Transcript
Hello, and good morning, everyone. Welcome to today's presentation. My name is Noella Alexander-Young, Virtual Event Moderator here at Renmark Financial Communications. On behalf of our team, we want to thank everyone for joining us today for ProPhase Labs' Fourth Quarter and Year-End 2023 Results. ProPhase is trading on the Nasdaq under the ticker symbol PRPH. Presenting today is Ted Karkus, Chief Executive Officer. Following the presentation is a question-and-answer session for which you can participate using the Chat box on the top right-hand corner of your screen. With that being said, I will now hand the floor over to Ted.
Thank you, Noella, and thank you everyone for joining today for our year-end results presentation, even though we're about to start the second quarter of the following year. We're doing things a little differently today. For those of you that don't know, we have this fantastic relationship with Renmark Financial, and we do non-deal roadshows, virtual non-deal roadshows regularly with Renmark; we have for quite some time. We think it's a great format. And this way, I can show all of you slides and talk through them. I think it's a much better format. After the call, you can let me know if you prefer the old format where it's just talking. In any event, if you want to be updated regularly, we do at least once a month, we'll do a virtual non-deal roadshow presentation with Renmark. I hope to have 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, I'd also like to highlight just very quickly, we have a fantastic relationship with ThinkEquity, our investment bankers, who we have had a three-and-a-half-year relationship with. They raised capital for us three years ago and were also instrumental in helping us make additional acquisitions that are now going to bear fruit as we go forward. Also, I appreciate H.C. Wainwright, who follows us on an analytical basis, and Diamond Equity Research. And the latest to the table, Dave Gentry at RedChip, just to call out. They're creating some fantastic PR, which is going to bring great brand awareness to ProPhase Labs as well as to Nebula Genomics. I think you're going to start to see that in the coming weeks, along with several initiatives that include some presence on CNBC. I'm really excited for what's to come. So, with that, let's get into the presentation. First, of course, forward-looking statement. I apologize for reading this, but at least our attorneys 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 strategies, plans, objectives, and initiatives, and underlying assumptions. While we believe that these forward-looking statements are reasonable as and when made, they 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 risk factors listed from time to time in our filings with the SEC. This call 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 through our website. This is a much shorter slide presentation than I usually give. It's more focused on what's going on this year. 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 that I'm excited to talk about. First of all, I always like to say, our best is yet to come. We have a performance tracker record that I would put up against most. If you found the right tech company 10 years ago, they probably outperformed us. In fact, even some of the great ones haven't outperformed us in the last 10 years. For all the other microcap companies, we've outperformed 95% of them. 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 ID Biomedical, which instead of going bankrupt was sold to GlaxoSmithKline for $1.4 billion. I was instrumental in the turnaround there. And with that experience, I did the same thing here. We had a $0.65 stock about 11 or 12 years ago. We now have paid out $2.40 in special dividends. The stock is up nine times. So overall, we're up about 11 times if you include the special dividends in 11 years. Not a bad track record. More recently, about three years ago, we turned around the Cold-EEZE brand, sold it for $50 million, keeping the manufacturing facility. During the pandemic, my son Jason Karkus transitioned from consultant to salesman and basically took over operations, building a roughly $200 million business over two years in COVID testing. Very few companies in the country did anything similar, and we had never been in the business before. This is a history of execution, and it's déjà vu because now we're going to do the exact same thing with Nebula Genomics that we did with COVID testing. So, to be clear, what we did differently from other microcap companies was strategic planning with ThinkEquity, which raised capital for us three-plus years ago. We strategized and transitioned for the future by making key acquisitions, one of which was Nebula Genomics. We're going to be talking about all of those projects over the next 20 minutes and in the Q&A. We have transitioned from a COVID-testing business, which ended early last year, to now going into 2024 and 2025 with some very explosive businesses. We have a history of executing on behalf of the shareholders, and I like to say, the best is yet to come. Let's start with Pharmaloz, which I actually find kind of amusing. Historically, Pharmaloz was a sleepy business. I never used to focus on it. We maintained Pharmaloz because it kept our infrastructure in place for selling products into 40,000 stores. We can manage manufacturing, packaging, distribution, and logistics. But what's interesting is global demand for lozenges has soared, while reliable capacity has shrunk. We have global brands literally panicking, trying to figure out how to solve their lozenge manufacturing challenges. Last year, we raised prices on every customer, making our previously unprofitable business profitable. Our revenues historically have been around $8 million to $10 million, and last year they were just over $9 million. With our price increases, we are now looking at a $15 million run rate as we enter the second quarter. Additionally, we purchased and installed new automation equipment that has exceeded our expectations thanks to our COO, Jed Latkin, who's played a hands-on role in building our capacity. Expansion plans are underway, and we estimate that by the third quarter, our capacity could reach a run rate of $45 million. Our goal is to ultimately have our manufacturing facility valued well above our current market cap through strong strategic alternatives. I focused on Pharmaloz first because it's the tip of the iceberg for us. Now, onto Nebula Genomics, founded by George Church, a renowned figure in genomics who has relationships with major global players in the field. We're collaborating on significant initiatives, and I’ll discuss the major advantages of our proprietary bioinformatics reports. Recent developments in whole genome sequencing have made it more exciting than ever due to declining costs. We're now getting into B2B business and are perfectly positioned to forge critical partnerships to offer genome sequencing services. The response has already been phenomenal, and we expect revenues from contracts we've recently signed to grow substantially. Our BE-Smart test is aimed at esophageal cancer prevention, which is a significant opportunity, and I'll provide more details shortly. It's essential to note that as we build these assets, the broader market remains riddled with inefficiencies allowing us to capitalize quickly and significantly. Pharmaloz and Nebula Genomics present a unique opportunity, and I’m excited about the path ahead. Thank you.
Thank you so much, Ted, for the presentation. We'll now begin the Q&A. The first question is, 'Hello, Ted. Thanks to you and your team for putting us in position to knock this thing out of the park. My question concerns the competitive advantage of Nebula Genomics in the WGS arena. How important is the bioinformatics database library, your New York USA location, and your pricing?'
Yeah. So, frankly, they're all important and they're all important to different customers or in some cases, all three are important to a given customer. I don't think there's a lab in the world, literally, that can offer the package that we have. First of all, in this country, it's critically important that we have a laboratory here. Several of the businesses we're talking to now don't want to send their specimens abroad, especially after recent data leak issues at one of the big ancestry companies. Our Head of IT, Sergio Miralles, has built such a secure platform with cybersecurity measures. The fact that we're based in New York allows us to provide reliable turnaround times, and our pricing is very competitive. We’re collaborating with four of the best companies and using the newest equipment available. Our bioinformatics system is another significant advantage. We have enormous opportunities to distribute our tests via several companies worldwide. While I won’t get into specifics to avoid giving insight to competitors, I’m very optimistic about our positioning. As an example, this opportunity resembles the explosive growth we encountered in COVID testing. Just as many businesses worked with us then, we’re creating those relationships now for Nebula Genomics. It’s an incredibly exciting time for us.
Thank you so much, Ted. Your next question is, 'How large a mortgage did you take on for the lozenges plant during Q1 2024?'
Okay. So for Q1 – for the first quarter, our run rate of revenues, we haven't reported this, but since it's a shareholder call, I can address it. We were an $8 million-$10 million revenue company last year. With price increases, we were just over $9 million last year. With those adjustments, we increased to around $11 million. We have $2.5 million contracts from a customer we’re currently manufacturing for, which brings us to roughly $13.5 million. Conservatively, utilizing a 20%-25% profit margin leads us to a profitable business outlook. Timing on when we’ll start manufacturing for another client is uncertain, so revenues could soon rise to $15 million-$16 million. Our automation equipment is functioning better than expected, and we anticipate remarkable growth in revenue over the coming months. Given global demand, we believe entering into relationships with brands will bolster our projections further. In summary, Pharmaloz could achieve $100 million or more in future capacity as we ramp up production. My focus remains on developing strategic alternatives for future growth.
Thank you, Ted. Next, this is a bit of a long one. The question is, 'The recent news about Equivir's preliminary study results show that Equivir 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 illness. Will Equivir 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 conduct, unless we go through the FDA, we won't be able to make such claims. We are optimistic about other claims we're looking to make upon final results, assuming consistency with preliminary findings. Our current study and its two-pronged approach involve testing Equivir both as a preventative measure and as a therapeutic approach. The results we've observed so far have been incredible, given that 159 patients participating in the study exceeds what most companies would use for such a sample size. We'll need to ensure thoroughness in our analysis and then define the right claims post-study completion. For now, we are confident in Equivir’s potential and will integrate results into our later discussions.
Thank you, Ted. Next, 'Does ProPhase still have an investment position with Lantern Pharma?'
We haven't disclosed that, so I'm not going to discuss that now. It's not appropriate for me to comment on other companies during this call. We did have a substantial position at one time, making that investment with the aim of strategic possibilities with that company that ultimately did not materialize. With their stock now up, if we sold some shares, it would represent a significant windfall.
Excellent. Thank you for that response, Ted. Your next question is, 'With Pharmaloz, 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 you recognize revenue?'
Boy, that's a great question. Smaller brands can move quickly, while larger brands take a considerable time. We had a lot of formulation work initially. After receiving approval from one brand, they required an FDA inspection before moving forward. FDA inspections typically take place every two to three years. Once we passed inspection with no citations, we had to wait for their internal audit. After that, they requested an external audit of our facility, and then they needed to review the results. By the time we offer them a timeline for initiatives, they are more likely to proceed quickly. However, we need to be prepared for unexpected delays as greater demand emerges. Every global brand we work with pushes rapid advancements, and we're committed to building the capacity to grow alongside them. Two additional brands have expressed interest and developed plans for collaboration.
Thank you, Ted. Your next question is, 'What quarter do you expect to become profitable?'
It's a great question, but I'm not going to provide a specific timeframe. Pharmaloz is already profitable, and we’re actively working on developing our BE-Smart Cancer Test and Equivir product lines. We are currently incurring high costs due to building out our lab as we pivot from traditional clinical lab business to focus solely on Nebula. The duration of losses primarily depends on how quickly our B2B business ramps up. We could have opted for outsourcing all our tests and saving overhead costs, but we believe the long-term opportunities from having our own lab far outweigh the associated expenses. If executed well, we could see enormous revenues generated from Nebula. Accounts receivable continue to cover existing operational costs enabling further development. We're in an overall stellar position to evolve into a very valuable business.
Thank you very much, Ted. Next, we have a question from Hunter Diamond from Diamond Equity Research. 'Can you discuss the sales process for the BE-Smart test? Would you sell directly with a sales force or plan to partner with pharma? What is the industry gross and profit margin for similar products to this?'
I'm sorry for cutting you off, but I got the whole question. We can approach the market in several directions. There’s a multi-billion-dollar cancer testing company interested in acquiring our test in exchange for upfront payments and royalties, that’s one possibility. We've also spoken with large insurance firms who may dictate usage of our test. I can't guarantee that will happen any time soon, but it could save them billions as well as improve patient outcomes. Our test provides much-needed information for Barrett's esophagus patients. They also require treatments, but insurance reimbursement for relevant procedures tags along with our entries into large cancer testing companies. We have exclusivity in some cases due to the unique findings in our tests. There isn’t a test on the market today that offers the information we provide, making our pathway promising.
'LUCD has an EsoCheck test, which allows for targeted collection of lower esophageal cells for pre-cancer testing. How does this compare to BE-Smart?'
That's a preliminary test. We can actually complement their offerings rather than compete directly. Our test provides a comprehensive analysis of risk factors for esophageal cancer that allows targeted solutions for high-risk patients. They don’t have our proprietary methods for assessing risk levels as we do. Their work may identify early symptoms of GERD, however, the need for further testing solidifies our value proposition. We aren’t direct competitors, and their test represents an initial step before our intervention.
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?'
Tremendous growth opportunities in the MENA region. However, the processes here can be intricate, as many companies are exploring partnerships as they collaborate on significant innovations. I didn’t specify exact numbers in the press release but I am optimistic about future deals and how they will play out strategically in the region. I can allude to the potential financial implications of merging certain collaborations together. We have solid groundwork laid for impressive projects moving forward. There’s a lot more to come, I'm keen to reveal more details soon.
Thank you so much, Ted. And your last question is, 'How do you plan to compete with the major labs and DNA companies, such as Quest and 23andMe, that are offering low-cost WGS and WES services now?'
Great question. First of all, Quest and LabCorp operate entirely different businesses than 23andMe. I don't want to address 23andMe specifically, but in the ancestry testing space, they're only assessing a very small percentage of someone's genome. While they may be venturing into health, their tests lack depth, which our evaluations allow. Competing in health-related information is about offering real insights into one’s genetic makeup, something accessible through our platform rather than theirs. Additionally, costs fluctuate widely depending on the available services and capabilities. Our testing and pricing models allow us to address market needs flexibly, and our bioinformatics offer an added advantage ecosystem they cannot parallel. We are currently well-positioned and outpacing direct competition significantly.
Thank you so much, Ted, for your responses. That concludes the Q&A session, but before we go, I will turn back the floor to Ted for final remarks.
Thank you, Noella. Listen, shareholders and potential shareholders, I really appreciate your support. I am the largest shareholder in the company, and I have had long-standing relationships with investors who have seen my dedication and execution since taking on the CEO role. Everything I do focuses on optimizing upside to ensure long-term value creation for all shareholders. This year has transformed how we perceive our core assets, and I plan to ensure their valuation becomes evident to investors soon. We're committed to operational excellence, investing deeply into Pharmaloz and Nebula as premier assets. The future looks incredibly bright, and I thank each one of you for your ongoing support. Have a great day ahead! Noella, I hand it back over to you, and thank you.
Thank you everyone for joining us today for ProPhase Labs' fourth quarter and year-end 2023 results. Once again, ProPhase is trading on the NASDAQ under the ticker symbol PRPH. Stay tuned for the next quarterly call, and see you next time.