Good day everyone, and welcome to Precipio's Third Quarter 2018 Corporate Update Call for Shareholders. Please note, that this event is being recorded. And I would now like to turn the call over to Miri Radomski. Please go ahead.
Thank you very much, and good afternoon, everyone. Statements made during this call contain forward-looking statements about our business.
You should not place undue reliance on forward-looking statements as these statements are based upon our current expectations, forecast and assumptions and are subject to significant risks and uncertainties. These statements may be identified by words such as may, will, should, could, expect, intent, plan, anticipate, belief, estimate, predict, potential, forecast, continue or the negative of these terms or other words or terms of similar meaning. Risks and uncertainties that could cause our actual results to differ materially from those set forth in any forward-looking statement include but are not limited to the matters listed under risks factors in our Quarterly Report on Form 10-Q for September 30, 2018, and our Annual Report on Form 10-K for the year ended December 31, 2017, which is on file with the Securities and Exchange Commission, as well as other risks detailed in our subsequent filings with the Securities and Exchange Commission. These reports are available at www.sec.gov. Statements and information including forward-looking statements speak only to the date they are provided unless an earlier date is indicated, and we do not undertake any obligations to publicly update any statement or information including forward-looking statements whether as result of new information, future events or otherwise, except as required by law.
Now, let me hand over the call to Ilan, Precipio's CEO.
Thank you, Mary. Good afternoon, everyone. I'd like to thank everyone for joining the call. I also appreciate all the shareholders that have been communicating with the company throughout this period and those that sent in questions in advance. We'll do our best to address those questions throughout our call.
So on today's call, we'll address several aspects of the business. I'll start with the state of the commercial side where I'll discuss three key aspects of our business; our Liquid Biopsy offering, our Pathology Services, and the status of the new technologies we have and continue to develop.
Following that, our CFO, Carl, will provide some insight into the financial aspect of the company. And lastly, I'll address some of the matters in the recent proxy statement pertaining to the share price and our strategy around the company's capital needs as we continue to grow.
So let's begin with our flagship technology, ICE-COLD PCR, also known as ICP.
Over the past quarter, and indeed since the start of 2018, our team has made significant progress on the product development side of ICP. Only a year ago we launched our first ICP test, a single lung assay with two resistant mutations on the EGFR gene. Today, we have 5 panels covering 17 exons within 5 genes; these panels are relevant to patients with lung, colon, melanoma and pancreatic cancers which make up almost one-third of the cancer patient population. This product line will continue to expand throughout 2019 to cover more cancer patients and meet our customer's needs.
So what does this mean? We've invested in the technology to develop a robust offering that is becoming more and more appealing to the market and meets our customer's needs, and there is no better evidence of this appeal than the recent announcement of the relationship with a major industry player, Perkin Elmer. Perkin Elmer is a multi-billion dollar market leader in our space with annual revenues exceeding $2.5 billion, and with customers in over 150 countries they make for a terrific partner to grow our ICP business.
One of their areas of growth and strategic interest is the field of liquid biopsy's; Perkin has a robust cell-free DNA extraction offering and ICP was selected by Perkin Elmer as a DNA enrichment technology because together those two elements provide the ideal combination that enables their customers to expand the diagnostic capabilities within their labs to liquid biopsy. I cannot overestimate the importance of their selection of ICP as a complementary enrichment technology to their DNA extraction technology. This is not the first indicator that we have a strong competitive and valuable technology which will have it's place in the market but is definitely a strong indicator of the revenue potential for our technology. The co-marketing agreement recently announced is the first step in building a strong ongoing relationship with Perkin Elmer. Both companies are committed to this collaboration which has already been demonstrated in various joint efforts.
While the partnership with Perkin is new in the rapidly growing liquid biopsy market, we estimate 2019 revenues between several hundreds to several million dollars resulting from the market penetration of ICP within current and future Perkin Elmer and Precipio customers with a potential of significant growth from there on in future years as we capture a substantial share of this plus $1 billion market. The agreement with Perkin Elmer is the first of several potential collaborations with other companies that we're working on as we begin to develop various channels to commercialize the technology and translate it into revenue.
In addition, we're working on several go-to-market strategies to develop other various sales channels, both domestic and international which will be announced in the upcoming months and which will hopefully have a significant impact on our top and bottom line in 2019 and onwards. We tend to continue to invest and further develop into ICP and expand on our product offering within the liquid biopsy space to address the needs of more cancer patients. Alongside that, we will continue to build sales and commercialization channels to bring the cost effective liquid biopsy technology to market in the broadest manner. We believe we're on the path to executing on our vision of becoming the leading monitoring company for cancer patients applying on a targeted and cost effective liquid biopsy technology to enable precision medicine.
Moving to our Pathology side of the business; during the last quarter we continue to invest in our sales force and have hired top notch individuals.
Our 10-member strong teams in Q3 have contributed to the growth in our customer base resulting as we've recently announced in our revenues from pathology services growing close to 50% from the previous quarter. With a substantial pipeline of new customers and strong conversion rates, we expect a continued rapid growth of this side of our business with revenues from pathology services alone exceeding $1 million per quarter by the middle of 2019. I'd like to take a moment to elaborate not only on the revenue value and contribution of pathology services, but also on the strategic value we see with this side of the business.
During 2018, we introduced to the market two important technologies which I'll elaborate on their status in a moment; IV-Cell and more recently, HemeScreen; these technologies were created internally in our R&D department as CLIA laboratory receiving hundreds of patient specimens a quarter from around the country and around the world, we gained first-hand access to the various challenges these cases present in the lab. We experienced those challenges ourselves and that's where we engaged our R&D team to come up with solutions to these challenges.
As a result of this process, IVC and HemeScreen were created; once the solutions were developed, they undergo extensive and rigorous validation testing which is made possible through the ongoing workflow coming through our CLIA lab. Furthermore, through our sales force, we're able to speak to customers, explore these new technologies, identify and verify the market needs.
While other companies may develop technologies at vacuum and then explore the market applicability, our commercial and R&D team work in tandem to ensure that the technology we've developed are based on market problems or rather opportunities and that they deliver real market solutions. Once we're confident in both of these aspects, we proceed to launch and commercialize these technologies. In other words, the pathology services side of the business serves not only as a positive revenue generator for the company; it also serves as the marketing and testing platform for new technologies.
So with that, let's proceed to discuss some of the new technologies in our pipeline. And we'll start with IV-Cell, our proprietary cytogenetics media.
As a reminder, IV-Cell enables laboratories to culture all 4 cell medias [ph] simultaneously rather than the current media available on market which limits the lab to select 1 out of the 4 and culture only that one cell lineage; this is a significant driver in us reaching diagnostic accuracy. Earlier this year we announced a trial of the technology with University of Pennsylvania, the strategy was to validate the technology with a reputable external partner to help us in commercializing the technology. The good news was as the validation slowly proceeded, we learned then in fact commercialization was possible without this external academic validation. Interested parties -- partners that connected with us received samples of reagent and were able to test the IV-Cell technology in their own laboratory to see it works.
So the commercialization process proceeded in parallel to the ongoing academic study rather than waiting for the study to be completed. The value of IV-Cell is clear and has been demonstrated both internally with hundreds of cases in our lab, and with outside interested party. We believe we're making great strides towards the realization of value for this aspect of our business and I'm looking forward to sharing with you exciting news in the near future.
During this quarter, we also announced another new technology we developed called HemeScreen; born from the frustrations of an existing test used in our CLIA lab, a test that suffered from high cost and long turnaround time, our R&D team sought to find a solution. HemeScreen represents the perfect execution of our model of a combined pathology services CLIA lab with a strong technology development backbone [ph]. We saw a problem, we created a new proprietary alternative, we tested internally, launched internally, and now we've begun to commercialize it externally. The response thus far has been extremely positive. Since the launch of the test in our lab, only two weeks ago, we've already received numerous orders -- we've already run numerous orders received from physicians. We believe that given the market volume and revenue numbers of the current inferior test, that HemeScreen can generate revenues in excess of $1 million in 2019 and rapidly increase in the following years. This is not including potential licensing and other partnerships we're currently working on to capture this $100 million U.S. market opportunity. In summary of our commercial effort, ICP product portfolio continues to grow which opens doors to new customers, partners and sales channels as evidenced by the first Perkin Elmer collaboration. Pathology sales continue also to grow with the sales in executing on the plan and tracking new customers and business. And lastly, the interaction between the CLIA laboratory which creates a pipeline of cases and the R&D team will continue to generate new market driven and market tested technologies. And now, let me turn it over to Carl to give a little more insight on the financial side and I will return to share some final thoughts. Carl?
Thank you, Ilan. Good afternoon. This is Carl Iberger, Chief Financial Officer for Precipio. From the financial perspective, Q3 has been an extremely challenging time for the company, but with that said, Q3 has also been a very productive quarter for the company.
For the shareholder call, I'd like to first identify some specific items regarding our productivity and then discuss our challenges. From the productivity side, highlights come as Ilan has reviewed; from the R&D team, our sales organization and our diagnostic lab located in New Haven, Connecticut. Each group has done Yeoman's [ph] work during Q3 that will benefit upcoming financial performance.
First, the products and services highlighted, IV-Cell and HemeScreen demonstrate our ability to deliver technology to solve diagnostic testing problems and enhanced revenue and bill profitability. A key point that should not be lost in this discussion on the proprietary solutions side is that while solving problems is rewarding, in a net R&D environment, the key is to be able to incorporate the solution in a commercial lab and a production environment.
So we expect significant benefits coming from both, HemeScreen and IV-Cell.
Second, our sales group; in Q3 the sales team has grown not only in size but the reps are gaining traction in the market. We've seen steadily improved numbers on our new account closure rates. We're concentrating on significant accounts and focusing on increasing our market share.
For 2018, pathology sales have accelerated quarter-over-quarter, we're pleased with this growth rate and we look for continued acceleration in Q4.
Third, I'd like to point to the success internally of our diagnostic lab here at New Haven. In Q3 the lab management successfully expanded it's in-house molecular testing capabilities. This expansion will all but eliminate the need for very expensive outsourcing that we have incurring for the last 5 or 6 quarters, and it will have an immediate impact on lab cost of goods.
Now, turning to our challenges; we have considerable investment expenses to grow the business, R&D and the sales force are priorities. And while we are laser focused on accelerating technology and sales, we also recognize that we are challenged from a leverage balance sheet. 15 months ago the company had an ongoing initiative to deal with approximately $19 million of debt from the combination of payables, liabilities and commitments. These $19 million rose from the merger and passed operating periods. Today, at the end of Q3, that initial $19 million now stands at approximately $3.5 million. We've made considerable progress but we still need to manage cash flow to grow and deliver on our strategy. Operationally, we are still burning cash; however, we are closing the gap as sales continue to grow and we've developed new revenue streams in the form of HemeScreen and IV-Cell. In the near-term, the company will look to secure additional funding through a combination of debt financing and equity.
During Q3, the company executed a $10 million SI equity line purchase agreement.
Our current plans include utilizing the SI as needed, and as required debt in the form of potential bridge financing.
We are focused on our cash flow, we monitor that on an ongoing basis and we feel comfortable that we can work through until revenues increase in Q4, and in Q1 of 2019. I would now like to turn the discussion back to Ilan.
Thank you, Carl. And I want to thank you and your team for doing an incredible job at managing the challenging financial landscape of our company and enable us to have the resource to execute on our mission.
So in terms of final comments, as many of you read the proxy, we called for a special shareholder meeting on December 20, 2018. I know many of you were surprised to see some of the measures to be voted on and in particular, the reverse split. I want to be very clear on our intention, which is only one, to create optionality.
As I said in the letter that shareholders circulated last Friday, while my team and I strongly believe in the pipeline and growth trajectory of the company, we cannot rely solely on that. Any responsible manager must have a Plan B, and even a Plan C and a Plan D in their back pocket; this is what this is.
We are presently in volatile markets driven by the impacts of politics, trade wars, nuclear missile testing's and wildfires, any external event can impact even the most successful companies in ways that are impossible to predict. That's why we included in the proxy, a statement -- a proxy statement request to authorize managers to effectuate a reverse split if needed. This does not mean we're going to do a reverse split and we see no reason to do so unless absolutely necessary to regain compliance with NASDAQ.
However, management feels it is important to have the option available and ready to be acted upon if needed, in the best interest of the company and our shareholders. There were several questions surrounding the timing of the special shareholder meeting and why we didn't wait until the end of the first quarter.
For those of you not familiar with the process, there are various speculations and timelines the company must adhere to in order to provide ample time for shareholders to review the proxy and submit their vote. Management felt that initiating the process at the end of the first quarter of 2019 would cut very close to the deadline provided by NASDAQ, and with that creating unnecessary uncertainty for the company and it's shareholders in addition to pressure on the company which management felt could be avoided. Instead, with the option to act in the best interest of the company and the shareholders, the company can continue to focus on building the business.
In addition, we wanted to hold the meeting earlier rather than later in order to allow for a potential adjournment of the special meeting if the necessary qualm [ph] is not present and ensure new meeting to be called for in accordance with the flexible timeline. In summary, our company has not only made strong progress in the previous quarter, it's also nice to see that some of the seeds we've planted are beginning to sprout, such as Perkin Elmer.
Our company is not a one-trick pony, which while we strongly believe ICP will be a game changer at the market, we're also working hard to continue to develop additional technologies which have demonstrated substantial clinical utility and now it's our job to translate that into economic value. From myself and from the management team's perspective, we understand why the stock price does not currently reflect the company value as we perceive it to be. We still need to continue to consistently demonstrate that we can; A) grow the business at a healthy pace, B) make advances on commercializing our technology and translating ideas into dollars; and C) moving rapidly towards a point where the company is financially self-sustainable. What I've just described are the three goals that each and every member of my team has in front of them, day-in and day-out and we are committed to continue to execute on the plan.
Lastly, I'd like to share a recent story of a patient case we've received; as one of the many cases we take care of, this keeps help reminding me and my team that while the others things that we've discussed on this call; partnerships, revenue, share price etcetera, all are critically important to the company's success, it's important to remember why our company exists, we call this Our-Why [ph].
So we've recently received the biopsy of a patient that was previously diagnosed with lymphoma; the treatment wasn't working and the patient wasn't doing well and at some point the doctors expected that the diagnosis might be incorrect which is when they turned to us. We received the biopsy and after a careful review by our academic experts, the patient was diagnosed with an extremely rare case of leukemia called NK-Cell leukemia. This type of leukemia occurs in few than one in 1 million people and so far has been identified primarily within populations in China and Japan. The subsequent treatment for the diagnosis is entirely different than the treatment the patient was receiving. I'd like for each and everyone one of you to take a moment and try to imagine the importance of that finding. What if it was someone close to you, your relative, friend or neighbor; this is what we do, this is the reason we get up every morning and are motivated to work hard, none of us see this as a job, this is a passion, this is Our-Why [ph]. I want to thank you all for your continued interest in support of the company, and I look forward to speaking with you all on our next call. Wishing everyone a nice evening, and a happy Thanksgiving. Thank you.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect your lines.