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 First Quarter 2024 results. ProPhase is trading on the NASDAQ under the ticker symbol PRPH. Presenting today is Ted Karkus, Chairman and Chief Executive Officer. That being said, I will now hand over to Ted.
Thank you, Noella. I really appreciate you moderating as always. Big shout out to Renmark. We do virtual non-deal road shows with Renmark approximately once per month. So if you miss anything in any presentation or you want to be kept up regularly, feel free to sign up with Renmark if you want to be up-to-date with what's going on with our company. I think that these virtual presentations are a great way for when I do the VNDRs, but we are now doing them for the earnings calls as well. Feel free to give me feedback if there's a different approach you think we should take, but I love this approach. Before we get started, forward-looking statement, just very quickly. For the VNDRs, I don't read them. But for the earnings calls, I think I should. 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, 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 approval, 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 filings. 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 on our website. So with that, first of all, I just have to give a shout out to ThinkEquity, who we have close to a 4-year relationship with, was instrumental in financing our initiatives when we built out the COVID business that went down to a couple of hundred million in revenues. They brought us some fantastic acquisitions that are now developing. So I always give a shout out to ThinkEquity, also to the other companies that follow us on an analytical basis, including H.C. Wainwright and Diamond Equity Research. So with that, I don't want to go through the presentation. Again, not that much has changed in the presentation itself from the last time I did an earnings call just 6 weeks ago. And so I was going to start the call by saying not that much changes in 6 weeks, but the fact is, if you read the press release today, a lot has developed in the last 6 weeks. So before I get into it, I always like to put a little perspective. I really do believe that a history of execution in a microcap company is critically important. When management executes historically, your probability of success goes up on the next initiatives that management is focusing on, as opposed to a management team that's new and starting up a company for the first time with quote some breakthrough technology that they're excited about. The risks are much larger when you have a management team that you can't trust. So I'm not going to go through all of this again. But again, in 2012 when I restructured the company, the stock was $0.65. The stock is around roughly $5 now. We paid out $2.40 in special dividends. So we're up about 10, 11, 12, 13 times in total returns in the last 11 or 12 years. More recently, a few years ago, our stock was about $1.50. It's more than tripled. We paid out another $0.90 in special dividends since that time. So we've delivered tremendous returns to shareholders in the last few years. We have transitioned multiple times now. Some years we're a development stage company spending money to develop assets. Some years we're generating revenues and earnings. It goes back and forth, and that's the life cycle of a development stage company. So first, we turned around the Cold-EEZE brand, lost money building the brand, sold it for $50 million. I did the same thing, by the way, with IT Biomedical. I was instrumental in the turnaround of the company that ultimately was sold for $1.4 billion. That was before I did the same thing with our company. So I have a history of doing this. And it's not just me; we have a great management team in place here. All right? So in any event, after we sold the Cold-EEZE brand, then we went back really to being a development stage company. Again, we did stock buybacks and dividends at the time. Then we got into COVID, generated a lot of revenues, made a lot of money. But now we're back to a development stage company again. And so you can expect in a development stage company developing assets, you're going to lose money. I have no interest in focusing on the losses over the last couple of quarters. We're going to lose money next quarter again. But at some point, with the new assets that we're developing, they're going to take off in value. So the one that I really want to focus on today, that's the focus of the earnings report is Pharmaloz because there are some interesting new developments. So just very quickly so we're all on the same page here. Pharmaloz is the business we've owned for decades. The supply versus demand over the last several years for manufacturing lozenges has shifted where there is less supply of manufacturing and there's enormous demand, both globally and domestically here in the United States. And so for the last 2 years, I understand this isn't just an overnight success. I looked up some quotes about 10-year overnight successes, and it takes 10 years to be an overnight success. Well, Pharmaloz is going to sound like an overnight success, but besides the fact that we've been developing it for a long time, specifically over the last year or 2, we've been focusing on building capacity to take advantage of the global demand. Last year, we did about $9.3 million and actually lost a little money. We increased prices on all of our customers. They all accepted the price increases. They're kicking in now. We got 2 new orders from 2 new brands that add another $5 million in revenues. So between the price increases and the 2 new orders going into the second half of the year, just on existing business on the first manufacturing line, we're going from $9.3 million losing money to about $16 million in annualized run rate of revenues and making substantial money somewhere in the order of $3.5 million of profits. That will be our run rate as the current new customers ramp up their business. One we've started to ramp up already, the other one we're going to be ramping up probably later in the second quarter or very close in hand. So going into the third quarter, all of a sudden, the numbers dramatically changed for Pharmaloz. More importantly, we have a second line of manufacturing equipment. We have additional automation equipment coming in. It's going to significantly increase our capacity, which now, for the first time, sets us up to be very attractive to very large brands who need capacity. As I announced today, we are exploring strategic alternatives with Pharmaloz. I don't make that statement lightly. It's been in the works literally for 1.5 years to 2 years in terms of the planning and then the execution of building out the capacity and then starting negotiations with large brands. I mentioned probably 2 earnings calls ago that we were in talks. These talks with the large lozenge brands have been in effect for many, many months. This isn't just some new idea, 'Oh, we're going to talk about strategic alternatives.' This is very far along in discussions. And it's the only reason that I even mentioned it. It doesn't mean there's a guarantee it's going to happen. So it's not a guarantee that we will accept any offer that comes along if there is an offer; and I don't want to get into details because we have lots of options here. We could either sell the facility now potentially or we could negotiate for the second line, which is, of course, going to have tremendous capacity and will be very attractive to some very large lozenge brands, they may want to lock up the capacity. We were recently at an expo, and we have potentially a dozen new customers, smaller customers that could potentially fill up the second line as well. So we have different possibilities, a couple of opportunities there for significant liquidity events. So this is all very exciting. Happy to talk about it more in the Q&A. I'm going to try to get to the Q&A a little earlier today. I really don't want to spend a lot of time on slides that I've reviewed in the past. This entire presentation is available on our website. When there are updates, go to our website, at least once a month. Any time we have a new press release, we usually update this presentation as well. So feel free to go to the website. That's really exciting for today. Conceptually, before we get into the next slides, we're going to get into Nebula Genomics very briefly. I just want to explain that when you're developing assets, when you're developing businesses, there are bumps in the road. There's no such thing as just snapping your fingers and taking the business and making it worth $5 million. And all of a sudden, it's worth $50 million or $100 million. It doesn't happen overnight. With Nebula Genomics, we have a new go-to-market strategy. And I'm not going to go too much into what Nebula Genomics is other than the fact that it was founded by George Church, world-renowned in the field of genomics. We built a world-class lab. We converted from doing COVID testing to a world-class lab here in New York. That lab costs a lot of money to manage right now. We're not generating the business currently to support the lab. However, I believe that 6 and 12 months from now, the Nebula business is going to take off, and we're going to be happy that we have the lab. Historically, when we acquired Nebula Genomics, it didn't have a lab; it sent all specimens to a partner lab, but our thought is we could provide testing even less expensively if we did it ourselves, but that's in the long term. The other part of having the lab is that it's not just the P&L of sequencing a specimen in-house versus sending it to another lab. There are other factors that play here. One is, in the long term, if somebody is interested in our business, it's going to be a lot more attractive if we're vertically integrated, horizontally integrated, and we have a lab, and we have all these other pieces. The other part of it is that a lot of people are so worried about data privacy these days. They don't want to send their specimens abroad. The fact that we can do the sequencing right here in New York, and then ultimately, with 4 world-class, latest, greatest state-of-the-art platforms of equipment that allows us to be the most efficient in terms of turnaround times, pricing, and so forth. So it's incredibly well situated. But the real value in Nebula is in our bioinformatics platform, it's in the reporting system, and separate from that, it's in our database. So I'm not going to go more into it in the Q&A, but understand the real value of Nebula is in our reporting system and our database that we're going to leverage over time. We're building a very exciting new go-to-market strategy where we're going to leverage some world-class social media and podcast experts. We're potentially going to bring in some well-known celebrities to really get behind this. I just think of products, and I'd love to think of Prime because it's just a hydration drink that came out of nowhere, it got some celebrities and some social media behind it. And now they've sold 1 billion bottles out of nowhere. Now I understand it's a completely different business, but the concept is the same. I believe we have the right people in place. It took time to figure this out. And that's why I say this is a work in progress. Nebula is a work in progress. But it's nice to have different assets in different stages of development, so we have Pharmaloz about to kick in with either liquidity events or profitability. And that took 2 years in the making to get it to the point where it is now. Nebula will be next. I can't tell you which quarter it's going to take off, but I believe it will probably be in the fourth quarter and first quarter of next year. But Nebula is a really exciting business with enormous potential and the different directions we can go in with it. And again, I'll talk more about it in the Q&A. I'm not going to talk more about it now. Then next, we get into our esophageal cancer test. Again, this is all a development stage. This is 6 years. Nebula is 6 years in its development, and the BE-Smart Esophageal Cancer test is 6 years in this development. It's not an overnight wonder; nothing happens overnight. But we are going to go from no one paying attention to this test. Clearly, I don't believe there's anything in our market cap for this test. Yet this literally has multibillion-dollar potential. This is a breakthrough cancer test that is surely needed in the medical community and, more importantly, for patients. I sincerely believe this is going to save patients' lives. And I think it's going to save insurance companies billions of dollars. It only makes sense. I can't tell you exactly how we're going to commercialize this yet. But what I can confirm is I work 24/7. Everything I do is for the shareholders. I'm the largest shareholder in the company. Friends of mine are the other largest shareholders. I create value over time. It's not a guarantee of the future, but I always have in the past. What I'm working on and what our management team is focusing on right now, I'm significantly more excited about than anything I've ever worked on, literally my entire career, so forget everything else that I just talked about. Pharmaloz is now just crossing the T's and dotting the I's; it's just a matter of time before we generate some significant value for shareholders. I highly believe this will happen one way or another, whether we sell it, sell the second line, or just build the business and start generating a lot of revenues and earnings, maybe sell it in 12 or 18 months. That's on a fast track to success now; not very complicated, right? Nebula Genomics, I think, has tremendously more potential than our Pharmaloz manufacturing facility, but it's probably I don't know, 6 months, 9 months behind in terms of the ramp-up in revenues and earnings and recognizable value. Then we have our BE-Smart Esophageal Cancer test, which is kind of the same thing. What I like about the assets that we're developing, particularly with BE-Smart, is that this is not costing us a lot of money at this point. It's not like a cancer drug where you're spending tens and hundreds of millions of dollars in 10 years to develop it, and we're about to commercialize this. We're not spending $10 million a year or $15 million a year right now, to get it ready for commercialization. We're spending a small fraction of that just to complete. Right now, we're not even really doing a lot of studies. We're doing statistical analysis because originally, this was focused on more as a test to tell you whether or not you have cancer. Our test actually does a lot more than that because we have breakthrough IP patented discoveries relating to the proteins that shift and are expressed differently when you're developing esophageal cancer. Our test can recognize those shifts in proteins. By the way, this doesn't show up in blood until you're far too progressed, and it's too late, and you potentially get diagnosed with esophageal cancer. It's great. Is it really a great test? If it says, yes, you're diagnosed with esophageal cancer, 80% to 90% of people that are diagnosed die. If you're diagnosed, and 2 years later you die of esophageal cancer, is that a great test? I guess maybe to put your financial affairs in order. When you have a test that actually saves your life instead of telling you just before you die, it tells you years before that so that you can get an ablation procedure or take other actions to actually prevent getting the cancer. That's what our test does. We are actually fine-tuning the statistics right now not only to tell you whether or not you have cancer now, that we can do with an incredibly high degree of accuracy, but we are also working on the statistics to tell you if you're in high risk or low risk. If you're high risk, go out and get an ablation procedure immediately to save your life. If you're low risk, you don't have to get an endoscopy every year. Right now, the insurance companies are spending billions and billions of dollars on unnecessary endoscopies. They're doing that because they don't know. The Gastroenterologist doesn't know if you should be getting an endoscopy every year or not. Our test will help guide the proper diagnosis and prognosis for the best course of treatment for the patient based on whether you're low risk, medium risk, high risk or if you have esophageal cancer right now. This is an incredible test. It's just remarkable to me that there's nothing in our stock price for it. And listen, as a CEO, I don't know whether I should say this or not. There's no guarantee that's going to happen. Maybe somehow we just don't figure out how to commercialize it. I don't know. If there's even a possibility that we would fail in this, I guess there's some forward-looking statements, no guarantees. I don't see how this isn't going to be a substantial test. You look at a company like Exact Sciences with a $10 billion to $12 billion market cap. By the way, they came out with earnings and said they have competition now, right? We don't have any competition for our test. What's the value of it in our stock? I don't know, zero. What's the potential? It's not an at-home test now, but we're also going to develop Stage 2 and Phase 3 of this test. Who knows, one day it might be, but right now, what we're focused on are the endoscopies because there are millions and millions of endoscopies performed every year. We're not telling people to get endoscopies; but if you're getting one, take our test alongside it, and it will give you a high degree of accuracy for diagnosis, prognosis, and course of treatment that you don't have without our test. I think I stated pretty clearly the excitement of this test. So we have Pharmaloz that we're going to realize significant value very shortly, whether through sale or sale of the second line or through just building revenues and earnings for it. Then behind that, we have Nebula and our BE-Smart Esophageal Cancer test. I'm not going to go more into the numbers again. I can do that in the Q&A, but our focus is 7 million endoscopies per year. Our goal, once we get CPT codes, assuming we get them, I believe we're going to very soon, if we get them that the insurance will reimburse somewhere around $1,000 to $2,000, which makes it a potential $7 billion to $14 billion market with no competition. That's pretty incredible. Elsewhere, Equivir, just really quickly. Again, we're developing this at very little cost. At this point, we're just completing one study. Typically, dietary supplements have regulatory scrutiny requiring more studies, but we're doing this the right way. I learned from Cold-EEZE. I turned around Cold-EEZE myself. Equivir is a broad-based antiviral. We're going to sell it in the same stores. We're going to market it the same way. I don't want to talk about Cold-EEZE; it's not right. We actually still manufacture Cold-EEZE for the owners of Cold-EEZE. I can tell you Equivir has a lot of potential in the marketplace, and we have all infrastructure in place to roll this out ourselves. We don't need consultants and advisors; we don't need other companies for manufacturing and distribution. We have all that in place, a turnkey solution to rolling this out. We're going to roll it out online first. It always takes longer to get into stores; I don't want to mislead anyone about that. But it has nice potential. There's no value in our stock price; it's a nice fourth asset or initiative to mention. I don't make a big deal about it right now, but it will fit in nicely. We also have a product called Legendz XL that's already in the store. It does $2.5 million, $3 million a year of business, makes about $0.5 million a year. It's a nice little product. I think Equivir can be a lot bigger than that. And actually, with the social media podcast experts working on Nebula Genomics, we may spread out to a bunch of different health tests that may include things like our Legendz XL product and Equivir. So we could leverage the social media podcast infrastructure we're building; ultimately, we should be able to leverage that, not only with Nebula Genomics but with other health tests and health products, and dietary supplements like Legendz XL and Equivir. So that's an awful lot. I'm going to leave it there. I did that in about 24 minutes. I'm happy. I hope there's a bunch of questions. I love the Q&A, and I want to thank you all for joining me today. Thank you all for your support as shareholders. I think that, I guess, I shouldn't really talk about risk reward. Given the value of some of our assets, the fact that we may realize some significant value in the short to intermediate term for Pharmaloz should provide a lot of comfort in terms of downside support. The upside, as I just laid out, we have several initiatives with enormous upside and a management team with a history of success and execution. With that, Noella, thank you for being with me today. I'll turn it back over to you for the Q&A. Don't be shy, feel free to ask a question. I love to be an open book and talk about our company.
Thank you, Ted, for the presentation. So now we'll begin the Q&A. The first question is, we're interested in the growth plans of Nebula Genomics.
I'm sorry it said we're interested in?
Yes.
I'm interested, too. Is that a question?
It's not a statement, but I'm assuming...
Okay. That's an interesting way to kick off the Q&A. Listen, I'm interested in the growth plans for Nebula as well. We are evolving and developing the best go-to-market strategy. There are a couple of core assets to Nebula that have enormous potential. Among them are our bioinformatics reporting system, which is one of the best in the world. Another is our database, which is one of the biggest, most diverse in the world, equivalent to 150 million ancestry tests. We can leverage that potentially in enormous ways. I didn't even talk about our most recent AI initiative, which is actually a very big deal. Our AI initiative is a world-class platform that leverages this database and also the knowledge that we've gleaned from our esophageal cancer test and our initial focus on ADCs, antidrug conjugates, that source the cancer cells directly and kill the cancer cells while leaving healthy cells alone. This is the next stage of medical research. It's a very big deal what we're working on. It’s relatively in its early stages, but I understand that our database was 6 years in the making in 130 countries, worth of testing patients from 130 countries, and 6 years in developing the esophageal cancer test and the proprietary knowledge we have. So again, it's one of these overnight successes that can happen, but some very big things could come from AI leveraging our Nebula. Separately, in terms of the go-to-market strategy, there are several different strategies to understand from a B2B perspective. When we built out the lab it attracted businesses that don't want to send their specimens abroad, but a lot of these businesses are new and haven't done whole genome sequencing before. So for instance, I talk about this telemedicine platform. They're moving slowly. It's frustrating, but it's very real, and the potential is very large. This is an organization that hasn't done whole genome sequencing before. They want to be sure they do it the right way. Planning and details and big deals like that take several quarters, not several weeks, but several quarters to develop. We're in the stage of developing many businesses like this, both here and abroad; we announced one deal abroad. Again, that's just the beginning. We have one of our lead sales guys in another part of the world right now meeting with big players who are very interested in what Nebula is doing. So there's a lot going on the B2B side. It's going to take time. On the direct-to-consumer side, I already mentioned we are working with world-class social media experts, very involved in the podcasting world. I can just tell you, and this Jason Kark has overseen; it's a young man's world for dealing with podcasts and social media and that stuff. I don't even want to be involved. I'm happy from a distance to oversee and make sure strategically, we do this the right way. I think it's going to be very, very big, but it's going to take time. It's going to take a couple of quarters before you start to see the results of that.
Next is, why did you enter into a standstill agreement with ThinkEquity on April 18 without explanation?
I don't get into investment banking decisions. By its very nature, when you're working with an investment bank, it's usually proprietary and sometimes material non-public information. But it's kind of interesting, the responses that I got to that. I can tell you very specifically, it says that specifically we're not going to issue equity for the next couple of weeks, and everybody said, 'Oh, this means you're going to issue equity.' Actually, it's just the opposite. We're not going to issue equity. So we're always working on various strategies. Again, we have a relationship with ThinkEquity going back almost 4 years. They've helped us build tremendous value in our company. Again, I'm the largest shareholder in the company. Everything I do is in the best interest of our long-term shareholders. It doesn't mean I won't ever do a round of equity financing if it's called for and it's the best strategy for the company, it doesn't mean I won't take other actions. A shareholder reached out to me and said, 'Hey, Ted, how come you're not buying back stock? How come you're not paying a bigger dividend?' Well, if we had a large block of cash that we didn't need right now, I probably wouldn't be buying back stock, but that's just not a possibility right now. There's no reality to that statement. To be a shareholder, of course, you always want to be buying back stock and paying stock dividends. I do it when strategically it makes sense. Right now, it doesn't strategically make sense. By the same token, working with ThinkEquity, we're always working on various strategies and various planning, and I'll leave it at that. But at the present time, I even put it in the press release. We have no interest at the present time in any sort of equity financings. In fact, to the contrary, I just mentioned there are 3 potential liquidity events that could occur in the next couple of quarters. That's what I'm focused on. Now none of those happened, then I'd have to reconsider. But as of right now, I'm not even considering anything like equity offers.
Your next question is, do you think ProPhase will have to raise money in the second or third quarter this year?
I just answered that question. I don't need to repeat myself. As of right now, the answer is no.
Next, why not do an IPO for Nebula or Pharmaloz or both and raise all the growth capital you need for expansion and also create a market value for these assets that the street is totally overlooking?
That's a great question. I've thought about it for a long time. One challenge is that both subsidiaries need completely separate audited financials to spin them off, which takes time. They are wholly-owned subsidiaries, and right now it's a bit complicated. An independent review of all finances is needed, along with approvals for separate financials for each company. They do have their own audited statements. The timing also has to align with the market. For microcaps, we've experienced a bear market for three years, while larger companies had a strong year last year. There were signs that investments would start flowing into microcaps, especially in the first quarter, but then inflation became a factor. The Fed indicated we wouldn't start cutting interest rates as expected, which dampened the market. We experienced a significant sell-off in April with many initial public offerings being canceled. So yes, I think pursuing an IPO is a good idea at the right time, but I'm not going to go ahead with one for either subsidiary under poor market conditions. An IPO in a low valuation scenario could mean giving away a significant portion of the company. I prioritize what’s best for long-term shareholders. I would be eager to proceed with an IPO for either subsidiary under favorable market conditions. Alternatively, with Pharmaloz, there’s also the option to simply sell without going the IPO route. These are strategic decisions I contemplate daily; I am fully dedicated to considering the best path for our company.
Next, a viewer asked can you provide additional information on the valuation seen in sales licensing transactions for CDMO?
I don't understand the question. I don't know what subsidiary. I apologize. I don't understand the context; if the person asking a question wants to send a question and clarify, I'm happy to take the question if he wants to put them back in the queue.
Next question is, regarding Pharmaloz, are we in the early stage of negotiations for a sale or at late stage?
It's a great question. I have to be very careful and sensitive. You never know who's watching these presentations. I don't want to say or do anything inappropriate. So I'm not sure how to answer the question except to tell you that there isn't anything I put in our press releases to hype the stock or pump people up. Everything I say in our press release is real, and that's what I truly believe. If I put a statement which is one of the headlines of our earnings release that Pharmaloz is exploring strategic alternatives, we're not at the beginning stages of exploring strategic alternatives if that's the headline of our press release. I think that answers your question. If it didn't, then replay this because I'm sure I answered the question.
Next, when can we expect meaningful revenue from Nebula? We keep hearing about all the potential yet to see anything being sold?
So I addressed that in the presentation. We have completely transitioned our go-to-market strategy, including hiring some great people, a new management team, some great people, as I said, were podcasts and social media experts. We are assembling a plan. The assets are there at Nebula. We've developed them. The database, the reporting system, we've continually fine-tuned the reporting system, building out the lab. We have all the right pieces. But as I said, there's no such thing as an overnight success. I'm sorry, it's going to take an extra 2 or 3 quarters. But as I said, I build the value of the company long term for shareholders, not short term. In the meantime, people should be really excited about what we're doing with Pharmaloz now, which gives us the flexibility without wiping out shareholders with big dilutive rounds of financing, and it gives us the flexibility to develop these other assets with Nebula being one of them.
Thank you, Ted. Next question, with the Equivir study coming to completion, can you share with us what claims you expect to put on the package?
Those are actually a work in progress. I'd rather not misstate that. I mean I can just imagine a class action attorney, 6 or 9 months from now, we commercialize the product. They say, 'Ted said on a conference call 9 months ago that it could do such and such.' So I have to be very careful. It's premature to talk about the claims. What I can tell you is our study was a great study that was done over a long period with more than 300 patients, which is an enormous study for a dietary supplement. We tested it throughout the entire cough/cold season, the entire viral season, comparing people who got COVID, cough, cold, flu, with people that didn't, people that took our product versus those who took a placebo, and the results have been fantastic. It doesn't mean we can make a COVID claim; it doesn't mean we can make an RSV claim; it doesn't mean we can make a flu claim, but the results are palpable. If you have 150 people over here and 150 people over here and randomly, they're in one group versus the other. The group that took our product got significantly less sick, and the group that didn't take the product took placebo got significantly more sick with all these viruses, flus, COVIDs, and so forth, the results are impressive. What we can say is claims on the packaging, we're going to work that out with the attorneys. We want to complete the study first, then work with the attorneys, get the right claims to the packaging, create the packaging, and then we're up to the races. To get to market quickly, we will go online first with our product. It will take longer to get into stores, but we will demonstrate the success of the product online. Ultimately, we anticipate distribution of the stores thereafter.
Thank you, Ted, for that response. Next is, since we're almost halfway through the second quarter, what growth in revenue do you expect in Q2 as compared to Q1?
I can't comment on Q2 today, as I haven't analyzed the Q2 numbers since Nebula, the esophageal cancer test, and Equivir are all still in development. As I mentioned, Nebula won't really ramp up until possibly the third quarter, or maybe the fourth. That's just a guess. Pharmaloz will begin ramping up in the third quarter. Therefore, I'm not setting any projections for the second quarter and must be cautious about what I share on this call. Based on what I've mentioned, I wouldn’t expect much in our second quarter. Our adjusted EBITDA and cash flow improved significantly in the first quarter compared to the fourth quarter of last year, but the next major improvement is likely to come in the second half of the year. Currently, we're in our seasonally weakest period, but things will start to pick up in the third quarter. I believe Pharmaloz will be running at full capacity for our first line of manufacturing, and we already have enough demand to support that in the third quarter. The main question is how quickly we can open the second line and attract customers for it. We're currently in strategic discussions, which are somewhat complicated, so it’s unclear how and when the second line will play out. However, the numbers for Pharmaloz are getting better, and they will certainly improve from the fourth quarter last year, with significant gains expected in the second half of the year. I hope that answers your question.
Thank you, Ted. We're coming up on your last 2 questions. The first one is in the earnings release, share count jumped from 18 million last year to 90 million this year. I missed the 72 million share issuance; please explain?
I'm not going to get into specifics of share count changes. I appreciate the question. Shares change insignificantly over time. I'll just leave it at that.
Thank you, Ted. I actually have another question that came in. So I'll do the first one. Ted, I have 2 questions regarding BE-Smart. Have we filed for the insurance code? How expensive will our advertising campaign be for educating the doctors?
We are currently working on the CPT codes with our consultants to ensure we gather all the necessary information promptly and accurately. The application for the CPT codes is in progress, and we expect a submission window to open in about six weeks. However, this timeline is not set in stone, and it is dependent on how quickly we receive feedback once we submit. While we work on the CPT codes, we are also collaborating with various groups to formulate a commercialization strategy, so we are not solely reliant on the CPT codes. Discussions with a large potential partner are underway, although it's still early in that process. There’s a lot of activity happening behind the scenes, and we are pursuing multiple strategies simultaneously, including the CPT codes. Ultimately, while obtaining the CPT codes is essential for moving forward, we are already making plans for the steps that will follow their acquisition. The main challenge we are currently facing is securing the CPT codes.
Thank you, Ted. And this will be your last question. Speaking of partnering, a viewer asked, what are the odds of partnering with someone on BE-Smart or doing it in-house?
That's interesting. I believe I have already addressed that. I can't provide any odds. We're open to considering all options. I focus on the risk and reward and what's best for our long-term shareholders. Regarding the esophageal cancer test, I genuinely think it has the potential to generate billions. It's difficult to predict how much revenue we will generate in the third year when we haven't even begun to commercialize it. I can't say with certainty what our plans will be for this test. I would hate to undervalue it by partnering with someone, receiving an upfront payment, and potentially compromising a significant portion of BE-Smart's value because we weren't patient for a year or two. I need to see how things unfold; I need to understand the market dynamics; I need to evaluate the acceptance from insurance companies and the GIs who would order the test. Those factors are still uncertain until we actually begin to sell or attempt to commercialize the test. It's too early to make a decision on that. If I claimed to know the outcome, that wouldn't be responsible. I wouldn’t be effectively leading the company. These decisions should be made later in the year.
Excellent. Thank you very much, Ted, for your responses. That concludes the Q&A session. But before we go, I will turn back to Ted for final remarks.
Thank you, Noella. Thank you all for joining. Again, we do these virtual non-deal roadshows with Renmark once a month. Feel free next month to sign up with Renmark even if it’s not an earnings call. Look, I say it in the press release and mean it when I say the best is yet to come; I truly believe the best is yet to come. We're at an interesting turning point in our company. I can't tell you which month the stock is going to be at its bottom, which month it's going to go up. But I can tell you in terms of the value of the company; right now, we're at an interesting juncture given the developments at Pharmaloz. As those progress, it could lead into very significant developments with our esophageal cancer test, with Nebula, with our AI initiative, with the rollout of Equivir and so on and so forth. I appreciate all of you joining me today and sitting with me for an hour. For those who are shareholders, of course, we always appreciate your support. We're on the same side, we're on the same team. The one thing I can tell you, I am working diligently to ensure we have a world-class management team and that we’re doing everything to the best of our ability to benefit all of you. Thank you. Have a great day. Thanks again, Noella.
Thank you very much, Ted. And thank you everyone for joining us today for ProPhase Labs First Quarter 2024 results. ProPhase is trading on the NASDAQ under the ticker symbol PRPH. The playback for this presentation will be available on our website, 24 to 48 hours after this presentation under the VNDR Library tab. Please stay tuned for other presentations, and see you next time.