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spk00: 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' fourth quarter and year-end 2023 results. ProPhase is trading on the NASDAQ under the ticker symbol PRPH. Presenting today is Ted Karkas, Chief Executive Officer. With that being said, I will now hand the floor over to Ted.
spk01: Thank you, Noella, and thank you everyone for joining today for our year end, even though we're about to start the second quarter of the following year. We're doing things a little differently today. For those of you that don't know, we have this fantastic relationship with Renmark Financial, and we do non-deal roadshows, virtual non-deal roadshows regularly with Renmark. We have for quite some time. We think it's a great format. And this way I can show all of you slides and talk through them. I think it's a much better format. After the call, you can let me know if you like the old format better where it's talking, but you don't see me and you don't see the slides. If you want to be updated regularly, we do at least once a month, we'll do a virtual non-deal roadshow presentation with Renmark, with Noella. Noella is our fantastic moderator. I always love having her by my side. I'd also like to highlight just very quickly, we also have a fantastic relationship with Think Equity, our investment bankers, who we have had a three and a half year relationship with. They raised a bunch of capital for us three years ago, but they were also instrumental in helping us to make additional acquisitions that are now going to bear fruit as we go forward. That's what I'm going to be getting into in today's call. Also appreciate HC Wainwright, who follows us on an analytical basis. They do excellent research, as well as diamond equity research. And the latest to the table, Dave Gentry at Red Ship, just a call out. They're creating some fantastic PR, which is going to bring great brand awareness, not only to ProPhase Labs, the public company, but also to Nebula Genomics. So I think it's going to be a win-win, and I think you're going to start to see that in the coming weeks you're going to start to see amongst other things and different initiatives that include some presence on CNBC and so I'm really excited for what's to come and so with that let's let's get into the presentation 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 approvals. 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 to our website. All right. For those of you that haven't seen the presentation, I'd say probably half of you have, half of you have not. This is fine-tuned. It is updated with all the latest information. There's some really nice updates that I'm excited to talk about. So, first of all, I always like to say our best is yet to come. We have a performance tracker record that I would put up against most. You can always find the one in a thousand companies that becomes a multibillion dollar company. Great. If you found the right tech company 10 years ago, they probably outperformed us. In fact, even some of the great ones haven't outperformed us in the last 10 years. For all the other microcap companies, we've outperformed 95% of them. To make a long story short, I turned around the company that was virtually going bankrupt in 2012. I did the same thing with a company called ID Biomedical, which instead of going bankrupt was sold to GlaxoSmithKline for $1.4 billion. I was instrumental in the turnaround there. And with that experience, I did the same thing here. We had a 65 cent stock about 11 or 12 years ago. We now have paid out $2.40 in special dividends. The stock's up nine times. So overall, we're up about 11 times if you include the special dividends in 11 years. Not a bad track record. More recently, about three years ago. So we turned around the Cold East brand, sold it for $50 million, kept the manufacturing facility. I'm going to talk about that very shortly. We got into COVID testing. And we had never been in the lab business before. We'd never been in the COVID testing business before. And we got into it. My son, Jason Karkas, within a short period of time, he went from a consultant to a salesman to basically taking over. We moved out to senior executives who weren't getting the job done. Jason took over, built a roughly $200 million business over two years. Unheard of. Very few companies in the country did anything similar. And we had never been in the business before. So it's a history of execution. And it's like deja vu because now we're going to do the exact same thing with Nebula Genomics that we did with COVID testing. All right. So in addition to that, so to be clear, what we did differently from what other microcap companies did, think equity where they did a fantastic job raising capital for us three plus years ago. Back then we were in the Super Bowl market. We're just based on a story. We had this high flying stock price. They raised a bunch of money for us. But unlike all the other companies that spent all that money and are out of business now or their stocks are down to 10 cents. we strategically transitioned and planned for the future. That included with Think Equity and making acquisitions, one of which was Nebula Genomics, another of which is our Be Smart esophageal cancer test. Another one is Equivir. We're going to be talking about all of those over the next 20 minutes and in the Q&A. So all of this we've been strategically planning for several years. And now we've transitioned from a COVID testing business, which ended early last year to now, as we go into 2024 and 25, we expect to have some very explosive businesses, which I'm going to get into momentarily. So we have a history of executing on behalf of the shareholders. And as I like to say, the best is yet to come. So let's start with formulas, which I actually find kind of humorous because, um, Historically, Formulaz was a sleepy business. I never really even used to focus on it. When we sold the Coldies brand, humorously, if the company that acquired Coldies from us had asked for Formulaz, I might have thrown it in. This is five years ago. So we maintain formalized because it kept our infrastructure in place for selling products into 40,000 food, drug, and mass stores. We can do not only manufacturing, we can do packaging, distribution, logistics, you name it. We can do soup to nuts. We have a turnkey solution for selling products into retail stores around the country. That's why we kept it. But what's interesting is The global demand for lozenges has gone through the roof and the capacity globally as well as in this country has actually shrunk. Especially when we're talking about reliable capacity, it doesn't exist. We have global brands that literally are panicking, trying to figure out how to solve their problem. They're basically given mandates. What do we do in the United States and North America to solve our lack of laws and manufacturing capabilities? And so what's interesting is we've started to build our capacity. And as we build it, you know the saying, if you build it, they will come. It's already happening. So just to go over a few bullet points. We raised prices on every single customer last year, fourth quarter last year. Those price increases all took effect in the first quarter. So we went from being an unprofitable to a profitable business with increased revenue just by increasing prices. In addition to that, in January, we announced two new important new lozenge lines that takes our revenues up. So our revenues historically have been around 8, 10 million. Last year, they were a little over 9 million. So with our price increases, we went up to, let's say, 11 million. now we just got in five million dollars of new business one of those two customers we've already started manufacturing for them the other one should start shortly so right away as we enter the second quarter we should be at a 15 16 million dollar run rate instead of losing money we should be making at least 20 to 25 percent net profit margins that's just the starting point so just based on that we're worth three to four million dollar profitable business just entering you know on an annualized runway just entering the second quarter what also happened is we purchased automation equipment which arrived which we installed it turned out the automation equipment works better than we expected i give our coo jed latkin uh who joined us originally he joined us because he represented he's worked uh with multiple companies, the CEO, CFO, COO. He was representing the company that he was turning around that sold us the be smart esophageal cancer test. He came in as a consultant last year. He got involved with formulas. He became a full-time consultant. Then he became our full-time senior level executive and COO. And so he's hands-on. He actually has a lot of experience in the manufacturing world by pure coincidence. And so he got involved. We started building additional capacity. We brought in some high level, senior level executives to work in the company, as well as a high level consulting company to work with us, to build a master plan, to build that capacity over the next one, two, three years and so forth. And so Jed flew to Germany to get the best automation equipment in the world. We installed it and our capacity. Now we had capacity estimates. So we, To put this in perspective, we estimated a month or two ago that by the third quarter, we have a second lozenge line being installed. And by the way, that lozenge line, we ordered that more than a year ago. You have to understand, it's not like there are lozenge lines out there to be purchased. This is how tight the capacity is. If you want to purchase one lozenge line today, they have to manufacture it. By the time they manufacture it, ship it to you, you install it, it could be a year and a half. So understand that the lozenge line that's about to be installed late in the second quarter, early third quarter, We planned on this more than a year ago. At the time, we were losing money. It wasn't an exciting business. But understand, behind the scenes, we've been working on formulas and building this expansion for a year and a half. At the same time, we were talking to two global brands since the beginning of last year as well. So all this has been in the works. This isn't something new. This is all about to come together and bear significant fruit right now going forward. So it turns out our automation equipment works better than we expected. When we include the lozenge line being installed in the coming months, we expect by some point in the third quarter, we won't be at a run rate of 30 to 35 million capacity. We'll be at a run rate of $45 million of capacity. This is an astounding number when you think about the historical value of pharma laws and what it will be now. And understand, we might not get to $45 million run rate of revenues immediately. A lot of that has to do with how quickly we sign on new customers, but we've been pushing customers away up until recently because we didn't have the capacity for them. And that's why every single customer we have accepted our price increases. And we announced a month or two ago that we have these two major global brands that are interested in doing business with us. We've been doing all their formulation work. We're in the final stages. We got the FDA inspection with flying colors and no citations. We had to go through audits, all these different things. There's so much bureaucracy involved. The bottom line is, it's the 11th hour. So we're going to see what happens with these two major global brands. What's interesting, since I last announced the two major global brands, there's another two significant brands out there that want to do business with us. So I don't know the timing of how this all plays out, but Farm Laws is profitable already and growing. And I couldn't be more excited about it. And so our goal, our longer term goal, we already ordered, in addition to the lozenge line coming in in a few months and all the ancillary automation equipment and so forth that we need, we have two more lozenge lines coming in by year end that we're gonna install early next year, that will take us to 90 or $100 million or more in capacity. And what's interesting, that's based on a three and a half day work week. You have to have downtime for cleaning of equipment and so forth, but that three and a half days, if the labor's available, it's possible, we could bump it to four and a half days. That 90 or $100 million capacity number could easily become 110 or 120 million. The numbers are so large though, that it really is irrelevant. Even at the $45 million run rate, if we get to a $45 million run rate and we're generating 20 to 25% net profit, we're talking about more than $10 million, the value of formulas could be 50 or 100% more than the entire market cap of our entire company right now. Right now we have a market cap of 80, $90 million. I think within months, the value of formulas is going to be worth more than the entire market cap of our company. depending on how long we keep it. And I'm going to have all sorts of strategic alternatives if I choose to go in that direction. When I say I, it's me, it's our management team, it's our board of directors. We're going to have lots of options on what to do with this. I focused on formulas first because this isn't even what I'm excited about, but it gives you an idea of the risk reward of investing in our company that if we have one asset here that I believe is potentially worth more than the entire market value of the company in the coming months and potentially could be worth double the market cap of our company if we keep it for a year, a year and a half. And we got these major lozenge brands. We have executives flying around from around the world just to meet in Lebanon, Pennsylvania. It's really exciting what we're doing there. So I'll leave it at that for pharma laws. I want to give you that as the background. So when we talk about nebula genomics and our B-SPART cancer tests and Equivir, these have enormous potential. going forward, but the beauty is you have this tremendous asset value protecting your downside risk, which in some cases, the most important thing when you invest in micro-cap companies. So with that, let's get into Nebula a little bit. Founded by George Church, critically important because he's been world renowned in the field of genomics for 15 or 20 years, and he has relationships with virtually every major global player in the field of genomics. He's introduced us to so many major players that we are collaborating with. It truly helps us in building Nebula Genomics. I'm gonna get into some details about it in a moment. I'll just tell you, he's such a big believer in Nebula. He had a choice of cashing out, taking cash when we acquired the company as a co-founder. And instead, he chose to take stock at about $7.50 this year. The reason why whole genome sequencing has become so exciting now is because the price has dropped dramatically. All the ancestry companies historically had to do the SNP-based testing where they analyzed less than 1%. of your data, they had to do that because whole genome sequencing is too expensive. If it's even $1,000 for whole genome sequencing, in order to make a profit between the lab and their markup to consumers, they would have to charge $2,000. Nobody's paying $2,000 for an Ancestry test. But now pricing has come down. So while the Ancestry company has built a whole platform on a different type of test, we can now provide whole genome sequencing with tremendous in-depth health insights in addition to ancestry tests. And we are now getting to a point where we're going to be able to provide a competitive product to the ancestry test while giving phenomenally more data about your health. So it's a really exciting opportunity. It's been a work in progress. You're going to see the fruits of our labor play out over this year now that we're getting into the B2B business. I just want to explain a little bit more about it, and then I'll talk about the opportunities in the B2B world and why we're going in the direction we're going in. Just to explain, in addition to Ancestry, what we provide in health, first of all, we have an incredible... database which has an amazing hidden asset value it is a gem that i will be talking to you further about in the coming weeks not for this call but understand if an ancestry database studying less than one percent of your dna is valuable just imagine whole genome sequencing which studies virtually 100 greater than 99 of your dna providing between 1 000 and 5 000 times more data points than an ancestry test imagine what our database could be worth so i hope to update you uh in the coming weeks on that but so understand we also built a proprietary reporting system of bioinformatics based on this tremendous database that we've already built. We don't know of any other bioinformatics in the world that compare to ours. So we have these B2B businesses that are all over us for a number of reasons, including our reporting. So this is an idea. These are two of our reports. I gave one example. I changed up the examples. Gastroesophageal reflux disease, GERD. GERD leads to esophageal cancer. GERD is the first step. It's acid in your stomach. It eats away at the bottom of your stomach. It can create cancerous cells. Pre-cancerous cells, that's a condition known as Barrett's esophagus. 1 in 50 to 1 in 100 people can develop esophageal cancer. I'm going to get more into that when we talk about our cancer test that we're developing. But the bottom line is, if you know you're at high risk like this person and this example is in the 92nd percentile, you might want to go to your GI more often. You might want to really check on that acid in your stomach and not just take Tums for it. And you might want to get an endoscopy once in a while if you're at high risk. Because with an endoscopy, hopefully you can learn if you have esophageal cancer at an earlier stage and hopefully save your life. So that's just one example, knowing that you're at high risk based on your DNA makeup. Another example. Based on your genetic makeup, you're at high risk of breast cancer. You're going to be motivated to get your checkups much more often, or colon cancer. You'll get colonoscopies more often and at an earlier age. The list goes on and on and on. So we provide these fantastic reports. So as you all know, we have been historically a direct-to-consumer seller of whole genome sequencing. We have completely revamped our marketing campaigns which is all going to roll out in the next few months And at the same time, we built out a lab. The reason we built out the lab is because we started going to these genomics conferences and there are all these businesses that never did whole genome sequencing, but they're directly related to it through the health care systems. And they're like, oh, my God, we have to offer whole genome sequencing to our customers. So we have a lab in New York. So your specimen doesn't have to leave the country. We have some of the best pricing, not only in the country, but in the world. This all started because we've been in the business for six years and we have the best relationships. There are companies, genomics companies in other countries with some of the best equipment and consumables in the world that are willing to partner with us and build with us because they want a presence in the United States. And we are the first lab in the country to have some of their highly efficient, high capacity equipment. It gives us the ability to work with large businesses and potentially offer them high capacity, low price, whole genome sequencing. A lot of these businesses have never offered it to their customers before. So when we went to these genomics conferences, we were like, oh my god, this is such a big opportunity. We made the strategic decision to exit our initiative with the clinical lab business. We could have been very successful in the clinical lab business. But maybe in a few years, it would be a $10 or $20 million business, and it could be worth $30 million or $40 million, whatever it is. We were going to do it. There's a real opportunity there. But the opportunity at Nebula Genomics is 10 times that. And so we have all these businesses that we're in late-stage negotiations with that could literally explode our business going forward. As I mentioned, we used to have 300 reports and then 325 reports, now 340 reports and growing. The labs around the world, most of them pale in comparison. We're now getting reports that there are other labs, even in this country, that are providing whole genome sequencing. They promise a certain turnaround time on their website. There's no reality to it. Furthermore, they advertise certain prices on their website, but there's no reality to that either, because then to buy the reports, you have to buy individual reports. We provide 300 to 340 reports. They'll provide 10 reports. When you add their 10 reports to their cost of whole genome sequencing, it turns out to be dramatically greater than our offer. So we are price competitive. We have highly efficient turnaround times. that were responsible, reliable. We have this fantastic proprietary reporting system. So the sky is the limit. So Jason Karkas now became president of Nebula. What he did with COVID testing, he's now doing with Nebula. And I can tell you that the response has been enormous. We announced the first deal today. We didn't get too specific about it. We just signed the contract literally, I don't know, 24, 48 hours ago. There are more coming. We will get into more details in some of the other contracts we're working on. Suffice it to say, some are significant. Some are very significant. One example, one contract in late stages, we're talking about a $10 to $20 million contract. uh run rate of revenues the first year and then growing from there another one the numbers could be even dramatically larger we're talking to a telemedicine platform with 2 000 physicians and 6 to 8 million patients do you understand if they turn on the switch and say go to these 2 000 uh the owner says we're gonna reach out to these 2 000 physicians the next time you meet with your patient Suggesting them to order a nebula genomics test kit. Do you have any idea how large this could be? This is what we're working on going forward. I already mentioned our Be Smart test a little bit. The bottom line, as I said, GERD becomes Barrett's esophagus, which becomes esophageal cancer. We have a test. that will tell you now understand when you get an endoscopy they take seven to nine uh tissue biopsies out of your esophagus if two different pathologists study the same specimen under the same microscope one will tell you have esophageal cancer the other tell you don't it's an incredibly inexact science meanwhile it's one of the deadliest cancers 80 to 90 percent of people Once diagnosed, we'll die of esophageal cancer. It's deadly. It's right up there with pancreatic cancer. So it's amazing how deadly it is and how inexact the science is for diagnosing it. We have a test that will tell you with 99% certainty whether or not you have esophageal cancer right now or not. But what's interesting is we met with the heads of many of the leading insurance companies. They said what's more important to them is telling them whether a patient is at high risk or low risk. So we've isolated the eight key proteins that are responsible for when they shift that give you the signal that you're developing esophageal cancer. This is proprietary to us, to our test. And so what we're doing right now in all the studies we've been doing, we've been going back and going through all the studies that have been done over the last number of years, And we're actually creating a green, yellow, orange, red strike zone for our test for reporting so that if you're green, all systems clear, you don't have esophageal cancer, you're at low risk or no risk at all. You don't have to get an endoscopy every year. And understand endoscopies, they cost $2,000 to $4,000. There are people getting endoscopies once a year that insurance companies are reimbursing for. the market for just people with Barrett's esophagus or with a significant amount of GERD, it's 7 million tests. Right now, insurance companies are paying up to $28 billion, $14 to $28 billion reimbursing for endoscopies just for these people. Now imagine if you add our test to it and we tell you, you're not at any risk at all, you're not gonna go back for that endoscopy. That's gonna save the insurance company $4,000 a year. Or we say that you're a low risk. You don't have to go back for an endoscopy. Or you're at high risk, in which case you immediately go for a procedure called an ablation. It destroys the precancerous cells. All the GIs out there want to do ablations on their patients. The insurance companies won't reimburse them. But if we give them a test to tell them that there's a reason to do the ablation, all of a sudden the ablation procedures will go up significantly. The insurance companies will save a fortune because they're now saving patients' lives that otherwise are getting cancer and dying and all the hospital bills and all the surgeries because they do a simple ablation procedure. And at the same time, the number of endoscopies goes down dramatically. So our initial target is 7 million endoscopies. We think we might get reimbursed $1,000 to $2,000. That's a $7 to $14 billion market. with no competition out there for a test. That's the potential of it. We're moving forward. Equivir, we've been developing this. This is another one of the products that we acquired during our phase when we were doing COVID testing. We were looking to the future. We're now looking to roll out Equivir later this year. We've had fantastic preclinical studies. We're almost done. We did a substantive test. number of clinical studies with a lot more patients. A lot of times, dietary supplements will do 20 patients, 40 patients. The gold standard is 100 patients. And a lot of times, companies will split that up into two studies. I learned this from my days of turning around the coldies brand and suffering through class action lawsuits, which we would win. But I learned exactly what you need if you want to be golden. And that's two 100-patient studies. We're doing a total of over 300 patients. We're halfway done. Our results have been great. We'll be done with the other half shortly. That'll bolster our claims. give us the best chance of success in rolling out the product we're looking to roll that out second half of the year it's a broad-based antiviral just looking for the studies to be completed uh we're on a great track there i i mentioned our management team i already called out jed latkin who's doing a phenomenal job with formulas without him we wouldn't be there with formulas he's also leading the charge he has a biotech background he represented be smart salvagil cancer when we acquired it. So he's leading the charge on that side. Jason did a phenomenal job with COVID testing. The revenues that he's responsible for generating are the reason why we made these acquisitions. He's now taking over at Nebula. He and I look at each other almost every day and we say, oh my God, it's deja vu. Exactly the type of response we got to COVID after we built the COVID lab, the type of response we got from businesses that wanted to do business with us low cost, highly efficient, reliable management team. We're now doing the exact same thing with Nebula, but the difference is with Nebula, we have some things that are highly proprietary to us. Whereas with COVID, there were a hundred labs in the country or more doing COVID testing. You don't have that here. We don't have the company. We have more demand and less competition and proprietary reporting. and sophisticated equipment that nobody else has. So just imagine the dynamics for three years ago, but now with all these extra proprietary elements, and just imagine where we're going to go with this. And then Sergio, I never give Sergio enough credit. He started his own IT consulting firm after working in the military as a high level IT expert, started his own consulting firm with 18 IT consultants. We literally, he's touched virtually every large company company in the country especially in the lab business he is so sophisticated we are so blessed to have him he does so much more for us than simply our i.t i'm going to have more to talk about with sergio in the coming weeks as it pertains to our genetic database we're going to save that for another time suffice it to say we have a very strong management team and of course uh kamal led the way. He was one of the co-founders of Nebula Genomics. He has a great relationship with George Church. Kamal has continued to stay by our side and continue to help us develop our company. And of course, Robert Morris has significant experience in the finance world. With that, Investment highlights, just very quickly, this is a complete review of everything I just said. Look, we're expanding FarmLaws Manufacturing to be one of now the premier laws manufacturing companies in the United States. We're dramatically growing capacity. We're already profitable for the first time as of Q1. That's going to accelerate as we build capacity and as we take on more customers. It's just how quickly we take on these other customers that we've been pushing away in the past. We get one deal with one global brand, game over. Farmalaz, that day is worth more than the whole market cap of our company. I am hopeful that that happens and that it happens soon. But regardless, we now have two additional brands. Besides the two global brands, we have two other brands that are dying to do business with us. And the business is going to grow. It doesn't matter how quickly. I'd be guessing to tell you how quickly it's going to grow. We're building the capacity as fast as we can. Because as we do, we believe that the volumes, the revenue volumes, are going to continue to catch up to it. So we have these two operating businesses. We have Formulas. We have Nebula Genomics. Exciting operating businesses. Formula is profitable now. Nebula, we're still investing in it. But besides the D2C business that's going to grow, we have a B2B business that's going to explode, probably more second half. And so we just have to see how that plays out. Then we have two other opportunities that aren't operating businesses now, Equivira and Bsmart. Equivir, we're looking to leverage our infrastructure from when we had the Coldies brand. We also have a small brand called Legends XL that's in many of the food, drug, and mask stores. So we have the whole infrastructure, packaging, shipping, distribution, logistics, relationships with 40,000 food, drug, and mask stores. That's what we're looking to leverage in introducing Equivir as well as online. And then our Be Smart Cancer Test, multi-billion dollar potential. I like to think that that's a wild card. We don't need it. We have enough in our operating businesses between formulas and nebula genomics that if you're an investor, I think you're going to be incredibly pleased over the next one to two years with your investment, especially at current stock prices. But now, be smart if that clicks. When I say multi-billion dollar potential, it's not just a number or word that I throw out that has no reality to it. There's no competition for this test. If this takes hold, it's going to get scary. So we'll see what happens as we move forward. really pleased now with how our management team has developed. We recently hired in the past several people in our finance team. So we have a much stronger finance team than we've ever had before. And we literally just hired in the recent past two very senior level executives to be in our B2B business at Nebula that Jason hired to add to our team. And so we have the right infrastructure in place to really make this all take off. With that I say, thank you all so much for listening. Last year's first half had COVID testing and the second half we had a significant transition and startup costs, especially in Q4. This year, Farmalaz turns profitable in Q1 and we are investing significantly in the ramp up of Nebula B2B. Therefore, we are an entirely different company this year from a financial standpoint as we develop in 2024 compared to last year. Therefore, the goal of this call was to focus on this year's business plan, not last year's financials, especially given that we're about to enter the second quarter. Last year's financials, quite frankly, are irrelevant. We're a completely different business and business model. We've completely transitioned now. So for the analysts out there, if you have any questions about last year's financials, After you've had a chance to review our financials, please don't hesitate to reach me directly. I'll answer all your questions myself. If they're more complicated than what I can answer, I'll put you on with our finance team and go over everything in glorious detail with you. Suffice it to say, we anticipate a significant improvement in the top line and bottom line sequentially each quarter moving forward, especially as we enter the second half of this year when Nebula B2B is anticipated to truly ramp up. And we have two wild cards, as I mentioned, with Be Smart and Equivir that, depending on timing, could be significant contributors to both the top line and bottom line. And that's in addition to Formulas, which is already profitable and should be growing every quarter, both top line and bottom line going forward.
spk00: Thank you so much, Ted, for the presentation. So we'll now begin the Q&A. The first question is, hello, Ted. Thanks to you and your team for putting us in position to knock this thing out of the park. My question concerns the competitive advantage of Nebula Genomics in the WGS arena. How important is the bioinformatics database library, your New York USA location and your pricing?
spk01: Yeah, so frankly, they're all important and they're all important to different customers, or in some cases, all three are important to a given customer. I don't think there's a lab in the world, literally, that can offer the package that we have. First of all, in this country, critically important that we have a laboratory based in this country. Several of the businesses we're talking to now don't want to send their specimens abroad, especially after the issues at one of the big ancestry companies with data leaks and all that stuff. And that's also why I mentioned Sergio Morales, our head of IT. We have such a secure platform, you know, with his, you know, the cybersecurity privacy data platform that he's built. And then the fact that we're based in New York, the fact that we're reliable, we have great turnaround times, the fact that we have great pricing The fact that we have George Church behind us, by the way, as well as Russell Altman from Stanford, we have four platforms of the best. Not only do we have four platforms from the best companies, but because we're one of the newest labs kids on the block, we also have their newest and latest equipment from the best companies. And as I mentioned, one of those companies has never sold one of their highly efficient, large capacity machines in this country to anyone before us. We're the first one to have their new equipment. And we're ramping that up quickly. So at our bioinformatics, we don't know a company in the world that has our bioinformatics. So we have companies from around the world that have access to distribution to our whole genome sequencing tests. And I can't go into details because I don't want to teach the competition what we're doing. But we have some enormous opportunities to distribute our tests around the world now on a B2B basis, based on the fact that we're using our lab now, which we're just ramping up, and our bioinformatics that they couldn't access anywhere else. And that package plus great pricing, which they then have room to mark up to their customers. it's really i think going to be explosive and in many ways it's it's like the covet testing three years ago where jason is developing relationships with these b2b customers similar to when he had the specimen collection partners who did all the work at the consumer level they made a lot of money in doing that but we made a lot of money and it was just an explosive business because we provided the whole platform This platform we built is quite serious, it's quite substantial, makes us quite unique. And I understand whole genome sequencing is a whole new business. What people don't understand, this literally is the internet 20 years ago, not the internet five years ago. This is a new business that 99% of consumers don't even know what whole genome sequencing is. But as the ancestry companies now start getting into health, studying a very small percentage of your DNA, Just imagine, as we teach them what whole genome sequencing is, that it's so in-depth, and we provide all these great reports, and we can provide a financial package that's so competitive compared to a simple ancestry test. The sky's the limit. I'll also mention, I don't know if I should mention this or not. Well, I'm going to mention this on future calls. There are other avenues that we're working on. I'm just touching the surface here. Suffice to say, obviously, I'm very bullish, and I hope that answers your question.
spk00: How large a mortgage did you take on for the Losage plant during Q1, 2024?
spk01: Okay, so for Q1, for the Q1, for the first quarter that we're about to exit right now, our run rate of revenues, you know, we haven't reported this. I guess it's a shareholders conference call, so I can talk about this. So we were eight to $10 million revenue company last year. We increased prices. So we were just over 9 million last year, if you want to be more exact. So we increased prices. That probably got us to 11 million. We immediately started manufacturing already for one company. That's two and a half million. That gets us roughly 13 and a half million. The profit margins, I'll tell you, I'm being conservative when I say 20 to 25 percent. It's a very healthy profit margin for the business. The second of the two customers we just signed, it's just a matter of the timing of when we start manufacturing their lozenges. It will be short term. I can't tell you if it's going to be in one week or four weeks. So I can't tell you it's before the second quarter starts. As soon as that starts, then we're at 15, 16 million in revenues. But now, because our automation equipment is working so well, even before we introduce the second line, we may be able to expand our volumes further. The truth of the matter is it's a profitable business. It's growing very quickly. It doesn't really matter the exact week or month when we get to that next one or two or three or five million dollars of revenues. The business is going straight up. And the sky's the limit. We're just starting with it. And because the demand globally is so great, we have so many opportunities with different kinds of the two global. If either of our global brands that we've been working with for more than a year decide to do business with us, it could easily add between 10 and 40 million dollars of revenues very quickly and more thereafter. Forget about formulas being worth $100 or $125 million. It could be worth $200 million. So it has that kind of potential. So how quickly another $2 or $4 million comes in, I don't know. I don't really care. We're building to have capacity of $100 million. We actually have a three- to five-year plan to have capacity of over $200 million. Now, I'm not saying that we're going to build it ourselves. But then you might have either private equity or a strategic buyer come in and says, oh my God, if the capacity is going to be that big, let me just buy the whole thing now for 125 million because it's going to be worth to me 250 or $400 million in a few years. Or let me buy it now for 200 million because it's going to be worth 400 million. These are the types of numbers that I hope to be talking about and the type of strategies that I'm working on as we progress through the year. And so understand also from a global brands perspective, they then have to ask themselves, do they want to give us the business or do they want to acquire the manufacturing facility? Or do we want to spin off formalize to the public. Maybe we spin off 20%, do something like that, do an IPO with it. I have all these strategic alternatives. As the business now ramps and is profitable, I have lots of strategic alternatives that we will be figuring out with our investment bankers in the coming months.
spk00: The recent news about Equivir's preliminary study results show that Equivir helps prevent upper respiratory illness. Doing some research, there is no product that claims prevention of the common cold. All including vitamin C and zinc only help lessen the severity and duration of the illness. Will Equivir be able to claim that it helps getting the common cold?
spk01: OK. So first of all, there is no product out there that's an over-the-counter dietary supplement that will allow you to, say, cure the common cold. Claims like that will always be drug prescription claims. So no matter how many studies we do, unless we're going to go through the FDA, which takes a very long time and a lot more clinical studies, there are certain claims you can't make. We won't be able to make COVID claims. We won't be able to make cure claims. Other than that, there are lots of other claims that I believe we are going to make. when we get the final results, assuming that they're consistent with the preliminary results. And the preliminary results, they're already on 159 patients, which most other companies, most other products, 159 patients would be more than they would even study. So as far as I'm concerned, that's a complete study by itself where we got phenomenal results. But we really want to be airtight. We also wanted the study to test it two ways. One as a preventative, so that you take it daily. The other is a therapeutic, meaning if you catch a cold, flu, virus, i won't be able to say covid but you know we got results on covid patients too so i can't say the covid claim but the the facts are the facts in the studies so let's see what the final results are but the bottom line is um at least what we're learning is it's a broad-based antiviral we may not be able to make a broad-based antiviral claim on the packaging let me be perfectly clear we're not currently marketing the product so class action attorneys we're not even selling the product yet all right but We are very confident in what the product does. We will figure out what the right claims are to put on the packaging when we roll it out after we complete this two-pronged study that is going to be completed shortly.
spk00: Does ProPhase still have an investment position with Lantern Pharma?
spk01: We haven't disclosed that, so I'm not going to disclose that now. I don't think it's appropriate for me to discuss other companies on this call. We did have a substantial position at one time. The reason we made that investment is we were looking at strategic possibilities with that company a long time ago. That did not happen. And I'll just leave it at that. But we had a substantial position. Obviously, the stock is up.
spk00: With PharmaLaws, we now have two new additional large potential customers in late stage discussions. How long is the sales cycle from the time you receive an inquiry until the time you are recognizing revenue?
spk01: Boy, that's a great question. So it's interesting. Smaller brands, smaller companies, the sales cycle can be very quick. These larger brands take a long time. And I'm not going to mention their names. And it really doesn't matter who they are. But first, we did an enormous amount of formulation work. then one of the brands once they were happy with their formulation work they're ready to go they said oh but we can't discuss this further with you until you have your fda inspection now fda inspections at manufacturing facilities typically happen once every two or three years um so we had to wait for that then the fda inspection comes back no citations because we happen to be a fantastic facility we've been around for decades We know what we're doing. We're one of the most reliable lozenge manufacturing companies in the world. And so we finished. Then they say, okay, now we have to do a full audit. After they do their internal audit, then they say, okay, now we want an external company to audit you. They did a full audit. Then they say, okay, now we need to review the results of the independent auditing company. Then they review the results. Then they have questions. Then we answer their questions. And then we get to the final stage. Okay, what do you want to do? So it gives you an idea of what we have to go through. So in that one example, we are very late in that process, late stage in those discussions. The same thing with the other global brand. So how quickly they move now, they're still very, very large companies. We'll see. I will also tell you, though, that ultimately they could be in competition with each other to get capacity in our manufacturing facility, because, again, we're building the capacity as quickly as we can. But with our current capacity, they could work with an order. They could work our current capacity. Either one of them could. So if we sign up with one of them and they lock in, they give us some money up front to lock in some of that capacity. The other one, even if they want to do business with us, they may have to wait till we continue to build the capacity. So it's a really interesting situation and environment to be in. And we'll just have to see how it plays out. At the same time, we have two other significant lozenge lines, maybe not quite as large, who have been developing with us. And so that's why I actually announced that we went from two to four significant brands that we're now in discussions with. The other two could move much more quickly, although the first two, the global brands, we've been working with them for so long, in effect, they could move very quickly now too. So we'll just have to see how this all plays out. So we're building capacity as quickly as we can. We think that there's significant demand as we build the capacity, and it's a great place to be in.
spk00: What quarter do you expect to become profitable?
spk01: It's a great question, and I'm not going to give you an answer because Formulas is profitable now. We're developing our B-Smart cancer test, our Equivir product, and some other smaller projects that I don't need to get into on this call. But most importantly, Nebula. when we decided to build out the lab and the way we're building out the lab now, we are absorbing an enormous amount of expense to build it out rather than send our specimens abroad. The long-term opportunities are enormous because we made that decision. But in the short term, we're losing money at Nebula. How long we lose money for, it depends on how quickly the B2B business ramps up. Because the D2C business, we could have just sent all those specimens abroad and never had a lab, never had any of this infrastructure or overhead. The reason why we're investing in this is really the same thing that we did with COVID three years ago. We invested heavily in the COVID lab, bought an enormous amount of equipment, enormous amount of consumables. spent an enormous amount of money and then it paid off in a dramatic way. Now we're doing the same thing with Nebula. The difference being COVID was two years of testing and COVID is over now. The reimbursement rates are close to nothing. Nobody cares. There's no more HRSA. There's no more public health emergency. That business is over. We got out of that business for all intents and purposes entirely. And so we decided to also exit the clinical lab is because this opportunity is so enormous. But understand, we're investing in a lab where, in effect, we don't have revenues associated with it yet because all of that could have gone to the labs abroad that we're working with. And so when you look at it that way, we're investing in and building a world-class lab. And so then the question is, how quickly do these B2B deals, first we have to sign them, and then we have to get all the infrastructure in place. We have to figure out a game plan, and then it has to roll out. That's going to happen in stages. I can't tell you how quickly that's going to ramp up. Once it ramps up, the value of Nebula, I believe, could be enormous. I don't even want to put numbers on it. I believe it's going to be enormous. So we invest fives or tens of millions of dollars in Nebula and the payback is 50 or a hundred billion dollars in revenues or 200 million in revenue. I don't know what the numbers are gonna be. I just know that the numbers are gonna ramp up over time and Nebula is gonna be incredibly valuable. If Nebula was its own stand alone startup company, I would suggest to you that venture capitalists might value us at 50 or a hundred million dollars right now. But because we're part of a public company, then people want to focus on the earnings right now. But you have to understand, you have to look at this as a startup development stage company and focus on the revenue ramp and the opportunity. It's like a startup internet company that becomes worth $100 billion in its first five years, probably didn't make a profit. So profit is a very subjective thing to focus on. But with profitable formulas, obviously, as those profits grow, they can contribute to building out Nebula. But at some point, Nebula is going to explode. So I hope. And then in the meantime, we have our accounts receivable. Money continues to come in every week from our accounts receivable. That also helps fund all of our development. So we're in really good shape right now to build some very valuable businesses.
spk00: Can you discuss the sales process for the Be Smart test? Would you sell directly with a Salesforce or plan to partner with Pharma? What is industry growth and profit margin for similar products to this?
spk01: First of all, we can go in several directions. We have to see. One example, there's a multi-billion dollar cancer testing company out there that might be interested in just taking this off of our hands and paying us a block of money upfront in a royalty. That's one possibility. There just may be a company out there that's waiting for our final statistical analysis, which is why we hired an independent, well-renowned company to go through all of our statistics. And you got to understand, the amount of data we're talking about is enormous. It takes a month or two, not a day or two, to go through all of this data. And when all this comes together, and because we have this new package designed for green, yellow, orange, red, It's a really exciting prospect for this test. So one possibility is we just do a deal with a major cancer testing company. Another possibility is that when we met with the large insurance companies, they told us there's a possibility that they will mandate this test. I don't know that that will happen or not, but it's a possibility because if it saves them billions of dollars, why wouldn't they? Now, yes, it's nice that it will also save lives, and it will also give people that have Barrett's esophagus tremendous peace of mind if you know you're at low risk. Because otherwise, 1 in 50 or 1 in 100 people with Barrett's esophagus will get esophageal cancer, which is close to a death sentence, unfortunately. So if you have Barrett's esophagus, but we say you're at low risk, that's incredible peace of mind. But let's face it. Insurance companies, what they care about is the bottom dollar. It will save them a fortune. if they mandate the GIs to use our test. And again, GIs, they are dying for our test, because right now, insurance companies don't want to reimburse an ablation procedure, and the GIs want to give this ablation procedure to everybody. So it's a really interesting dynamic where our tests could fit in perfectly. There's no competition for our test in the world. There's no test in the world that does what our test does.
spk00: LUCD has an EzoCheck test, which is a simple tool which allows precise targeted collection of lower esophageal cells for pre-cancer testing. How does this compare to BeSmart?
spk01: That's a preliminary test. We're not, I don't think of us as competitors at all. If anything, that's a test that you would do preliminarily before doing our test, all right? Their test, I don't really wanna talk about competitors. I'm being honest with you, they're not competition. They can't make any of the claims that we make. They're not in the business of high risk, low risk esophageal cancer assessment. They don't have our proprietary proteins that we discovered. that we're using, there's no comparison, all right? Now, that's not to say that there isn't potentially a place for their test early on in the process when you're first getting GERD, gastroesophageal reflux disease, but their test, honestly, just because we're in the same industry doesn't mean we're competing against each other. Very little in common. other than the fact that we're in, quote, the same esophageal cancer testing industry.
spk00: What is the size of the MENA deal and are there growth opportunities?
spk01: Sure, tremendous growth opportunities. It's a little complicated. First of all, the region is complicated because we now are developing a lot of relationships over in the MENA region. Secondly, it's complicated because a lot of these companies are actually working in collaboration with each other. I didn't put numbers into the press release, but I am optimistic that we have more deals coming. And with the other deals, there may be guarantees in them and the dollar amounts could be substantial. So I'm whetting everyone's appetite with this deal because I wanted it to be in this press release to understand that this is now, that we're actually ramping up. We talked about building the B2B business. We talked about the conferences previously, but now we're actually starting to sign deals. And not to say that we don't have other B2B deals that we're not already doing. We're already doing B2B business. But understand the size of some of the deals we're working on now are enormous. They're game changing. So I'll have more to talk about. I promise you. I shouldn't use the word promise. I anticipate that there are more deals coming and more updates coming with Nebula, not only in the long term, but in the short term. I can't tell you whether that's weeks or months, although it wouldn't surprise me if it's weeks. We have a lot more coming with Nebula. I'm really excited to share more with you. We're just getting started here.
spk00: How do you plan to compete with the major labs and DNA companies such as Quest and 23andMe that are offering low-cost WGS and WES services now?
spk01: Great question. So first of all, Quest and LabCorp, completely different business than 23andMe. All right. Second of all, again, the ancestry, and I don't want to talk about 23andMe in particular. I don't want to talk about data breaches. I'm just going to tell you ancestry companies in general. are studying less than 1% of your DNA. They are ancestry testing companies. So now, they're talking about getting into health, but with a test that pales in, I mean, there's just no comparison to studying virtually 100% of your DNA. The health insights we get are so much more accurate, in-depth. There's just no comparison. If you want health-related information, if you know anything, You don't have to know anything. We're going to teach you. That's one of our jobs is we're going to teach the public just how great our test is compared to an ancestry test if you want health-related information. The ancestry companies are trying to get into it. They're not going to get into it in a serious way in the long term if they don't have a whole genome sequencing, which could be a lot more expensive. But if they don't have a lab doing the whole genome sequencing, we're the low-cost provider. So how are they going to compete with us? Even if they get into actual whole genome sequencing, they're going to have to send it to our lab or another lab like ours. Now, look at Equestria LabCorp. There are huge companies, but whole genome sequencing is a new business. It was so expensive historically. It wasn't a business for a big lab to do because it was too expensive. What they had to offer, you know, the cost, you know, what they were charging for whole genome sequence, like a thousand dollars. Now I think that what we're offering for two hundred dollars, they're offering for six, seven, eight, nine hundred dollars. That's also why all these B2B deals are starting to form with us and why there's so much excitement out there, because a lot of these are distribution companies that can come to us for a fantastic whole genome sequencing test at a lower price than virtually any other lab in the country, if not in the world. And they can mark it up. So they can handle all the distribution. We don't have to get involved in that. And the numbers can be huge. Now add our bioinformatics. Who has our bioinformatics? 23andMe doesn't. Quest and LabCorp don't. Quest and LabCorp aren't even in the business. For them to build out a lab, it's going to take a couple of years. And it's even more complicated because they may never be able to get the equipment that we already have in this country for reasons I'm not going to go into. So Quest and LabCorp, if they're going to be competitors, they're going to be competitors in two or three years, not today. They're not even in the business that we're in right now. Call up Quest. Call up LabCorp. Ask them what it costs for a whole genome sequencing test with no reports, just for the data. Now ask them about the reports and say, oh, we don't know what reports. All right? They don't have 340 reports to go along with a whole genome. There's just no comparison. So it's a good question, but What that highlights is the enormity of the opportunity we have right now with this business. As far as I can tell, we have no real competition. And the last thing I'll tell you is the few labs out there that could be considered competition to us, they're developing really bad reputations really quickly. They tell you that they have six-week turnaround times, and they're not getting their results. Customers aren't getting their results six months later. the pricing that they charge is significantly greater. They make it in their ads, they make it sound better. One of the things we're doing is we're revamping our ads and how we present because our actual price is significantly lower when you include the reports. But what they do is they tease you by giving you a price that's lower than the cost for them to sequence. But the reporting that they tag on is enormous. And when you put it all together, what they're charging is dramatically more than we are. So there's a marketing game here. We're not aware of any real competition with our pricing and our reports in this country, if not in the world. There might be another lab in the world that can compete with us on price, but they don't have our bioinformatics. So there's some really interesting dynamics going here. We're really well positioned. Quest and LabCorp are not even close to being competition to us. And the truth of the matter, two years from now, when they want to get into the business, they're more likely to buy our lab than to start trying to figure it out and build it.
spk00: Thank you so much, Ted, for your responses. That concludes the Q&A session. But before we go, I will turn back before to Ted for final remarks.
spk01: Thank you, Noella. Listen, shareholders and potential shareholders, I really appreciate your support. I'm the largest shareholder in the company. People I consider to be very close friends have been investors alongside of me that I've had relationships with 10, 20, 30, even longer, 30 years and more. And they've been investors with me in this company I was an investor and I wasn't the CEO, and they have all seen what I have done after becoming CEO. And the bottom line is, over long periods of time, we execute. It doesn't mean every project we work on is going to be successful. There's no reality to that. And the one thing most investors don't understand, there's a very big difference between an investor and expecting versus being the CEO and actually having to do. And the bottom line is, if you're managing a portfolio, you invest in 10 stocks, all 10 don't work out. Well, the same thing happens as a CEO making strategic decisions. They don't all work out. We acquire businesses. They don't all work out. And so what I am constantly doing and our management team is constantly doing is figuring out how to best optimize the upside of our company on a per share basis so that one, two, and three years from now, our shares are even more valuable. i can't control the stock price but i can continue to build the underlying value and so farm allows perfect example i never talked about formulas before the last few months we've been working with our management team for more than a year on it but i never talked about it until i saw the light at the end of the tunnel and i saw it all coming together and so that's why now i talk about i'm so excited about it nebula we've been talking about for a long time but we've been talking about that as a d2c business and wanting to build their own lab We have a completely different infrastructure and game plan and direction now than we had in the past. And the lab costs a lot of money to build. But it pales in comparison to the opportunity. It's the same thing as COVID. The only difference is in COVID three years ago, Think Equity gave us $37.5 million. And so nobody even paid attention to us losing money for a quarter or two, and then it ramped up and exploded. So Nebula, I expect the same thing to happen. I just don't know the timeframes when it's gonna happen. I actually think that the opportunity at Nebula is larger than what we did in COVID. So we'll see how that all plays out. And again, the two wild cards, as I mentioned, are be smart, esophageal cancer test. It's not an operating business today. So I don't know how to judge the risk reward, but I can tell you the test works. The clinical studies are fantastic. The results are fantastic. It is a sorely needed test, which has no competition. And so it seems like one way or another, it's inevitable to be a very big deal. I just don't know when, but that's a surprise factor. But when you have an underlying asset like Farmilaz that could be worth more than the market cap of the company today, it certainly should be by the second half of this year. if you have that as the downside and then you have nebula that we're investing in the only reason we're investing so aggressively and the only reason we exited the clinical lab business was to build nebula aggressively just think about why we're doing this we're not doing this to play games or tell stories this is going to be very big so we just have a lot going on i'm really excited about the future i i really appreciate all the long-term shareholders everything i do i learned from my decades working on wall street What's the value of the company today divided by the number of shares outstanding? What's the value of the company one, two, three and five years from now divided by the shares outstanding then? I always think terminal value on a per share basis, build the value of the company longer term. Back when we made a lot of money in COVID, didn't know what to do with it. Stock came down, we bought back stock and paid special dividends. Now we're investing in building a business because it's got enormous growth. Two businesses have enormous growth potential. right what happens in the future when the revenues start to real really take off again who knows a year from now we could be paying special dividends and buying back stock again or spinning off assets or doing all kinds of fun things that's the goal to get to the point where we're back having fun again i don't think we're too far away from that happening I know it was a little long-winded today, but it's only once a year that we get to have everybody together like this. The quarterly, we'll probably do a quarterly call like this. Everybody can let me know if they like this format better using the Renmark. I certainly do Renmark VNDRs once a month. If you want regular updates, reach out to Renmark and sign up. And then separately on the quarterlies, we may continue to do them this way as well, because that way I can show the slides And I think it's better. Yes, I can't hear your actual question, but I love working with Noelle and she does a great job of asking the questions. With that, have a great day. I wish you all the best of luck. Noelle, I hand it back over to you. And thank you.
spk00: Thank you, everyone, for joining us today for the ProPhase Labs fourth quarter and year end 2023 results. Once again, ProPhase is trading on the NASDAQ under the ticker symbol PRPH. Stay tuned for the next quarterly call and see you next time.
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