Precipio Inc (PRPO) 2020 Q4 法說會逐字稿

Welcome to the Precipio Q4 2020 and year-end shareholder update call. (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 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, 2020, which is on file with the Securities and Exchange Commission, as well as other risks detailed in our subsequent filings with the Securities and Exchange Commission. These reports are available at www.sec.gov.

Statements and information, including forward-looking statements, speak only to the date they are provided unless an earlier date is indicated, and we do not undertake any obligation to publicly update any statements or information, including forward-looking statements, whether as a result of new information future events or otherwise, except as required by law. Now let me hand the call over to Ilan Danieli, Precipio's CEO. Please go ahead.

Thank you and good afternoon, everyone. I'd like to thank you all for joining our post year-end 2020 10-K filing for our shareholder call. During the call, I'll provide a recap of 2020, an update on the progress our company has made since the start of 2021 and our plans for 2021 and beyond. With me today is Carl Iberger, our CFO, who will share his perspective on the business and our financials. I'll close with a few thoughts on where the company is going in 2021 and beyond.

As you saw in our 10-K filing, and the subsequent press release we issued yesterday morning, we've doubled our revenues from 2019 to 2020. This is an impressive accomplishment in a normal year and 2020 was anything but normal, our sales team faced limited to no access to customers, our lab team faced operational and other limitations to what is already a complex workflow. Yet with all of that, we were able to double the number of patients for whom we provided what we believe to be the most accurate diagnosis this industry can provide backed by academic experts and proprietary technology.

This is an incredible feat, and I want to take a moment to recognize our all-star team that made this happen. Not once did any of our employees put their personal concerns, fears or needs before patient care. Instead, while the majority of the country stayed home, they showed up to work every day to take care of the patient in front of us. As we watched businesses around us collapse, capital markets in disarray, we saw many businesses take immediate action to cut costs through massive layoffs.

Our company culture does not permit for that thought to even be considered. Instead, management and employees took pay cuts to ensure that, while our take home pay may be temporarily reduced, nobody had to face the prospect of losing their job and not being able to provide for their family. This is the commitment that we, as a company, have to each other, and it's the heart of who we are. I'm proud of the team for all that we accomplished in 2020.

On the product side, 2020 was the year we formulated and solidified our strategy as we took our proprietary technologies and converted them into products. We have the technology of the working format; after all, we were the first customers to use both IV-Cell and HemeScreen in our lab. In order to create a proper business unit for these technologies we've developed, we needed a sales channel and a go-to-market strategy.

Let's start with IV-Cell. IV-Cell is a sophisticated product used in the cytogenetic laboratory, a department which is not only a highly complex part of the lab, but also one that is typically averse to change. So we needed a strategy that would get us -- would both get us in the door with decision makers as well as have a trustworthy relationship with these decision makers to convince them to try something new.

In August, we signed a sales and distribution agreement with ADS Biotec, one of the most established and respectable players in the industry with products sold directly into these cytogenetic labs. Any laboratory around the world of significant volume buys ADS's product. Through our partnership with ADS, we aim to gain access to these laboratories and the decision-makers and, with ADS's credibility, we would win customers.

The first step in our strategy we agreed on with ADS was to conduct a data test. ADS would identify several sites in the US and Europe who would -- who they knew would be open to new innovation. We will present to them jointly, set up a trial program and work with the customer to show them the impact and results of using IV-Cell compared to the current media they use.

The plan was that the results would be sufficiently compelling for them to transition to using IV-Cell and become our customer. With a few successful trial customers in our pockets and, therefore, feeling comfortable with the value proposition, we could then move to broader market penetration.

With exception of the timeline to complete the trial phase, this strategy is on track. As much as I hate to use COVID as an excuse, we've seen many labs crippled by regulations they need to adopt in order to meet social distancing requirements as well as other safety precautions that include shift rearrangements, quarantining staff, etc.

With cytogenetic labs typically understaffed and already struggling to meet their volume capacity, a study like this will always take a backseat to clinical work, as it should. After all, there's the patient [staff] in front of them and a doctor waiting for diagnosis and that certainly comes first.

During the second part of the year, we had to meet the pace of our customers and accept the fact that these trials will take longer than expected. So far, the initial results from the trials we conducted have been positive and I feel we are moving in the right direction and I'm confident we will get there.

IV-Cell is a promising technology that offers both clinical accuracy value as well as operational and economic benefits. In a market that's been using the same product for over 50 years, laboratories are ripe for change, and I think our product with our distribution partner are in a strong position to capture the market.

Moving on to HemeScreen, our proprietary family of reagents for rapid molecular diagnostic testing. After using HemeScreen in our labs for several years, last year we identified the opportunity to migrate this technology into the POL, the Physician's Office Laboratory, and sell these reagents to run as a diagnostic test by oncology officers in their lab.

Similar to IV-Cell, we needed to pair this technology with a solid sales partner and a successful go-to-market strategy. In December 2020, we entered into an agreement with ION solutions, a subsidiary of AmerisourceBergen and a GPO in the oncology market. ION supplies oncology products to community oncologists' oncology practices, which is precisely our target customer base. Furthermore, at the heart of their vision is helping community oncology practices provide better care to their patients, aligning perfectly with our vision.

ION's sales force is deeply entrenched with their customers. Their ability to open doors and put us in front of the right decision-maker has been nothing short of impressive. Since the launch of the partnership in mid-January, we've presented to more than 50 customers and the vast majority of them have expressed interest in bringing HemeScreen onboard.

We already have active customers generating revenue. We have a solid and rapidly growing pipeline of customers in various sales and ongoing stages. Our goal is to build a strong base of oncology practices as our customers using HemeScreen (inaudible) we continue to sell these and other products we continue to develop. I really believe that HemeScreen is going to be one of the strongest engines of growth for our company, and I'm excited to see the progress we've made and what lies ahead of us.

Lastly, let's discuss our COVID project. Again, I'd first like to reemphasize that COVID is not our core business. And as you can see, contrary to some other companies in the industry, at no time did we abandon our core business and are focused on its growth.

However, we took an opportunity to explore, using limited resources, the ability to take a technology developed by our partner and bring it to market. Given the sensitive and highly regulated aspect of these tests that require stringent approvals from the FDA, we had to change [horses] a couple of times throughout the process.

We are delighted to partner with Nirmidas who is actually the first US based company to receive an EUA for point-of-care use of their COVID antibody test. We are working closely with Nirmidas to explore various distribution channels available to the market. More to come.

In terms of what COVID testing may mean to the company, the way we look at it, it might deliver a nice bonus, providing additional revenue and cash. But whether that happens and the magnitude are very difficult to control or predict. So we'd prefer to look at it is just that, a nice bonus which may or may not happen and which we will celebrate if it does and not miss a beat if it doesn't. As we continue to make progress we will update our shareholders accordingly.

Now let me hand it over to Carl, our CFO, for him to share some thoughts on the business and our financial performance, and then I'll end with a few thoughts on where I see 2021 taking us. Carl?

Thank you, Ilan. Good afternoon, I'm Carl Iberger, Precipio's Chief Financial Officer. Yesterday, Precipio issued a press release that provided a synopsis of our 2020 top line results. This press release followed the filing of our 10-K on Monday, March 29. In his opening remarks, Ilan covered a number of items.

I'd like to take this opportunity to add some additional comments regarding our sales growth in pathology services, the headway we are making developing a distribution market for IV-Cell, and finally, the impressive reception HemeScreen is receiving with office-based oncologists and larger oncology commercial labs.

First, pathology diagnostic services, just prior to the interruption and business shutdown from COVID, we reconstituted and reorganized our sales force at the tail end of February and into early March 2020. This action by the company proved to be extremely timely. Our initiatives actually enabled Precipio to address the many disruptions of normal business operations resulting from the economic shutdown.

First on that list of issues was just basic access to physician accounts by our sales reps. During Q2 2020, with COVID shutdown ramping up, we seamlessly executed the onboarding of accounts from a noncash non equity acquisition of Poplar Healthcare's OncoMetrix business. And as we move through Q3 and Q4 of 2020, the decisions and preparations effected in February and early March and our sales organization, our lab operations and lab logistics allowed the sales force to actually grow account volumes and add new business as our customers experienced minimal changes from normal business routines.

Stepping back and reviewing 2020, case volume grew throughout the year, with issuing our 10-K, we've reported a year-over-year volume growth of billable cases of 120%. While we are just completing Q1 2021, our initial unaudited results are as impressive. Given the impact of the variety of storms in the Southeast and Midwest, we project revenues to approximate Q4 2020.

Second, IV-Cell -- as Ilan stated, IV-Cell is a sophisticated, highly complex cytogenetic product being introduced in the commercial lab setting, our path to building market revenues has been elongated, reflecting the complexity and change this advanced technology has and will have on the cytogenetic lab process.

So where are we today? The bottom line on IV-Cell is that it delivers what is clinically advertised, simultaneous cultures and speed in processing. Additionally, the financial value proposition to the customer is very real and very meaningful. Therefore, we are extremely confident in the product and our ability to sell through our partnership with ADS and its international customers.

Third, HemeScreen -- having a product that offers a turnkey solution, both including diagnostic equipment as well as reagents, a product that offers extremely low entry cost for the customers, a product that is able to build new revenues for oncology practices, and a product that eliminates the need for the practice to reference out tests that are not only expensive, but have a long lead time, 10 days to two weeks, reducing that to one day. That product defines HemeScreen.

We project HemeScreen to produce very meaningful revenues for Precipio in 2021 and for HemeScreen to be a material driver for the company. Taking the growth of HemeScreen and path services together, we anticipate accelerating the company's timeline for cash flow breakeven.

Now moving to financial results. Our 10-K provides extensive information and financial results of our operations. The press release provided highlights of 2020. Diving into the financial performance, I'd like to address sales and gross profit, operating expenses and our balance sheet.

Sales and gross profit both rose in 2020. Sales for 2020 of $6.1 million increased 95% over 2019, driven by pathology services. Our increases in past services enabled our lab operations to leverage fixed expenses to maximize our batch processing and, to a large extent, consolidate logistic expenses, all reducing our per test costs.

2020 gross profit of $1.2 million increased by 4X in comparison to 2019. For 2020, gross margin increased to 19% from 7%. Looking at just Q4 2020, our margin increased to 24%. And on an incremental revenue basis in 2020, on a $3 million increase in sales year over year, gross profit grew $900,000, and the incremental gross margin was 31%. We anticipate the continual case volume increases in pathology will show significant and meaningful improvement in gross profit and gross margin percentage in 2021.

Continuing our discussion of gross profit, we are very encouraged about the impact HemeScreen will have on our 2021 future gross profits. As HemeScreen revenues are beginning to build and our upfront investment costs are behind us, we see HemeScreen being a material factor in accelerating total reported revenues, gross profit and the timeline to cash flow breakeven.

Moving towards operating expenses, in 2020 operating expenses were $9.8 million, they increased less than $0.2 million, or less than 2%, when compared to 2019, while revenues during the same period almost doubled. During 2020, we focused on reducing G&A expenses; we took those savings and reinvested in selling and R&D initiatives. Within R&D in 2021, we are actively working on a development of a suite of HemeScreen panels, and as we build HemeScreen accounts, we look to expand the HemeScreen offering to those oncology practices.

Moving on to the balance sheet, growth has provided the company definitely more financial flexibility. With growth to a degree we've been able to shore up our balance sheet, reduce cash burn, increase cash on hand, reduce accounts receivable, and make gains stabilizing the total liabilities comprised of accounts payable and accrued expenses.

Ending 12-31-2020, accounts receivable was $0.9 million, an increase of only $0.3 million on a sales increase of $3.0 million. DSO at the end of 2020 was 52 days, a decrease of 15 days from 2019. As the majority of our revenue is patient billing, I am very pleased with the results turned in by the company's reimbursement team.

Accounts payable and accrued expenses remain essentially level year over year on a much larger book of business and with the investments in R&D. So improvement in DSO, improvement in revenue collected per case, and accelerating the collections have assisted the company's cash needs and our operations.

Capital expenses -- moving on to CapEx. In Q4 2020, seeing the monthly case volume continually increase in pathology services, the finance group and operations reassessed the company's CapEx needs for the future. The assessment ended with initiatives by lab operations in renegotiating existing contracts with major equipment and reagents suppliers.

And additionally, operations revisited equipment rental programs and upgraded lab diagnostic competencies, expanding our molecular testing capabilities. This change allows Precipio to bring in-house previously referenced out testing that was very expensive and had lengthy reporting times that would impact our services to our customers. We are encouraged that growth in volume will be met by our continual emphasis on diagnostic quality, and will provide lower case costs.

For financing for the company, in 2020, we utilized our equity line to fuel the company's growth and operations. Entering 2021 with anticipated revenues on the rise, we project a reduction in the cash burn rate each and every quarter. Key to this equation will be building HemeScreen revenues.

As Ilan stated earlier regarding COVID, while we are actively moving forward, our endeavor in COVID antibody testing and the resulting revenue performance is, as of yet, very uncertain. As such, we do not have any material impact of COVID revenue in our projections. As we move forward, the company will provide additional shareholder information on this product as material data becomes available.

In summary, 2020 was a unique year and a very challenging period for the company. Going forward, we are truly excited about 2021 and our growth opportunities. Operationally, we anticipate continual improvement through volume growth in pathology services and as HemeScreen revenues build.

Financially, we continue to gain strength, but we remain focused on leveraging our assets and driving the company to breakeven. At this time I'm done with my portion of the presentation, and I will return the meeting over to Ilan. Thank you. Ilan? Ilan?

Yes, sorry, I was on mute. Thank you, Carl. I appreciate the outstanding job you and your team are doing. Let me end with a few closing thoughts on where I see us in 2021 and beyond.

Pathology services will always be our core business. First and foremost, it's the vehicle that enables us to deliver on our vision to provide the highest levels of diagnostic accuracy in the industry. Our pathology business starts with our talented sales team responsible for the growth we described at the top of this call, and is supported by our dedicated team in the lab and customer service who ensure that we deliver on our promise every day for every patient and doctor we serve.

It also facilitates our ability to create, test and develop new products that drive the product sides of our business. And this is where I think the real growth engine exists. The product side of the business offers unique opportunities we've never really faced before.

First of all, proprietary product create a barrier to entry not easily overcome by competitors. Second, these are B2B products with the current revenues from ongoing usage. And lastly, the markets that issue these products are huge, exceeding $100 million per year.

Therefore, both parts of our company form a strategy in which we impact patient care both internally in our labs and by creating products that can be used to achieve the same by outside labs. In 2021, I see us continuing to grow the pathology business. Our value proposition is strong, and our team is well poised to deliver that message, and so we continue to gain customers.

I also see the product side of the business becoming a substantial part of our revenue and our bottom line. We have a solid go-to-market strategy and formidable partners for both our lead products, and the feedback from our customers is outstanding. In short, the pathology business will continue to serve as our anchor for the business and the foundation for developing our proprietary product and those products are what will enable us to achieve rapid market and financial growth.

Coming out of 2020, I am more excited than ever, we have the team and the tools we need to execute, and results are already showing. I want to thank you all for your ongoing support. And I look forward to speaking with you soon. Thank you and have a nice evening.

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