Prophase Labs - Q2 2024

Transcript

Moderator (participant)

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 Karkus, 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.

Ted Karkus (CEO and Chairman)

Thank you all. I really appreciate everybody joining today for the ProPhase Labs presentation. It is our second quarter earnings release and review for our 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 and its market potential, our belief in Project ZenQ-AI'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 do not guarantee the future performance and are cautioned not to place undue reliance on any forward-looking statements.

So with that, Noella, I just realized, next quarter, when we're doing the quarterly call, because I have to read all that, I'm gonna have you read it and then introduce me. All right, that's the way other companies do it. Phew! 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 you know, 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 Pharmaloz. Look, the numbers 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 of this year, to me, are irrelevant relative to where our company is right now, today, and where it's going this quarter and the quarters going forward. That's the past, the, which has no bearing on what the present and future is. I'm gonna explain that right now, so let's get right into it. So before we start talking about what's going on great at Pharmaloz, let me explain the second quarter a little bit, why the revenue numbers were so low.

The principal reason is, Pharmaloz, and I guess I've never really explained this before, but I guess because I thought it was obvious. Pharmaloz is an incredibly seasonal business. We manufacture lozenges. Companies that the lozenge brands are typically cold lozenges. They're for the common cold. These lozenges companies, they don't want inventory all year long. Number one, it can get stale, it can expire, and they don't wanna 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 our 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, 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 could take 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 Pharmaloz is exploding right now… we are going to have a big quarter at Pharmaloz. It's not even a question, okay?

So put any concerns or worries aside, and then, you know, now we can talk about Pharmaloz, the business, as opposed to, you know, the second quarter. Everything on this slide is accurate. By the way, this whole presentation slide is now being posted to our website. This slide, some of the slides have been updated. Our Nebula Genomics slide has been updated for all the things going on there. So, look, to me, the most important thing - well, there's several important things with Pharmaloz. And by the way, Pharmaloz 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 cap of the 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, 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 ThinkEquity. We are pursuing all strategic alternatives. We are pursuing them aggressively. We've 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, a potentially 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, will 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 and I'm really excited about what we're working on. If I went too fast on Pharmaloz, happy in the Q&A to go into more. Okay. Oh, you know what? I have to go back to Pharmaloz for a moment, though. Just a couple more bullet points. So line one is operating at a capacity. We're estimating $14-$16 million in revenues and $5+ 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 two, but then hire the people for line two, and then get in new business for line two. You know, it's gonna be bumpy. Any new business is bumpy, so think of line two 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 gonna do these numbers without line two. So any contribution from line two 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 Pharmaloz for the next 12 months, things are going better than those estimates. So no guarantees in the numbers, forward-looking statements, forward-looking statements, but I am very confident we're gonna have a great 12 months.

I'm very confident we're gonna have a great six months at Pharmaloz. I'm very confident we're gonna have a great quarter at Pharmaloz. All right? So that, that's on Pharmaloz. Let's move forward now. Nebula Genomics. And again, ask questions in the Q&A if you need me to cover more on Pharmaloz. Okay, here we go. Perspective. George Church, 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. It is...

You have to think of the 1x product as the Mercedes-Benz of sequencing products, of, of DNA sequencing products, 'cause 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. 1,000-5,000 times more data points. Like, 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. The other problem is, if we don't sell the subscriptions, that's where most of our profit is. It's not, 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, on our subscription.

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 officer of Barstool Sports. He's now with 10PM Curfew. You know, his name is Stu Hollenshead. He's working very closely with Jason Karkus and our management team at Nebula. I'm so excited for what they are doing. You 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 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 Pharmaloz, is 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 Pharmaloz, 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 ten 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, you know, we should have a significant transaction, you know, 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. Pharmaloz is the most developed. It's already doing a lot of business. Nebula Genomics is doing a small amount of business, but, but we believe that that's about, about to go.

It may ramp up slowly for a couple of months, all right? It doesn't happen overnight. You know, look at all the great products out there. You know, the ones that come to my mind are always like beverages, you know, like Prime, Celsius Holdings. You know, Celsius Holdings, over five years, stock went from $1 to $90. Crazy! So these things take time. It's not gonna 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 gonna tweak it a little bit, and then a month from now, we're or two from now, we're gonna go hog wild. All right?

So look, you, you know all the assets at Nebula. You know, you know what we have. We have a lot behind this. I can, 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, you know, 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. ProPhase BioPharma. Let's touch on that a little bit. All right, Equivir.

So I'm sorry, we're not talking about Equivir yet. That, 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 Hiatt, 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 the 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 could 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 so 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, they look at the same specimen on the same microscope. One will tell you, you have esophageal cancer, one will tell you, you don't. The standard of care, 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 wanna 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 gonna happen, they're actually taking over control of LDTs, laboratory-developed tests, and there's thousands. You know, I don't know how they're gonna do it.

So eventually, we're gonna 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 that 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 gonna figure out the best game plan, and at the same time, we may, I don't wanna speak out of turn, we may have a way to fast track. I don't wanna 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 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 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 directors, 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 one of a kind esophageal cancer test that is incredibly sorely needed, and it's clearly got... It's clearly a multi-billion dollar target market.

You know, I, I've worked through the numbers before. I'll just show you really quickly. Our target market, we shouldn't even take out the 2 million at the bottom. Our target market is, are 7 million endoscopies a year. Understand, these are endoscopies already taking place. If we've only got reimbursed $1,000, we think it's gonna 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, you know, our consultants, for example, one of our consultants, I don't know he wants to name by name, worked very closely with Guardant Health for many, many years and was instrumental in helping turn them into, you know, they have a $3-$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. $1 billion is a $50 stock price. $500 million, it's a $25 stock price. If it takes 2 years, 2-3 years, so what? All right.

So this is the kind of perspective, and that's 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 gonna ramp up in a big way, and that's in addition to the fact that we have Pharmaloz, 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 Pharmaloz 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 twelve 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.

The Cold-EEZE brand, by the way, and in 1 year I was offered $20-$25 million for it. 18 months later, I sold it for $50 million. The only difference was we had to develop it 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. We are at 250 patient groups. 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 we, I believe we will be able to publish our study results and point to them and, 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 gonna 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, and we developed Legendz XL and Legendz Triple Edge and Super ProstaFlow, and Legendz XL is in stores. We never really focused on the other two. But Legendz XL plus Legendz Triple Edge, if you take them combined, it's actually a great pre-workout product. Legendz XL is a great product by itself. So, but now we already have the credibility from Legendz XL being in Walgreens, CVS, and other stores, and now we're gonna 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.

My partner, Noella, I hand it back over to you for the Q&A.

Moderator (participant)

Thank you very much, Ted, for the presentation. 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 the company, about what the company actually does and who customers are. Thank you.

Ted Karkus (CEO and Chairman)

Okay, sure. So, excellent question. I think I covered a lot of this in the presentation, but I'll, I will just touch on it again. The three consultants we're working with have different skill sets, but their skill sets cover every aspect of not only commercializing our BE-Smart test, but developing the demand for it. And as I said, there are three components to this. So one is an expert with FDA and CPT codes and, and insurance companies, and another is an expert with the physician networks, and another is an expert in tying it all together. And these gentlemen are really excited to work with us, and they're working with us regularly now, almost on a daily basis. And, we're going... I believe we now have the partners we need.

What they're also going to do, in addition to everything I just said, they're going to bring in the key opinion leaders. So much of this is, and I don't want to say it's political, 'cause we have a fantastic test, and at the end of the day, you have to have a fantastic test, but once you have a fantastic test, then the question is, how do you get, the GIs, the physicians to sign on and order it? How do you get the insurance companies to reimburse it? You know, there's another cancer test, and I don't wanna say it by name. You know, they have like a $30 or $40 million market cap because they, they did sort of a fast-track opportunity approach to cash-based testing, but they're having trouble getting the insurance companies to sign on.

They still have a $30-$40 million market cap, and so we all think that they did it the wrong way. Now, if FHC had been working with them the whole time, they might have taken a different approach, and instead of a $30-$40 million market cap, they might have a $3 billion or $4 billion market cap like Guardant Health, which is a company that FHC did work on. So we want to do this the right way. If I want to get this out quickly, I can do an IPO of our BE-Smart esophageal cancer test and have a... in a year, have a $30-$40 million market cap for it, potentially. I want it to have a $1 billion market cap. That's the goal. Is it gonna happen? We'll see.

I know that we have a great test. All the rest, we have to figure out, and I wanna do it the right way, and we have time to do it the right way. Listen, I'm the first in line for, you know, immediate gratification when it comes to buying stocks and that kind of thing, but as a CEO of a company, I gotta build the value of the company over time, and we have, you know, bumps along the way, and we had a bump here. Obviously, we had a bump, you know, with the stock price. We had a bump. I don't have control over the stock market itself. The stock market for micro-cap stocks has been in a bear market for four years.

It tried to show a little life earlier in this year, and then we just had a what I think is a selling climax. I think all honestly, all the micro cap biotech stocks have probably bottomed and were washed out a couple of weeks ago when the Dow was down 1,000 points. So I'm looking forward to how do we build the value in the company going forward and BE-Smart by itself? Forget everything else I've talked about. BE-Smart, you know, I might be able to not only retire, I might be able to start writing my own books on what we're gonna do with BE-Smart. So anyway, great question. Thank you. Next one, please, Noella.

Moderator (participant)

Great! The next question for you is: My family has a history of esophageal cancer. When can I obtain the BE-Smart test?

Ted Karkus (CEO and Chairman)

Well, you know, that makes me feel bad. I'm really sorry. Esophageal cancer, you know, and this happens, you know, I, I talk about this test, you know, I don't know why it makes me tear up. I, I talk about this test, you know, and sometimes I'll talk to an institutional investor. I can't tell you, it surprises me every time, but, like, one out of every several people has had to deal with esophageal cancer. You know, and I... You know, when I talk about it, I say X percentage, you know, once you're diagnosed, 80%-90% of people diagnosed die. I say that, and then somebody says to me, you know, their family member has esophageal cancer, and I'm like... And I almost feel sorry that I said that statistic. It's really a terrible statistic.

So, you know, but it's more common than you realize. So as far as our test is concerned, it's a great question, and it's complicated because the FDA is making it more complicated. It's possible we could provide this as a cash-based test, but apparently, I also don't wanna set a precedent with doing it as a cash-based test and then having issues with the insurance companies, and I don't know all of the politics involved. So, but honestly, if somebody actually wanted to get a test and reached out to our company, we can certainly do the test, but that's different from commercialization. So I'm working with the FHC consultants right now. I don't have all the answers today. I don't wanna be rushed and put into a box as to exactly how we're gonna roll this out.

Again, there's a difference between CPT codes, which might give us the right to get reimbursed by insurance. It's very different from actually getting reimbursed by insurance. As I said, there's another cancer testing company that's public. It's got a $30-$40 million market cap. I don't know that they're going anywhere. Again, their test is pre-endoscopy, so again, it would only help our cause if they became more successful. I don't know that they will. I hope that answered your question. I'm sorry I don't have a better answer today. But you know, certainly, if somebody really wanted to be tested today by us, we certainly could. We're capable of doing the test.

Moderator (participant)

Thank you for elaborating, Ted. The next question is: Please elaborate on your recent SEC filing about the CrowdStrike incident preventing ProPhase from filing its Q2 results on time. Is this an ongoing issue for the company?

Ted Karkus (CEO and Chairman)

I don't even understand why somebody would ask a question. We just reported results, 'cause we reported them four days later, which we're allowed to do. That, honestly, that question is just a waste of time. No, there's no ongoing issue. We just reported results. So you're asking about an issue that isn't an issue since we just reported results. So I don't even understand the question. I don't care about the CrowdStrike. You know, that affected a lot of companies, but we reported our results today, so which we're allowed to do. So what's the next question, Noella? Thank you.

Moderator (participant)

The next question is a two-part. The first part is: Does ProPhase continue to have an investment in Lantern Pharma? And if so, what is the thinking about it, long-term hold or potential source of cash in the short term? And if Pharmaloz is generating cash and growing, why look to sell this one profitable asset? If sold-

Ted Karkus (CEO and Chairman)

That's right. I don't wanna hear any more about Lantern. That's a question I don't really wanna touch on. It sounds like a Lantern shareholder or a Lantern executive asking the question. Thank you for trying to leverage our shareholder conference call to talk about Lantern. I'm not gonna comment further on it on this call, but thank you.

Moderator (participant)

Thank you, Ted, for the response. The next question is: What is happening at the diagnostics lab if there is no more COVID testing?

Ted Karkus (CEO and Chairman)

We're not doing COVID testing. We built out... We converted our COVID lab into a world-class genomics lab, and now we're looking to ramp up our Nebula Genomics business, which we rebranded DNA Complete, and we look to fill up our lab with business from DNA Complete. DNA Complete by itself, you know, Nebula Genomics, DNA Complete without the lab, is a fantastic business. I'm really excited about it. The lab is expensive to operate, so we're gonna build up the business. We'll see where it goes. So but I think the real value of the company... I mean, there's, there is a value to the lab because we built it out with expensive equipment. It's a high-quality lab. We could probably sell it. Maybe we will sell it.

I don't wanna get into, you know, strategy in the future, employees, and all those kinds of things. But our new business model, which we're going to start ramping up right away, is going to leverage that lab. So, but as far as COVID testing, we don't do COVID testing anymore. We moved away from that a long time ago. And so to be clear, our company has a history of transitioning as times change. We don't, we aren't stagnant. There are plenty of COVID company, you know, COVID lab companies that just went out of business when COVID ended. All right? We had the Cold-EEZE brand, we sold it, kept the manufacturing facility. We're now potentially going to sell the manufacturing facility for just as much as we sold the Cold-EEZE brand for.

We got into COVID testing, made a ton of money in COVID. We then used that money to buy these other business and these other, science and technology assets. That's what we're developing now. One was Equivir, which I think is a fantastic product. Equivir by itself could make our company hugely valuable. Equivir, which I'm not even focused on, let alone we acquired Nebula Genomics, which we're building out, BE-Smart, esophageal cancer test, which we acquired, and we're building out. So we used the COVID. We used the Cold-EEZE sale to, one, focus on building Pharmaloz, and two, it gave us the ability to get into the COVID testing business. We then, ThinkEquity did a phenomenal job of raising capital for us back when we got into the COVID testing. We built that out.

We then, with that build out, with the money that we made, we then found new assets to develop, and those are the new assets that are going to develop and be very valuable over time. So that's what we do. I'm an entrepreneur. We go with the times. Not everything is successful, but my track record of success in developing new companies has been incredibly high for an incredibly long period of time. Thank you for that. Next question, please.

Moderator (participant)

Thank you, Ted. The next question is: It looks like there are now only two options for Nebula, Deep and Ultra Deep. Did you discontinue the standard option, and what was the rationale? Are you no longer offering lifetime memberships?

Ted Karkus (CEO and Chairman)

No. So we've done a complete overhaul. We're rolling that out, excuse me, very shortly. That'll all be clarified in about a week. Wait until you see the new websites, the new rebranding, all of that. You know, we're having the quarterly call today. It would have been nice if we had the quarterly call after, you know, the rebranding launched. You know, the timing didn't work out perfectly, but I'll provide updates in the coming weeks when this all launches, and I'll answer those questions. We have a variety of great products. We have 100x, we have 30x, we have 1x, and we have DNA Expand.

The DNA Expand is taking the ancestry test and giving you more information on the ancestry test that you've already taken elsewhere, and then the 1x, which we think is a phenomenal product, is incredibly low priced, and it's still 1,000 to 5,000 times more data than you get from an ancestry test, and yet it's priced similar to an ancestry test. We, we think we're... It's gonna be a huge product, but we'll see when we roll it out. So we'll see. Once we roll out with our new social media platform and all the people we're working with, and we're gonna be bringing in influencers, there's a lot of places we can go. This is gonna be very exciting. So you'll see. But the, the answer to your question is, this will all be made clear very soon.

Moderator (participant)

Thank you for that response, Ted. Next, when will the second line at the factory become operational, and is potential production spoken for?

Ted Karkus (CEO and Chairman)

Yeah. So we have... Excellent question. We have several customers, some very large, that are very interested, and we're just in negotiations now. The margins are different between one very large lozenges brand and a dozen smaller brands. So, on our line one, we have ridiculously high margins for a manufacturing company. That, by the way, is very attractive to a potential acquirer. We have really high margins. It's a really cool business for line one, and that's all spoken for, and we're running at capacity. In fact, we're looking to hire people right now as quickly as possible. For line two, we're in negotiations right now, so we'll see where they go. We just... The timing was perfect.

One of the largest lozenges brands in the world, we just reconnected with, and they indicated an interest in taking our entire capacity for line two. But then understand it becomes a negotiation. Do we want to sell the entire capacity to line two? And by the way, I might get an upfront down payment if we do it that way. But the margins on that business are going to be significantly less than if we sell to, you know, a dozen small customers. The problem with a dozen small customers is that they come and go.

They, some are successful, some aren't, and more importantly, with the smaller customers, you run a line for a couple of days, and then you're done with their production, and then you have to clean the whole line and start all over again a couple days later with a new, lozenges brand, and then the same thing over and over again. It's a lot more work, it's a lot more tedious, but we charge them a lot more. So there are trade-offs, and we just have to see how it goes. So the second line, we're looking to install it, this year. I don't know the exact month. So we'll, we'll see. We're, we're playing this a lot. But again, our estimates for the numbers I have provided for Pharmaloz for the next twelve months do not include any contribution at all from line two.

So that would just be added on. So the point also is, beyond line two, we can add we potentially, we have room in our current plant for a third line, and so understand, a potential acquirer, they're not only interested in your current business, they're interested in whether or not you can expand and whether the demand is there. We definitely have room to expand. We already have world-class consultants who figured out the whole plan that however long that took, six or nine months. So we built out the whole plan, and we already have line two, which was ordered a year and a half ago, that's coming you know, very soon, and we have the plans for line three, and we have demand all over the place.

Because a critically important component of this is the fact, it's several things we have going for us. One, it's our reliability. We are one of the most reliable. We have the best reputation for manufacturing lozenges. Number two, we are FDA approved. There are very few lozenges manufacturers in the world that are FDA approved and have capacity and are reliable, but we don't know of any. All right? And three, we're based in the United States, so anyone selling lozenges into the United States would strongly prefer to work with a manufacturer in the United States, especially since there is a threat of tariffs coming. Now, I don't know who's gonna win the election, but, if Trump wins the election, I think the probability of tariffs are very high.

I don't know if he doesn't, what happens, but if Trump wins, everybody's gonna be in a panic to wanna give us business. Like, not even a question. So, but regardless, the demand is there. We're going to a conference in a couple of months, and we already know there's a dozen new brands there that wanna give us their business. So this is just a booming business. It's a hidden asset of the company at the moment, but it won't be for more than a quarter or two.

Moderator (participant)

Thank you for that response, Ted. Your next question is for Hunter Diamond from Hunter Diamond, from Diamond Equity. Can you please discuss the marketing approach for BE-Smart, if approved? Would you anticipate further partnerships to assist?

Ted Karkus (CEO and Chairman)

Yeah. So we can go in a couple of different directions. We have a... This is gonna be a high-class problem to have, and I don't want to misspeak, but we've been waiting, I've been waiting for these final statistical results to bring them to one of the largest cancer diagnostic companies in the world. I'm pretty sure we could partner with them. But again, look out three years from today and look backwards. Would you rather I do a deal where, you know, we get some money upfront and a royalty? Or what if three years from now, our BE-Smart esophageal cancer test really is worth a big amount of money?

We're not gonna be in a bear market in micro caps forever, and our BE-Smart cancer test, you know, I don't know how many times I can say it, it's a multi-billion dollar market target market with, as far as I'm concerned, no, no real competition. So I feel like it's inevitable. I really feel like it's inevitable. It's not a guarantee. Again, forward-looking statements, I can't guarantee this. It may not happen, but I don't... I, I just, in my heart, I believe this is gonna be a really, really big test and a really big deal. And so what shareholders should really be thinking about is, let's sell Pharmaloz, gives us all the cash in the world, build these other businesses, sit back and see where we are in two or three years, and it could, it could be an, oh, my God, situation.

While we're growing these other businesses, it can be very valuable. Look, Nebula, I think that's gonna be worth a lot of money in a year. I really do. You know, so there's a lot of different ways I can slice and dice this, and we'll just have to see. But the answer is, yes, there, there's one possibility that we could partner with a very large current cancer testing company that has the entire sales force and distribution in place. But on the other hand, with FHC behind us, if we get all these various networks that we need between the physician networks and the insurance companies on board, and we can roll this out.

Look, just our director at Optum, if they sign up for a test, we get the insurance companies, they sign up for a test, it's a home run. What do I wanna do a deal with a big company for? You know, they'll just take it. So we'll see. There's various ways we can go with this. We'll see. It's still relatively early on in the game, but we're not that far away from this having an intrinsic value that the market would appreciate, and then that gives us options down the road.

I'm not allowed to talk about IPOs and precondition the market and things like that, but the thing is, IPOs and spin-outs and dividend to shareholders, things like that. We'll have those. I believe we'll have those opportunities next year, in addition to the alternative, which is selling to a big company. But do I really want to sell to a big company for tens of millions of dollars in a royalty? You know, I don't know what the numbers would be versus if this really is a billion-dollar opportunity. Thank you, Noella.

Moderator (participant)

Thank you, Ted. The next question is: Please address the adequacy of your liquidity until revenues ramp up.

Ted Karkus (CEO and Chairman)

Boy, that's a great question. We have money flowing in. If you notice our net working capital, I don't remember it off the top of my head. We reported on the front page. We have a significant net working capital. We have significant accounts receivable. Dollars flow in on a regular basis. We're also about to... Also, Pharmaloz is about to now start contributing in the third quarter. It didn't in the second quarter, very disappointed it didn't in the second quarter. In the third quarter, they're gonna contribute in a significant way. So just Pharmaloz alone, that switch brings our burn, our monthly burn down. We also then have some initiatives, a couple of them are very, very big initiatives, on our accounts receivable. That could surprise me at any time, I just don't have a definitive answer, 'cause you're dealing with the government, and government moves slowly.

We're highly optimistic, but the government's move slowly. So at some point, we're gonna get a surprise and get, you know, a very large block of money. And then from there, of course, with the strategic alternatives that we're pursuing with Pharmaloz, understand, besides the sale, even if we were to sell it, that's not to say that, you know, somebody in private equity couldn't come along soon and say, buy a piece of it for a discount to what we're gonna sell it for and take in a large block of money. So there are lots of different ways we can slice and dice this, and we'll just have to see. So right now, we're, quote, "a development stage company." The market doesn't like development stage companies. I think the market is going to behave very differently at some point in the near future.

Finally, I think we're gonna get some interest rate cuts. We get, we got a taste of the micro cap starting to bounce earlier in the year, and then they cracked again. At some point, after a four-year bear market in the microcap, microcaps are gonna start up again. So things could feel very, very differently in a, in a few months, and we just have to get through the next six months. But we have so much underlying value in the company, you know, we'll just have to play... It's a dynamic situation. I don't have one definitive answer for you. I hope that answers your question, but that's the best answer I can give you. We just, you know, you know, we're on a daily basis, money is flowing in, and we're moving accordingly.

I know that we have another block of money coming in tomorrow, as a matter of fact. So we have ample cash right now, and, you know, we'll just play it by ear over time. Obviously, once we sell Pharmaloz, you know, game over, we're a completely different company at that point. But also, at that point, these other businesses I'm talking about, you know, Nebula will be ramping up more, hopefully, Equivir will have rolled out by then, and, you know, we'll be talking very differently than we're talking today anyway. But having said all that, again, Pharmaloz is kicking in right now, this quarter, you can count on it. The numbers are real, the business is real. We're at capacity. We're over capacity.

We're looking to hire people today to work at Pharmaloz on the business that we have, and it's high-margin business, it's a very profitable business, and it's now, for the first time, contributing. Understand, last year, we did about $9.3 million in Pharmaloz, and it lost money. It was a drag. So just imagine, for the first time now, in the current quarter, all of a sudden, we're operating... Oh, and this is another point I want to tell you.

Those estimates that I gave, understand, because of the seasonality of the business, of that $14 million-$16 million in revenues, $5 million+ in earnings, if that's over the next 12 months, more of that is gonna be in the first half of the year than the second half of the year, which means over the next two quarters, more than half of that should come in, in revenues and earnings. So that starts to add to the bottom line. That takes a little of the pain away. And the Nebula Genomics business, we're gonna, with this complete rebranding, we're now gonna ramp that up. That's gonna now start to eat away at the overhead, of our laboratory. So the numbers are gonna start improving. Next question, please. That was a good question.

Moderator (participant)

Thank you, Ted. We're coming up on your last two questions. The first one is: How far are we from having the family doctor request a DNA genomics test along with regular blood tests on a patient to determine if there is a risk of disease?

Ted Karkus (CEO and Chairman)

It's a great question. That's where the world is going. That's the future of medicine. That's what we call personalized precision medicine. Again, it is a no-brainer that this is where medicine is going. I mean, just think about it. Learning about your genetic makeup to tell you about diseases that you're at high risk of, you need to know that, so then you can prevent yourself from getting those diseases. You can't do that without the genetic test. And so George Church, you know, he was, you know, years ahead of his time, you know, decades ahead of his time. He knows this is where we're going. He believes that one day everybody is going to be tested. He thinks babies are gonna be tested. In fact, another initiative we're looking at is not only babies being tested, but couples, before they get married and have babies, getting tested.

If both, you know, in a couple, if they both have the same, you know, genetic mutation that is going to cause a baby, you know, to come out with, you know, God forbid, maybe they don't get married, maybe they don't have babies, maybe they adopt or whatever. So not only every person getting tested, but even couples getting tested before they consider having babies, getting tested. So, and interestingly, actually, that's another initiative I didn't even mention that we're looking into, and this is... There are services, you know, dating services, and some of them are very expensive. You know, there's cheap ones that everybody hears about where, you know, whatever, the, you know, for kids.

But then there's the real ones where people are serious about wanting to get married, and those are very expensive, and they could throw a whole genome sequencing test in there, to all the individuals to match them up so the people that shouldn't be matched up aren't matched up. It's an interesting additional feature, and we're talking about paying thousands, you know, if not tens of thousands of dollars for these matchmaking services. These are the high-end ones, so to throw in a few hundred-dollar test is a no-brainer. So there's a lot of ways that this can go. I hope that answers your question. I went on some... There's so much going on in our company, you know, I like going on some of these tangents. Last question, please, Noella.

Moderator (participant)

Excellent. So your final question for today is: Looks like the second half of 2024 could bring several major milestone events. Will you be able to stay on top of all initiatives?

Ted Karkus (CEO and Chairman)

Yeah. So the beauty of our company... Look, I answer emails 24/7. I work 24/7. I live and breathe this. I don't do this for a paycheck. I don't even do it for the shares of my company. This is just a part of my life. To be clear, I walk 13,000-13,500 steps every single day. The way I do it, I do business calls. If I don't have to be on a video, if I wasn't doing this on video right now, I would have headphones on, I would be walking while I'm talking.... In fact, I recommend to everybody listening to this call, it's the most important thing you can do for your health. You don't have to run, and you can't tell me you don't have time, 'cause I'm as busy as anybody on this call.

I put on. Anytime I'm doing a business call, I put on headphones, I walk while I talk. You. I don't even notice that I'm walking. That's how I get my workouts in. I also count calories. Why am I telling you this? I tell you this because I am a highly motivated individual that's doing this for the success of doing it. That's why I'm doing this, okay? So to keep up on these, what's nice about our subsidiaries, they're all in various stages of development. They also don't all require my individual personal time, okay? I have great people running Nebula Genomics now. I'm really excited about what they're doing.

As I said, social media is a young person's game, and the people we have in charge of Nebula and the consultants we're working with, you know, I don't know if he wants me to say his name. Well, we said his name is Brent. Stu Hollenshead and Jason Karkus together, I mean, I'm telling you, they're gonna kill it, all right? And that's at Nebula Genomics. For BE-Smart, I have the people in our company, Jed Latkin, our COO. Understand, the reason I met Jed was because he represented the former company that owned the BE-Smart esophageal cancer test, so he knows it. And I also have Igor Ponomarev, our PhD. The two of them, as a team with our FHC consultants, I just oversee and make sure everything's moving along. It's important...

Listen, I gotta be honest, it's important. I feel it's important, not from an egotistical perspective, that I be involved, because at the end of the day, you need a relatively smart guy making sure that all the T's are crossed, all the I's are dotted, and that we're going in the right direction with the right strategy, and that's my job. And my job is to make sure the right people are in place. I'll be honest with you, the right people were not in place. First of all, the people that founded Nebula were scientifically-minded types, built a great company, built a great platform way ahead of their time, did a great job of that, but they're not people whose expertise would be knowing how to sell it to the masses.

And then, unfortunately, the team I had in place for the COVID testing wasn't the best team for building out our Nebula Genomics business. And so now I think we have a great team in place with Nebula. We have a great team in place with BE-Smart. For Equivir, we have a great infrastructure, you know, but you know, because we did the Cold-EEZE brand, we still have the manufacturing facility. And of course, you know, the manufacturing, I don't have to spend a lot of time there. In fact, Jed Latkin spends a lot of time there. So our team's great. Look, and I got an IT team, world-class. We have better IT here, led by Sergio Miralles, who worked in the government. He doesn't like me saying that, but he's worked at the highest levels.

We have one of the best IT teams in the world. Normally, you see a team like this in a company worth $100 billion, not in a company our size. But what's nice about having such a strong IT team is there's so much that goes into Nebula Genomics behind the scenes, not only with the websites and all that kind of stuff, but also with all the products we are developing with our new ancestry test, that's as good as the Ancestry company's test, that we're going to take the ancestry test, and we're gonna expand the reporting and give more reports and better reports than what the... You know, this requires an intense amount of IT, so I got a great team.

I know I went on a lot here, but what I'm saying is, it's not all me. I just put a lot of the pieces together, and then we got great people working on these businesses. So, and we have a really good team. And finally, I mentioned that finally, it took years, I think we finally have a strong finance team. It's amazing. You have no idea behind the scenes, running a public company, you have no idea what it takes to run a public company with a finance team and the auditors and have the right team in place. I don't know if I need to shout out more names or not, but we have a very strong finance team, led by Lance Bacy. I think that's how you pronounce his name.

We argue about how to pronounce his last name. Anyway, I'm going on some tangents now. It just gave you, at the end of this call, for those of you who stayed on, a little more flavor. It's not all me. We have a really strong team in every department, in every business. We have very strong consultants that we're working with. And in fact, by the way, I'll tell you, FHC was actually introduced to me by a multi-billionaire who has had great success in investing in the companies that FHC works on. So, and what he wanted to see was that FHC was gonna get behind us with BE-Smart, and that's given him a lot of confidence that BE-Smart is now going to be a very successful cancer diagnostic test.

So if that gives anybody any additional flavor on how I think and how I work. Noella, any other questions, or are we good to go?

Moderator (participant)

That's all the questions we have for today. So thank you very much, Ted, for your responses. That concludes the Q&A session, but before we go, I will turn back the floor to Ted for final remarks.

Ted Karkus (CEO and Chairman)

Sure. So look, thank you again for everybody for joining today. Thank you for those of you that are shareholders for being loyal shareholders. I know it's frustrating. Stock prices are frustrating. Believe me, it frustrates me more than anybody. I'm the largest shareholder in the company. I am super enthusiastic about what we're building, so I put stock prices aside for a moment. Noella, I always enjoy having you moderate. Renmark, again, I do the virtual non-deal road shows at least once a month with Renmark, so sign up with them if you want our next update. Again, we have this phenomenal relationship with ThinkEquity. Thank you, Hunter Diamond, for calling in. He also covers us besides ThinkEquity. He also covers us on a research basis and does a phenomenal job.

With that, I say thank you. I'm looking forward to some really positive updates as we move forward throughout the year, and I think we're gonna be a very different company in the not-too-distant future, and I'm looking forward to it. Have a great day, everyone. Thank you again, and thank you, Noella.

Moderator (participant)

Thank you very much, Ted, for your presentation, and thank you everyone for joining us today for the ProPhase Labs second quarter of 2024 results. ProPhase is trading on the NASDAQ under the ticker symbol PRPH. The playback will be available on our website, 24-48 hours after this presentation under the Investor Library tab. Please stay tuned for the next quarterly call, and see you next time.