Predictive Oncology - Q2 2023

Transcript

Operator (participant)

Good day, and thank you for standing by. Welcome to the Predictive Oncology Q2 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be an opportunity to ask your questions. Please be advised that today's conference is being recorded. I now would like to turn the conference over to your speaker, Mr. Glenn Garmont, Investor Relations. Mr. Garmont, please go ahead.

Glenn Garmont (Investor Relations)

Welcome, thank you, everyone, for dialing in to the Predictive Oncology second quarter 2023 earnings call. First, you'll hear from our Chief Executive Officer and Chairman of the Board, Raymond Vennare. Our Chief Financial Officer, Bob Myers, will review our financials. Finally, Dr. Pamela Bush, our Chief Business Officer, will join Raymond and Bob to answer any questions that you may have. Certain matters discussed on this call contain forward-looking statements. These forward-looking statements reflect our current expectations and projections about future events and are subject to substantial risks, uncertainties, and assumptions about our operations and the investments we make. All statements other than statements of historical facts included in this call regarding our strategy, future operations, future financial position, future revenue and financial performance, projected costs, prospects, plans, and objectives of management are forward-looking statements.

The words anticipate, believe, estimate, expect, intend, may, plan, would, target, and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Our actual performance, future performance may materially differ from that contemplated by the forward-looking statements as a result of a variety of factors, including, among other things, factors discussed under the heading Risk Factors in our filings with the SEC. Except as expressly required by law, the company disclaims any intent or obligation to update these forward-looking statements. Now I'd like to turn the call over to Raymond Venari, Chief Executive Officer. Raymond?

Raymond Vennare (CEO and Chairman)

Thank you, Glenn. Good afternoon, everyone. During the second quarter of this year, we continued to make significant progress in growing our pipeline with biotech and biopharma companies, as well as research institutions looking to incorporate artificial intelligence and machine learning into their early drug discovery process. The importance of our differentiating PeDAL platform, which includes our vast proprietary biobank of more than 150,000 heterogeneous tumor samples and more than 200,000 pathology slides, combined with our CLIA-certified PeDAL lab, is beginning to resonate in the market. We are the only AI-powered company capable of predicting clinical success in the very early stages of drug discovery and supporting those predictions with actual in silico modeling and bench-level experimentation.

This is only possible because we are able to introduce the human element of heterogeneity far earlier in the drug discovery process, essentially looking five years into the future of drug development in advance of clinical trials. As I have mentioned before, and for those unfamiliar with our company, the word heterogeneous is a key descriptor for predictive oncology. Even though many patients are diagnosed with the same type of cancer, each of those tumors respond differently to a particular cancer therapy. Each tumor and every response is unique. Understanding drug response in a heterogeneous population is invaluable along the entire continuum of drug discovery through drug development. Our unique combination of assets and capabilities offers drug developers a multifaceted value proposition that includes, first, the mitigation of clinical risk at the most critical stage of drug discovery.

Second, by identifying and validating drug targets sooner and thereby avoiding unnecessary trials that are likely to fail later in development, the potential exists not only to significantly reduce the cost of drug discovery, but potentially to expand the drug development pipeline. Third, by accelerating early-stage discovery, replenishing pipeline, and optimizing clinical development, the commercial life of these drugs under patent exclusivity is extended and expanded. Clearly, the emergence of AI is fundamentally changing how drugs are discovered and subsequently developed, and we are at the forefront of this exciting transformation. It is well known and generally accepted that approximately 95% of drug candidates are never approved. With Predictive Oncology's capabilities, our partners essentially have the ability to look into the future of drug response and to confidently anticipate clinical validation with much lower financial risk and therefore a much greater likelihood of commercial success.

The global artificial intelligence in drug discovery market was valued at $1.1 billion in 2022, and it's expected to expand at a compound annual growth rate of 29.6% from 2023 to 2030. The growing demand for the discovery and development of novel drug therapies, a fresh approach to drug repurposing, and the need to replenish product pipeline as patents expire-... are the driving force behind this market growth. Again, with our highly differentiated portfolio of assets and capabilities, we believe that we are incredibly well-positioned to occupy a leadership position in this emerging field. This year, for the first time, we had a very notable presence at the 2023 BIO International Convention, which was held in Boston in June.

BIO, which stands for Biotechnology Innovation Organization, is among the most widely attended industry conferences in the world, dedicated to partnering and business development within the life sciences. During the conference, our Chief Business Officer, Dr. Pamela Bush, was invited to deliver a presentation on the importance of addressing patient heterogeneity in drug discovery, the advantage of introducing active machine learning into that process, which, as I just mentioned, is a key differentiator for us and an important component of the lab experiments that support or refute the predictions that come from PeDAL. During the conference, we met with more than 30 customer prospects, several of which have led to substantive, ongoing discussions. Annual conferences like BIO are critical to raising awareness of Predictive Oncology and the unique value that we can deliver to our customers. We will certainly be participating in additional industry-related events in the future.

For example, since BIO, we are in active negotiations with a key European player in the formulation space to outlicense our proprietary rapid formulation technology for use in a proscribed territory, which effectively would expand our reach into Western Europe. Those discussions are ongoing, and a term sheet is now being drafted. Again, for the benefit of those who may be new to our story, at the core of our offering is our PeDAL platform. As we have said before, PeDAL is comprised of several interrelated components. It is the application of artificial intelligence as a tool that is directed by rigorous scientific experimentation conducted in our own laboratory, which is informed by the most significant resource at our disposal, which is a biobank of more than 150,000 tumor samples and the drug response data derived from those samples. These three things comprise the PeDAL platform.

This brings us to our CoRE machine learning CoRE, which means Computational Research Engine, which is a key differentiator. While artificial intelligence refers to the programming of a wide range of human tasks, machine learning, fundamentally, is the ability to make predictions based on data. The data that we are feeding into CoRE is data that our scientists provide as a result of scientific experimentation conducted in our laboratory and informed by our vast biobank of tumor samples. We conduct laboratory experiments to validate in silico analyses, to prove or disprove the viability of drug compounds scientifically, not just statistically. This is our value proposition. This is what sets us apart from all other AI drug discovery companies. As the term machine learning implies, the more data that we feed into the system, the more accurate its predictions become over time.

PeDAL has been scientifically and technically tested, validated, and verified. PeDAL can predict with 92% accuracy whether a tumor sample will respond to a certain drug compound or not. In so doing, PeDAL can inform the selection of drug-tumor combinations for subsequent in vitro testing and facilitating go, no-go decisions before investing in costly and time-consuming later-stage in vivo human trials. Last quarter, we spent a fair amount of time describing our recent contract successes, including the U.K.'s Cancer Research Horizons, which is abbreviated CRH, Cvergenx, FluGen, and Integra Therapeutics. CRH is the world's largest private funder of cancer research, with a network of 4,000 researchers and an annual budget of more than $370 million.

They have provided significant funding that has resulted in the launch of 11 cancer therapies currently on the market and provide critical support for an additional 160 compounds that are in clinical development. Our partnership with Cvergenx will leverage PeDAL to develop the first-ever genomic space approach to precision radiation therapy, utilizing artificial intelligence to identify or develop novel or repurposed radioprotective or radiosensitizing drugs or therapeutic compounds. There are at least three paths for commercialization. First, screening for interaction between patient tumor samples and therapeutic compounds. Second, the identification and development of a novel or repurposed radioprotective or radiosensitizing drug. Third, the screening of individuals for radiation sensitivity and personalized response to therapeutic compounds.

In addition to existing contracts with biotech and biopharma companies, Predictive Oncology and FluGen are collaborating on a next-generation vaccine related to respiratory diseases, for which a Phase IIb grant has been submitted to the NIH. Finally, we are working with Integra Therapeutics, a very well-respected leader in the development of next-generation gene writing tools, to advance gene therapies. We are currently preparing to scale up expression of their novel gene delivery protein, which, if successful, will secure a contract for the ongoing production of that protein. I highlight these contracts again, not just to demonstrate that our offering is resonating quite clearly in the market, but also to illustrate the many ways in which our capabilities can be incorporated in very disparate clinical development processes.

As I mentioned earlier, we have a very robust business development effort in place, and I believe we will be announcing additional collaborations in the coming months, including new or expanded contracts with CRH. It is worth repeating that PeDAL drug discovery contracts have significant value, but the sales cycle can be lengthy. To complement these efforts, we also have a very active biologics business, wherein formulation development and solubility testing are provided, and by which we are compensated by our pharmaceutical development partners on a fee-for-service basis. This is relevant because protein therapeutics play a meaningful role in almost every field of medicine, from antibodies to enzymes and hormone treatments, the number and frequency of protein therapeutics brought to market has increased dramatically. For these therapies to be effective, an optimal dose of those therapies must be properly circulated, delivered, and absorbed in the body.

Not unlike the efficiently predictive accuracy of the PeDAL platform for drug discovery, our biologics capabilities enable us to effectively streamline and accelerate the formulation process, identify alternative and potentially more viable formulations, and amplify the amount of protein actually being produced. I point this out because our company is well positioned to generate near-term formulations revenue in support of building a pipeline of milestone-driven PeDAL contracts. I would now like to address some rather noteworthy additions to our newly formed Business Advisory Board, beginning with Dr. Bernard A. Harris Jr. Dr. Harris brings a wealth of clinical, business, and operational healthcare expertise to our Business Advisory Board. He currently serves as Chief Executive Officer and Managing Partner of Porcelius Ventures, a venture capital firm that supports and invests in early to mid-stage healthcare companies.

He is also the founder and serves as Chief Executive Officer and Director of the Harris Institute and Foundation, a nonprofit organization that serves socially and economically disadvantaged communities, striving to reach the most underserved populations in the areas of education, health, and wealth. Dr. Harris serves on several boards, including Raytheon Technologies, U.S. Physical Therapy, Massachusetts Mutual Life Insurance Company, and the Texas Medical Center. He has a very diverse and distinguished background, including many years as an astronaut, serving on multiple space shuttle missions and being recognized as the first African American to walk in space. We also announced the addition of biopharmaceutical finance veteran, Andrew Einhorn, to our Business Advisory Board.

Mr. Einhorn consults for Danforth Advisors, an agency with deep institutional knowledge of the business of life sciences from strategy through execution, where he provides financial advisory services to public and privately held companies, and was appointed Interim Chief Financial Officer of Cognition Therapeutics in August 2022. Previously, Mr. Einhorn served as Chief Financial Officer of RDL Pharmaceuticals, formerly known as Osmotica, Edge Therapeutics, and was Co-founder and CFO of Oceana Therapeutics, Esprit Pharma, and ESP Pharma. As our momentum continues to accelerate, the Business Advisory Board's insights, expertise, and perspectives will be invaluable in our efforts to deliver unique solutions to our drug development partners while creating lasting value for our shareholders. We will continue to look for outstanding candidates who add to the diversity, backgrounds, and perspectives we were seeking to round out our Business Advisory Board.

Before turning the call over to Bob to review the financials, I want to close with our recent announcement that we have moved our corporate headquarters from Eagan, Minnesota, to Pittsburgh, Pennsylvania. Pittsburgh is a global life sciences research and technology hub and the location of our main laboratory facility. With this move, Pittsburgh is now the epicenter of our company's Center for Artificial Intelligence and Clinical Operations, further strengthening our commitment to scientific discovery and growth. At this point, I will turn the call over to Bob Myers, our CFO. Bob?

Bob Myers (CFO)

Thank you, Raymond. We ended the second quarter of 2023 with cash and cash equivalents of $14.8 million, as compared to $22.1 million as of December 31, 2022. We have 1.8 million outstanding warrants that represent an additional source of capital. We have no debt, our balance sheet is very strong. As of June 30, 2023, stockholders' equity stood at $14.7 million, as compared to $21.8 million as of December 31, 2022. We recorded second quarter 2023 revenue of $490,110, as compared to $371,591 for the second quarter of 2022.

Our gross margin in the second quarter, 2023, was 67%, as compared to 64% for the second quarter of 2022. Operating expenses were just under $1 million in the second quarter of 2023, as compared to $900,000 for the second quarter of 2022. Net cash used in operation activities was $7 million in the first half of 2023, as compared to $6.4 million for the comparable period in 2022. Net cash used in investing activities was $0.3 million for the first half of 2023, which was consistent with the comparable period in 2022. That concludes our financial summary. You can find additional details in our 8-K containing our earnings press release, as well as our 10-Q, which is on file with the SEC and also available on our website.

With that, I'm going to turn the call over to the operator for Q&A. As a reminder, Dr. Pamela Bush, our Chief Business Officer, is also available for this segment of the call.

Operator (participant)

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

Hey, Ray and Bob. Appreciate the call. Wanted to ask the same question I've asked at a couple of the others. Given the trajectory of the company and the increase in, in expenses, obviously there's a lot of things still in play. Is there a new timeline that the company will achieve at least a break even on operations? Because the cash burn still has me worried about a potential offering, even though the warrants are still there. A second part of that question is, you know, do the warrants, at what price would they be exercisable, given if there is a raise necessary in the next year?

Raymond Vennare (CEO and Chairman)

Bob, do you want to, do you want to take that, or do you want me to?

Bob Myers (CFO)

Sure. I'd be glad to, Raymond. Hey, Michael, how are you?

Good, thanks.

Good, good. To, to answer your question, you know, our expenses are, in terms of burn, are still rolling along at about a $1.2, $1, $1, $1.2. We had $18.5 million in the bank at the end of March 31st, and we're sitting with about $14.8 in at the end of June. That, that rate is pretty consistent. We're, we're solid certainly for moving ahead over the next year and the anticipation and forecast of revenue that we believe will be coming in. Let's take that away, revenue. Let's say cash from deals that we have. You know, revenues being recognized is different from the cash that we may earn from some of these deals. We'll, we'll certainly assist in in maintaining our run.

In terms of the warrants, right now, the lowest price warrant is $14. As you know, we were at 4.70 something today in terms of our price. There's a lot we can do with the warrants and there's also, as you said, always the potential of a raise. Raymond and I have always been very honest and said to the shareholders that we're try to do everything we can to not do another raise and to try to bring our cash levels up through revenue and the business we do continually. That is our aim.

Raymond Vennare (CEO and Chairman)

Michael, I, I would add to that, that we, we are obviously scrubbing the budget. There are a couple of ways that we're, we're going to address this. One is, in order for us to extend the runway, we have to reduce the cash burn. We're certainly looking at that. The balance, of course, is to take advantage of these opportunities who are in front of us. W- we have to spend money to do that. If we win some of these contracts and need to hire people and get some equipment, then we're going to have to do that as well. We are acutely aware of that balance, and we're keeping an eye on it literally on a weekly basis.

Okay. On the company's current trajectory, is there a potential timeline for, you know, break even on the EPS? Are we at still 1 year or 2 years out, 6 months? Any indication you can give based on current forecasts?

Bob Myers (CFO)

Well, I, Michael, that's a, that's a great question, and, and it's a difficult one to to answer based on forecast without a historical knowledge. Because as you know, PeDAL is new. We've had our first deal with CRH, and I think we have a lot of prospective deals upcoming. Without seeing these come in and without knowing exact dates, it's, it's difficult for me to give you exact date with a, with a break even. Our goal is to do so by, by the end of 2024 or sooner, but a lot depends on how quickly we can turn those sales into revenue and close other contracts.

Okay. Thanks, guys.

Raymond Vennare (CEO and Chairman)

I, I will say, Michael, that we've, we've mentioned CRH several times, right? I think everyone is very well attuned to the significance of that relationship. We are actively. I'm here at the laboratory right now. I'm doing a call from the laboratory, and we are working on that project as we speak. No one is more anxious than we are to move that as forward as quickly as possible. As Bob said, you know, we are doing on our end, certainly everything we can do. We have to work through on the other end, how long it takes our, our partners, our, our customers, our collaborators, to actually get us what we need and give the approvals and just keep the projects moving.

Operator (participant)

Thank you. There are no further questions. I would like to turn the floor back over to Raymond for closing comments.

Raymond Vennare (CEO and Chairman)

Okay. Well, thank you, everyone. That concludes today's call. We hope that you can take away from this call the fact that all of us at Predictive Oncology are very excited about the growth trajectory of the company. What's been happening in the last few months, much of what we've been talking about for the last few months is finally coming to fruition. In the coming quarters, I would anticipate more collaborations and partnerships with some of the leading drug developers in research and academic institutions. They're critical to the process. We're also very excited to play an important role in the discovery of new oncology drugs.

That's certainly part of the relationship with, with CRH, which we believe, and everyone on this call, I, I truly believe, understands that benefits the patients, but will also create enduring value for our shareholders. I want to thank you all for your support, and I look forward to the third quarter update. I wish you all a good day and a good evening. Thank you.

Operator (participant)

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