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

Welcome to the Precipio quarterly shareholder update call. [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, forecast, 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 and for the year ended December 31, 2019, 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. Please go ahead.

Thank you, Sarah, and good afternoon, everyone. I'd like to thank you all for joining our Q2 2020 shareholder call. This has certainly been an unusual quarter, one where the world has changed in ways that none of us could have anticipated. Many businesses and millions of people have been hit hard by the COVID-19 pandemic. We've all had to learn how to interact and conduct business in a new environment and in a very different manner. For many, survival has been the goal during the past 6 months. So it is within that context that I'm delighted to share with you some of the incredible progress that our company has made in the second quarter of this year. During this call, I'll provide our investors with a quick overview of our company core businesses and share the progress we are making in each of those businesses. I'll also discuss some of our plans going forward as well as, of course, address our COVID-19 initiative. But before that, for the sake of many of our new shareholders, let me begin with our company vision because that's what drives all of this. We started Precipio almost a decade ago with the vision of building a company to battle the unacceptable problem of disease misdiagnosis. We decided to focus on the scariest word in health care, cancer, an attempt to make an impact on patients' lives. Within cancer, we focused on blood-related cancers, which according to numerous publications, reaches rates of misdiagnosis as high as 25%. Over the years, we developed a platform that combines the highest quality of laboratory professionalism, advanced technologies and academic expertise with world-leading institutions. The company's dedicated focus and hard work has resulted in delivering a diagnostic accuracy rate of close to 100%. Our business is built of 2 core areas: the first is our pathology services; and the second is the product side of our business. Let's begin with our product pathology services. We provide clinical diagnostic services to our customers, who are oncologists and hospitals benefiting from the combination of our CLIA-certified specialized laboratory and our expert subspecialist academic pathologists. We employ a dedicated sales team that goes out to our customers and presents our value proposition. And as you can see from this quarter results and our previous quarter, even under the current environment, we continue to rapidly grow this business. During Q2, we successfully executed on the transition of the Oncometrix customers and their integration into our company. The increase in our customer base, along with the addition of new customers, have impacted the growth we shared with you in our recent filing. Going forward, the diagnostic services side of our business is tasked with one goal: continue to drive the growth in order to scale up and reach profitability. As the company continues to increase its volume, margins will improve, which drive cash to the bottom line. We believe that the results we see are testimony to the success of our team in sharing our value proposition and the market acceptance of the quality we deliver to oncologists and to their patients. With that progress, we move closer and closer to the goal of reaching profitability. The second part of our business is the product side. Over the course of the years, as we operated our laboratory for the diagnostic services we provide, we identified several opportunities to improve both the accuracy and efficiency of laboratory processes by developing novel technologies. IV-Cell and HemeScreen are 2 examples of those technologies, which we developed, patented and have been successfully used in our laboratory for the past couple of years. Last year, we began to commercialize our IV-Cell and HemeScreen technologies and bring them to market, so that not only our patients being diagnosed in our lab would benefit from these improvements, but rather that other laboratories could also implement the same technologies, achieving broader impact both for patient care as well as financial benefits to the company. Like any new products being introduced to the market, there are always bumps on the road and things you learn from that process. Fortunately, we are an adaptive company. We've listened to the market and addressed those issues. I'd like to discuss some of the changes we've made over the past 6 months. First, with IV-Cell, we received feedback from some of the major laboratories we are working with in the market and as mentioned previously, we embarked on the development and launch of version 2 of the media. We will go through the final stages of testing and expect to have a market-ready product at year-end. Additionally, we've been exploring several strategic partnerships in order to utilize existing distribution channels to bring this product to market. We believe that version 2 will provide even more value to the laboratories we've been working with. We also believe that a distribution partnership with a company that is already selling into these large laboratories is the right way to go in terms of quickly bringing the product to market by leveraging an existing sales force and distribution channel rather than building our own. Our goal is to accelerate the adoption of our products in the market. We expect to share with you in the near future more on this strategic partnership and our go-to-market strategy for IV-Cell. With respect to HemeScreen, in addition to our target customer segment of laboratories, we've identified a new segment, the physician office laboratory. In particular due to COVID-19, physician offices have been struggling to improve quality of service, efficiency and generate additional revenue. And our HemeScreen Reagent Rental model provides the perfect solution. Our internal sales team has already onboarded several customers and we have a strong pipeline. With HemeScreen as well, in addition to our internal sales effort, we've recognized that development of a strategic partnership with a major player that has an existing distribution channel in this segment can be advantageous to a rapid introduction of our products to the market. Therefore, much like with IV-Cell, we anticipate developing these strategic partnerships to accelerate the penetration of our products into the market. We believe that the next 12 months will show, alongside continued growth for both businesses, a substantial shift in the balance of revenue between diagnostic services and product sales. And given that the product side of the business delivers very healthy margins and cash flow, we expect that to have a significant impact on the company's financials. Now let me turn to our COVID-19 testing initiatives. I know there were many questions about the technology, regulatory and business landscape, so let me try and address some of those questions that were sent in and then discuss our market rollout. I'll begin with the regulatory landscape. In ordinary times, when a company wishes to submit a product for FDA approval, the typical time line for the processing of the submission, up to and including potential approval of the product by the FDA, may take anywhere from 2 to 5 years. During the COVID-19 pandemic, the FDA utilized the emergency use authorization process, called EUA, and created an accelerated process to grant authorization to companies who wish to develop and rapidly introduce serology and other tests to the market. During the first few months when the pandemic breakout earlier this year, the FDA issued several EUA permits to various types of diagnostic tools for detecting either the presence of the virus or the presence of antibodies. There are 2 main types of diagnostic test for COVID-19. The first is to test for the presence of the virus. This is usually done by collecting a sample using a nasal swab and recently, there have been a few new products that use a saliva sample. Those samples are collected and sent into a laboratory, which typically runs a test using a testing platform called PCR. This test indicates whether the person has contracted the virus at the time of the test. It does not indicate whether the person will develop symptoms or get sick. It only indicates if the person has contracted the virus. The second test type is the antibody test. This is the one we took interest in. Once the body has been exposed to a virus, it begins developing its defense mechanism, which includes the creation of antibodies. Simply put, initially, those antibodies will work to get rid of the virus present in the person's body. But after that, the body creates antibodies that form a type of preventive shield, if you will, so that if the person is ever exposed again to the same virus, this shield will keep the virus out and not allow for infection. This is basically the so-called immunity. Research has shown that the antibodies typically appear in the body anywhere from 1 to 3 weeks after exposure to the virus and that they remain in various levels in the body long term. So in theory, the presence of antibodies will indicate that the person is immune, and therefore, will neither contract nor transmit the virus. Needless to say, this information would have vast implications on the society's ability to open the economy and resume some form of normalcy. The test is conducted by a blood sample, and as of now, the FDA has authorized testing only in the laboratory setting. Therefore, people wishing to be tested must get a blood draw and the sample is sent to the lab for testing. For our test, the testing time from start to getting result, is approximately 10 minutes. The test was designed to be used both in the laboratory environment, in a point-of-care, or for self-use. It's important to emphasize that as of now, the FDA has authorized it only for use in the lab. We initially began working with a company who have filed for EUA approval with the FDA for its serology test. As the process proceeded, we began to realize that there were question marks around their product receiving EUA, and so we quickly developed its IND, which we recently executed on. As we recently announced, we've partnered with ADS Biotec by signing an agreement with them to distribute the FDA-authorized COVID-19 serology antibody test in the U.S. as well as other markets worldwide. As mentioned, the FDA is currently providing EUA authorization only for tests that are conducted strictly within laboratory setting. Therefore, our first step was to offer the test to our pathology customers, the first customer base who will provide this test to their patients coming into the practice every day. This first step was launched a couple of weeks ago and has received strong acceptance. However, it's no secret that there's a huge gap between laboratory capacity in the U.S. and the number of tests needed in order to enable the economy in the U.S. and worldwide to reopen and for all of us to resume a normal course of life. We strongly believe that the next natural and logical steps to reopening the economy will be for the FDA to expand the EUA authorization to both point-of-care and, ultimately, to allow for self use of these tests. Our serology test was designed to ultimately serve as a self-administered test, and we believe our product is well positioned to serve that demand. Over the next few weeks, we will be completing the study that we began a couple of months ago in order to demonstrate the quality of our tests in a point-of-care and self-use environment. We are confident in our product's ability to meet the necessary standards that the FDA has outlined for these applications. Many of you have asked why we haven't shared the results of the study. Part of the reason is that the study is not yet complete. But additionally, the FDA also frowns upon companies publicizing results before allowing the FDA to review them first. Therefore, we want to make sure we follow the processes outlined by the FDA and that we comply with their requirements before we provide additional information to the public on the study results. We don't know when the FDA will expand the utility of these tests and allow companies to submit applications for expanded use for point-of-care and self use. However, we believe, based on the dialogue with the FDA, that this is a question of when, not an if. Our goal is to be in a position to have the data from our study ready and to hit the go button as soon as the FDA opens up this option. From production capacity, we are currently able to generate 1 million tests per day. In parallel, we will be aligning our various distribution channels for these new potential uses of the test kit for both point-of-care as well as self use, so that once we have the expanded EUA for these applications received, we will have distribution in place and ready to go. In many ways, the COVID initiative can be viewed by some as a distraction from our core business. As you can see from our quarterly results and by the ongoing growth this quarter as well, I hope our shareholders appreciate that we have not taken our eye off the ball with respect to our core business and continue to grow those areas of our business alongside our COVID initiative. However, we also believe that this can be a huge opportunity to generate value for shareholders. Furthermore, we feel that as a member of the health care community and a diagnostic company, we have a responsibility to contribute to the battle, given the tremendous testing deficiency in the U.S. In summary, I feel we've positioned our company not only to overcome the challenges we face in the new world we live in, but we are also in a position to capitalize on these situations, gain market share and bring our products to market in an economically advantageous manner. Midway through the summer, we continue to see the same growth levels, and we feel that the contribution with COVID testing will bring to our business and to our bottom line may be a tremendous opportunity. We will continue to work hard throughout this quarter and ongoing to deliver the expectations of our company and to realize our potential, both in revenue growth and shareholder value. I want to thank you for your ongoing support and wish you and your families, health and safety. Thank you and have a nice evening.

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