Predictive Oncology Inc.

Good day, and thank you for standing by. Welcome to the Predictive Oncology Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's prepared presentation, there will be an opportunity to ask questions. Please be advised that today's conference is being recorded. I would now like to hand the call over to your speaker, Mr. Glenn Garmont, Investor Relations. Thank you. You may begin.

Welcome and thank you, everyone, for dialing into the Predictive Oncology second quarter 2024 financial results call. First, you'll hear from our chief executive officer and chairman of the board, Raymond Venari, and then our chief financial officer, Josh Blatcher, will review our financials. Certain matters discussed on 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 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. Now, I'd like to turn the call over to Raymond Venari, Chief Executive Officer. Raymond?

Thank you, Glenn, and good morning, everyone. I would like to begin this morning with a recap of a significant announcement that we made just a few weeks ago regarding the successful retrospective multi-year ovarian cancer study that we completed with UPMC McGee Women's Hospital, conducted over the past five years. As a result of this study, the findings of which were presented at the American Society of Clinical Oncology annual meeting in June, we have expanded our artificial intelligence and machine learning offering to independently pursue the discovery of novel biomarkers that can predict patient outcomes and drug responses in oncology. With these capabilities, we are very well positioned to play a significant role not only in validating biomarkers that have already been discovered by potential partners, but also in discovering our own unique biomarkers and playing a more active and direct role in drug discovery and development. Please recall that the McGee study was designed to identify key features that drive overall survival endpoints in ovarian cancer, a very serious cancer type with a very high rate of recurrence. This study included data from 235 ovarian cancer patients from 2010 through 2016. A broad array of inputs, including patient data, whole exome sequencing, whole transcriptome sequencing, drug response profile, and digital pathology profiles were used to train the 160 models that were included in the study. As we previewed during our first quarter conference call, we were able to obtain and analyze data that supports novel ovarian cancer biomarker discovery and development. We are very pleased to report that we were able to deliver strong predictive models with high levels of accuracy, and our machine learning capabilities demonstrated the ability to identify prognostic subgroups within ovarian cancer patient populations. This progress represents a natural extension of our core artificial intelligence capabilities, where we employ our active machine learning and diverse patient tumor samples preserved in our expansive biobank to predict responses to drugs with a very high degree of accuracy. We are now taking this one step further by applying state-of-the-art deep learning approaches for biomarker discovery for both overall survival and drug responses. This includes our ability to extract differentiating features from our digitized pathology slides, which in and of themselves are potential biomarkers. Our platform now enables us to pursue deep learning as a methodology to accelerate the initial stages of biomarker discovery and stratify patient cohorts and further extend our capabilities. either independently or in partnership with our biopharma companies. Ovarian cancer represents a significant unmet need in oncology, with epithelial ovarian cancer being the deadliest of all gynecologic malignancies. While these cancers are sensitive to frontline chemotherapy in approximately 75% of cases, these women will ultimately experience disease relapse in an equal percentage. which is incurable. Outside of primary chemotherapy, there is no universal treatment decision path to determine the agent, sequence, and timing of the standard of care for chemotherapeutic agents. These capabilities extend well beyond ovarian cancer and can be used in the discovery of biomarkers for other cancer types, as well as diseases outside of oncology. External sources have valued the biomarker discovery market at more than $51 billion in 2024, so this is a very significant opportunity for us to leverage our unique set of assets and capabilities to play a role in the discovery of next-generation therapeutics while creating enduring value for our shareholders. We look forward to further validating these capabilities through development collaborations with leading biopharmaceutical partners and healthcare networks. Also, during the second quarter, in addition to our biomarker discovery initiative, we launched a novel organ-specific 3D cell culture technology that more closely mimics human tissue architecture than 2D assays. It does this by preserving critical interactions between a tumor and its cellular and extracellular surroundings. and creates a more representative method for in vivo clinical testing for drug candidates. This allows for more robust predictions of clinical outcomes and can be used to optimize candidate selection for subsequent clinical development. The potential benefits to drug developers are numerous. They decrease the cost of new drug development and the time to market. but also reducing the need for animal testing and time-consuming iterations during clinical trials. The 3D cell market is estimated by third parties to grow 14% annually from $1.4 billion in 2022 to $5.3 billion in 2032. Also worth mentioning is the progress that we have made with our Accelerating Compound Exploration Program, otherwise known as the ACE Initiative. This program, as you may remember, is geared toward novel discovery through partnerships with universities and academic institutions, and was created to provide early-stage academic development groups access to Predictive Oncology's artificial intelligence platform, which, as you also know, leverages our extensive and diverse biobank of heterogeneous tumor samples. The ACE program is designed to enable academic investigators to evaluate their drug compounds and facilitate more informed selections of drug tumor type combinations to increase the probability of future clinical success by efficiently addressing tumor heterogeneity earlier in development. This program, which we have been nurturing for more than a year, has resulted in our first collaboration with the University of Michigan. The library created by University of Michigan's Natural Products Discovery Core is one of the largest collections of pharmaceutically viable extracts in the United States. This library, which has been meticulously constructed over the past decade in the laboratory of Dr. David H. Sherman at the University of Michigan's Life Sciences Institute, is comprised of strains from Asia Pacific, Middle East, South America, North America, and the Antarctic. Most importantly, this collaboration represents predictive oncology's foray into true drug discovery. With the addition of University of Michigan's natural products and drug candidates, we are very well positioned to expand our small molecule capabilities to include development of large molecule models using our proprietary AI and ML platform. Several publications will definitely come out of this drug discovery initiative. To ensure that we remain nimble and able to capitalize on this and other new opportunities that continue to emerge, we announced more recently that we implemented a comprehensive and strategic cost reduction initiative aimed at streamlining our operations and extending our cash runway. As a key part of this initiative, we made the challenging decision to consolidate our Birmingham operations, which houses our biologics business, into Pittsburgh, which, as you know, also serves as our corporate headquarters. From a strategic perspective, it is important to understand the context of this action. First and foremost, it is incumbent on the company to remain laser focused on its core capabilities with respect to the application of artificial intelligence to drive drug discovery. Second, the very thing that enables our ability to model and predict drug tumor responses, identify biomarkers, and predict outcomes with such accuracy is the quality of the tumor samples in our biobank and the significance of the pristine longitudinal data that has been generated from those samples. This has now been externally validated and was presented at the Association of Surgical Oncology. The ability to deliver on the accuracy of our predictions and relevance of our models requires constant sequencing, characterizing, curating, and digitization of tissue samples, drug response data, and pathology slides. This is an ongoing effort. and one which drives the precision with which our AI-generated models are perfected. In the absence of these silent endeavors, we cannot possibly distinguish ourselves in the marketplace. All of this requires dedicated resources, and in this case, the reallocation of those resources from Birmingham to Pittsburgh. Lastly, innovation perpetuates value creation, and adding value to the company impacts valuation of the company. By adding value, we are signaling our relevance to the market with respect to the significance of our core asset. This initiative, once fully implemented in 2.4 of this year, is expected to reduce our run rate for cash used in operating activities by approximately $2.5 million annually, which equates to roughly 20% of our cash burn based on our stated 2023 cash used in operating activities of 13.2 million. As a point of reference, the Birmingham segment generated a net loss of 2.0 million in 2023 and 1.8 million in 2022, with de minimis supporting revenue. Moreover, since Birmingham has become tangential to our core focus in Pittsburgh over time, And in light of its lack of profitability, this simply became the right decision for the company and the shareholders moving forward. We would be remiss not to extend our gratitude to our partners in Birmingham, especially Dr. Larry DeLucas, Senior Vice President of Biologics, for his years of leadership and dedication. Thank you, Larry. To further strengthen our financial position, we've announced over the last few months a couple of significant capital raises, $5.0 million in total, that also help to bolster our cash balance sheet and extend our runway. In May, the company raised $3.7 million, net of $0.6 million of issuance costs. for 3.1 million in net proceeds through its at-the-market facility through the issuance of 1.6 million shares. And in July, the company raised an additional 1.3 million in gross proceeds through the exercise of 958,000 warrants through our warrant inducement transaction. And now, I would like to turn this call over to Josh Blatcher, our Chief Financial Officer to review our second quarter financials in detail. Josh?

Thank you, Raymond. We concluded the second quarter of 2024 with $5.3 million in cash and cash equivalents compared to $8.7 million as of December 31, 2023, and $4.1 million in stockholders' equity compared to $8.3 million as of December 31, 2023. Note that our cash balance as of June 30th, 2024 includes net proceeds of 3.1 million that we raised from our ATM facility in May, but excludes amounts raised subsequent to the end of the second quarter from the warrant inducement transaction that Raymond described earlier. Our net loss per share for the second quarter of 2024 was 68 cents per basic and diluted share as compared to 98 cents per basic and diluted share for the second quarter of 2023. The company recorded revenues of $279,000 in the second quarter of 2024 compared to $490,000 for the comparable period in 2023. Revenues for the quarter ended June 30, 2024, and June 30, 2023 were primarily derived from the company's EGAN operating segment. General and administrative expenses primarily consist of management salaries, professional fees, consulting fees, administrative fees, and general office expenses. G&A expenses decreased by $567,000 to $2.1 million in the three months ended June 30, 2024, compared to $2.7 million in the comparable period, 2023. The decrease was primarily due to lower employee compensation and decreased investor relation costs, offset by increased consulting fees. Operation expenses primarily consist of expenses related to product development and prototyping and testing. Operations expenses decreased by $100,000 to $893,000 in the three months ended June 30th, 2024, compared to $993,000 in the comparable period in 2023. The decrease was primarily due to decreased cloud computing expenses related to our Pittsburgh operating segment. We expect these types of savings to continue going forward. Sales and marketing expenses consist of expenses required to market and sell our products including staff-related expenses for individuals performing such work. Sales and marketing expenses decreased by $145,000 to $284,000 in the three months ended June 30, 2024 compared to $429,000 in the comparable period in 2023. The decrease was primarily due to lower employee compensation including sales commissions As a part of the cost savings initiative, we've taken a hard look at marketing spending in general as it relates to ROI hurdles, so you can expect that such reductions will continue going forward. Net cash used in operating activities was 6.6 million for the six months ended June 30th, 2024, down from 7.0 million for the comparable period in 2023. The company incurred net losses of 3.2 million and 3.9 million for the quarter's end in June 30th, 2024, and June 30th, 2023, respectively. As of June 30th, 2024, the company had an accumulated deficit of $175 million as compared to $168 million as of December 31st, 2023. That concludes the financial overview. We will now open the call out for questions. Operator?

Thank you. At this time, we'll be conducting a question and answer session. If you'd 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'd 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. Mr. Venneri, I'd like to turn the floor back to you and close the question and answer session.

Thank you very much, and thanks, everyone, for being on the call. So that concludes our call for today. We hope that you take away from this call that we are extremely excited to actively pursue novel biomarker discovery and play a more direct role in the discovery and development of next-generation therapies, either independently or with a partner. This represents a tremendous opportunity for us to bring new hope to millions of patients worldwide in cancer and other high-need indications while creating long-lasting value for our shareholders. Thank you again for your support and your patience, and I look forward to the next quarterly update in November. Have a great day.

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