Predictive Oncology Inc.

and thank you for standing by. Welcome to the Predictive Oncology Q1 2023 Earnings Conference Call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be an opportunity to ask your questions. Please be advised that today's conference is being recorded. And now, I would like to hand over the conference to your speaker today, Mr. Glenn Guermont, Investor Relations. Mr. Garmont, please go ahead.

Welcome and thank you, everyone, for dialing in to the Predictive Oncology Q1 2023 earnings call. First, you will hear from our Chief Executive Officer and Chairman of the Board, Raymond Venary. Then our Chief Financial Officer, Bob Myers, will review our financials. Finally, Dr. Pamela Bush, our Chief Business Officer, will join Raymond and Bob to answer any questions that you may have. Certain matters discussed during this call contain forward-looking statements. These forward-looking statements reflect our current expectations and projections about future events and are subject to substantial risks, uncertainties, and assumptions about our operations and the investments we make. All statements other than statements of historical facts included in the call regarding our strategy, future operations, future financial position, future revenue, and financial performance projected costs, prospects, plans, and objectives of management are forward-looking statements. The words anticipate, believe, estimate, expect, intend, may, plan, would, target, and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Our actual future performance may materially differ from that contemplated by the forward-looking statements, as a result of a variety of factors, including, among other things, factors discussed under the heading Risk Factors in our filings with the SEC. Except as expressly required by law, the company disclaims any intent or obligation to update these forward-looking statements. And now, I would like to turn the call over to Raymond Venary, our Chief Executive Officer. Raymond?

Dwayne, thank you very much, and good afternoon, everyone. So as many of you already know, when I accepted the opportunity to serve as Chief Executive Officer of Predictive Oncology in November of last year, I did so because I recognized the enormous potential of this company's intellectual capital and the compelling suite of assets that are truly unique among companies that are currently applying artificial intelligence to drug discovery. These assets not only include our proprietary patient-centric discovery platform called PETL and our computational research engine called Core, C-O-R-E, which, by the way, was developed by a brilliant computational biologist at the Center for Computational Biology at Carnegie Mellon University, but also our comprehensive biobank of more than 150,000 heterogeneous tumor samples and more than 200,000 pathology slides, all of which are currently being digitized and curated for both clinical utility and drug discovery. And I should say that the word heterogeneous is a very important term. Even though many patients are diagnosed with the same type of cancer, each of those tumors respond differently to particular cancer therapies. Each tumor and every response is unique. Understanding that heterogeneity is invaluable along the continuum of drug discovery through drug development. These dry lab assets, our assets, those being pedal and core, together with our own wet lab capabilities in a CLIA-certified facility, allow for both in silico computer modeling and bench-level laboratory experimentations. By predicting clinical success or failure early in the drug discovery process, and by introducing the very human element of heterogeneity far earlier than previously thought possible, we offer biopharmaceutical companies and drug developers a persuasive and multifaceted value proposition that includes, first, the mitigation of clinical risk at the most critical stage of drug discovery. Second, by identifying and validating drug targets sooner, thereby avoiding unnecessary trials that are likely to fail in their development, the potential exists not only to significantly reduce the cost of drug discovery, but potentially to expand the drug development pipeline. And third, by accelerating early stage discovery, replenishing pipeline, and truncating clinical development, the patent life of these drugs post-commercialization is extended and expanded. Prior to the application of artificial intelligence to the methodology of drug discovery, drug developers relied entirely on the successful outcome of very large, extremely expensive, and highly speculative clinical trials to determine if a tumor type will respond to a certain compound. As we all know, the failure rate across the industry is staggering. It is estimated that as many as 95% of drug candidates that enter clinical trials will fail and never be developed. Our value proposition is this. By utilizing our pedal platform, our partners essentially have the ability to peer into the future of drug response and to confidently anticipate clinical validation with much lower financial risk and therefore a much greater likelihood of commercial success. We have subsequently repositioned Predictable Oncology as a science-driven company that is enabled by artificial intelligence. And given this important distinction, we have been able to differentiate ourselves in the market. I am pleased with the progress that we are making, which in my view seems to indicate that what we do and how we do it is resonating with commercial drug developers as well as academic and research institutions. As we continue down this path, we are earning visibility and credibility, which is both telling and rewarding. And as momentum grows, we are very well positioned to participate in the billion-dollar artificial intelligence drug discovery market that is projected to grow annually at a compound rate of more than 30%. For the benefit of those who may be new to our story, please allow me to step back for a moment and give you a high-level overview of our PETL platform. PETL is not just one thing. PETL is several interrelated things functioning in unison. PETL is the application of artificial intelligence as a tool that is directed by rigorous scientific experimentation conducted in our laboratory, which is informed by the most significant resource at our disposal, a biobank of more than 150,000 tumor samples. These three things comprise the PEDAL platform. And to be clear, when I say artificial intelligence, I am referring specifically to active learning or machine learning. which is also a key differentiator for us. A simple way to think about artificial intelligence is this. AI is a process that mimics human thought. It is programmed to match the intelligence and capabilities of human thinking. That is to reason artificially, hence the term artificial intelligence. Machine learning, on the other hand, actually has the capacity to make predictions or decisions based upon data. It is a very sophisticated form of statistical analysis. It makes predictions based upon information that humans, which in our case are scientists, have provided. It is supervised, not programmed. It is active, not static. The more data or information that we feed into the system, the more the system is able to make accurate predictions based upon that data. It is something that learns by iteration, hence the term, machine learning. Our PETL platform is essentially supervised machine learning driven by scientific experimentation conducted in our own laboratory and informed by a biobank of 150,000 tumor samples. We conduct laboratory experiments to validate those in silico analyses to prove or disprove the viability of drug targets scientifically not just statistically. This is our value proposition. This is what sets us apart from all other AI drug discovery companies. The significance of this methodology, I believe, continues to be misunderstood or perhaps underappreciated by analysts, investors, and the market in general. That we are not an artificial intelligence company but that we utilize our own proprietary machine learning capabilities in a way that cannot be duplicated elsewhere, precisely because it is primarily driven by scientific rigor, not just algorithmic programming. It is informed by testing actual heterogeneous human tumor samples retrieved from our own biobank and validated experimentally in our own laboratory. Lastly, it is equally important to understand that PETL has been scientifically and technically tested, validated, and verified. PETL is able to predict with 92% accuracy whether a tumor sample responds to a certain drug compound or not. And in so doing, PETL is able to inform the selection of drug-tumor type combinations for subsequent in vitro testing and facilitating go-no-go decisions before investing in costly and time-consuming later stage in vivo human trials. PETL is a decision support tool. It answers scientific questions and clarifies scientific decision-making. A very significant milestone that occurred during the first quarter of this year was the announcement that we have partnered with Cancer Research Horizon, CRH. DRH is the world's largest private funder of cancer research. I want to repeat this point to emphasize the significance of this collaboration. DRH is the single largest private funder of cancer research in the world. DRH has chosen to partner with Predictive Oncology to utilize our pedal platform to identify the most suitable population of patients with a further development of their compounds. Why? Because we can preemptively screen for patient heterogeneity before ever conducting a single clinical trial. And to be even more specific, we have partnered with CRH to evaluate preclinically certain drug inhibitors for the purpose of determining which cancer types and patient populations are most likely to respond to treatment with these compounds. To give you an idea of the breadth, depth, and impact of cancer research horizons on drug discovery and development globally, here are a few statistics. DRH has access to a network of more than 4,000 of the world's leading cancer researchers. They spend upwards of $370 million annually on cancer research. They generate an excess of $647 million in revenue from royalties and intellectual property alone. They have provided critical support that has launched 11 cancer therapies currently on the market. They are currently sponsoring an additional 160 compounds. Their portfolio of spin-out companies have secured investments in excess of $2.8 billion. So while we were not able to disclose the specific compounds or mention a specific dollar value related to this relationship when it was first announced in March, we can say that this partnership provides for substantial development milestones and sales-related royalty payments over time. Through this one strategic relationship, we have exponentially expanded our reach into the oncologic drug development community and, by virtue of the collaboration itself, have the potential to impact the most critical stage of early drug discovery in a way that has never been done before. In February, we also announced a partnership with Civergenics to develop the first-ever genomics-based approach to precision radiation therapy utilizing artificial intelligence, which we believe has the potential to revolutionize the field of radiation oncology. Today, radiation therapy or RT is prescribed and delivered using a one-size-fits-all approach where all tumors are treated empirically, if not uniformly. We believe that the next and most significant paradigm shift in the field of radiation oncology will come from exploiting tumor genomics to personalize and optimize the radiation therapy prescription dose and to identify drug targets for the development of radiosynthetizers and radioprotectors for biopharma and industry. T-VIRGENIC's precision genomics radiation therapy platform provides the first clinically validated approach to optimizing the radiation therapy prescription dose for each individual patients. It is personalized medicine. If we take this one step further and we apply artificial intelligence and machine learning to the equation, the possibility exists to not only pursue the personalization and optimization of radiation therapy prescription dose, but potentially to discover medicinal radio sensitizers and radio protectors, which might lead to the repurposing of existing compounds or the development of an entirely new class of drugs. We mentioned this in our last call, but it certainly bears repeating. Cevergenics is a spin-out of the Moffitt Cancer Center, where the Cevergenics precision genomics platform is currently being used in a phase two prospective clinical trial for triple negative breast cancer. This is the first ever genomics approach to precision radiation therapy. This is not hypothetical. and it is clinically actionable. To put this in context, there are approximately 1.9 million newly diagnosed cancer patients in the United States every year. And potentially, more than 1 million of those patients may be treated with radiotherapy. If the overall survival rate of those patients treated with radiotherapy is improved by just 4%, That translates into 40,000 lives, which is almost equivalent to eradicating breast cancer. Needless to say, we are very excited about potentially playing a role in improving clinical outcomes of cancer patients treated with radiation therapy. So, in essence, predictive oncology and C-vergenics have entered into a scientific collaboration to leverage the computational capacity of our pedal platform and the diagnostic capabilities of the Ceregenics Precision Genomics Radiation Platform. The impact of these two technologies extend well beyond clinical utility to include drug discovery, drug repurposing, and screening for radio sensitivity or radio resistance. Based upon initial conversations with NASA, for example, The ability to develop the first ever genomics-based artificial intelligence approach to identify novel radio protectors is viewed as a significant benefit to aerospace in general and the astronaut corps in particular. This potentially extends to other government agencies or industries, including the Department of Defense and nuclear energy. Keep in mind that predictive oncology provides services along the entire continuum of drug discovery through drug development. While the PETL platform, for instance, focuses exclusively on drug discovery, our formulations and solubility capabilities address drug development. So, in addition to existing contracts with biotech and biopharma companies, predictive oncology recently announced a new collaboration with FluGen, Inc., on a next generation vaccine related to respiratory diseases. And in addition, we are finalizing two quite novel formulation proposals for pharmaceutical companies, both of which will likely begin before the end of the third quarter. Most recently, we announced the extension of a contract with Integra Therapeutics, a very well respected leader in the development of next generation gene writing tools to advance gene therapies. Through this collaboration, predictive oncology will utilize our proprietary high-throughput self-interaction chromatography, which we refer to as HSC, to rapidly and accurately measure biomolecular interactions that assist pharmaceutical and biotech companies in the workflow and process of drug development. Taken together, we believe that These initial collaborations speak to the broad applicability of our suite of technologies. Before I turn the call over to Bob, I would like to conclude by reviewing some rather noteworthy additions to our Scientific Advisory Board and Board of Directors, as well as the formation of a Business Advisory Board. Beginning with our Scientific Advisory Board, we are pleased to welcome Christoph Reinhardt PhD, MBA to our team. Christoph brings vast experience in oncology, translational research, drug development, and innovation. For more than a decade, Dr. Reinhart worked at Eli Lilly, where he was responsible for strategy and implementation of translational research for its portfolio of oncology assets and biomarkers. As acting chief scientific officer for cell phenomics, He now plays an instrumental role in determining what types of novel drugs and drug combinations might be beneficial to future cancer patients with solid tumors. So this experience, Christophe's experience, obviously is both timely and critical in light of the strategic direction in which predictive oncology is now moving. Christophe joins Dr. Mark Malandro and Dr. Robert Murphy on the Scientific Advisory Board. Mark Malandro is Vice President of Operations for Science at the Chan Zuckerberg Initiative and a very well-respected expert in genomics, molecular biology, biochemistry, and bioengineering. Robert Murphy is a pioneer in the field of machine learning and biological analytics. He was founding head of the Computational Biology Department at Carnegie Mellon University and led the development of our core machine learning technology that powers Predictive Oncology's Petal platform. These industry thought leaders comprise what I consider to be a world-class scientific advisory board, and individually and together, we are already benefiting from their insights and contributions. We have also convened a business advisory board, which, like the scientific advisory board, will be comprised of relevant business leaders and key thought leaders that will work directly with senior management, but also interact with the board of directors and the scientific advisory boards. The names of those advisors will be announced in the coming weeks. And lastly, we recently announced that Veena Rao, PhD, MBA, has also joined the board of directors of predictive oncology. Dr. Rao is a pharma, biotech, and digital health veteran with extensive experience launching products and building commercial organizations in the pre-launch and early launch phases. Dr. Rao currently serves as Chief Business Officer of Portal Instruments, where she leads the identification, evaluation, and negotiation of partnership opportunities for that company and heads a team of science and business professionals to guide the company's short-term and long-term commercial strategies. Dr. Rao will replace David Smith, who is stepping down as director, but will remain as an advisor to the board and serve as lead corporate counsel for the company. At this point, I will turn the call over to Bob Myers, our CFO. Bob?

Thank you, Raymond. We ended the first quarter 2023 with cash and cash equivalents of $18.6 million as compared to $22.1 million as of December 31, 2022. In addition, we have 1.8 million outstanding warrants that represent an additional source of capital. We have no debt, so our balance sheet is very strong. As of March 31, 2023, shareholders' equity stood at $18.6 million as compared to $21.8 million as of December 31, 2022. We recorded first quarter 2023 revenue of $.2 million as compared to $.3 million for the first quarter of 2022. Our gross margin in the first quarter, 2023, was 50% as compared to 65% for the first quarter of 2022. Operating expenses were $3.6 million in the first quarter of 2023 as compared to $3.6 million for the first quarter of 2022. Net cash used in operating activities during the first quarter of 2023 was $3.4 million as compared to $3.1 million for the comparable period in 2022. Net cash used in investing activities during the first quarter of 2023 was $0.1 million as compared to $0.1 million for the comparable period in 2022. Net cash provided in financing activities during the first quarter of 2023 was zero as compared to $0.1 million for the comparable period in 2022. That concludes our financial summary. You can find additional details in our 8K containing our earnings press release, as well as our 10Q, which is on fire with the SEC and also available on our website. So with that, I'm going to turn the call over to the operator for Q&A. And as a reminder, Dr. Pamela Bush, our Chief Business Officer, is also available for this segment of the call.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Thank you. Our first question comes from Michael Broadbrent, a private investor. Please proceed with your question.

Hi, Ray and Bob. Can you all hear me?

Yes.

Yes, Michael. I can hear you. Hi, guys. Hey, I appreciate you setting up this call, obviously. I actually have two questions. If there's time, if not, I'll get back in line. But the first question really comes down to the financials. This company has put its shareholders through quite a bit over the past two years, and the Cash, cash equivalents decreasing, total liabilities are up, revenues decreased significantly. G-Predicta isn't going anywhere. I know the focus is on Petal Core, the biobank, and other assets, but what is the timeline for, I'm going to ask this again, what is the timeline for breakeven? And with the Cancer Horizons, you know, how many molecules have you looked at yet under that partnership?

Pamela, did you want to address that or would you like me to address it? Or Bob? Well, Pamela wanted to do the compounds. Yeah.

Sure. I can talk about the compounds. So, thank you so much for the question. We are working in the first project with Cancer Research UK. The number of molecules is irrelevant because we can actually, panel can actually work with hundreds of molecules at the same time. We are not at liberty to disclose how many molecules they have because we've talked about what is the target and the program that we're working on. So I don't want to disclose that that is confidential, but we are working on the first program with them and we expect that this is going to expand to other targets within their pipeline.

When you say the first program, when will that program complete and I guess because predictive isn't going to make money unless milestones are achieved. I guess what we want to know is, is the program successful or not?

We do not have the answer to that yet. We have not completed the program yet. We are expecting it, similar to the proof of concept, to be about 12 weeks of actual testing. And then there is the analysis of the data. So we are expecting that before the end of Q3, we're going to have the results. But that all depends because we have to follow the science.

Okay. And then my follow-up question, if I have time, for Ray and Bob, there's concerns of lawsuits from, I believe, Richard Gabriel and other employees that were previously with Predictive Oncology at subsidiaries. Can you address those lawsuits and any ongoing process? Is that going to affect us further?

Raymond, may I take that?

Yeah, go ahead, Vaughn. Sure.

Michael, first off, it's a singular lawsuit, and it does not involve Richard Gabriel.

It's Tony Perdekas. Yeah, I'm sorry.

Right. That's all right. Not a problem. This is a recent lawsuit, and... First and most obviously, I cannot comment on the lawsuit, where it stands or how we are defending the lawsuit. I will say that there is a very strong commitment on our part to put this to bed and that there will be very little, if any, impact to the investors and to the company as a result of this lawsuit.

Okay. Thanks, Bob. Mm-hmm. Thank you.

The next question comes from Rob Antoniei, a private investor. Please proceed with your question.

Good afternoon. Thanks for taking the call, guys. Actually, just one follow-on to sort of a point of clarification for Michael's question. Can you confirm that there is, in fact, at least one compound that is physically being worked on at some point in time when it's complete, there will be some kind of quote unquote milestone payment made upon successful completion of that project, if you will.

So thank you for the question. Yes, I can confirm that we have at least one compound that we're working on. If the compound is successful to continue to move in development, that is when the financial terms that we have shared and milestones, that's when that will become effective. But yes, we do have at least one compound.

Okay, thank you. And sort of, I guess, not to hold you to it, but as you said, based on the science, et cetera, the target is end of third quarter-ish to determine whether that is successful or not.

That is absolutely everybody's goal. And like I said, it can be sooner, but it can also be later, depending on the science, as we're going to follow it. But expecting that it is going to be similar to the proof of concept that we have shared in the past, that is what we're estimating to be, yes.

Thank you, Pamela. I had just two questions. First was really just more point of clarity on You know, in October, there was a big deal with David Smith being brought on as a director with a lot of value that he was going to be providing. Six months later, he's sort of stepped down and been replaced by Dr. Rao, who seems very, very qualified. Just curious if you could share as to the rationale and reasoning as to why David has sort of stepped down and does he maintain his sort of, I guess, stock that he received at point of being appointed as a director.

Right. Thank you, Robert. This is Raymond. That's a very straightforward answer. The last part first, yes, whatever stock he was awarded while he was on the board, he maintains. The reason he stepped down is very simple. When David joined the board, he was with Troutman Pepper and the law firm Troutman Pepper. After he joined the board, he moved to DLA Piper. DLA Piper is our new law firm, and DLA Piper would not waive conflict, basically saying that none of their attorneys, not just David, none of their attorneys are permitted to sit on the boards of publicly traded companies. So he stepped down because he had to step down. His law firm said that he had to step down. Troutman Pepper did not have that opportunity. whatever that restriction was on their attorneys. However, I mean, it's sort of a blessing and a curse. It's not a curse at all. It's, it's actually a blessing. He's staying on as a board advisor and he, since DLA Piper is our law firm and David is now off the board, he is becoming lead counsel to the company. So we not only have him as a board advisor, we have him as a corporate counsel. Okay.

Thank you. And I guess, The other question, and much like Michael, I'll kind of get back in line here if there's others that want to ask, but Raymond, you commented on Fulgent, this sort of relationship, and something to be expected towards the end of kind of third quarter. Was there any kind of PR made about that? I don't remember reading or seeing anything about the relationship, and can you spend a little more time providing a little color on what that relationship really is?

Well, it's very straightforward work. With FluGen, it's very straightforward work for hire. They've asked us to test. Pamela, am I permitted to talk about FluGen, or can you address it more directly than I can?

We are not permitted to share the details about the project. But as Raymond has shared, it is a fee-for-service project to advance the biologics that they are developing. And I would say that that is what we can share at this time.

We're hoping that when this work is complete, we will be able to have... Robert, I mean, I think we... Oh, sorry, Pamela. Go ahead.

No, I was just going to say that as work is complete, we would be able to share outcomes, but that would have to be... determines when the project is complete.

Yeah, so Robert, I know what you're asking, and this is sort of the bane of our existence is we can say we're working with people. We can't tell you what we're doing. But the fact of the matter is we have a contract with Fluigen. It is moving forward. We're doing something that's fairly novel with them, and it is progressing, and there is an endpoint to it. That endpoint could be as early as the third quarter, say in the third quarter. There are two other contracts with two other companies that we're working on that are also on the formulation solubility side that have not yet begun, but which the project plan or the plan itself for the work that will be done are in process. So, those three things are going on simultaneously or in parallel anyway. Okay. Thank you.

I'll get back in line in case somebody else wants to ask a question.

As a reminder, please press star 1 to ask a question.

There are no further questions at this time. One second.

Our next question comes from Michael Broadbent, a private investor. Please proceed with your question.

Ray and Bob, I just had one quick follow-up. Do we have any insight on short-term, the next quarter, next six months for revenue growth? For POAI, are we expecting more of the same? Given the current financials, you know, are we still on a track to a break-even in the next 12 months of profitability?

I'll grab that or at least start with it, Raymond. So, Michael, let me say this. The revenue potential for the next six months is certainly greater than what we've done and certainly greater than what we've done last year. Raymond and Pamela have already indicated that we have three fee-for-service contracts. Those are... billable or invoiceable, if you will, at the end of the project or upon delivery and that revenue is recognized at that time. So we're very hopeful that we're going to be able to show that within the course of this fiscal year. Additionally, we did not do as well. I know that Skyline is not a high measure of where we're going in the company, but we did not sell any machines this past quarter, which is why we were a little lower in our current revenue stream. But I will, and I'm very happy to announce that Skyline has made an agreement in Canada, and we have just signed on with a system that has 20 hospitals. That revenue will be coming in in the next six months or less. And we'll bolster our ability to break in cash and to assist in the flow of expenses that go out towards PEDDLE and any of the other projects we're working on. And so I do think that we'll be moving up. And, you know, the other thing, Michael, that you have to understand, we talk about break-even. The first thing we need for break-even is revenue. And that's what we're working towards. That's what we're trying to gain. The biggest area for that, of course, is PEDDLE. And PEDL takes some time. And as you just heard, PEDL has milestones and also has passive revenue in the future with a potential percentage from drug discovery. So this is not going to happen in the next eight or nine months. And other contracts are going to have to fill that void. Meanwhile, we are working very, very hard at closing deals similar to the ones that we have with CRH so that we can move ahead and advance that revenue growth speed it up, if you will, and start seeing that effect during the course of next year and the year after. And that's where you're going to start seeing the type of revenue that differentiates predictive oncology from where we are now.

Thank you. There are no further questions at this time. I would like to turn the floor back over to Raymond Veneer, CEO, for closing comments.

Thank you very much. I appreciate it. So, that is, this conversation does conclude the call for today. So, we hope that you take away from this call that we're really very motivated and frankly very excited about the direction we're going. that the current investor has been very patient, if not impatient with some things, but very patient, waiting for us to sort of break out of the gate here. So everything you heard today is basically setting the company up for the next year, for the next year to two years. And obviously, many of you who are on the phone right now, on the call right now, some of you have called me personally, called us personally, and you know that you can always reach out and ask more specific questions. I know this isn't perfect on you to do that, but we will continue to keep you informed. We will continue to make announcements. I know that everyone wants to hear good PR, and no one wants to give PR more than we do, and so we look forward to doing that. So thank you all for your support, and I look forward to our second quarter update in August, and wish you all a good day.

Thank you.

This concludes today's teleconference you may disconnect your lines at this time. Thank you for your participation.