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PRPO Precipio

Participants
Ilan Danieli CEO
Call transcript
Operator

Welcome to the Precipio’s Shareholder Second Quarter 2021 Shareholder Update Conference Call. All participants will be in listen-only mode. [Operator Instructions]. Please also note that this event is being recorded. 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, forecasts, and assumptions, and are subject to significant risks and uncertainties. These statements may be identified by words such as may, will, should, could, expect, intend, plan, anticipate, believe, 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 statements include, but are not limited to, the matters listed under Risk Factors in our annual report on Form 10-K for the year ended December 31, 2020, 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 that they are provided unless an earlier date is indicated and we do not undertake any obligation to publicly update any statements or information, including forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Now, let me hand the call over to Ilan Danieli, Precipio's CEO.

Ilan Danieli

Thank you very much. Good afternoon everyone and thanks for joining our Q2 2021 shareholder call. On this call, I'll provide a recap of our activity this quarter and some insights into what the future holds for us from now through year end.

Let's start with pathology services.

As you saw from our reported results, we continue to grow our revenue mostly from pathology services with an increase of 55% year-over-year and 29% increase from Q1 to Q2 of this year.

Our reported revenue from pathology continued to grow due to two key factors.

The first was the organic growth of new customers and increased business from our existing customers.

The second factor was the improvement to our collections, which reduces our allowance for doubtful accounts. Cash coming in from pathology services depends on reimbursement and insurance carriers, and this is often quite the battle to say the least. To improve contracts within payers alongside improved internal collection processes, we've gradually managed to increase our collection rate from the 70% range years ago into the 80s and now approaching 90% billable revenue. This has a direct impact not only on reported revenue, but of course on cash to the bottom line.

Our pathology sales team continued to face challenges for markets that reopened for a short period of time, and are now facing a return to restrictions or even shutdowns. This makes it more challenging for our sales team to call on new customers to build a relationship as well as maintain existing relationships with our current customers. The good news is this is a challenge that the entire industry is facing.

So it's a tide that causes all ships to rise together.

With the unique value proposition our team has in its toolkit, which includes a dedication to diagnostic accuracy, incorporation of specialized academic expertise, and our proprietary technologies, we believe that we still have a significant advantage over the competition. With our expected growth of pathology revenues in addition to our growth of revenues for HemeScreen, we expect to hit the $10 million run rate by the end of the year. This will be an exciting milestone for the company.

Turning now to the product side of our business.

As you saw on today's press release, HemeScreen is paving the way as a significant contributor to our company's growth. The acceptance of our product by leading industry players, such as AON serves as recognition of Precipio’s product and services in providing accurate diagnosis and earlier patient treatment which ultimately impacts patient care. We anticipate that operations and revenues from AON will commence in Q4 of this year. I can tell you that through my ongoing interaction with our R&D team, there is nothing more rewarding than knowing that a technology that we've worked hard to develop, and then to market will now impact a patient's life.

We expected this recognition and adoption by AON and other players in the market will lead to continued growth of our business and of our company. On market analysis, though still a work in process, projects the U.S. HemeScreen market to approach several hundred million dollars per year.

As we expand our HemeScreen offering, the continued growth of our product has a ripple effect on the company. Last quarter, we established our product support team and hired additional operational personnel so that we can provide the necessary support expected by our customers. Ensuring the proper resources to onboard our customers enables Precipio to provide real-time support as they run their in-lab tests.

As a laboratory that purchases similar reagents and services from outside vendors, we at Precipio know the difference between average and top level support. To achieve that level, our infrastructure and team are geared up to provide the highest level of support drugs. Performing molecular tests requires discipline, regulatory rigor and great staff. We recognize the importance of real-time technical expertise and support, and we're able to deliver this service through our HemeScreen portal that includes product information support as well as tech needed for technical services systems and ease of ordering, positioning HemeScreen to be the gold standard of product and supporting service.

Going forward, we're also planning to create a production facility in HemeScreen run by an experienced production team to deliver the quality of the product produced, its consistency as well as inventory management, ensuring that our customers have access to quality products 365 days a year.

We expect that HemeScreen will be one of our key company focal point for the foreseeable future.

Beyond the impact of this product on patient care and the ability of this service to enhance quality at the physician office while performing an additional -- while providing an additional source of income, HemeScreen also provides financial stability that will be critical to the company's growth and performance. The contractual Reagent Rental agreement with the customer includes a four-year commitment with monthly payments for the HemeScreen reagents and equipment lease. This contractual agreement enables the company to receive a recurring revenue stream from customers, and each new customer added serves as a revenue building block. We often believe that as our customers grow, our business could potentially grow with them. And thus the overall demand will increase. Practices add physicians to their group, they see more patients and their organic growth trickles down into increased utilization of HemeScreen as part of their clinical service.

Finally, as our R&D team continues to work on developing new panels, the launch of each new panel is introduced to the existing customer base creating further growth of HemeScreen revenues. These factors should create a very attractive business model for the company, when best possible to rapidly build our customer base and establish market leadership for product such as HemeScreen.

Going forward, we plan to concentrate on the following. Number one, maintain the high caliber of our clinical diagnostic lab to serve our pathology services customers. Maintaining our clinical lab particularly for expertise will enable Precipio to develop a long-lasting relationship with our commercial lab HemeScreen customers. Number two is to focus on quality production fulfillment and inventory management for our product, such as HemeScreen. Number three, lastly, assess resources and leverage our research and development expertise to continue to broaden our offering. In summary, we continue to grow both sides of our business and continue to see the cross pollination between the two businesses, our pathology services and our product.

We have the resources to invest both in our technology facilities and building the team to execute on our mission. I'd like to end today's call with a story that we recently experienced in our company.

As a pathology lab, although we play a critical role in the battle against cancer by diagnosing the patient, we're very much behind the scenes and ourselves invisible to the patient and their family who mostly interact with their oncologist. In our lab, we receive patient samples and are focused on working with blood tubes, tissue and slides. That's our job and we do it with pride. But from time to time, we get a chance to meet someone who is impacted by the work we do, and that's a very special moment for us. And last week, our company experienced that. A week ago, we celebrated Precipio's 10th birthday, which is hard to believe.

And so we took an afternoon and had our traditional company picnic. In the months leading up to the picnic, I was thinking of what I could do for my team as a special surprise. And fortunately, this surprise dropped into my lap. In a conversation with a shareholder, we'll call him Mr. S, would reach out to us. I learned about the reason he invested in Precipio to begin with. It was because his family had endured a tragic loss of one of their family members due to misdiagnosis. I was so touched by the story of Mr. S shared with me that I decided to make a bold request. I invited Mr. S and his family to come to New Haven, visit the lab and on the day of the party, share their story with our team.

And so last week, on a beautiful sunny day in Connecticut, as we stood in a circle, and we listened to Mr. S and his family share their story, there was not a dry eye in the crowd. This was such a special moment, and I can think of no better way to thank both our team for the amazing work they do and for Mr. S and his family for sharing their story with us. Mr. S, I know you're on this call and listening.

So again, on behalf of our entire team, let me thank you and your family for coming to our celebration and sharing your story with us. It was incredibly impactful. With that, I'll wrap up today's call and say that we are really excited for today's news for our ongoing development and the direction the company is going. I want to thank you all for your support, and have a great evening.

Operator

The conference is now concluded. Thank you for attending today's presentation.

You may now disconnect.