Axe Compute - Q4 2018
April 1, 2019
Transcript
Operator (participant)
Good afternoon, and welcome to the Precision Therapeutics Earnings Conference Call for the year ended December 31, 2018. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one on a telephone keypad. To withdraw your questions, you may press star and two. Participants of this call are advised that the audio of this conference call is being broadcast live over the Internet and is also being recorded for playback purposes. A replay of the call will be available approximately one hour after the end of the call through July 31, 2019.
I would now like to turn the conference call over to Scott Gordon, President of CORE IR, the company's investor relations firm. Sir, please go ahead.
Scott Gordon (Founder and President)
Thank you, Jamie. Thank you all for joining today's conference call to discuss Precision Therapeutics corporate developments and financial results for the year ended December 31, 2018. With us today are Dr. Carl Schwartz, the company's Chief Executive Officer and Bob Myers, the company's Chief Financial Officer. After the close of the markets today, Precision Therapeutics released financial results for the quarter and year ended December 31, 2018. If you have not received Precision Therapeutics earnings release, please visit the investors page at www.precisiontherapeutics.com. During the course of this conference call, the company will be making forward-looking statements. The company cautions you that any statement that is not a statement of historical fact is a forward-looking statement.
This includes any projections of earnings, revenues, cash or other statements relating to the company's future financial results, any statements about plans, strategies or objectives of management for future operations, any statements concerning proposed new products or services, any statements regarding anticipated new relationships or agreements, any statements regarding expectations for the success of the company's products and services in the U.S. and international markets, any statements regarding future economic conditions or performance, statements of belief and any statements of assumptions underlying any of the foregoing. These statements are based on expectations and assumptions as of the date of this conference call and are subject to numerous risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.
Some of these risks are described in the section of today's press release titled Cautionary Note on Forward Looking Statements and in the public periodic reports the company files with the Securities and Exchange Commission. Investors or potential investors should read these risks. Precision Therapeutics assumes no obligation to update these forward-looking statements to reflect future events or actual outcomes, and does not intend to do so. It is now my pleasure to turn the call over to Dr. Carl Schwartz, CEO of Precision Therapeutics. Dr. Schwartz?
Carl Schwartz (CEO)
Thank you very much, Scott. Good afternoon and welcome. This is, I think a really exciting time for Precision Therapeutics. We now have, four divisions under or soon to be under our control. Fellow shareholders, we've got a lot to talk about. First, there is Skyline Medical. It now has both a domestic and foreign division of its own and has been very active in 2018. As such, it was a pivotal year. Here are some highlights. We continue to expand our sales efforts, not only nationally but worldwide. We hired a new head of domestic sales, expanded our sales force with more experienced personnel, established a European office and hired a director of sales.
I wanna point out that although we did not hit our projections in 2018, we still had sales of machines and disposables that set new records for Skyline. We signed independent distributors in Canada, several European countries, many in the Middle East, India, Pakistan, Australia, Taiwan, just to name a few and we now have machines in five of the world's seven continents and our efforts continue unabated into 2019. In addition, we formed the Tumor Genesis division in 2018 to develop the use of biomarkers to test ovarian tumors and to replace lab rats and mice, which are more expensive to use, take longer to get results and these results are less reliable. We also purchased 25% of Helomics, a bioinformatics company specializing in ovarian cancer.
We've moved along smartly on the development of our new Generation Three machine, which will be smaller, more compact, with fewer moving parts. In addition, this new machine will have a separate attachable vacuum pump available for purchase to help hospitals with limited vacuum. 2019 has also gotten off to a great start. We will finalize our purchase of Helomics and in a couple of days, we will then own 100% of this exciting corporation. We have continued to expand Skyline by widening our sales force to cover more of the world, improve our marketing and our training of hospital personnel to maintain our machines. Our new Generation Three machine will be out for testing in May and will be available shortly thereafter. Now let's talk about Tumor Genesis.
Richard Gabriel, head of Tumor Genesis, has not let any grass grow under his feet. Tumor Genesis was formed to develop a new rapid approach for growing and testing ovarian tumors in the laboratory using biomarkers which essentially fools the cancer cells into thinking they are still growing inside the patient and replace the use of lab rats and mice. Tumor Genesis has continued to move rapidly, signing contracts with developers and suppliers of these biomarkers. These suppliers have built the first biomarker screening kits and sent them to a large U.S. university for evaluations on 14 of the 25 ovarian cancer cell types on behalf of Tumor Genesis. In addition, these proprietary media screening kits will be offered commercially worldwide so that other researchers may grow the ovarian cancer cells themselves and then will want to purchase the Tumor Genesis biomarker discovery kits to screen their own samples.
Following up on the work done at this university, Tumor Genesis will then take these biomarkers found in the first screening and mount them on supports to search for new cancer cell separation. This protocol will result in the production of the Tumor Genesis capture kit. This will bring us one step closer to building tumors outside of the body, which will in reality match the patient's own tumor. It's really groundbreaking research, if I do say so myself. Now we come to Precision Therapeutics' latest acquisition, Helomics Corporation. As I stated earlier, we will own 100% of Helomics in a couple of days. Its corporate mission, as stated by our VP of Innovation, Mark Collins, "Machine learning can discover drugs and make people better." With that single-minded purpose, we intend to become the leading artificial intelligence company dedicated to women's cancer.
Over the past 20 years, over $200 million was invested in Helomics to build one of the largest databases of ovarian, breast and brain cancers in the country. By applying our deep learning software to these cancers, we will bring realistic hope to thousands of women with these cancers. Over the next several months, we have already and will continue to enter into collaborations with data-sharing agreements with other companies in the field to expand our database on these three cancers. Our deep learning software will help to determine what drug combinations will be most effective for each cancer subtype and help pharmaceutical companies to develop them. To achieve our goals, we have assembled a world-class, really world-class advisory board consisting of these strategic luminaries. Dr. Bob Murphy, Professor of Biological Sciences, Biomedical Engineering and Machine Learning at Carnegie Mellon University.
Amelia Warner recently built and sold two entrepreneurial companies. Prior to that, she served as Head of Clinical Pharmacogenomics for Merck Research Laboratories, overseeing all pharmacogenomics projects. Marc Malandro, VP of Operations for Science at the Chan Zuckerberg Initiative, established and owned by Facebook founder Mark Zuckerberg and his wife, Priscilla Chan. Finally, Dr. Paul Kornblith, a world-renowned neurosurgeon, clinician and clinical cancer researcher. Investors can watch our progress by following our collaborations with industry leaders to validate our approach and increase the number of tumors available to Helomics to perform genomic sequencing on. One of our goals is to secure a partner similar to how Foundation Medicine did with Roche in 2016. At that time, Foundation had information on 18,000 tumors. We have over 150,000 tumors in our data bank and our job is to mine them as Foundation did.
Again, really, really exciting stuff. With that, I will pass the call to Bob Myers, our CFO, who will now discuss our financial results for the fiscal year ended December 31, 2018 and then we will open the call for questions. Bob?
Bob Myers (CFO and Secretary)
Thank you, Carl. I will now discuss the financial results for the full year of 2018. Revenue. Our revenue for 2018 was $1,412,000, compared with $655,000 for 2017. This represents a 116% increase year-over-year. Our revenue included the sale of 41 STREAMWAY systems and increased disposable supplies. The revenue in 2017 included the sale of 10 STREAMWAY systems as well as disposable supplies to operate the product. Our revenues and product sales increased in 2018 due to our increased sales force and the full initiation of brand awareness. We also sold our first STREAMWAY unit internationally. Cost of sales.
Our cost of sales was $416,000 in 2018 compared to $148,000 in 2017. Please note that as our revenues increase through system sales, we expect costs to decline as a percentage of our revenue due to our volume discount purchasing agreement with our suppliers. Gross profit margin. Our gross profit margin decreased slightly to 71% in 2018, compared to 77% in 2017. In 2017, we experienced a higher gross profit percentage than in 2018 as the company began assisting some customers with the installation costs. In turn, this added a value cost to our customers, resulting in higher sales. Operating expenses.
Our operating expenses for the year ended December 31, 2018 were $8.9 million compared with $6.6 million in 2017. The $2.3 million increase in operating expenses in 2018 contained numerous extraordinary expenses, including acquisition costs, forbearance expenses, and startup expenses for Tumor Genesis and Skyline Europe. Thank you, Carl. I'd like to turn this call back to you for your closing remarks.
Carl Schwartz (CEO)
Thanks, Bob. I guess I've covered a lot of territory this afternoon, as you might have already heard. This is an exciting time for your company. Things have never looked better. We wanna thank our loyal shareholders for their continued support and we'll now turn this over to Q&A.
Operator (participant)
Ladies and gentlemen, at this time, we have allotted 30 minutes to address questions from participants. To ask a question, you may press star and then one on your telephone keypad. If you are using a speakerphone, we do ask that you please pick up your handset before pressing the keys to ensure the best sound quality. To withdraw your questions, you may press star and two. At this time, we will pause momentarily to assemble the roster. Once again, if you would like to ask a question, please press star and one. Our first question today comes from Dan Pita. Please go ahead with your question.
Speaker 4
Yeah. I was interested in the original million shares that were placed in Escrow was dependent on, I think, $8 million worth of earnings by Helomics annually. In looking at the merger report for nine months ending September 2018, total income appears to be $425,065. How are you addressing that shortfall?
Carl Schwartz (CEO)
Well, I would tell you that yes, we were disappointed in that beginning but we're off to a good start this year. We're looking at the collaboration that have really accelerated with Helomics and their cooperation with other companies to build this database and help other companies to develop theirs. We expect that income level to rise dramatically over the course of the year. They got off to kind of a rocky start but I think we've corrected that and are on their way.
Operator (participant)
Our next question comes from Steve Buchaki. Please go ahead with your question.
Speaker 5
Hey, guys. So you just made a comment about the database and kinda comparing it to the Foundation database and Roche acquiring it. What kind of shape is our database in currently? How rich is the data and how close are we to being able to monetize, if you will?
Carl Schwartz (CEO)
Well, first of all, our tumors are in great shape and we have a lot of information. What we don't have is the sequencing which Foundation did with theirs. We're in the process of setting it up to do that now. That's gonna be a long process, not meaning years, but certainly months and relatively expensive to get that done. We will get it done and then we really have one of the most valuable troves of information in the country by any measure. We're and plus, that database continues to grow. We get new tumors in daily to be sequenced and checked out. We're now developing the process again to sequence the tumors we already have.
That's the difference between Foundation and ourselves, among other differences but that's the main one.
Speaker 5
Okay. Would you say that's like a three-, six-, nine-, 12-month process? I would say overestimate, just to kinda...
Carl Schwartz (CEO)
Well, I would think it would at least be probably a good year to get all this done, but maybe.
Speaker 5
A year. Okay.
Carl Schwartz (CEO)
Maybe a little bit later. Yeah. Yeah. It would be at least that.
Speaker 5
Oh, that's fine.
Carl Schwartz (CEO)
I would plan on that.
Speaker 5
Okay.
Carl Schwartz (CEO)
Yeah.
Speaker 5
Okay. Cash flow-wise, how much cash do we have currently and what's our burn rate? When are we gonna have to raise again?
Carl Schwartz (CEO)
Bob?
Bob Myers (CFO and Secretary)
Hey, Steve. Right now we are sitting with about $1 million in the account. Our burn rate for Skyline Medical runs at about $440,000 a month. We are at a higher rate due to the fact that we are churning out the Generation Three models supporting Tumor Genesis and supporting Skyline Europe. Helomics is running in the area of about $300,000 a month. We do expect to need to go out to the public again. We have an available baby shelf on an S-3 that we could do that with and we have some other offerings in mind that we will present to the shareholder community in the future.
Speaker 5
Okay. Now on previous calls, we've talked about Helomics and cash flowing. It was real close. For some reason, I recall we expected a Q1 break-even point. Are we a ways off of that yet?
Bob Myers (CFO and Secretary)
Well, we are slower than we anticipated. What happened basically is that Helomics was a little behind in where they thought they were in working with the artificial intelligence chip. They've made huge strides since then. That involving themselves directly in that slowed our performance in terms of diagnostic medication which is the business that we don't wanna be in anyway. We're doing that successfully with testing results but to also receive tumors every day that enhance our database. I think that we would be closer to a break even on the Helomics side of things as we near year-end this year.
Speaker 5
Okay. What about Tumor Genesis? Where does that sit, as far as monetizing it and what's the burn rate on Tumor Genesis?
Bob Myers (CFO and Secretary)
The burn rate on Tumor Genesis is very low actually. We have a COO that is paid a consulting fee. We pay out quarterly fees at $15,000 to our associated companies. Now we're getting involved with the university that will be running some of our processes in partnership. That will cost us over the next three months, approximately $100,000. The future will bring some additional cost to Tumor Genesis but I think we're going to look to partner up on that and find a way to allay a lot of those costs. In the meantime, Richard has already begun the process of monetizing. He's got his kit built.
We presented it and we're looking to find out just how well that's gonna sell in the very, very near future.
Speaker 5
Okay. Is there an expected date that we anticipate the board to kinda start bringing value, if you will, and maybe some of the relationships that they have creating some more revenue and relationships and kinda help us move forward?
Carl Schwartz (CEO)
Say it again, if you would. Yeah, what is the-
Speaker 5
Sorry.
Carl Schwartz (CEO)
What is-
Speaker 5
I'm asking about the board and, you know, when we're gonna kinda see some of the relationships that they had previously built help us out and move us forward.
Carl Schwartz (CEO)
You're talking about now Tumor Genesis or Helomics? Or both?
Speaker 5
I guess that's Helomics board.
Carl Schwartz (CEO)
Yes. Well, we're the Helomics board now and we expect to see them in the next 90 days begin to you know, perk things up pretty good. They've got a number of things to be announced that we're excited about and I think we'll begin to see the needle begin to move rather rapidly with this company.
Speaker 5
Okay.
Bob Myers (CFO and Secretary)
Carl, if I may add, I think that.
Speaker 5
Referring to-
Bob Myers (CFO and Secretary)
The advisory board members, Steve?
Speaker 5
Yes. Yes, exactly.
Bob Myers (CFO and Secretary)
Yes. I think that's what we're.
Carl Schwartz (CEO)
Oh, I'm sorry.
Bob Myers (CFO and Secretary)
Go ahead, Carl, you can
Carl Schwartz (CEO)
No. Go ahead, Bob, 'cause I misunderstood the question. I apologize.
Bob Myers (CFO and Secretary)
No problem. We actually expect a lot to happen from our advisory board members now that the merger will be completed in the next few days. You know, these are people that have been helping us along the way. Amelia Warner has helped us along the way, Marc Malandro. I mean, they're not. They haven't been invisible to us by any way, shape or form but there was just so much that could be done until we put the merger together. Now that that is virtually complete, I expect that over the next three to six months, that the shareholders would see some good progress made, and a lot of it will come from those people directly.
Speaker 5
Okay. The stock price and the dollar, when do we have to have the extension in? We can put in for a six-month extension, is that correct?
Bob Myers (CFO and Secretary)
You're right on target. We have until May 15 for the stock to recover on its own. That still gives us approximately a month and a half. We need the stock to under normal Nasdaq rules, has to remain $1 or more at the closing bid price when it closes for 10 consecutive trading days. The Nasdaq does have the right to increase that to a 20-day period if they so desire. They haven't indicated that but I just have to alert you to it. If we do that, then the notification from Nasdaq goes away and we're back in compliance. If not, on May 15, we will submit to Nasdaq a plan of how we will get our stock above the $1 mark.
We have six months in order to do that and we will present a plan that will happen, favorably and hopefully as reasonable to the shareholders as possible well before then.
Speaker 5
Okay. Excellent. Thank you. Appreciate it, guys.
Bob Myers (CFO and Secretary)
Sure.
Carl Schwartz (CEO)
Mm-hmm.
Operator (participant)
Ladies and gentlemen, with that, we will conclude today's conference call. We do thank you for attending today's presentation. You may now disconnect your lines.