'll catch was when we acquired it. So he is leading the charge on that side, Jason did a phenomenal job with Covid testing.
The revenues that he's responsible for generating or the reason why we made these acquisitions. He has now taken over at Nebula, He and I look at each other almost every day and we say Oh My God, It's Deja Vu.
Exactly the type of response, we got to Covid. After we built the Covid lab. The type of response, we got from businesses the ones that do business with a low cost highly efficient reliable management team. We're now doing the exact same thing with nebulous, but the differences with nebula. We have some things that are highly proprietary to us, whereas with probably there were 100 lab.
And the country or more doing COVID-19 testing.
Don't have that here, we don't have the company, we have more demand and less competition and proprietary reporting and sophisticated equipment that nobody else has so just imagine the dynamic for three years ago, but now with all these extra proprietary elements and just imagine where we're going to go with it and then Sergio I never give Sergio credit he started his own.
It consulting firm after working in the military.
As a high level IP experts started his own consulting firm with 18 it consultants.
We literally he's touched virtually every large company in the country, especially in the lab business. He is so sophisticated we are so blessed to have him. He does so much more for us than simply our I T I'm going to have more to talk about with Sergio in the coming weeks as it pertains to our genetic database.
We're going to save that for another time suffice it to say, we have a very strong management team and of course Kemal.
Led the way he was one of the co founders of Nebula genomics. He has a great relationship with George Church.
<unk> has continued to stay by our site and continue help us develop our company and of course, Robert Morris has significant experience in the finance world and with that <unk>.
<unk> highlights just very quickly there is a complete review of everything I. Just said look we're expanding formalized manufacturing to be one of now.
Premier licensed manufacturing companies in the United States, we're dramatically growing capacity, we're already profitable for the first time as of Q1, that's going to accelerate as we build capacity and as we take on more customers is just how quickly we take on these other customers that we've been pushing away in the past.
We get one deal with one global brand.
Game over.
Formalized.
That day is worth more than the hallmark cap of our company I am hopeful that that happens and then it happens soon but regardless, we now have two additional brands. Besides the two global brands with two other brands that are dying to do business with us and the business is going to grow. It's just a matter of how quickly I'd be guessing to tell you how quickly it's going to grow we're building the capacity as fast.
As we can because as we do we believe that the volumes. The revenue volumes are going to continue to catch up to it nebula genomics I just went through it I'm not going to go through it again happy to go through more in the Q&A, obviously, it's an exciting opportunity for us. So we have these two operating businesses. We have formalized we have nebula genomics.
Exciting operating businesses formalized profitable now nebula, we're still investing in it but besides the D to C business, that's going to grow we have a b to b business is going to explode, probably more second half and so we just have to see how that plays out then we have two other opportunities that arent operating business.
Now equity euro and be smart.
Equity, where we're looking to.
Leverage our infrastructure from when we had the cold. These brand. We also have a small brand called legends XL that said many of the food drug and mass stores. So we have the whole infrastructure packaging shipping distribution logistics relationships with 40000 food drug mass stores, that's what we're looking to leverage and introducing <unk> as well as online and then our beef smart cancer test.
Multibillion dollar potential I like to think that that's a wildcard we don't need it.
We have enough in our operating businesses between formalized and nebula genomics that if your investor I think youre going to be incredibly pleased over the next one to two years with your investment, especially at current stock prices.
But now these smart if that clicks.
Literally when I say multibillion dollar potential, let's just not just.
Number of award that I throw out that has no reality to it there's no competition for this test. If this takes hold it's going to get scary. So we'll see what happens as we move forward and again and again.
Really pleased now with our management team has developed we recently hired in the past several people that are financing. So we have much stronger finance team than we've ever had before and we literally just hired in the recent past two very senior level executives.
To be in our B to B b.
Business at Nebula, a adjacent hired.
To add to our team and so we have the wife infrastructure in place to really make this will take off.
With that I say, thank you all so much for listening we're going to get to the Q&A now I know I ran a little bit over but I had so much to talk about today before we get into the Q&A last year's first half had COVID-19 testing in the second half we had a significant transition.
And startup costs, especially in Q4 this year formalized turns profitable in Q1, and we are investing significantly in the ramp up of nebula beta be therefore, we are an entirely different company.
This year from a financial standpoint, as we develop in 2024 compared to last year. Therefore, the goal of this call was the focus on this year's business plan not last year's financials, especially given that we're about to enter the second quarter last year's financials quite frankly are irrelevant, we were completely different business and business model we've completely.
<unk> now so for the analysts out there if you have any questions about last year's financials.
After you've had a chance to review our financials. Please don't hesitate to reach me directly I'll answer all your questions myself. If there are more complicated than what I can answer I'll put you on with our finance team.
And go over everything and glorious detail with you suffice it to say, we anticipate a significant improvement in the topline and bottomline sequentially each quarter moving forward, especially as we enter the second half of this year when nebula B to B is anticipated to truly ramp up.
And we have two wildcards as I mentioned with beef more on an equity here that depending on timing could be significant contributors to both the topline and bottom line and that's in addition to formalize, which is already profitable and should be growing every quarter, both topline and bottomline going forward and with that no ela that was a mouthful I'm going to stop.
I have to take a drink and happy to answer questions. If there are any.
Thank you so much for the presentation I will now begin the Q&A.
The first question.
Hello, Ted Thanks to you and your team for putting us in position to notwithstanding out of the park. My question concerns the competitive advantage of Nebula genomics and the WGS Arena. How important is the bio Informatics database Library, and New York USA location in your pricing.
Yeah, So frankly, they're all important and theyre all important to different customers or in some cases, all three are important to a given customer.
I don't think Theres lab in the world.
Literally that can offer the package that we have.
First of all in this country critically important that we have a laboratory based in this country. Several of the businesses. We're talking to now don't want to send their specimens abroad, especially after.
The issues at one of the big accessory companies with data leaks and all that stuff and that's also why I mentioned Sergio Marias.
Our head of IP, we have such a secure platform.
With his.
The cyber security privacy.
Privacy data.
Platform that he has built.
And then the fact that we're based in New York. The fact that we're reliable we are a great turnaround times.
The fact that we have great pricing.
The fact that we have George church behind us by the way as well as Russell Altman from Stanford.
We have.
Four platforms of the best not only do we have fourth platforms from the best companies, but because we're one of the newest labs kids on the block. We also have the newest and latest equipment from the best companies and as I mentioned one of those companies.
Has never sold one of their highly efficient large capacity machines in this country to anyone before before US. We're the first one to have no quote.
And we're ramping that up quickly so at our bioinformatics, we don't know a company in the world that has her bioinformatics. So we have companies from around the world that have access to distribution to our whole genome sequencing tests.
And I can't go into details because I don't want to teach the competition what we're doing.
But we have some enormous opportunities to distribute our tests around the world now on a <unk> basis based on the fact that we're using our lab now, which we're just ramping up.
And our bioinformatics that they couldn't access anywhere else and that package plus great pricing, which they then have room to mark up to their customers.
It's really I think can be explosive and in many ways. Its like the COVID-19 testing three years ago, where Jason is developing relationships with these b to b customer similar to when he had the the specimen collection partners, who did all the work at the consumer level. They made a lot of money in.
Doing that but we made a lot of money and it was just an explosive business because we provided the whole platform. This platform we built.
Is is quite serious it's quite substantial makes us quite unique and understand whole genome sequencing as a whole new business with people don't understand this literally as the Internet 20 years ago, not the Internet five years ago. This is a new business that 99% of consumers don't even know what holds genome sequencing. This.
But as the ancestry companies now start getting into health study in a very small percentage of your DNA.
Just imagine as we teach them with whole genome sequencing is that it's so in depth and we provide all these great reports and we can provide a financial package.
So competitive compared to a simple ancestry testing.
The Sky's the limit.
I'll also mention I don't know if I should mention Mr. Not well I'm going to mention this on future calls there are other avenues that we're working on I'm just touching the surface here suffice to say, obviously I'm very bullish and I hope that answers your question.
Thank you very much Ted.
Our next question is how large larger market should you take on for the last print during Q1 2024.
Okay. So for Q1 for Q1 for the first quarter there were about the exit right now.
Our run rate of revenues.
We haven't reported this I guess is the shareholders' conference call. So I can talk about this so we were $8 million to $10 million revenue company last year.
We encourage increased prices.
So we were just over 9 million last year, if you want to be more exact.
So we increased prices I, probably got us to $11 million.
We immediately started manufacturing already for one company, that's two and a half million that gets us roughly $13 5 million the.
The profit margins I can't I'll tell you I'm being conservative when I say, 20% to 25%. It's a very healthy profit margin for the business. The second of the two customers. We just signed it just a matter of the timing of when we start manufacturing their Los Angeles. It will be short term I can't tell you if it's going to be in one week or four week. So I can't tell you. It's before the second quarter for as soon as that starts.
Then word 15 16 million in revenues.
But now because of our autumn our automation equipment is working so well even before we introduced the second line, we may be able to expand our volumes further the truth of the matter is it's a profitable business is growing very quickly it doesn't really matter the exact week or month.
When we get to that next one or two or three or $5 million of revenues and the business is going straight up.
And the Sky's the limit and we're just starting with it and because of the demand globally is so great.
We have so many opportunities with different kinds of two global if either of our global brands that we've been working with for more than a year or decide to do business with us they could easily.
AD.
Between 10, and $40 million of revenues very quickly and more thereafter.
Yes.
Forget about formula as being worth 100 $125 million it could be worth $200 million. So it has that kind of potential. So how quickly another two or $4 million comes in I don't know I don't really care, where we're building to have capacity of $100 million, we actually have a three to five year plan does capacity of over $200 million alright.
Now I'm, not saying that we're going to build it ourselves.
But then you might have either private equity or strategic buyer Communist says Oh My God. If the capacity is going be that big let me just buy the whole thing now for 125 million because it can be it can be worth to me 250 or $400 million in a few years or let me bite now for 200 million because it can be worth 400 million. These are the types of numbers.
That I hope to be talking about and the type of strategies that I'm working on.
As we progress through the year and so understand also from a global brands perspective. They then have to ask themselves do they want to give us the business or do want they want to acquire the manufacturing facility, so or do we want to spinoff formula to the public maybe we spin off 20% do something like that do in IP.
With it I have all these strategic alternatives as the business ramps and as profitable I have lots of strategic alternatives that.
We will be figuring out with our investment bankers in the coming months. Thank you for that question.
Thank you Ted next this is a bit of a long. One question is the recent news about equity is preliminary study results show. The Eklavya helps prevent upper respiratory illness doing some research there is no product that claims prevention of the common cold all including vitamin C and zinc only help lessen the severity and duration of the Eliot.
Because there'll be able to claim that it helps getting the common cold.
Okay. So first of all.
There is no product out there that's an over the counter dietary supplement.
That will allow you to say cure the common cold claims like that will always be drug prescription claims so no matter how many studies, we do unless we're going to go through the FDA.
Which takes a very long time and a lot more clinical studies. There are certain claims you can't make we won't be able to make COVID-19 claims we won't be able to make your claims other than that there are lots of other claims that I believe we are going to make.
When we get the final results, assuming that theyre consistent with the preliminary results.
So and the preliminary results Theyre already on 159 patients, which most other companies. Most most other products 159 patients would be more than they would even study so as far as I'm concerned that's complete study by itself, where we got phenomenal results, but where we really want to be airtight. We also wanted to study two.
We tested two ways one as a preventative so that you take a daily the other is a therapeutic meaning if you catch a cold flu virus I.
I won't be able to say COVID-19, but you know we.
We got results on Covid patients too so I can't say the COVID-19 claim, but the facts are the facts and the studies so let's see what the final results are but the bottom line is.
At least what we're learning is its a broad based antiviral we may not be able to make a broad base antiviral claim on the packaging, let me be perfectly clear we are not currently marketing the product. So class action attorneys were not even selling the product yet alright, but.
We are very confident in what the product does we will figure out what the wife claims are to put on the packaging when we roll it out after we complete.
This.
Two pronged study that is going to be completed shortly.
<unk>.
Thank you Ted next prophase still have an investment position with lantern pharma.
We haven't disclosed that so I'm not going to disclose disclose that now.
And.
I don't think it's appropriate for me to discuss other companies on this call. We did have a substantial position at one time. The reason we made that investment as we were looking at strategic possibilities with that company.
A long time ago that did not happen.
And I'll just leave it at that but we had a substantial position obviously the stock is up.
And I'll just leave it at that for now.
Obviously with the stock up if we sold some stock it would be a nice windfall.
Excellent. Thank you for that response.
Your next question is what is finalized we now have two new additional large potential customers in late stage discussions how long is the sales cycle from the time you receive an inquiry until the time you are recognizing revenue.
Boy, that's a great question. So it's interesting smaller brand smaller companies. The sales cycles can be very quick these larger brands take a long time, so I'm not going to mention their names.
It doesn't matter who they are.
But first we did an enormous amount of formulation work.
Then one of the brands once they were happy with our formulation work Theyre ready to go they said Oh, but we can discuss this further with you until you have your FDA inspection now FDA inspections that.
Manufacturing facilities typically happen once every two or three years.
So we have to wait for that then the FDA inspection comes back no citations, because we happened to be a fantastic facility, we've been around for decades.
We know what we're doing we're one of the most reliable.
License manufacturing companies in the world.
And so we finished then they say okay now we have to do a full audit.
After they do their internal want us and they say okay. Now we want an external company to what they did a forward. It then they say okay. Now we need to review the results of the independent auditing company and they review that was all suddenly have questions. Then we answer the questions and then we get to the final say, okay. What do you want to do.
So it gives you an idea of what we have to go through so in that one example, we are very late in that process late.
Eight states and those discussions the same thing with the other global brand. So how quickly they move now there's still very very large companies will see.
Lots of tell you, though that ultimately they can be in competition with each other.
To get capacity in our manufacturing facility because again, we're building the capacity as quickly as we can but with our current capacity. They they can to work with in order. They can dwarf our current capacity either one of them. So if we sign up with one of them and they lock in that gave us some money up.
Want to lock in some of that capacity the other one even if they want to do business with us. They may have to wait. So we continue to build the capacity. So it's a really interesting situation environment to be in and we will just have to see how it plays out at the same time, we have two other significant lozenge lines, maybe not quite as large who have been developing with us.
And so that's why I actually announced that we went from two to four significant brands that we're now in discussions with the other two could move much more quickly, although the first or the global brands, we've been working with him for so long and in effect. They could move very quickly now too. So we'll just have to see how this all plays out. So we're building capacity as quickly as we can.
We think that there is significant demand as we build the capacity and it's a great place to be.
Thank you Ted Your next question what quarter do you expect to become profitable.
It's a great question.
And I am not going to give you an answer because.
Formulas.
<unk> is profitable now.
Developing our beef smart cancer test.
<unk> product.
And some other smaller projects that I don't need to get into on this call, but most importantly nebula.
When we decided to build up a lab and the way we're building out the lab now we are absorbing an enormous amount of expense to build it out rather than send our specimens abroad.
The long term.
Opportunities are enormous because we made that decision, but in the short term, we're losing money at nebula, how long we lose money for it depends on how quickly the <unk> business ramps up because the D to C business. We could've just sent all those specimens abroad and never had a lab never had any of this infrastructure over it the reason why we're in.
<unk>. This is really the same thing that we did with Covid three years ago, we invested heavily in the Covid lab, but an enormous amounts of equipment enormous amount of consumables.
Spent an enormous amount of money and then paid off.
And in a dramatic way now we're doing the same thing with nebula. The difference being Covid was two years of testing and Covid is over now the reimbursement rates are close to nothing nobody cares theres no more her so there is no more public health emergency that business is over we got out of our business.
For all intents purposes entirely and so we decided to exit the clinical lab business because this is so.
<unk> opportunity is so enormous but understand we're investing in a lab where in effect. We don't have revenues associated with it yet because all of that could have gone to the labs abroad that we're working with and so when you look at it that way, we're investing in and building a world class lab and so then the question is how quickly do these.
B to B deals first we have to sign them and then we have to get all the infrastructure in place we have to figure out a game plan and then it has to rollout that's going to happen in stages I can't tell you how quickly that's going to ramp up once it ramps up.
The value of Nebula.
I believe could be enormous I don't even want to put numbers on it I believe it's going to be enormous so we invest.
<unk> or tens of millions of dollars nebula and the payback is 50 or $100 billion in revenues were $200 million in revenue I don't know what the numbers are going to be I. Just know that the numbers are going to ramp up overtime and nebula is can be incredibly valuable if nebula was its own stand alone startup company.
I would suggest you that venture capitalists might value is that 50 or $100 million right now, but because we're part of a public company and people want to focus on the earnings right now, but you have to understand you have to look at this as a startup development stage company and focus on the <unk>.
Canoe ramp and the opportunity, it's like a startup Internet company that becomes worth $100 billion in its first five years probably to make profit.
So profit is a very.
Subjective thing to focus on but we're profitable formula of up obviously.
Lee as those profits grow they can contribute to building out and that would be all of it but at some point Nevertheless can explode.
So I hope and then in the meantime, we are our accounts receivable with money continues to come in every week from our accounts receivable that also helps fund all of our development. So we're in really good shape right now to build some very valuable businesses.
Thank you very much Tim next.
Next we have a question from Hunter Diamond from Diamond equity Research can you discuss the sales process for the PCR test would you sell directly with the sales force or plan to partner with pharma what is a great question.
And profit margin for similar products to this I'm sorry.
I apologize for cutting you off so but I did get the whole question first of all we can we can go in several directions, we have to see one example.
There is a multibillion dollar cancer testing company out there that might be interested in just taking this off of our hands and paint us a block of money upfront and a royalty.
That's one possibility.
There just may be a company out there that's waiting for our final statistical analysis, which is why we hired an independent.
Well renowned company to go through all of our statistics and you got to understand the amount of data. We're talking about is enormous it takes a month or two not a day or two to go through all of this data and when all this comes together and because we have this new package design for green yellow Orange Red.
It's a really exciting prospect for this test so one possibility.
We just do a deal with a major cancer testing company.
Another possibility is that when we met with a large insurance companies.
They told US there is a possibility that they will mandate. This test I don't know that that will happen or not but it's a possibility because it saves them billions of dollars why wouldn't they.
No yes, it's nice it will also save lives and also give people.
That have barratts esophagus tremendous peace of mind that you know you're a low risk because otherwise one in 50 or one in 100 people with better esophagus will get a stoppage of cancer, which is close to a death sentence. Unfortunately, so if you're a barrick sotheby's, but we say low risk that's incredible peace of mind, but.
Let's face it insurance companies what they care about is the bottom dollar it will save them a fortune if they mandate. The G is to use our test and again. She is they are dying for a test because right now insurance companies don't want to Reimbursable, an ablation procedure in the the G. I want to give this ablation procedure to everybody.
So it's a really interesting dynamic where task it fit in perfectly there's no competition for a test in the world. There's no test in the world that does what our test us.
Thank you Ted just my humble opinion.
Next question.
Al you CD Hasnt as though check test, which is a simple tool, which allows precise targeted collection of lower stoppage yourselves or pre cancer testing how does this compare to be smart.
That's.
A preliminary test if you think of it we're probably more.
We're not I don't think of us as competitors at all if anything that's a test that you would you would do preliminarily before doing hour test alright.
Their test I don't really want to talk about competitors.
Being honest with you they're not competition they can't make any of the claims that we make theyre not theyre not in the business of high risk low risk esophageal cancer assessment, they don't have our proprietary.
Proteins that we discovered.
That we're using.
There's no comparison right now that's not to say that there isn't potentially a place for their test early on in the process when you're first getting GERD gastroesophageal reflux disease, but the test honestly.
Just because we're in the same industry doesn't mean, we're competing against each other but very little income.
Other than the fact that we're in the same esophageal cancer testing industry.
Thank you for that response, we're coming up on your last two questions. The first one is what is the size of the Mena deal and are there growth opportunities.
Sure tremendous growth opportunities, it's a little complicated.
First of all the region is complicated because we know we're developing a lot of relationships over in the Mena region. Secondly, it's complicated because a lot of these companies are actually working in collaboration with each other.
I didn't put numbers into the press release, but I am optimistic that we have more deals coming and with the other deals.
There may be guarantees in them and the dollar amounts could be substantial so.
Wedding everyone's appetite with this deal because I wanted it to be in this press release to understand that this is now that we're actually ramping up we talked about building. The <unk> business, we talked about the conferences previously, but now we're actually starting to sign deals and not to say that we don't have other <unk> deals that were not already doing.
We're already doing b to B business, but understand the size of some of the deals. We're working on now are enormous or game changing so I'll have more to talk about.
I promise you I shouldn't use the word promise I anticipate that there are more deals coming and more updates coming with nebula not only in the long term, but in the short term I can't tell you, whether that's weeks or months, although it wouldn't surprise me in Sweden, where we have a lot more coming with nebula I'm really excited to share more with you that we're just getting started here.
Thank you so much Ted and Aaron.
Last question is how do you plan to compete with the major labs and Danny companies, such as Quest and twenty-three me that are offering low cost WCS and W. E. S services now.
Great question, So first of all.
Quest Labcorp completely different business and 23 and me alright.
Second of all again, the ancestry and I don't want to talk about 'twenty. Three me in particular, I don't I don't want to talk about data breaches.
I'm just going to tell you ancestry companies in general.
Our study in less than 1% of your DNA their ancestry testing companies right. So now they are talking about getting into health.
But with a test that <unk> I mean is it just no comparison to studying 100 virtually 100% of your DNA. The health insights. We get are so much more accurate in depth. There's just no comparison, if you want health related information if you know anything you.
You don't have to know anything we're going to we're going to teach you. That's one of our jobs is we're going to teach the public just how great. Our test is compared to an ancestry desk. If you want health related information the ancestry companies, who are trying to get into it theyre not going to get into it.
A serious way in the long term if they don't have a whole genome sequencing, which can be a lot more expensive, but if they don't have a lab doing the whole genome sequencing, we're the low cost provider.
So how are they going to compete with us even if they get into actual whole genome sequencing theyre going to have to send it to our lab or another lab like ours.
Now looking at quest or Labcorp, there are huge companies, but whole genome sequencing as a new business. It was so expensive historically it wasn't a business for a big lab to do because it was too expensive what they had to offer the cost you know.
What they were charging for whole genome sequence like $1000 now I think there was.
What we're offering for $200 or offering for 678 $900. That's also why all the.
B to B deals are starting to form with us and why there is so much excitement out there because a lot of these are distribution companies, who can come to us for a fantastic whole genome sequencing test.
At a lower price than any other virtually any other lab in the country if not in the world.
And they can mark it up so they can handle all the distribution, we don't have to get involved there and the numbers can be huge now at our bioinformatics, who owns our bioinformatics twenty-three meet dozens.
Quest and Labcorp don't during the quest wondering within the business.
For them to build out our labs can take a couple of years and it's even more complicated because they may never be able to get the equipment that we already have in this country for reasons I'm not going to go into.
So quest and Labcorp theyre going to be competitors, there can be competitors in two or three years not today, they're not even in the business that we're in right now.
<unk> asked them, what a quest for whole genome sequencing tests with no reports just for the data.
Now ask them about the reports as a widow reports alright. They don't have 340 reports the goal along with a whole Jay there's no comparison so.
It's good question, but what.
What that highlights is the enormity of the opportunity we have.
Right now with this business as far as I can tell them, we have no real competition and the last thing I'll tell you is the few labs out there that could be considered competition to us. They are developing really bad reputation is really quickly.
Telling you that they have a.
Six week turnaround times, and they're not getting the results.
Customers aren't getting the results six months later.
The pricing that they charge a significantly greater they make it in there as they make it sound better one of the things. We're doing is we're revamping our ads and how we present because our actual prices significantly lower when you include the reports, but what they do is they they teach you by giving you a price that's lower than the cost for them to see.
<unk>, but the reporting that they tag on is enormous and when you put it altogether, what they're charging is dramatically more than we are so there's a marketing game here, we're not aware of any real competition with our pricing and our reports in this country if not in the world there might be another lab in the world that can compete with.
On price, but they don't have our bioinformatics.
So there's some really interesting dynamics going here, we're really well positioned quest and Labcorp I'm not even close.
Close to being competition to us and the truth of matter of two years from now when they went against the business, they're more likely to buyer allowed them to start trying to figure it out and build it.
Great question. Thank you.
Thank you so much Ted first sponsor that concludes the Q&A session, but before we go allocate macro.
<unk> for final remarks.
Thank you Noel.
Your holders and potential shareholders.
I really appreciate your support.
I'm the largest shareholder in the company people.
I consider it would be very close friends have been investors alongside of me that I have had relationships with 10 2030, even longer 30 years and more and they have been investors with me in this company since I was an investor and I wasn't the CEO and they have all seen what I have done after becoming CEO in the bottom line is over.
Long periods of time, we execute we always has it doesn't mean every project. We work on is going to be successful, there's no reality to that and the one thing most investors don't understand this very big difference between an investor and expecting versus being the CEO and actually having to do and the bottom line is if you're managing a portfolio you invest in <unk> stock.
All 10 don't work out well the same thing happens as the CEO, making strategic decisions. They don't all work out we acquire businesses. They don't all work out and so what I'm constantly doing in our management team is constantly doing is figuring out how to best optimize the upside of our company on a per share basis. So.
Of that one two and three years from now.
Our shares are even more valuable I can't control the stock price, but I can continue to build the underlying value.
So formula Perfect example, I never talked about four months before the last few months.
We've been working with our management team for more than a year on it but I never talked about it until.
I saw the light at the end of the tunnel and I saw it all coming together and so that's why now I talk about I'm. So excited about nebula, we've been talking about for a long time, but we've been talking about that as a D to C business and wanting to build their own lab, we have a completely different infrastructure and game plan and direction now than we had in the past.
And the lab cost a lot of money to build but it pales in comparison to the opportunity at the same thing as COVID-19 the only differences.
Over three years ago think equity gave a 37 $5 million and so nobody even paid attention to is losing money for a quarter or two and then it ramped up and exploded. So nebula I expect the same thing to happen I. Just don't know the timeframe is what it's going to happen I actually think that the opportunity nebula is larger than what we did in COVID-19.
So we'll see how that all plays out and again, the two wildcards as I mentioned, our beef smart esophageal cancer tests.
It's not an operating business today, so I don't know how to judge the risk reward, but I can tell you the test works.
The clinical studies are fantastic. The results were fantastic. It is a sorely needed tests, which has no competition.
And so it seems like one way or another it's inevitable to be a very big deal I, just don't know when but that's the surprise factor, but when you have an underlying asset like formalized that could be worth more than the market cap of the company today. It certainly should be by the second half of this year. If you have that as the <unk>.
One side and then you have nebulizer, we're investing and the only reason we're investing so aggressively and the only reason we exited the clinical lab business was to build nebula aggressively just.
Think about why we're doing this we're not doing this to play games with tell stories. This is going to be very big. So we didn't have a lot going on I'm really excited about the future I really appreciate all the long term shareholders everything I do I learned from my decades working on Wall Street.
What's the value of the company today divided by the number of shares outstanding what's the value of the company 123, and five years from now divided by the shares outstanding than I always think terminal value on a per share basis build the value of the company longer term back when we made a lot of money in COVID-19.
They know what to do with it still came down we bought back stock and paid special dividends now we're investing in building a business because it's got enormous growth two businesses have enormous growth potential alright, what happens in the future when the revenue starts to really take off again, who knows.
A year from now we could be paying special dividends and buying back stock or spinning off assets or doing all kinds of fun thing. That's the goal to get to the point, where we're back half than front again, I don't think we're too far away from Manhattan.
I know it was a little long winded today, but its the only once a year that we got a got to have everybody together like this quarter, we will probably do a quarterly call like this everybody can let me know if they liked this format better.
Using the rent Mark I, certainly do rent Mark <unk> once a month, if you want regular updates reach out through Red Mark and sign up and then separately on the quarterly as we may continue to do them. This way as well because that way I can show the slides and I think it's better yes, I can't hear your actual question, but I love working with Noel and she does a great job.
Asking the question.
With that have a great day I wish you all the best of luck novella.
Hand, it back over to you and thank you.
Thank you everyone for joining us today for the pros.
S labs fourth quarter and year end 2020 results once again trading on the NASDAQ under the ticker symbol PRP H H and for the next quarterly call in Phoenix time.