Yi Chen: Got it. And my last question is the operating expenses in the fourth quarter appeared to be significantly higher. So do you expect to maintain this operating expenses level in 2023? And also, do you have sufficient capital to do that while continue to buy back shares.
Ted Karkus: Great question. So first of all, I will never buy back shares if it puts us in jeopardy. That’s number one. The buyback of shares is not significant relative to the amount of working capital and the cash that we have. We have a significant amount of cash on our books and our net working capital is over $40 million. So buying back stock doesn’t really play a role out, that’s number one. Number two, as I mentioned, with the fourth quarter, that one-time SG&A write-off is what hit the fourth quarter, which made our operating expenses look high. I make a point to be very, very efficient, with our operating expenses. So when we had performance payouts that we’re going to try to spread them out over the year going forward as opposed to them just hitting the fourth quarter because those performance payouts were paid out in the fourth quarter expense in the fourth quarter, that showed up in our fourth quarter, which really understates how strong our fourth quarter really was.
But having said that, the bigger expense was the SG&A, that was a one-time event. And as I explained before, if anything, we’re now in the opposite position, where we have been testing that is not on our books that is not in our accounts receivable that we believe that we’re not going to find insurance for some of these patients because there are ways for companies that can do research to actually find insurance on patients that have been tested even though they didn’t provide their insurance information, and we’re now starting to uncover that information. So if anything, our operating expenses should be less going forward at the same time that we could have some surprises in collection. So when we say our operators expense are going to be less, let me just be €“ let me just pull back a second on that statement.
We’re building four or five subsidiaries that have enormous potential, all right? Pharmaloz, we’re building, although our revenues are growing at such a fast clip, it’s going to be profitable, no matter how much we spend. And then it’s just a question of how much of that with the equipment we purchased is going to be capitalized and how much of it is going to be expensed. We have an enormous amount of equipment that gets depreciated very, very quickly, even though that equipment could last as 20 years, it gets depreciated very, very quickly. So a lot of these €“ these are non-cash expenses. And that’s just a cost of building our businesses. So we’re growing at a rapid rate. We’re building businesses that I think ultimately could make us a multibillion-dollar company.
So you have to put it in that perspective. So I can’t tell you exactly what the operating expense are. But I can tell you, the amount of management we have overhead we have pales in comparison to the value of the businesses that we’re building. I really believe we’re one of the most efficiently run small cap development stage companies that you’ll ever come across. And that’s why all these other companies that raised capital 2 years ago, burned with their capital, their stocks trade down 90%, aren’t coming back, can’t raise capital, we did the opposite. Every dollar that we spent, we generated and created $2 or $3 or $5 of value. And that’s why after we raised capital 2 years later, we still have more capital than what we raised 2 years ago, while building all these fantastic business, making all these fantastic acquisitions.
So our operating expenses, yes, I know you’re an analyst and you’re going to get into the numbers. Our operating expenses, you have to take out the SG&A, which is one-time. And the performance payouts will be spread out over time instead of hitting the fourth quarter in the future. So I would not take our fourth quarter number and say those are operating expenses at this point, they’re not.
Yi Chen: Okay. Thank you.
Ted Karkus: Yi, thank you so much. Thanks so much for following our company. Really appreciate your support, and thank you so much for the questions. MJ, can we go to the next caller, please?
Operator: Yes. The next question is from Hunter Diamond with Diamond Equity Research. Please go ahead.
Hunter Diamond: Firstly, congratulations on the recent progress, can you provide more details on the esophageal diagnostic tests and potential economics?
Ted Karkus: Yes. Great. Thanks. Excellent question. Sure. So first of all, we can commercialize this as a cash-only test. But until the key opinion leaders and cancer institutions and the insurance companies get behind you the question is how effective will we be in distributing that test? And therefore, even if we commercialize it later this year, I have no idea what the numbers are. I’m certainly not going to project it or rely on revenues from this year from a cash only test. It will be a good way to start. We might hire some salespeople to get the business off the ground. But where the real money is when we get the CPT codes, all right? And again, the CPT codes, CPT codes, what you get reimbursed is based on the complexity of the test.
We believe, we estimate that the CPT code will potentially reimburse us for $1,000 to $2,000. Right now, I want to estimate that the test cost us under $500. So, that means the gross profit margins could be anywhere from, let’s say, 50% to 75%. However, once we start doing those tests and volume, it’s possible that test will cost us $300 or $250 or even less. And at that point, the gross profit margins become ridiculously large. And again, we are going after €“ first of all, there is over 70 million endoscopies performed per year. Specific to GI, it’s over 50 million. I only focused on the first 2 million, which are people with Barrett’s esophagus. But I understand this test could be performed by more people than just people with Barrett’s esophagus.
So, the starting point is to go after those 2 million people to get an endoscopy every year and understand in an endoscopy, they are removing biopsy seven or eight tissue samples. We are simply taking a sliver of a tissue sample, running it through our test to predict whether or not you are going to get esophageal cancer. If you have Barrett’s esophagus and you have 1 out of 50 or 1 out of 100 people get esophageal cancer that have Barrett’s esophagus that may not sound like a lot unless you are the person with Barrett’s esophagus. All of a sudden you are saying, €œOh, my God, I may die.€ Alright. Just think about it. You are the person even if you had to pay cash, you wouldn’t pay $1,000 or $2,000, know you are going to get esophageal cancer down the road and you can do an ablation to destroy the pre-cancer cells before you get esophageal cancer or when you want to know for peace of mind, no, you are not going to get esophageal cancer.
Either way, who wouldn’t pay that $1,000 or $2,000, especially since you are getting endoscopy anyway. From an insurance company’s point of view, we believe they are going to be motivated because people right now that are diagnosed with Barrett’s esophagus are getting endoscopies every year, which cost the insurance company $2,000, $3,000, $4,000. And they get them every year, year-after-year-after-year and the insurance company €“ wouldn’t the insurance company rather pay $1,000 or $2,000 one-time. Also for the people who actually get esophageal cancer, if we can prevent them from getting this esophageal cancer, think of how much money that saves the insurance companies. So, we believe that the insurance companies, from a monetary point of view, are going to be motivated to provide us the CPT codes.
And the way to get the CPT codes is to get the key opinion leaders and cancer institutions behind you. And that’s what we are doing right now a year in advance. That’s what we are building right now. So, when you read about how our scientists are going as they did just a few weeks ago to present their findings on our esophageal cancer test at these major conferences, that’s all about building momentum and getting the key opinion leaders and cancer institutions behind you. And look, we are involved with Mayo Clinic in the United States. I mentioned that we are also working globally, which means that we are working with major institutions and companies in other countries that are just as big as Mayo Clinic. And so that’s only the tip of the iceberg.
I haven’t even gotten into this, but they may €“ we may be developing an even more effective and easier to use test that could be done on more than just people with endoscopes and potentially could be done in a doctor’s office. It is the potential of this test is enormous. And I can just tell you, we have a phenomenal relationship with Dr. Hartley at Mayo Clinic. My team speaks to him on almost a daily basis. We just met with a gastro surgeon last night, who is hugely behind this test, and he just as excited. And we are now working with healthcare companies in other countries who are excited about the test. So, there is a lot behind this. The numbers have enormous potential, but understand it’s the development phase test. It’s no different than a cancer drug that’s been under development for 10 years and one day, it’s commercialized, it all of sudden worth billions of dollars.
We are, I believe in the eighth inning of developing esophageal cancer test. I hope that gave you some perspective. I appreciate the question. Hunter, do you have another question, please.
