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

Welcome to the Precipio shareholder conference to discuss its COVID-19 strategy. [Operator Instructions] Please note that this 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 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 that 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 turn the call over to Ilan Danieli, Precipio's CEO. Please go ahead.

Thank you very much. All right. Good evening, everyone. So let's start with our Q&A session. I want to thank everyone for all the good questions that are sent in. When we looked at the questions, most of them were grouped -- we could group into 3 categories. The first is regulatory. The second was around our current status, and the third, it was about the business strategy going forward. So we decided that rather than answer each of the questions sent, we combined a lot of the answers into talking points along those 3 categories. And what we're going to do is share those points with you today. Some of the questions included the request for test volumes and revenue numbers. Please understand those are topics that we are bound by disclosure rules, so we can't provide those numbers on this call. Before we begin with those topics, I'd like to remind everyone that although we're spending time today addressing our COVID-19 project, this isn't our core business. As we recently mentioned in our quarterly shareholder call, we continue to grow our pathology services as well as the product side of the business. Recent deal with ADS, has opened the door to some of the largest labs in the world that would be potential IV-Cell customers. It gives us direct access to the decision-makers of those labs. So we're very excited about that partnership. Having said that, needless to say, the COVID project is an important one. It's also a complicated field with a lot of confusion. So I'm happy to have this call and address the many questions that were sent in. Many people asked questions about the various tests out there, why we chose the serology test and why we chose a specific type of test that we have called lateral flow. So I thought it would be a good idea to begin with a bit of background. Let's start with the types of tests out there. Currently, there are 3 of them. The first is a virus test. This is the most common test, and the check that the person is currently infected with the virus. The test is done by a machine called the PCR, which can only be run in the lab. The sample is collected is usually nasal swabs. Some of you may have been gotten tested. It's not pleasant. The nasal swab gets into the tube and the tube gets into labs for testing. Most labs return result within 1 to 3 days. And some people actually feel this is problematic, depends by the time when the results are back, the person may have either infected others or may have fought off the virus. The second test is an antigen test. Similar to the virus test, the antigen looks for the presence of the virus at that time. There's several forms of the antigen test as well. Most of them also conducted in the lab. And lastly, there are the antibody test, which is the type of test that we have. These tests look for the presence of antibodies, which indicate or which may indicate that the person has been infected with the virus, and now their body has developed the antibody to fight off the virus. The present of the antibody may also indicate the level of immunity. There's a public debate as to how long we need will it last and how specific it is for the virus versus other strains. We're not going to get into that discussion today. The fact that the FDA has raised the need for serology test is evaluated and provide the EUA authorization, several of them is a good enough indication for us that there is a major need for this test. The reason we chose to focus on the antibody test is because we believe these tests are going to play a key role in determining whether a person can facially interact with others without the risk of being infected by the virus or the risk of spreading it and infecting others. We felt this is a market that was less addressed and there is an opportunity. We also believe that the only way that we really get this pandemic under control is to conduct massive testing at home. And that cannot be accomplished with some of the confinements of laboratory -- within the confinements of the laboratory. Not only is the labs' capacity limited, but also many people are reluctant to travel to a doctor's office or to a hospital they have a sample taken and sent to a lab. So we wanted a test that could fit these 2 criteria, number one, answer a massive demand; and number two, the test that can be ordered online and safely done at home. That's why we chose the [indiscernible] offering, which is called a lateral flow antibody test. It's a very easy step to run. And while it can be run in the lab, as we currently do, it doesn't have to be and can literally be done anywhere by anyone as long as they of course follow instruction. The test takes about 15 minutes to get an answer, which is an unbeatable turnaround time. By the way, if you'd would like to see the test or how does it look like and how it's conducted, you can go to www.precipiodx.com/covideo, and you can see an instructional video on how to use the test. So after that bit of background, let's get into the conversation topic, let's start with the regulatory landscape. So first, clear up one of the biggest confusion, our product has received FDA EUA authorization. The authorization currently doesn't make testing usage within a CLIA laboratory. This mean sample is sent to the lab and tested here. We have already begun testing that received hundreds of samples for testing. More than that -- more on that when we discuss our current status. Our plans are to expand authorization to allow for point-of-care and at-home usage. How do we expand the authorization? We'll need to conduct the studies that demonstrate that if the same test is used in a different requirement, i.e., point-of-care and at-home, it can be conducted safely and can yield extensively the same result. One of the reasons we selected this type of test, which is called lateral flow, is because it can be adapted to be used in those environments, whereas other tests are based in complex and expensive live equipment and are limited to lab use only. The study is aimed at demonstrating 2 aspects of the test usability. First is that the user can administer the test themselves. The second is user can correctly interpret the test results itself. As you may know, we have conducted the first phase of the study successfully. We will be completing the second phase of the study this month. And following that, we will immediately submit the results for FDA approval for expansion of the use or at-home testing. We'll also be conducting a study for a point of care. The study parameters are essentially the same with 2 differences. First, instead of individual testing themselves at home, the test is done in a physician office or a medical facility; and second, there will be a trained medical person, who administers the test for the individual rather than individual doing a test themselves and interpreting it themselves. We expect to lead the point-of-care study in the October, November time frame, and we'll submit that to the FDA as well. Some of you have asked why we haven't released the initial results of this study. There are 2 reasons for that. First of all, as I mentioned, the study isn't complete, so it will be misleading and unprofessional to issue partial results. Secondly, the FDA is known to like to receive the result -- to be the first to receive the results, and in the past, has found our company's publicizing results that the FDA hasn't a chance or haven't had a chance to review first. So we thought it was prudent to follow that process and have the FDA be the first to see the study results. I know it's not what our credit shareholders want to hear, but I'm sure you'll agree it's the right thing to do. One of the questions that was asked was about competitive products and their approval. To date, no company has an improved antibody test for at-home or point-of-care use. The point-of-care EUA approvals have been sort of collection of the sample at the point of care, but it still needs to be sent to the lab. Our advantage is with our product that is once approved, the test can be run at point-of-care or at-home and deliver results within 15 minutes without any lab involvement. So I want you to imagine doctor's office that you walk in, get tested while you're in the waiting room, and by the time you come out, you'll have an answer ready for you. Or better yet to imagine that before you leave work -- leave hopeful work in the morning, you test yourself, have breakfast, while you wait 15 minutes to see the results. Today, there is no test on the market that provides that level of service. So now let me give you an update on where we are today, and hopefully, I'll address most of the questions submitted around our current status. As mentioned, we have an EUA authorized product, so we are allowed to run the test in our lab. We currently have 3 models for how we offer the test and generate revenue. The first is the easiest one, and that has discussed all of our current bone marrow and peripheral blood oncology samples. As you know, as part of our pathology services, each day, we receive samples from our customers. By obtaining permission in advance for the physician, we test every oncology sample that comes in for our routine diagnostic workup for the COVID-19 antibody test. The next is to expand the offering to the same oncology office that is sending us bone marrow and peripheral blood by offering the service to every patient that comes into the office, whether they get a biopsy or not. Those offices can now do a simple blood draw, send it to us overnight and the next day, they have an answer that. Our sales force will be rapidly growing our customer base, what's prescribed to the service. And by the way, our sales team is also going beyond the oncology offices. This service can be provided to any physician office that have the capability to draw blood. Once we've obtained point-of-care approval, if those offices choose, they no longer have to send the samples to us, they can decide to switch to use the test that we sell them and run it in their office. The third model is for physician offices that operate a moderate complexity lab. Those physician offices can get the test set up and run in their in-house today. And then all we do is sell them the kits to run the test themselves. We've already received orders for our test kits under that model. All of those models have an attractive margin to Precipio. Obviously, the model where the test gets sent to us in our lab, we get to build to the full reimbursement amount since we're doing all the work. In the model where the physician office runs the test themselves, they buy the test kits from us and they bill it for the reimbursed amount. The benefit to us is, in most situations, we're only distributing the kits we have no labor or lab costs associated with the revenue. Now let's talk a little bit about pricing because there's some questions around that area as well. First, let me begin with reimbursement. The reimbursement rate for the antibody test is approximately $45 per test. This rate is determined by CMS and Medicare and is followed by other insurance companies. We do not determine this rate nor do we get to choose how much to bill. Those rays are predetermined, and they're also paid across the board to all providers irrespective of the lab running it or the type of test used. There are a few questions about competitive pricing. And as an example, one of our shareholders mentioned the $5 Abbott test kit recently announced as well as the recent Yale test that costs $2. First of all, the Abbott test is an antigen test and the Yale test is a virus test. So they are different than the antibody test and have different reimbursement rates. Secondly, these numbers are the manufacturing cost of the test. They are not the price of test and are not what the providers of the test will billed for. As I mentioned, the reimbursement rates are predetermined and for our test, it's $45. So if Abbott is saying that the test costs $5, that likely means that they would sell it to the labs for $5 and the lab will bill according to the published reimbursed rate. So I hope that explains the business. As I mentioned in past calls, our pathology business -- in our pathology business, we often come across this insurance plan where we're out of network, and then we need to negotiate a rate of payment. The good news about the COVID testing is that so far, we're not seeing any reimbursement issues whatsoever. So all revenue is converted to cash. As of now, we have seen some solid adoption rates of our test across the key business model I just described. We only launched a month ago, and we anticipate continued growth. Our testing capacity is currently at 1,000 tests per day. And as volume continues to grow, we will quickly build in additional capacity as necessary. I know some of you asked about what our cost is and what are margins. For commercial and competitive reasons, I prefer to keep that information within the company. However, given the reimbursement rate of $45 and our cost of running the test, with a certain volume of tests, we will be profitable as a company. And the good news is we believe that test volume is actually within our reach. Now that we've covered our current status, let me come back to the business strategy. As we've always stated, we believe the real place of these tests is through the at-home application. While we do see a pathway for us to reach cash flow positive once sufficient testing volume comes into our lab, the big play is still by filling the massive demand at-home testing. Our strategy is to engage with some of the major retailers and use them as a sales channel to deliver a slightly different product. We've already begun discussions with some of it. The retail products will be what we call family kits. Our current plan is for this kits to include 5 test kits plus all the necessary supplies sufficient for an average-sized family to test themselves. Keep in mind, for most people, this will not be a onetime test. If you've tested negative, this means you have yet to be infected and have to develop antibody. So you might want to test yourself again, in let's say, 4 weeks' time to see if that's changed. Remember, data shows that a substantial number of people infected are asymptomatic, which means they don't get ill and don't know that they've been infected. I can tell you that when we tested our employees here in our lab, there were a few who were surprised to discover that they were positive for the antibodies, even though they had not been sick. So we anticipate that a vast majority of people will be testing themselves frequently and repeatedly until they test positive. And even then, we believe that some people will want to get tested again a month or 2 later to see if they still have the antibodies present. In other words, I know some of you were looking at the demand based on 1 test per population, we believe that most people will be tested far more than 1. So that's our strategy going forward. For now, we'll focus on ramping up testing in-house to generate increased volume, revenue and profit. In parallel, we're lining up final steps to complete the necessary studies to submit to the FDA for further approvals beyond the current EUA authorization we already have. As those expanding authorizations are provided, we're also lining up the sales and distribution channels to take advantage of those expansion. I hope you found this conversation beneficial. I want to thank everyone who took the time to write in and submit answers, and I hope I was able to address most, if not all of the questions. I want to repeat what I said earlier. Well, this is a very exciting opportunity for the company. This has not detracted us 1 bit from our core business. We continue to grow our pathology business, and we continue to make progress with our technologies, particularly IV-Cell [indiscernible]. I look forward to continuing to update you as we continue to make progress. Thank you, and have a nice evening.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.