Precipio, Inc. (PRPO) Earnings Call Transcript & Summary

Welcome to the Precipio, Inc. Shareholder Update Call and 2020 Kickoff. [Operator Instructions] Please note, that the conference is being recorded. Statements made during this call contain forward-looking statements about our business. You should not place undue reliance on forward-looking statements as these statements are based upon our current expectations, forecasts and assumptions and are subject to significant risks and uncertainties. These statements may be identified by words such as may, will, should, could, expect, intend, plan, anticipate, believe, estimate, predict, potential, forecasts, continue or the negative of these terms or other words or terms of similar meaning. Risks and uncertainties that could cause our actual results to differ materially from those set forth in any forward-looking statements include, but are not limited to, the matters listed under risk factors in our annual report on Form 10-K for the year ended December 31, 2018, which is on file with the Securities and Exchange Commission as well as other risks detailed in our subsequent filings with the Securities and Exchange Commission. These reports are available at www.sec.gov. Statements and information, including forward-looking statements speak only to the date they are provided, unless an earlier date is indicated, and we do not undertake any obligation to publicly update any statements or information, including forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Now let me hand the call over to Ilan Danieli, Precipio's CEO.

Thank you, and good afternoon, and thank you for joining Precipio's 2020 kick-off call. The purpose of this call is to share with you our vision for 2020, and how we see the company developing. During this call, I will touch on a few key points: First, our overall strategy. We currently have 2 sides to our business, the pathology side and the product side. How do they interact, coexist and feed off each other? What are the company's strategy in terms of focus, growth and resources? Second, the financial impact of our strategy and company structure on our share price and market cap. And lastly, I'll share a few strategic initiatives that we were working on, which if successful, may have a very positive impact on company value. So let's begin with our company's vision and strategy. Precipio was founded to battle the problem of disease misdiagnosis. This has been our mission since day 1 and remain so. As you all know, each year, hundreds of thousands of cancer patients are misdiagnosed worldwide, enduring pain and suffering, not to mention the waste of billions of health care dollars. Precipio has successfully created products that address the problem and substantially reduce, if not eliminate, both human tragedy and the loss of billions due to misdiagnosis. Our vision remains the same. It's why we get up in the morning and are excited to come to work. And I know it's also why many of you have invested in our company: to share in the success, both emotionally and financially of being a part of a company that impacts the problem that touches us all. Our aspiration and drive in starting Precipio was to build the most accurate diagnostic laboratory in the world. According to published industry data, approximately 20 in 100 blood-related cancer patients are misdiagnosed. Precipio in comparison has reduced the number to less than 1 in 100, delivering an accuracy level of above 99%. The opportunity for Precipio lies in delivering these impactful solutions and products that enable commercial labs to lower costs, improved turnaround time and most importantly, eliminate these diagnostic errors and save lives. How do we do that? First, through the unique collaborations we developed with our academic institution partners to bring together some of the world's best-trained subspecialized experts who diagnose our patients' cases. Second, it is a combination of various technologies developed by us in our lab, which address the problem of misdiagnosis. Building on these combined technologies and resources, our laboratory not only delivers substantially improved clinical accuracy, but the lab has served as a product development incubator, enabling us to explore and develop proprietary products and solutions. We then move them from concept to development, and now to the rigors of mass testing volumes in a commercial environment. In short, we have successfully combined diagnostic technologies with scientific academic excellence to develop and commercialize products that mitigate laboratory pitfalls, leading to misdiagnosis. These solutions, our products, are worldwide commercial solutions. IV-Cell and Hemescreen are 2 examples. We have been using IV-Cell in our lab since 2016. Last year, we felt it was ready to be offered commercially, and so we began to approach potential customers to gauge their response. I'm a big believer in walking before we run. So rather than attack the entire market, we initially went out to a few select potential customers to learn how they would react to our product. The response confirmed our beliefs. Anyone in sales knows that a 50% hit rate, meaning that half the customers are interested and the other half may not be, is not a bad hit rate. With IV-Cell, nearly every customer we approached was interested in further evaluating and testing our product. Our experience in the commercial lab enable us to recognize shortcomings of existing products of the market, which is why we decided to develop our own products. We speak the same language and empathize with the same struggles that out -- our potential customers face. Coupled with data showing the substantial improvements that we experienced on hand in our lab, this yielded a very positive response. Now this doesn't mean that every sales call turns into an order the next day. I have said this before, introducing a new product, such as IV-Cell, is a complicated process, and it always takes longer than we all want to. But we continue to move forward with each of these potential customers and are making progress on bringing in new customers, much like our recently announced first one, Northwell Health in New York that manages 23 hospitals and 750 satellite offices. I'd like to take a moment to share with you a bit about what this means behind the scenes for our company. Precipio has always been a service business, providing pathology services to customers. As we evolve, leveraging our service business into a product company, we recognize that a successful product business requires a different set of operations than running a lab does. As we continue to develop proprietary solutions, bringing the best ones through to a commercial product, we began the process of building internal capabilities to support the product business. For example, in the areas such as product support and various supply chain functions. We are also focusing more on our R&D team and on our product development process to build a pipeline of innovation that will translate into a continuously growing suite of products. From a commercialization standpoint, once IV-Cell and our company were market ready, in early December, we initiated an IV-Cell blitz program to begin building a sales funnel. Our sales team was given around 100 verified and qualified leads to approach. Within less than a month, we have connected with 30 of them, and all expressed interest in hearing more. 30 meetings and presentations are currently scheduled to take place this quarter, and my estimate is this number will double by the end of the quarter. The response rate has been very encouraging. And like with any new product, we anticipate that early adopters will quickly embrace this product to become among our first customers. We've reassigned people within our team to provide the necessary technical support to our customers. We are also in the process of setting up a fully digital inventory management system as well as a new section on our website for customers to place orders online, track and manage their product orders. Alongside our important pathology business, we are becoming a product company, to capitalize on the technologies we developed in our lab. Let's take a few minutes to think about what this means. Our pathology services remain a critical foundation of our business. It's how we experience the challenges of a laboratory, and this is where new ideas are born, which, like IV-Cell and Hemescreen, ultimately develop into new products. By the way, I know we've been quiet about ice-COLD-PCR for a while. That should not be misinterpreted as us passing on the technology. Quite the contrary. We actually believe there are several areas where the technology could be extremely powerful and valuable, and we expect this year that ICP will come back. More on that to come. We believe that the product business complements our service business and should generate healthy, consistent margins. For the most part, it's a recurring revenue business. While it is a complicated and lengthy sales process, once implemented, our process become essential to our customers' process and workflow. With a total available market potential exceeding $100 million worldwide for each, IV-Cell and Hemescreen offer huge revenue potential for our company. The product side of the business could be extremely attractive from a revenue, margin, cash flow and stability perspective for the company's future growth. It's easier to forecast because customers' volume are, for the most part, relatively stable. So it makes it easier for us to project and plan accordingly. We are projecting that by the end of the fourth quarter of 2020, annualized revenues from products will be equal to, if not exceed, revenues from the pathology business. Let's talk a bit about the financial impact of our strategy and company structure on our share price and market cap. It is our view that our cost structure and the frugal manners in which we manage our cash and expenses, is such that the threshold for profitability is within reach. Now it will take a lot of things to happen and work well in order to get there, but I do feel that we have that target in sight. Our goals for this year is to get the pathology business to break even and add new, same-sized revenues from the product business. I believe we have the ability, if we execute on all synergies as we hope to, to reach run rate breakeven in the next 12 to 18 months. Now I'd like us to imagine what that company looks like and what its value might be. A company with a superior diagnostic service that saves lives and tackles $1 billion challenge, facing the health care industry. And in addition, has several proprietary technologies that outperform the competition and therefore, have the potential to rapidly gain market share. When mature, these products have sizable existing markets and healthy gross margins. And imagine that this company is also cash flow positive and rapidly growing organically with the ability to support its growth through its own cash flow without the dependency on outside capital sources. Our plan is to continue to leverage our platform, which enables the commercialization of proprietary technology solutions to aid in reducing misdiagnosis. The result, we believe, is a very unique and valuable business. Lastly, I'd like to discuss some of our strategic initiatives. As I'm sure you understand, until these initiatives are finalized and can be fully disclosed, I'm limited with details that I can share. However, it's important that you know that our team is working tirelessly, not only on organic growth, increasing the products pipeline and closing deals with labs to become customers for our products. We are also working on strategic initiatives that can dramatically impact our company growth in the near future. These initiatives are focused on one goal: revenue growth. And all 3 initiatives are intended to be completely non-dilutive to shareholders. It is management's view that none of these initiatives will require any substantial financing. The first strategic initiative is targeted at accelerating our pathology patient testing revenue through strategic alliances within the diagnostic industry. This growth will enable us to significantly increase revenues, leverage our fixed costs and increase gross margin. The second strategic initiatives entail securing a relationship with a key global market leader that will dramatically accelerate our sales, both domestically and internationally. The third initiative involves our new data product, led by our Chief Strategic Officer, Ori Karev. While in early development, we formulated our proprietary algorithms and migrated them into an artificial intelligence platform. The goal is to create a product that assists in the clinical evaluation and determining the correct diagnostic testing process, ultimately improving accuracy and lowering testing costs. We are encouraged by preliminary results from the initial computer model and believe that this AI-based product could provide a substantial impact on the delivery of patient care. It also happens to be one of the hottest intersection in health care, pathology and artificial intelligence. I want to remind everyone of the obvious, that this is very difficult to gauge and guarantee the time line and success of development work. There's a possibility that our initiatives may not yield the results we believe in. I have always stood behind our belief to provide as much transparency to shareholders, but the counterweight is that I expect you all to keep an open mind to the possibility that in business, much like life itself, things don't always happen as you expect them to. What I can assure you is that, a, we will always do our best to execute on our task and objective in order to maximize shareholder value; and b, we will continue to be transparent about our progress. In summary, we believe we will transition from a turbulent 2019 to strong, rapid and consistent growth in 2020 and beyond. Our commercial team is well positioned to both continue growing our pathology services offering as well as continue to expand the commercialization efforts of our products. Seeing our pipeline of potential customers and hearing the response to our product value propositions, I am excited for what 2020 holds in store for us. Our new business model was tested last year, and now it's time to put it into full gear. From every perspective we look at, it makes sense, not only from good -- to business, but also economics. It seems the best way to capitalize on our assets and transform them into shareholder value. Finally, on this day, I'd like to share with you one of my favorite Martin Luther King quotes: "Faith is taking the first step even when you don't see the whole staircase." I think we have not only taken a few of these first steps, we're actually reaching the point where we begin to see the whole staircase. The path of delivering clinical value to patients, doctors and laboratories and in turn to our shareholders is an excited one, which I think this year will have a big impact on. Wishing you all and your families a healthy and prosperous new year. Have a nice evening. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.