Transcript
Welcome to today's presentation. My name is Noella Alexander-Young, the 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 Second quarter 2025 results. ProPhase is trading on the NASDAQ under the ticker symbol PRPH. Presenting today is Ted Karkus, Chairman and CEO. With that being said, I will now hand the floor over to Ted.
Thank you, Noella. Let’s take a step back. We were on the wrong slide, but now we’re set. I appreciate Renmark and truly enjoy these VNDRs. I'm very enthusiastic about our company’s developments and eager to share updates with everyone today. I assume you’ve all reviewed the forward-looking statement, which is also available on our website for you to read anytime after this call. My remarks today reflect the current truth as I see it. I don’t prepare notes like many CEOs but speak openly about the company since I am deeply involved in it every day. However, what I say today is accurate as of now, but things may change down the line, and I can’t guarantee future updates on those changes. Let’s move to the next slide, which outlines our basic company components today. This presentation serves as a quarterly press release instead of our usual Renmark presentations. Each month, we typically conduct one VNDR, although this month we might hold two. These events often attract new investors, but we have also invited our shareholders and those following our quarterly updates to join this call today. Right now, I’m less focused on earnings. Instead, our emphasis is on being a development-stage company with some operational businesses and significant potential in areas ready to advance. We have BE-Smart, our esophageal cancer test, and DNA completed Nebula Genomics, which specializes in direct-to-consumer whole genome sequencing. We also have ProPhase supplements and other projects in the works. A key aspect of ProPhase is our collaboration with Crowd Medical, targeting over $50 million in cash recovery from COVID-19 receivables. Given our current market cap, this amount represents more than three times our company’s value, and I'm very confident about this. That’s why I highlighted this opportunity when discussing ProPhase Labs’ various sectors. We might also explore a vertical related to our crypto treasury strategy initiative, which I will touch on at the end of this presentation. I’ll also discuss our crypto treasury strategy in detail soon. In the coming weeks, we may release more information focused primarily on that strategy, which could present an enormous opportunity for the company. So, let’s start with Crowne Medical. For those unfamiliar, we have 1,100 insurance companies reimbursing us for COVID testing, backed by government guarantees. Unfortunately, governmental funding has run out, and many insurance companies have begun reducing payments, even though they should not legally do so. We are preparing to sue these insurance companies through Crown Medical collections. They have a solid team of attorneys working on contingency, so we're not incurring costs at this stage. They have conducted extensive analysis on our billing situation. Some insurance companies have reimbursed us below the legally mandated rates. Regarding the litigation, Crown represents approximately 40 other laboratories facing similar issues, creating a pattern of unethical behavior among the insurance companies, which could lead to settlements to avoid exposure. Analysis indicates a net amount of roughly $73 million, after fees, which could see us up to about $50 million in cash recovery. This sum could eliminate our company’s debt, which has been a significant expense in the past year. We’ve been working to significantly cut expenses, making our company leaner and more efficient. Let’s move on to ProPhase Biopharma, driven by our esophageal cancer test. We’ve recently secured a critical patent that identifies key proteins associated with esophageal cancer. This is vital because current diagnostic methods often detect the cancer at too late a stage, leading to very high fatality rates. Our test could diagnose esophageal cancer earlier and help determine risk levels, which is crucial given the number of endoscopies performed annually and their associated costs covered by insurance companies. We have a unique test that complements endoscopies, which doesn’t require additional procedures for patients or doctors. Looking ahead with our BE-Smart test, we expect multiple press releases on our progress toward commercialization in the coming weeks. Our market cap currently seems undervalued compared to this test’s potential worth, alongside the cash inflow anticipated from our Crown Medical initiative. Next, let’s talk about Nebula Genomics. We have engaged ThinkEquity to explore strategic alternatives for this segment. Jason Karkus has restructured Nebula effectively, focusing on renewing customer subscriptions rather than lifetime access. A clean-up of this business is paving the way for its potential growth. Now, about our ProPhase supplements, which remain historically significant for us but are currently less of a focus. The Equivir project has had a complicated development, but we are finalizing clinical studies vital for moving forward. Before we open for Q&A, I want to highlight our crypto treasury strategy briefly. We've recently undergone significant restructuring, which positions us as a leaner enterprise ready for growth. We’ve not utilized our at-the-market share program or authorized additional shares extensively, but we have plans to adjust that as a foundational strategy. Increasing our authorized shares is essential to expand opportunities for raising capital and teaming with big players in the crypto space, improving our business prospects. We’re engaging with significant players in the crypto industry and anticipate that shareholder support for the upcoming proxy will be beneficial in attracting substantial partnerships. Thank you for that support, and I look forward to discussing more details during the Q&A.
Thank you very much, Ted, for the presentation. And as you mentioned, we do have a Q&A. So your first question is very excited on the progress for BE-Smart, what are the next steps?
The next step is to get a study published in a major journal, which is on the way. After that, we will bring in key opinion leaders, who are already being lined up. Once we have the credibility of a published study supported by key opinion leaders, we can reach out to a hospital network and gastroenterologists to start using our test. This process is similar to what Castle Biosciences did with TissueCypher, though I believe our test is significantly better. They have already set a precedent for laboratory developed tests receiving reimbursement from insurance companies, which now recognize the value of an esophageal cancer test that offers a more accurate diagnosis. TissueCypher requires up to 12 specimens for accurate results, often necessitating two endoscopies, which involves risk. Typically, during a routine endoscopy, a GI specialist would take 7 or 8 tissue specimens from the esophagus, but that is insufficient and increases risk. Furthermore, TissueCypher is built on outdated technology, while we use a mass spectrometry machine, which is very advanced and incorporates AI. Unlike the traditional method where a pathologist examines tissue samples under a microscope, our technology analyzes samples more accurately. Additionally, we have patents on 8 proteins that are consistently expressed during esophageal cancer development. Our test is truly unique, and I am eager to bring it to market.
Thank you, Ted. The next question is when will the esophageal cancer test hit the retail markets?
Yes. When we refer to retail markets, it's important to clarify that this is not like Cologuard, where a test is sent to your home for at-home use. Instead, this is intended for individuals who are already undergoing endoscopy. There are no additional steps required from the patient. During the endoscopy, the GI doctor or pathologist simply needs to collect a specimen and send it to our laboratory or our partner lab for analysis using mass spectrometry. So, this isn't a retail product; it is a test that will be incorporated into the endoscopy procedure. It's entirely convenient, as the patient or doctor doesn't need to do anything beyond sending the already collected specimens to our lab for sequencing or processing. Regarding the commercialization timeline, the next step is to publish findings in a major journal, engage key opinion leaders, and begin outreach to GIs in the near future. We're not far from commercializing; it begins slowly as we work with one group of GIs. As they start using it, insurance companies will also begin the reimbursement process, although the initial submissions might face some rejections. However, as they recognize the value of the results, they will start approving reimbursements, and the word will spread to other GI groups, leading to further adoption. The main goal is to identify a group of GIs or a hospital network willing to adopt our test. Our advisory board plays a crucial role here, as its members have extensive experience and connections, including strong relationships with entities like Mayo Clinic and EmPRO. There are many hospitals within their networks that could eventually start using our test, which should facilitate its adoption. Ultimately, I believe this could lead to significant success, as demonstrated by the valuation of companies like Exact Sciences, which has been valued around $10 billion. For them, a $50 million upfront investment plus a royalty structure could be feasible, potentially yielding significant annual royalties for us. Now, let's move on to the next question.
Your next question is, are you able to give us an update on the timing of when you expect to start collecting from Crown?
Yes, I already mentioned that. I would estimate that within 4 to 8 weeks after we appear in court, we can start negotiating aggressively with the insurance companies. Crown has already contacted approximately 100 insurance companies. The typical response has been that they recognize us and understand our situation, and they are willing to settle once we officially file. From that point, it will depend on how long it takes to negotiate and when we receive the payment.
Thank you for the clarity on that, Ted. The next question is, can you tell us what line of crypto investing opportunities you're looking at?
Yes, I believe it’s a bit early to discuss this. The primary focus of our partners is Bitcoin, and they prefer that I only mention Bitcoin. Their perspective is that we should aim to follow in the footsteps of Michael Saylor and MicroStrategy, striving to perform as well as or even better than they have. Just because MicroStrategy was the first doesn’t mean they are the best. Consider a significant hedge fund manager overseeing $100 billion; one might wonder why another hedge fund is necessary when one already exists. The reality is, there is plenty of capital to be managed that surpasses what any single hedge fund or even ten can handle. The same principle applies to crypto—there are numerous cryptocurrencies and an increasing variety of strategies available. Ultimately, if we can attract major players, we will draw significant investor interest, and hopefully, our stock price will rise. If that happens, our shareholders are likely to approve an increase in our authorized shares, enabling us to raise funds as our stock appreciates. In due time, we could find ourselves with half a billion in cash and our stock price soaring to multiples of its current value. I plan to discuss this more extensively in a future press release, as I want to respect the privacy of our discussions and partners. However, I can confirm that we are already in conversations with key players.
Thank you, Ted. The next question is, will investors be diluted because of the crypto. We trust Ted, but we're afraid.
I appreciate that question. The truth is that we don't need to sell any shares if we choose not to. Our goal is to create value, and with everything we've discussed, like the $50 million from Crown Medical, the commercialization of the esophageal cancer test, and the potential sale of Nebula Genomics, we are in a good position. Specifically regarding Crown Medical, we are already looking into DIP financing, which is essentially financing based on collections. If we pursue this strategy, shareholders should be pleased because it involves experts who finance litigation with anticipated positive outcomes, providing funds now and recouping their investment as money is collected. This means we could potentially pay down current debt without needing to raise additional funds or could even buy back stock and invest in our company further. I would be eager to invest in Nebula, as I believe we could significantly increase its revenue rapidly and profitably. Currently, though, we can't do that due to capital constraints. Concerning the BE-Smart esophageal cancer test, while it won't be immediately profitable, we won't be spending excessively early on. Our approach will be grassroots, and as we gain momentum, I anticipate that major companies will express interest in partnering or acquiring us. This is why I am focused on enhancing our stock value rather than diminishing it. My aim is to raise the stock price while fundraising, utilizing our crypto treasury strategy. Numerous companies have recently seen their stock values rise dramatically after implementing similar strategies. I'm not concerned with how high our stock might go; my priority is to ensure there's no risk to our stock price. Historically, when our stock was at $2 and we ventured into COVID testing, I didn't flood the market with shares but rather raised capital opportunistically and responsibly. Our company is strong and does not require any risky moves like a reverse merger just to stay afloat. I know there are many fears surrounding this, but they're misplaced once you understand our strategy. Going forward, the plan is the same: increase the stock price, and as it rises, raise further capital, which can be anti-dilutive. This means if we can raise money at high stock prices, it benefits our net asset value on a per-share basis. Attracting significant partners is key to this, as their involvement will generate shareholder excitement and elevate our stock price. My focus is not on hurting shareholders—I'm the largest shareholder myself—and I want to create value. There's a significant opportunity to capitalize on here. We didn't need the COVID testing opportunity to generate substantial revenue, but it turned out we did, and it worked. The current situation with our stock is primarily due to unforeseen cuts from insurance companies and the government. If I had anticipated these cuts, I would've acted differently. Now, having turned the company around successfully and addressed our challenges, I am optimistic about our future. Thank you for your questions; I believe we have time for another one or two.
Yes. We have quite a few questions left, but we can squeeze in one more.
So let's leave it to a couple more. Go forward.
Sounds good. The next question is, how many years of protection do you have with the BE-Smart patent?
Yes. Regarding the BE-Smart, I believe we may have a patent duration of around 20 years since we've just secured it. Even if it isn't exactly 20 years, we have options to update the patents with new inventions and additional protein markers as we start to market this product. During this rollout, we will be collecting more data, especially in the initial stages, effectively creating an extensive new clinical study with real patients. Our earlier studies utilized a bank of specimens from patients who were tested several years ago, allowing us to observe their progress over time. We conducted tests on these specimens and compared the results to the patients' outcomes. This is why we are confident in the effectiveness of our test since we have historical results to validate our findings. For example, if our test indicates a high risk for a patient whose specimen we collected several years ago, we can verify whether that patient developed esophageal cancer. This process confirms the exceptional accuracy of our results. Moving forward, as we collaborate with gastroenterologists, we will be conducting tests on patients in real-time and compiling a substantial database of information. This initiative will be akin to a large clinical study that continuously affirms the quality of our test. As we gather more evidence, we will also have the opportunity to develop and enhance our patents, potentially extending and increasing their value over time. Thank you for the great question. What's the next one, Noella?
Thank you, Ted. And then your last question or more of a comment for today is, as a great number of biotech companies in health care in general, has been very disappointing in the past year, aside from a few exceptions. ProPhase could have the blockbuster product of the year.
We could see multiple blockbusters. First, our BE-Smart esophageal cancer test has the potential to be a significant success. In a year, it could be worth ten times our company's current market cap. Will this happen? It’s uncertain; we’ll have to see how things unfold regarding timing and funding. What I can share is that the scientists involved are extremely enthusiastic. They believe this test could be the best diagnostic available for esophageal cancer, and having an accurate test is essential for saving lives. It could save insurance companies billions while also providing peace of mind to those who might be at risk, alleviating the anxiety of wondering if they might develop esophageal cancer. We have a test that can reassure those individuals, which is not just beneficial for them but also cost-effective. I'm also looking forward to our Crown Medical initiative and believe that Nebula Genomics holds untapped potential, especially now that Jason Karkus has improved its operations. The future of Nebula will depend significantly on our financial situation and the outcome of our plans with ThinkEquity, whether we choose to sell it or retain it. If revenue from Crown Medical increases, it might be more advantageous for us to focus on expanding Nebula instead of selling it. Meanwhile, our cryptocurrency treasury strategy could surpass all our current efforts. As everything develops, I’m optimistic about what lies ahead. I expect a press release next week regarding our cryptocurrency treasury strategy and its next steps. Additionally, we have an upcoming proxy vote in two weeks, and there will be another VNDR before the proxy vote deadline on August 29. I’m not sure when shareholders will receive their proxies, but it’s crucial that everyone votes for the company’s interests and for the benefit of shareholders, especially regarding authorized shares. This step is vital for attracting major partners to help us grow. I'm eager for the upcoming steps and potential announcements about our crypto treasury strategy and BE-Smart progress. There’s a lot of positive momentum, and I appreciate everyone’s time today. I’m thankful for this opportunity to speak, and I always enjoy our discussions. Thank you to Noella, thank you to Renmark, and have a great day.
Thank you so much, Ted. And once again, to everyone for joining us today for ProPhase Labs Second Quarter 2025 Results. ProPhase is trading on the NASDAQ under the ticker symbol PRPH. The playback will be available on our website 24 to 48 hours after this presentation under the VNDR live view tab. Please stay tuned for the next quarterly call and see you next time.