ProPhase Labs, Inc.

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 the ProPhase Labs second quarter 2024 results. ProPhase is trading on the NASDAQ under the ticker symbol PRPH. Presenting today is Ted Karkis, Chief Executive Officer and Chairman. Following the presentation is a Q&A session for which you can participate using the chat box in the top right hand corner of your screen. With that being said, I'll now hand the floor over to Ted.

Thank you all. I really appreciate everybody joining today for the ProPhase Labs presentation. Presentation. This is our second quarter earnings release and review for shareholders. Of course, I always have to start with a forward-looking statement. Except for the historical information contained herein, this document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our strategy plans, objectives, and initiatives, including our plans to grow in our subsidiaries and build a multi-billion dollar business. Our expected timeline for commercializing our Be Smart test has market potential, our belief in project ZenQAI's potential to contribute to the identification of novel actionable targets for cancer therapies. Management believes that these forward-looking statements are reasonable as and when made. However, such forward-looking statements involve known and unknown risks. uncertainties and other factors that may cause actual results to differ materially from those projected in the forward-looking statements. 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 annual reports on Form 10-K, quarterly reports on Form 10-Q, and any other SEC filings. The company undertakes no obligation to update forward-looking statements except as required by applicable securities laws. Readers are cautioned that forward-looking statements are not guarantees of future performance and are questioned not to place undue reliance on any forward-looking statements. So with that, Noelle, I just realized next quarter when we're doing the quarterly call, because I have to read all of that, I'm going to have you read it and then introduce me. All right. That's the way other companies do it. With that said, I may as well highlight the fact that Renmark, who we do our monthly virtual non-deal roadshow calls with, is also hosting today. I'm always updating our shareholders. I like to be an open book and keep our shareholders up to date on what we're doing. So sign up with Renmark and every month I do a call like this. And on the calls that I do with Renmark, I don't read the forward-looking statement, I just refer to it. With that, let's get right into it. this actually relates very closely to um pharma laws um look the numbers um speak for themselves i really don't want to focus on the numbers because you can look at the financial statements yourself and quite frankly the historical financials even through the second quarter this year to me are irrelevant relative to where our company is right now today and where it is going this quarter and the quarter is going forward that's the past the which has no bearing on what the present and future is. I'm going to explain that right now. So let's get right into it. So before we start talking about what's going on great at FarmLaws, let me explain the second quarter a little bit, why the revenue numbers were so low. The principal reason is FarmLaws, and I guess I've never really explained this before, but I guess because I thought it was obvious, FarmLaws is an incredibly seasonal business. We manufacture lozenges. companies that the lozenge brands they're typically cold lozenges they're for the common cold these lozenge companies they don't um want inventory all year long number one it can get stale uh it can expire um and they don't want to pay for it six months before they need it so understand the cold season we're manufacturing full bore in the third and fourth quarters. By the first quarter, there's a little additional manufacturing. By the second quarter, nobody wants to manufacture in the second quarter. So even though we increased prices, we didn't have the business and all this is really kicking in for the third quarter. Now, going forward, what's interesting, there's such demand for a product, we're adjusting a couple of different ways as it pertains to the second quarter of next year. We are now attracting lozenge brands that are not for the common cold that are year-round brands. That will help our seasonality a lot. The other thing that's happening is we're expanding. The businesses that are seasonal do still give us some business. Our overall business is expanding so much that even those brands that are seasonal will still have a fair amount of business to give us for the second quarter of next year. My point being though, when we talk about our projections for the next 12 months. And that's why actually, when I put it on the press releases, starting with the third quarter of this year, it's because that's really our seasonal year. And that's what's relevant. Not last year, because for instance, second half of last year, we didn't have the price increases. We didn't have the increased capacity. We didn't have the automation equipment. So last year, second half really isn't relevant to what we're doing. And as I said, first half of this year, um you know as we got into the second quarter we weren't taking advantage of this new capacity that we had and we weren't taking advantage of the of the price increase we had and we got these two large customers but one of them didn't even start giving us business i believe they're now just starting to give us business in the third quarter and the other one which gave us some business it wasn't a lot because it takes time to ramp up once somebody gives you an order you know you have to perfect the product you have to perfect the manufacturing it And then it takes time until you actually ramp it up. So for all these reasons, I'm more than happy to explain this in more detail in the Q&A. So if I haven't fully explained it, don't be shy. You can ask more questions about it. Our business at FarmLoss is exploding right now. We are going to have a big quarter at FarmLoss. It's not even a question. OK, so put any concerns or worries aside. um and then you know now we can talk about formulas the business as opposed to you know the second second quarter everything on this slide is accurate by the way this whole presentation slide is um is now being posted to our website this slide some of the slides have been updated or nebula genomics slide has been updated for all the things going on there so um look to me the most important thing well there's several important things with formulas and by the way formulas isn't even the business i'm most excited about it isn't even the second most important business in our company but i think realistically you know it could be worth the entire market capital company right now and i've already announced publicly we're pursuing strategic alternatives there was a possibility we were negotiating with one large brand um but understand the difference between us selling this whole business to one large brand, they only would want the capacity for themselves. So they're not going to value our business customers. So why would I sell it to one large lozenge brand if a strategic, a private equity or a strategic or somebody that's in the consumer products business that also wants manufacturing for several of their products, they might pay us twice as much for it. So we hired Think Equity. We are pursuing all strategic alternatives. We are pursuing them aggressively. We put together decks, all that great stuff. After first days of September, after Labor Day, we're going out full force Can't make any guarantees, but I would anticipate in the first quarter of the year, of next year, which really isn't very far away, potentially a very large liquidity event, which will make everybody very happy. It'll take all the pressure off the company, all the pressure off the numbers. We'll be a different company. And by that time, all the businesses that I am excited about will have developed to the next stage. And that's what we'll be focused on. And we'll be focused on that potentially with a very large block of cash on our balance sheet. And then we'll be talking about all those types of fun things that we used to talk about, you know, dividends and stock buybacks and all that great stuff. So that's all to come. I'm sorry if I sound excited or optimistic. I know everybody's upset about the stock price. I don't control the stock market. I can only tell you that me and my management team, we are building significant value in our company, in the assets of the company. And I'm really excited about what we're working on. If I went too fast on farm laws, happy in the Q&A to go into more. Okay. Oh, you know what? I have to go back to farm laws for a moment though. Just a couple more bullet points. So line one is operating in a capacity, we're estimating 14 to 16 million in revenues and five plus million in profits over the next 12 months. That's just for line one. That doesn't include any contribution from line two. Now, I don't know exactly the timing of not only when you install Line 2, but then hire the people for Line 2 and then get in new business for Line 2. You know, it's going to be bumpy. Any new business is bumpy. So think of Line 2 as a business where in the first six months it's bumpy. So I don't know exactly how that plays out, but we're going to do these numbers without Line 2. So any contribution from Line 2 is going to increase those numbers. The other thing I can tell you, is that since the time that our team put these projections together for farm laws for the next 12 months things are going better than those estimates so no guarantees in numbers forward-looking statements forward-looking statements but i am very confident we're going to have a great 12 months i'm very confident we're going to have a great six months at formulas i'm very confident we're going to have a great quarter at farm loss All right. So that's on farm loss. Let's move forward now. Nebula genomics. And again, ask questions in the Q&A if you need me to cover more on farm loss. Okay, here we go. George Church, a professor at Harvard, he and two of his PhD Harvard students founded Nebula. We acquired it. They built it based on a strategy using scientific minds to market to other science like-minded people. Understand it's a very, very small percentage of the population. Their focus was on their 30X whole genome sequencing product, which is a great product. But we have a 1X product, which is a fantastic product. You have to think of the 1X product as the Mercedes-Benz of sequencing products, of DNA sequencing products, because the 1X studies your entire DNA versus an ancestry test that studies less than 1% of your DNA. So compare our whole genome sequencing 1X test to an ancestry test, it blows it out of the water. 1,000 to 5,000 times more data points. There's no comparison in the test. And the 1x test is so much less expensive than the 30x, but the founders of our company didn't focus the company on the 1x product, which is actually a fantastic product. We spent the last eight months revamping our entire go-to-market strategy. The other complicated part about this is the B2B, a lot of those companies that reached out to us earlier in the year are very interested, but they don't have their act together. These are all new businesses. They're trying to figure this out as well. And the other problem is if we don't sell the subscriptions, that's where most of our profit is. It's not in selling the sequencing, it's in selling the subscription. That's where our profit margins are enormous. With our direct-to-consumer, we can now do both, especially with our 1X product, we can make a lot of money, sell it at an incredibly low price, make a lot of money, and then make an enormous amount of money on our subscription. And so the problem is the platform and the business was never focused properly, and the marketing was never done properly. We have hired, we have, I shouldn't say hired, we have retained the services of one of the best Social media players. He was the chief business officers of Barstool Sports. He's now with 10 p.m. Curfew. You know, his name's Stu Holland said he's working very closely with Jason Karkas and our management team at Nebula. I'm so excited for what they are doing. know i'm an old i think of myself as young but i'm not young in terms of how social media is developed that's really more a young person's game that they may sound a little odd but what they are working on you got to understand barstool sports do you understand the reach of barstool sports and all the influencers and that whole social media platform well that effort is what we're bringing to the table with our various products we have a world-class whole genome sequencing product we have a world-class laboratory so part of the problem also besides pharma losses, we built out this world-class lab, but we didn't have the business to support it. That's the other reason for the losses in the company currently, but understand we're a development stage company losing money. But I like to think that the money we're losing is an investment in building significant value in the company. So in pharma laws, we are now taking a business that we invested in, we bought more equipment, we built it out, took on the expense of that, but now the value is going to, I believe, pay itself back to us 10 times over in a matter of months, whether that's four months or six months or seven months or whatever. And again, not a guarantee, but I'm highly optimistic that we should have a significant transaction in the first quarter of next year, if not sooner. And so by the same token, The beauty of our company is we have various assets in various stages of development. Pharmalize is the most developed. It's already doing a lot of business. Nebula Genomics is doing a small amount of business, but we believe that that's about to go. It may ramp up slowly for a couple of months. It doesn't happen overnight. Look at all the great products out there, the ones that come. To my mind, there is like beverages, you know, like Prime, Celsius Holdings. You know, Celsius Holdings over five years, the stock went from $1 to $90. Crazy. So these things take time. It's not going to happen overnight. I think we have a great product. I think we have a great social media platform that's about to launch within weeks, if not days. I will do a substantive update at some point in the future. Once it launches, it's a soft launch. we're going to tweak it a little bit. And then a month from now, or two from now, we're going to go hog wild. All right? So look, you know all the assets at Nebula. You know what we have. We have a lot behind us. I can go into more detail in the Q&A. Obviously, we have what we believe is the best proprietary bioinformatics platform in the world for reporting results. And what you have to understand about our reporting The reporting is only as good as the database. We have one of the best, most in-depth, largest sequencing databases in the world. Again, it's the equivalent of 150 million ancestry tests. So just imagine the quality of the reports, the number of reports, how in-depth it is. And we now provide an ancestry test just as good as the Ancestry companies. And in addition to that, we now have a special program that we're going to ramp up with our social media platform, which again, I'll talk more about in a few weeks or in a month or two, if not sooner. We can take your Ancestry test that you get from 23andMe or Ancestry.com or one of the other companies. We can upload your data. And we can give you a phenomenal in-depth health report Again, based on our genomic database, which is based on sequencing of patients from 100, I shouldn't say patients, customers from 130 countries. So just imagine taking the data to upload. It costs us very little. We can offer it. We can offer the reporting for less than what the ancestry companies are offering their reporting for. We can offer you health reports for less than the other ancestry companies. We can offer you a subscription for less than the other ancestry companies. and provide more in-depth reports, more accurate reports, and more of them. This is a phenomenal product that's called our DNA Expand product, where we're expanding on your ancestry test. So we have all these really cool things going on with Nebula. I'm really excited about it. I'm sure people are a little frustrated that we didn't ramp up in the last six months, but we have a really beautiful program going forward with Nebula. All right. Propase Biopharma. Let's touch on that a little bit. All right, Equivir. So I'm sorry, we're not talking about Equivir yet. That'll be next. Those were in my notes. Our Be Smart Esophageal Cancer Test. I've gone through all this before. I'll talk about it more in the Q&A. We hired a world-class consulting firm, FHC, Doctors Hyatt, Dr. Shafiq, Dr. Yeager. These gentlemen have worked on some of the best world class cancer tests and other tests, diagnostic tests out there, taking them from virtually scratch and turning them into large companies. Now, we have a couple of different approaches we can take with a Be Smart esophageal cancer test. And again, I will just give you a couple of quick highlights. There are blood tests out there that are highly inaccurate. It's not possible for a blood test to be accurate. And the reason is, by the time you get signals in your blood that you have esophageal cancer, it's too late. At the same time, you can have other viruses, other diseases, other things going on in your body that shows up in your blood that'll give you a false positive. It'll look like esophageal cancer, it's not. So a blood test is a great first test for esophageal cancer, just because it's so easy to do. You can do it in the doctor's office. And if it comes up positive, That'll motivate the doctor to prescribe to the patient to get an endoscopy. Where we come in is if you get an endoscopy. So all these tests that take place before the endoscopy only motivate you to then go to the standard of care, which is the endoscopy. What our test does is we make the endoscopy significantly more accurate. because once you get the endoscopy, our test will tell you with much more accuracy than what the human eye can tell you just looking at the specimen, the biopsy that comes from the endoscopy. As I always say, two GIs look, you know, They look at the same specimen on the same microscope. One will tell you you have esophageal cancer. One will tell you no. The standard of care, you know, the diagnostics related to esophageal cancer right now are simply really bad for a disease that's one of the deadliest cancers in the world. So just imagine that huge gap for a cancer test for esophageal cancer that actually tells you more accurately whether or not you have cancer. The potential of this is absolutely enormous. And that's why FHC, our consultants, they're very picky who they take on as a customer. And at the same time, we're very careful about we want to and it's honestly, it's a match made in heaven. So we're going to do things all the right way. And it goes so far beyond just getting CPT codes. That's kind of simplistic because CPT codes, you know, would it give you the ability to sell the test? It would. But would we get any traction? The other thing that's happening, more importantly, is that the FDA and honestly, I didn't believe this was going to happen. They're actually taking over control of LDT's laboratory developed testing. There's thousands. You know, I don't know how they're going to do it. so eventually we're going to have to deal with the fda anyway and understand there's several components there's the fda there's the insurance companies the payers and then there's the physician networks who prescribe it so the physician networks have to subscribe it they have to know the insurance companies are paying for it the fda has to bless it there are a lot of moving pieces here The bottom line is FHC. They're the experts. We're working closely together. We're going to figure out the best game plan. And at the same time, we may I don't want to speak out of turn. We may have a way to fast track. I don't want to get ahead of myself, but we'll be updating to fast track with the FDA as well while we're working on the other avenues. But I understand we're working on the other avenues at the same time, bringing in the physician networks and working with the insurance payers. And in fact, that's one of the reasons we brought on a new board of directors, a new director who works at Optum, which is one of the biggest physician networks in the country. They have like 20 different major physician networks. In fact, we have another director on our board who works in one of those physician networks, and he's the one that brought in our other director, who's actually at Optum, the parent. So I believe between our connections on our board of directors with FHC, And the fact that we have literally a one of one of a kind esophageal cancer test that is incredibly sorely needed. And it's clearly got it's clearly a multibillion dollar target market. You know, I've worked through the numbers before. I'll just show you really quickly our target market. We should even take out the two million at the bottom. Our target market is our seven million endoscopies a year. Understand these are endoscopies already taking place. If we've only got reimbursed $1,000, we think it's going to be more. But even if it's only $1,000, it's a $7 billion market we're going after with virtually no competition and a test that's sorely needed. So we're going to do it the right way and understand our consultants, for example. One of our consultants, I don't know who he wants to name by name, worked very closely with Garden Health for many, many years and was instrumental in helping turn them into They have a $3 or $4 billion market cap right now. At its peak back in 2021, things were crazy. They had a $20 billion market cap. My point is early on, they had a multi-billion dollar market cap. He wants to do the same things for us. So forget about multi-billion dollars. Billion dollars is a $50 stock price. Half a billion is a $25 stock price. If it takes two years, two to three years, so what? All right. So this is the kind of perspective and not just on our esophageal cancer test. And that's in addition to the fact that we have our nebula genomics business. Finally, I think it's going to ramp up in a big way. And that's in addition to the fact that we have formulas. It's already generating a lot of revenues and earnings going forward. And it's highly valuable right now today. Not six months from now. It's highly valuable now. With each six months, the value of formulas goes up. So it's really just a question of how long we hold it on. You know, we could sell it today. We can sell it six months from now or we can sell it 12 months from now. We'll see how it plays out. We'll see what the demand is. We'll see what the pricing is, so on and so forth. I did the same thing with the Coldies brand, by the way. And in one year, I was offered $20 to $25 million for it. 18 months later, I sold it for $50 million. The only difference was we had to develop a little more. We fine-tuned the marketing a little bit more, built it a little more, and then we got twice as much. So these are decisions I'm working on every day. But again, I'm the largest shareholder in the company. Every decision I make is what's best for the shareholders. They always come first. Okay. Finally, so that's enough on Be Smart. We talked about FHC. I do want to just touch on Equivir a little bit, and then we'll get to questions. Interesting how I'm about to wrap up and it worked out to exactly about 30 minutes. I didn't plan that. Okay, Equivir, we're in the final stages. Over 300, you know, our goal was 300 patients, 250 patient groups. I understand this is a study where there were two arms to it. One was a prophylactic study where you take the product once a day to avoid getting sick. The other 150 patients was on people who are sick, giving them the products, seeing if it worked therapeutically. Got phenomenal results in both arms. Understand, these are people getting colds, flus, and COVID. Now, we will not be able to make COVID claims on our packaging, but I believe we will be able to publish our study results and point to them, and so potential consumers can read the studies for themselves. It's very compelling. The retailers are very interested in this product. So we already have this whole infrastructure in place in selling to retail stores. I'm excited to get started. But the beauty of our initiative with Nebula Genomics and building that whole social media platform is we're going to build that for Equivir too. What's interesting is our whole Nebula team is actually just as excited about developing a range of dietary supplements on the social media platform. Could be a very exciting business. And it's something where we already have most of the pieces. We also, by the way, years ago, when we developed the TK Supplements line of products, we developed Legends XL and Triple Edge and Super Prostaflow. And Legends XL is in stores. We never really focused on the other two. But Legends XL plus Triple Edge, if you take them combined, it's actually a great pre-workout product. Legends XL is a great product by itself. But now we already have the credibility from Legends XL being in Walgreens, CVS, and other stores. And now we're going to leverage it online. We could potentially build out a whole line of products from that. I don't want to talk more about that. Now I will in the Q&A if you're interested. I think I fairly covered everything that I wanted to say. So my partner, Noella, I hand it back over to you for the Q&A.

Thank you very much, Ted, for the presentation. So now we will begin the Q&A. Your first question is, please provide some detail about Forward Healthcare and why you choose them. The website has a 2021 copyright and it looks older than that and provides very little detail about what the company actually does and who customers are. Thank you.