ProPhase Labs, Inc. (NASDAQ:PRPH) Q4 2024 Earnings Call Transcript

ProPhase Labs, Inc. (NASDAQ:PRPH) Q4 2024 Earnings Call Transcript March 31, 2025

ProPhase Labs, Inc. misses on earnings expectations. Reported EPS is $-1.86 EPS, expectations were $-0.24.

Operator: Chat box. The top right-hand corner of your screen. That being said, I will now hand over to Ted.

Ted Karkus: Thank you so much, Noella, and thank you to everyone that’s joining the call today. I am Ted Karkus, CEO of ProPhase Labs, Inc. I’m actually excited for this call. I have a lot to cover. I think that there are some misconceptions out there, and hopefully, I can clarify some of them. So for beginners, the forward-looking statements normally, I just say I’ll assume you read it, but for the year-end and reporting, I think I should actually read it. Forward-looking statement. Except for the historical information contained here, 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 expectations regarding the future, revenue growth potential of each of our subsidiaries, our expected timeline for commercializing our B Smart esophageal cancer test, our expectations regarding future liquidity events, the success of our efforts to collect accounts receivables, and anticipated timeline for any payments relating thereto, and our ability to successfully transition into a consumer product company.

Management believes that these forward-looking statements are reasonable as and when made, including today. 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 are not guarantees of future performance and are cautioned not to place undue reliance on any forward-looking statements. I’m sorry that was a mouthful, but it’s obviously important that I read that. Let’s get to the matters at hand. Interestingly, given what has transpired over the last six months, I think we have two sets of shareholders on this call and two sets of shareholders in our company. We have the shareholders that have been with me for literally ten, twenty, thirty years. There are people that I’ve known, that I’ve worked with. And by way of quick background, I’ve been an investor in small-cap development stage companies for forty years.

So there are people that were investing with me literally thirty, forty years ago that became big investors in ProPhase Labs, Inc. when I did long before I became CEO. I only became CEO as an activist shareholder. So in any event, on the other hand, given what’s transpired over the last six to nine months, we have a new wave of investors who have become very large investors given the low price of the stock. So there’s two different groups here. We have the group from the past and I’ll get into that a little bit. In fact, maybe I should go to the timeline a little bit. So just to be clear, our stock, when I turned around the company, was sixty-five cents. The company was virtually bankrupt. It had one business, Cold-Eeze, Cold Remedy, with declining sales.

Q&A Session

It looked like it was going out of business. I had to learn how to be a CEO, turn around the Cold-Eeze brand, ultimately sold it for fifty million dollars. Paid out two dollars and forty cents in cash, special dividends, and bought back a bunch of stock. Did two Dutch auctions buying back stock. It’s like a deja vu right now. We’re back to being a penny stock. The difference between when I turned around the company last time and this time is that the assets underlying our company I feel like we have three or four assets, each one of which has the potential to be worth dramatically more than Cold-Eeze was ever worth. And then I turned around the company. I was able to pay out two dollars and forty cents in special dividends. I hope the long-term shareholders appreciate that I did that.

That would be my goal and expectation to have those kinds of activities again. And literally, I’m not talking about three to five years, potentially within the next year. That do the same kind of activities. And I have to be careful what I say from an SEC point of view. I don’t know. If I, you know, can say some of the things. All I can say is look at what I’ve done in the past, and you can assume if we have the liquidity events that I believe are coming, you can assume that I will do the same kinds of things in the future. Alright? So with that said, I could go more into the timeline I think I’d rather more get into the businesses. I’ll just tell you quickly so we’re all on the same page. After we sold the Cold-Eeze brand, we got into COVID testing.

I had to learn everybody’s be a CEO, had to learn the Cold-Eeze business. While turning around the brand. Learning the consumer products industry, I did all that. Then we got into COVID testing, did the same thing, learned the new business they’d never been in. And we built it up and did hundreds of millions of dollars of revenues. Outperformed probably ninety-five percent of the labs in the country. I have a history of execution. For forty years. The only time it looks like I haven’t executed is past year and there are very specific reasons for that. I will get into that. But by the same token, I feel like I’m at a point in time where myself and our management team our management team has evolved. Our company has evolved and I believe we’re going to do it again right now going forward from where we are today.

Okay. So we got into the COVID testing business. The business blew up big. Made a lot of money, generated a lot of revenue, generated a lot of accounts receivable. We then with that business doing so well, we made a few acquisitions with which we thought at the time were very smart acquisitions. One was Nebula Genomics.

Operator: Which

Ted Karkus: One was acquiring our esophageal cancer test, which are and I’m gonna talk about both of those and we also acquired Equivir. I have to be careful how we talk about it as we get closer. To commercializing it. But let’s just say it’s an immune support product that works really well, particularly in the cold, cold flu COVID season. Alright. And so I have all these things that I’m going to be talking about today. And what and let’s see. I’ll just mention one more thing. We built out Formalize. I know that there was some disappointment over what we sold it for, but we did sell it for twenty-three million dollars. If you go back a couple of years earlier, it might have only been worth five million dollars or eight million dollars.

Did we sell it for less than what I expected we were going to sell it for? If you would ask me a year ago, Absolutely. We built out the customer base. We added customers. We increased prices. I’m being honest with you. Our management team at FarmLabs didn’t execute from a profitability standpoint. So we sold it for less than our expectations. However, we did build out that business we did sell it for twenty-three million dollars. Now if we’ve taken all that in cash, our stock price would be a lot higher, but with that cash, what happened was we retired most of the debt of the company. So we really cleaned up the balance sheet of the company, didn’t leave us with a lot of cash. Of course, we did the think equity raise. At a discount, which hurt our stock price, and it’s left us know, tight on capital.

Ever since. Alright. That’s a little bit about the past. Let’s talk about where we are now and going forward. So, again, to be honest with you, at the end of the day, we still sold formalizing. We sold Cold-Eeze for fifty million dollars. We sold formalizing manufacturing So, like, for twenty-three million dollars. And to be clear, when I sold the Cold-Eeze brand, if the buyer had said, we’ll only pay you fifty million dollars for Cold-Eeze, if you include the manufacturing facility, I would have included it. So it gives you an idea for us to now several years later, to sell it for twenty-three million dollars. It’s still a nice win for the company. Alright. Before I get into the specific subsidiaries, I want to talk about several potential liquidity events which would be game-changing for our company and presumably game-changing for our stock price.

Alright? First and foremost, from our COVID testing days, we built up an enormous amount of accounts receivable. The way this will develop it all started with the fact that we were one of the leading laboratories testing for residents of the city of New York. So just imagine, I don’t know how many people, you know, with the population is, these days. I don’t remember. Eight, you know, eight, nine million people. But the bottom line is if you walk down the streets of New York City during the height of COVID, there were tents popped up all over the place. A significant percentage of those tents were sending their specimens to our lab. We started off doing one hundred, two hundred, five hundred COVID tests per week, specimens coming into our lab.

We got to a thousand a week. Then it built up to a thousand a day. Imagine how many people we had to hire in order to handle one thousand specimens coming into our lab every day. So imagine the first time you go to a doctor’s office,

Operator: You know, for the first time at a new doctor.

Ted Karkus: You’re supposed to get there fifteen to thirty minutes early, fill out a bunch of paperwork. They’re taking a photo of your driver’s license, a photo of your insurance. They’re looking up your insurance to see if your insurance is accurate. Doing all these things. Takes fifteen, thirty minutes. There’s a physician’s assistant or somebody at the front desk. That’s doing all of that. In advance before you ever even see the doc, So now imagine, instead, on the streets of New York, you’re walking up to a tent to get tested. And there’s a line of ten or fifteen people. Guess what? The people that were collecting your specimen, they were doing a quick swab packaging up, sending it out here. They were collecting the patient information very quickly.

They didn’t have fifteen to thirty minutes. So what was happening is they’re collecting all these specimens. They’re getting a minimal amount of patient information, sending it to our lab, and at the same time, we had to turn around the results in twenty-four to forty-eight hours. So we had one thousand specimens they were doing. We had we hired a couple hundred people. Now just imagine it’s the height of Omicron. We had ten thousand specimens coming into our lab per day for a period of time.

Operator: It was impossible to collect the information and process it

Ted Karkus: But we had the former government administration guaranteeing that they would reimburse us. So we did all the specimens, with the understanding we would collect the information and get organized after the fact. But we were actually doing a service to the public. We’re turning around the specimen, We’re providing the results. We were one of the best performing labs in the entire country. But we built up a big accounts receivable. So now fast forward to where we are today, we have on our books right now, approximately twenty million dollars in accounts receivable. We have we hired Crown Medical Collections and several years, they’ve gone through all of our testing. And if you go back over the there’s about a hundred and fifty million dollars worth of testing that we never collected on.

Now part of that is what we build the insurance companies, and what was the appropriate amount or what they had to pay versus what we billed. But at the end of the day, Crown Medical went through all of our testing. Highly sophisticated software that they have. This is all they do. They have, like, a couple of dozen attorneys. This is all they are doing is collecting COVID testing. And they took our test, and they said, okay. Based on this data with the insurance companies, we believe

Operator: And are confident we’re going to collect about seventy-three million dollars.

Ted Karkus: They take their contingency fees, their percentage. They believe they are going to net us fifty million dollars. Compare that to our market cap. There’s a dramatic difference between the two. Alright? And the interesting thing is the fifty million dollars that’s what what a coincidence. We sold Cold-Eeze for fifty million dollars. And that was the beginning of our stock going from sixty-five cents. At one point, it’s sixteen dollars a share. I’m not saying it’s going there again, but there are some interesting similarities. So we anticipate and I can’t guarantee how much we’re going to collect, but I feel comfortable that it’s going to be the more than roughly twenty million on our books and records. I actually talked to the auditors about it.

They said it’s not appropriate to increase that number. That’s where we are as of today. So, interestingly, if we collect more than twenty million dollars, there’ll be some nice quarterly gains in the coming quarters. So the goal or procedure prospect for that is the lab subsidiary only the lab subsidiary doing the COVID testing. Our goal is to bankrupt those subsidiaries and then go into bankruptcy court where Crown Medical then can say can serve litigation on roughly eleven hundred insurance companies incredibly efficiently, all through one court with one judge. That’s the goal you do in a bankruptcy through bankruptcy court. Otherwise, you’d have to file, you know, litigation know, eleven hundred times, eleven hundred different courts, and know, that would be a nightmare.

So they’re incredibly efficient, and successful at doing this over and over and over again. I am so excited. There was a lab one-tenth our size that collected ten million dollars. Literally, they were, like, one-tenth of our size. That’s how I first heard about them. We hired them right away. We’ve been working for them with for the last several months. We’re almost ready to go to go through the actual bankruptcy of the subsidiaries. This has nothing to do with ProPhase Labs, Inc., the company. We’re just bankrupting dormant COVID testing lab subsidiaries. Okay? Nothing to be worried about. And I’m looking forward to in the next couple of weeks filing, Crown Medical believes there may be some low-hanging fruit, meaning there may be some insurance companies that if they contact them before we even start this process, they may want to settle ahead of time.

We may get a surprise and get some money in actually before we actually file for litigation. Once we file, I have been told that some insurance companies want to settle very, very quickly. They don’t want to bring in lawyers. They don’t want to take on the expense. You know, if they owe three, four, five hundred thousand dollars, don’t want to spend a hundred or two hundred thousand dollars litigating, especially when they know that they owe the money. So anyway, that’s a little bit about, Crown Medical. Another potential liquidity event and I’m going to get into our subsidiaries, is the potential sale of Nebula Genomics and DNA

Operator: We

Ted Karkus: We are exploring that. As I said in the press release, we’re in the early stages. But just because we’re in the early stages, if we decide to sell it something could sell very quickly. We paid fourteen million dollars for it. Approximately, don’t quote me on the exact number, We put a lot of money into it. We’ve now completely overhauled the business. I’m gonna get into that a little bit. I just wanna first focus on these liquidity events. But it’s another liquidity event that could be significant for the company. It will take all the pressure off of the stock, It will give us the working capital we need, etcetera, etcetera, etcetera. And finally, I am working on a multimillion-dollar loan. The goal would be for it to be non-dilutive.

It is in the works right now. I can’t guarantee how it’s going to come out. But the idea, all these things even if I just do a multimillion-dollar loan, that should bridge us some of these other potential liquidity events. And then finally, on top of all that, and this is one of the things we highlighted in the press release, we’re a different company today. Than we were in 2024. That’s why I’m not even going to focus on the financials of 2024. That’s honestly a complete waste of time. We are a different completely different company. We sold PMI, formalized manufacturing, for twenty-three million dollars in January. So what does that have and formalized actually lost money. Last year. So we take away all that overhead, all those losses, and we clean up the balance sheet and all the expense related to the payables and the interest on the debt associated with the debt that went away when we sold PMI.

So all that our balance sheet today is very different than it was then. So that’s that that’s, you know, obviously, we’re a different company. The second thing we did was we shut down our Nebula Genomics Laboratory. And, again, when I took about Nebula in a few minutes, I’ll talk a little bit more about that. Enormous overhead associated with the lab. Major mistake that we ever built it. Now when we built it, we built it with the idea that we had all this COVID testing revenues coming in. The revenues slowed down. Ultimately, we ended up with a big accounts receivable. We ended up with enormous overhead leased equipment, and at the same time, a B to B business that my former management led me to believe was going to be a big business, which it was.

We could not support the lab. With a B to B business. It didn’t make it just did not make sense. So finally, we shut it down. There was an enormous amount of overhead that’s gone. The overhead with formalized is gone. A lot of the debt is gone. And in addition to all that, we completely streamlined operations and cut headcount dramatically. Alright? And I said that you can look at the press release. I don’t have it in front of me what the exact numbers are. My point being, when I first took over control of this company, the first thing I did I took her headcount from twenty-seven people down to within six months, I took it down to about four or five people. And I added a few more. We ran the company more efficiently, more successfully with seven, eight, nine people than we had twenty-seven.

That’s just in our headquarters. And nothing to do with a manufacturing facility or elsewhere. I basically have done the same thing, and I did that in conjunction with Jason Karkus and Stu Hollinshead, who think the same way that I do. And now that the three of us are running the company together, we completely cut out an enormous amount of our rent. So we’re a different company even now. Than we were in the first quarter. Again, because we sold FarmLabs in January. I think we shut down the laboratory approximately in January, February. We cut headcount in February, March. And so the second quarter is going to be dramatically different from the first quarter in terms of our overhead, employee count, the efficiency of our company. I do not ever want to run the company any differently than the way we have now gotten it to a point of being significantly more efficient.

My focus and our management’s focus now is on building revenues and working towards profitability.

Operator: Okay.

Ted Karkus: So with that, ProPhase Biopharma. Led by our esophageal cancer test.

Operator: This is an incredibly exciting test. Now interestingly,

Ted Karkus: Wouldn’t normally start with this, but somebody asked me their concern. They read the press release and asked me. I said, I’ll address it on the call. They’re concerned that we’re not going to spend a lot of money to commercialize this test. It couldn’t be further from what I plan to do as I just outlined. And to be clear, we have this great

Operator: Early stage

Ted Karkus: Therapeutic called linebacker. I don’t even talk about it. The reason I talk about it is it’s a it received phenomenal preclinical results. I’m not spending millions of dollars to develop it. I just won’t. So I haven’t even been talking about it in the presentation. If we can partner it, great. If we can’t partner it, I’m probably not going to develop it, but I’m certainly not going to spend millions of dollars to develop it. The same thing with the esophageal cancer test. I am not going to spend significant amounts of money that would hurt the company and dilute the company. Our stock, in my personal opinion, is at a ridiculously low price. The last thing I’m going to do is take a new overhead on a new initiative.

We have so many great assets in the company. We have so much potential liquidity coming into it coming. Why do I wanna destroy all that to spend an enormous amount of money to commercialize anything? I won’t do it. We have some great businesses to develop here and we can do them, methodically the same way I did with the Cold-Eeze business. Where I might have lost a million dollars a year on Cold-Eeze, but that’s when I was building the brand and then sold the fifty million dollars. So could I do that? Know, with Nebula Genomics? I do that with her dietary supplements? I don’t even know that I’ll have to. I actually believe that some of those business, Nebula Genomics, may have gotten to a point where we’re actually breakeven to profitable now going forward, and we can actually grow that business now.

Last thing I’m gonna do is blow up our company after our stock price is so low. So I do wanna get into this though because I think that this is really exciting. But I promise you, the goal here is to develop this to take it a few steps, are some very large diagnostic cancer companies who are interested in this that we will work with ultimately the goal is to partner this for a lot of money. You have to go through the steps. To prove it to them. So for example, we have competitors. We have a we believe we have a better test than what they have. But they may have already had some success in commercialization. They may already have the distribution. So this is smaller companies. They’re smaller companies, you know, you know, tens of millions of dollars, hundreds of millions of dollars, and then larger companies in the many billions of dollars, eight, ten billion dollars.

Okay? There’s the whole range.

Operator: I can’t tell you who we’re gonna partner with.

Ted Karkus: Who we’re going to do a deal with. But what I can tell you is there’s no test like our B Smart esophageal cancer test in the world. And I’m gonna get into that a little bit right now. Alright? So first of all, just very quickly, and I know I’m going to run over time, but just so much to talk about here. And I think that’s more important. I will get to the Q&A, but there’s just too much to talk about right now. Very, very quickly, for those of you who don’t know, I’m hoping most of you do. Esophageal cancer, it starts with girding your stomach, gastroesophageal reflux disease. That acid in your stomach eats away at the bottom of your esophagus. Which is connected to your stomach. Over time, it develops precancerous cells.

That’s a condition known as Barrett’s Esophagus. People with Barrett’s Esophagus are between one and fifty and one and one hundred will develop esophageal cancer. The reason why that’s so terrible is because roughly eighty percent of people diagnosed with esophageal cancer will die of it. The big problem in this industry of esophageal cancer is that people are being diagnosed too late. The right now, the standard of care is to go to your GI and get an endoscopy where they remove tissue specimens from your esophagus and then pathologist studies them under microscope. The problem is two pathologists will one will tell you they’ll will look at the same specimen, same microscope, One will tell you that you have a salvage of cancer. One will tell you no.

It’s an inexact science. It’s proven by the fact that AP eighty percent of people that are diagnosed are dying because they’re being diagnosed too late. Okay? There are other tests out there. So just to go through those a couple of those tests, to be clear. There are blood tests. Some of those blood tests after, you have to understand, esophageal cancer grows in the tissue of the esophagus. It doesn’t grow in the blood. It takes time for it to seep into the blood because you have so much blood, it gets diluted. It takes time before a test will pick it up. You’re gonna have highly inaccurate result. More importantly, there’s some blood tests that may become are becoming more popular. That’s fine. But the next step if you test positive is to go get an endoscopy anyway.

Our test is only is right now is planned for people who are getting endoscopy. And then we’re taking one or two of those specimens. Right now, really just one of those specimens, we run it through a mass spec machine. There’s no naked eye even through a microscope that can come close to the AI associated with mass spectrometry machine.

Operator: Okay?

Ted Karkus: That’s just a fact. And in addition to that, so the bottom line is a blood test. If a blood test is successful, it leads to endoscopy. It’s only gonna grow the number of endoscopies. It’ll actually grow our target mark It’s not the blood test really aren’t competition. Alright? We’re working with some great consultants. This is really the slide I wanted to get to on this These eight markers, these are proteins. There are thousands of proteins in the body that you can that you can analyze. We the scientists, the co-developers, Joe Abdu, who we just hired, to work with our other consultants, He’s spent years, and I believe he he spent years studying this and came across the four proteins or markers that are always prevalent when you’re developing esophageal cancer, and we have the IP on these markers.

Look. A lot of these other markers buy some of our competing testing companies, they’re testing markers that are not always prevalent. And they might be testing hundreds of proteins. In order to test and search for those proteins or markers, sometimes, they need many, many specimens. Or tissue samples. We only need one or two at the most. Sometimes, they even need you doing a second endoscopy. It becomes very difficult given the number of specimens they have to look for and also the number of specimens. The protein markers they’re looking for, don’t always exhibit They’re not always expressed when you’re developing esophageal cancer. It’s not as accurate. Some of these other tests simply are not as accurate. They’re not as efficient.

Operator: But

Ted Karkus: They have the distribution that we don’t have yet because they’ve already started commercialization. So imagine we have a test that’s a breakthrough with protein markers that no one else has the IP for. Marry that with a company as a distribution, this could be a huge success. Huge. So all we’re doing is we’re going to next step. So next step is the manuscript. I’m conservative on the timelines, four to eight weeks. I’m hoping it’s a lot sooner than that. That then gets published. It then is one step closer to commercialization. At the same time, we can look into commercialization, but not in a way where we would lose money or invest a lot of money. So for example, there are Salesforces out there. They’re already selling product service to test into GI’s office and doctor’s offices.

They could take on our test and sell it and we pay them on a per test basis. We just we just pay them, you know, a fee for selling test. As opposed to paying them monthly and taking on overhead. So there are efficient ways that we could do this that we’re looking into. Looking at all angles. But at the end of the day, my first choice would be to potentially partner this joint venture with a very, very large company who would give us a big block of money. Upfront. Alright? That’s enough. During the Q&A, I can answer more questions. About this. So suffice it to say, you can go to the slide presentation. It’s on the website. Can go through the bullet points. Next step as it says here is submit the manuscript. And so on and so forth. But I’m really looking forward to next steps.

I promise you I’m not going to bankrupt the company developing this test and commercializing it. That would be silly. I’m doing just the opposite. We cut all the overhead to work towards being a profitable company. So we will weigh alternatives on next step. I’m just excited that we have this great test with this great IP, It’s needed this is a sorely needed test to save lives. It’s that simple. As Joe Abdu and the other scientists working on this, he’s working very closely with doctor Christopher Hartley at the Mayo Clinic, and we’re working with Emprobe and others. And everybody’s like, we have to get this to the patients to save patients’ lives. Of course, me as the CEO of a public company, and you as investors wanna hear also wanna get it out there because we wanna make money.

But it’s a win-win. You can help people, you can save lives, We can reduce insurance costs by billions of dollars. And so it could be a win-win-win. Alright. A DNA complete, Very simply, we shut down the laboratory. We built this incredibly laboratory, but it took too long to build it, and the B to B business wasn’t there. We’re building a D to C business now. We hired Stu Hollinshead. Is a world-class marketer. Alright? One of the top marketing experts in the country. He helped build up Barstool Sports. He was the COO and head of business for Barstool Sports, built it up into, you know, business sold for hundreds of millions of dollars. He worked very closely, obviously. He was partners with Dave Portnoy. Would not have joined our company if he didn’t believe in our company where we are, number one.

And number two, he so you have Jason Karkus who completely restructured the business. We’re now focused on D to C. We shut down the laboratory. He developed relationships with multiple labs now who are competing with each other. So we’re getting great pricing. And so we’re in great shape now. And a key part of all this is we’re selling a subscription. When it gets renewed in year two, that’s sure profit to us. So this is a business. We build it out this year. Next year, we’re gonna it’s gonna be a profit machine. From all the business that we generate. So even if we broke even on generating sales this year, that would imply that it’s going to make a lot of money next year even if we don’t do anything. So I’m really excited about the business, of course, doctor George Church, he’s still an adviser to our company.

He’s a founder. And, you know, he’s world-renowned in the field of genomics over the last twenty years. ProPhase supplements, I’ll just go through this very, very quickly. These products are already at CVS and Walgreens. We have great infrastructure. We now wanna ramp it up. The place to be selling these is online. That’s where Stu comes in. We’ve built this whole marketing machine online. Stu is connected to world-class influencers. Has reached, I don’t know, how many tens of millions of people he has reached to. You know, consumers. We get to leverage all of that. By still being our COO. So we get to leverage it both with DNA complete and we get to leverage our products. Equivir is coming soon. I’m really frustrated. By waiting for the final clinical study results.

We can’t launch this until that happens. It’s not quite cold season now anyway. But I am looking forward to this for next season. We are packaging it. We’re doing a lot of things with it right now. Of course, I’ve run way over time already. And look. We can go through the investment highlights. I pretty much before we get to the Q&A, I just wanna make sure. I also just want to mention to you that we have a couple of telehealth companies that reached out to us. They built all the infrastructure. They have the medical doctors in each state. They have all the infrastructure in place. What are they all missing?

Operator: The key

Ted Karkus: Almost any business being successful it’s the marketing. It’s the reach. That’s where we come in. I think that we could potentially acquire one of these telehealth companies on the cheap not for a lot of money. We’re not breaking the bank on anything. And we could we could forget a we could build that enormous telehealth business just leveraging the marketing expertise and the marketing reach of Stu Hollinshead. So we have a lot to look forward to in the company. And I just wanna be sure. So I’d like to go to the Q&A now. And Noella, I’ll turn it over to you. Thankfully, I had a lot to say, but I didn’t run over by too much.

Noella Alexander-Young: Thank you so much, Ted, for the presentation. We’ll now begin the Q&A. Your first question is, what is the projected timeline for securing CPT coding approval for the B Smart test.

Ted Karkus: Sure. So that takes longer. Sometimes it can happen relatively quickly, and sometimes it can take a long period of time. Initially, the goal is to go in two directions on that. What the other thing we can do is we can potentially start submitting with generic CPT codes. There are other companies that have actually done that successfully. There are a number of ways. We have some really, really good experts that we’re working with, consultants, including you know, we hired Joe Abdu and added him to our team. We have a number of different avenues. But again, the key here is and this goes back to someone who asked me a question before the conference call after the press release came out. To be clear, we’re not going to spend a lot of money to ramp up the commercialization of this test.

We have a number of avenues we can go in. But, again, and what also understand, If we you know, there are other tests in the market. They’re asking three, four thousand dollars or more for the test. Let’s suppose we ask twenty-five hundred dollars for a test. But we only get reimbursed by one-third of the patients that we test. That would still be an incredibly profitable test for us. And we would be developing distribution and market presence. So understand we’re not going to break the bank. I’m not going to invest a lot of money. I’m not going to dilute shareholders further. Just to ramp up this test. I won’t do that. But when I do want to do is I want to go to the next steps with the manuscript, I do want to start some outreach to more outreach actually to the key opinion leaders.

Again, we have Joe Abdu, we have doctor Chris Hartley, the Mayo Clinic, EMPRO, and others. We have some universities and so forth. And with publishing of the manuscript, that will go a long way. And we want to get the momentum going. In addition to the which once the marketplace really recognizes and understands our test, I really think there’s going to be competition over it to do a deal with us. Because we I believe we have the best test on the market. In my heart, I sincerely believe it. There are lots of other companies that are developing an esophageal cancer test none of them have the proteins that we have. And none of them are as statistically accurate as our test. That’s my impression based on all the results I’ve reviewed. Based on talking to our consultants.

Talk based on talking to our scientists. Somebody asked me, well, what about there’s a test out there that tests for four hundred proteins? Isn’t that better? Than testing for the eight? The answer is absolutely not. The reason is because when you’re testing for the four hundred proteins, first of all, you need multiple specimens to test, number one. Number two, the markers you’re testing do not express themselves. The proteins do not express themselves. In a lot of these markers and a lot of the esophageal cancers. So if you have esophageal cancer, there are eight proteins that are expressed almost every time. You then have other proteins. Sometimes you’re expressed, sometimes you’re not. They’re not. So you might have a test to test four hundred proteins, but you’re testing all these other proteins.

Just think about that compared to testing the eight that are virtually always expressed. Of those eight, based on the studies we did so far, I don’t remember the exact number. I can go back to the slide. But a number of them are expressed every single time. So why wouldn’t you want to test those? Plus then you don’t need sometimes, with these other tests, you actually need a second endoscopy. Just to get enough specimens, not to mention the fact. It’s not so easy taking all of the specimens from the GI’s office. Here, we just need one. Maybe two, but typically, we just need one. And, again, we’re running this through a mass spec machine, combined with the AI, the, you know, the supercomputing, power associated with that, compare that to a pathologist looking with the naked eye through a microscope.

There’s no comparison at all. This is going to save lives and from the point of view of the insurance companies, again, there are roughly seven million endoscopies performed each year in the United States alone, just on people at high risk. Of esophageal cancer Insurance companies are reimbursing three, four thousand dollars. So it’s roughly twenty-one to twenty-eight billion dollars a year. Insurance companies are reimbursed just for the endoscopies. So just imagine if with our test, we can tell you those eight markers are not being expressed in significance you’re at low risk. You don’t have to get endoscopies regularly. That could save many, many billions of dollars for the insurance companies. On the other hand, if you’re at high risk and we catch it early in your high risk, you can get an ablation, which a procedure that destroys the precancer cells before you develop cancer again, it saves lives and saves the insurance companies billions and dollars.

To me, this test is a no-brainer. Better than any test in the market. We are going the next steps to prove that it is the best test on the market. I have no interest in spending tens of millions, much less millions of dollars to commercialize this. And I won’t. And I believe that we can do a deal will take in potentially tens of millions of dollars to our company. Alright? The next question to us?

Noella Alexander-Young: Thank you, Ted. Next is, do you expect the cash pay diagnostic model for the B Smart test generate significant revenue in the interim period before CPT approval, or would it be viewed more as a trial period?

Ted Karkus: Right. So I view it more as a trial period. The idea is to get the product out there. It’s to get GI’s talking about it and get GI’s using it. And realizing just how important to test this is. That’s the goal this year. My point is I’m excited because you know, we were talking maybe it’s gonna be a year, two years, three years. I’m excited that we’re going to roll it out and our goal is to get in GI’s offices this year and testing people this year. And do it without breaking the bank without spending a lot of money. That’s the goal. At that point, I believe there are several companies that will want to join Venture West. Now having said that, we might I might surprise everybody and joint venture partner with a large with a very large cancer diagnostic company long before that. But we’ll see how this plays out. I believe that we’re going to have options as to what we do with this.

Noella Alexander-Young: Thank you for clarifying that. Your next question is, you purchased Nebula and the rights to B Smart for just a few million dollars each. What is the potential you see in these assets that the sellers/marketplace does not?

Ted Karkus: I swear that sounds like a short ask that question. Because we didn’t pay a few million dollars. Our B Smart, off the top of my head, don’t quote me. Somewhere around ten million plus dollars that we paid for a couple years ago. And we’ve invested more money. We’ve developed it further. So it’s more it’s significantly more valuable than when we acquired it. We acquired it for, I believe, more north of ten million dollars and we acquired it from a company that was that didn’t have the capital and the wherewithal to commercialize it themselves. Otherwise, they would never have sold it to us. And I also believe that they got some shares of stock in our company, So they I believe that they will participate on the upside if and when we’re successful.

As far as Nebula is concerned, again, a few million dollars, that’s almost an offensive question. We paid, I believe, well, at the time, approximately fourteen million dollars. We probably spent ten or twenty million dollars building the business. Now a part of that went into building the lab, which we’ve now shut down. But we also significantly improved the go-to-market strategy, the offerings, We enhanced the ancestry. We built a whole DNA complete business. We also built out DNA expand. DNA expand we can now take an ancestry test and provide you with detailed health-related information from your ancestry test. So right now, an ancestry company is charging approximately sixty-nine dollars a year for that service. We’ll charge forty-nine dollars of Questus under five.

It’s an amazing cash cow for us. These are all business that we’ve developed. Nebula I believe, is more significantly more than what we paid for it. Now we might do a quick sale of it, because that’ll take care of all of our cash flow needs, It’ll clean up our debt completely. It’ll give us more than enough cash flow. Knows? It might even give us enough cash to buy back some stock. Know, I’m just talking off the cuff. This is not a guarantee of doing any of those things. But my point is to say, you know, why is it worth a few million dollars? It’s a silly question. But I’m glad the question was asked that anyways so that I can address it. Both of these businesses are very valuable businesses. I am excited about the prospects for Nebula Genomics.

The biggest issue we have is the timing of liquidity events. Do we sell it now? We could potentially sell it now in the next let’s say, eight weeks, taking a nice block of money. Take care of all of our cash concerns forever. While building our other businesses. On the other hand, I believe that if we build Nebula for the next year, it’ll be worth significantly more significantly more, like, multiples of what it’s worth today. If we waited a year. I would also mention, I didn’t even highlight this. I think we might have referred to it in the press release. We have a database with significant underlying value we are we now have I think the number is over sixty thousand whole genome sequencing tests performed and the data on that. And, again, ancestry test study, less than one percent of your DNA, we study virtually one hundred percent.

So the amount of data that we’re collecting is an enormous amount of data. Compared to your typical ancestry test. Which is a SNP based test. The database that we have is equivalent to over one hundred and fifty million SNP based ancestry tests. It’s an incredible database. It’s a hidden value that’s a part of Nebula. Alright? So again, if we were to sell Nebula and our database would be a part of speed that’s possible. We may not want to sell the database by itself. There may be all kinds of issues. Twenty-three and Me has issues, you know, people protecting data. I don’t wanna get into that. I’m not we’re not selling people’s data or anything like that. But it’s just just gives you an idea of the intrinsic value of Nebula. Next question, please.

Noella Alexander-Young: Thank you. The next question is, what is the possibility of a reverse split? I have access to quite a few whales, but I don’t wanna suggest ProPhase if a reverse split is a possibility in the next year or so.

Ted Karkus: Yeah. So I’m actually, I’m glad you asked that question. So first of all, when your stock price goes below a dollar, Nasdaq informs you. Obviously, we were informed. You get six months for it to trade back over a dollar. However, at the end of those six months, if you’ve been in compliance in the past and you haven’t done reverse splits in the past, they will almost don’t quote me, but they it’s almost automatic. They will give you an additional six months. So we have roughly nine months to deal with this issue. I believe we are going to have significant liquidity events over the next nine months. My hope and expectation is that with any one of those liquidity events, that our stock will no longer be trading under a dollar.

Alright? I don’t want to go into more details than that. I can’t talk about things like, are we going to do stock buybacks and things of that nature? But I am optimistic that our stock will be trading over a dollar and we won’t ever need to do a reverse split. It is not a guarantee. Again, you know, go back to the forward-looking statements. I can tell you sitting here today, I feel pretty good about the probability that we will never have to do a reverse split. It’s no different than when I turned around the company a dozen years ago and the stock price was sixty-five cents. I think we probably asked for an extension, got it, and the stock went over a dollar. It was never you know, we bought back stock. I did Dutch auctions and bought back even more stock, and it wasn’t an issue.

Our stock price is so low here. If we I mean, just imagine, Crown Medical thinks they’re collecting fifty million dollars worth. Imagine if we even collected twenty-five million dollars. Imagine I did a five million dollar buyback. You know, at fifty cents a at fifty that’s ten million shares of stock. Who’s selling ten million shares? Of stock at fifty cents? Ridiculous. So look, we have to I’m just saying that to put that in perspective. This is all hypothetical. Don’t have any issues with the SEC. But, again, I just wanna put this in some perspective. The market cap of our company compared to the underlying assets are accounts receivable and the other potential liquidity events. Thank you. Next question, please, Noella.

Noella Alexander-Young: Thank you for clarifying that. Your next question is what is the update on Equivir? No news on the long-awaited research report and labeling.

Ted Karkus: Yep. So I just mentioned that in the presentation. The bottom line is we’re waiting for the statisticians and the CRO to complete their final analysis and results. This stuff is complicated. We did a very large study. There were a lot of variables, and there’s a lot in it. Again, we got excellent. The early results were first of all, the preclinical were phenomenal results. And then in the clinical study, the early results were all excellent. I’m just waiting for the final result. We are moving forward with branding the product and the packaging and finalizing the claims and all those other things in concert. So we’re waiting. Once we get that final study, we got the write-up. We move forward with all. Thank you.

Noella Alexander-Young: Thank you, Ted. Next, how long do you think it will take to implement the plan and return to profitability? Also, what is your burn rate per month presently?

Ted Karkus: Great question. I can’t get too much into the numbers today. We you know, obviously, we didn’t even report the first quarter yet. We’re going into the second quarter. I would really like to just focus on the numbers that we put into the press release. The bottom line is we we’ve cut our headcount down dramatically. Not just PMI because we sold PMI, but also our headquarters. We also shut down our lab. A lab alone was don’t know, at the top of my head, our finance team estimated that it cut, like, six million dollars of overhead just by shutting the lab down. Alright? And pharma laws. Lost over two million dollars last year. Alright? And also, we had all sorts of payables. We all had all sorts of capital expenditures associated we’re gonna have to pay.

So it was enormous cash burn over PMI. Again, our lab was an enormous cash burn. We’re also we’re going to be able to cut out our head our headquarters. We’re gonna move our headquarters. It’s gonna save us close to a million dollars a year just moving our headquarters and it just goes on and on. So I’ve cut her over at We’re dramatically different company in the second quarter of this year. I think even in from the first quarter, in the from last year. The first quarter, as I mentioned, sold PMI, shut down the lab, and also later in the in the first quarter, cut down the overhead cut out not only the majority of the employees of the company, we also cut out enormous amount We had over a million dollars a year of IT expense. We cut that down dramatically.

So it just cuts everywhere. I want to get to a point where virtually there to be in a lean, mean company. And then at the same time, now Nebula Genomics, as I mentioned, it may be we haven’t done the final analysis. It depends on how much we spend on advertising. You know, if we only spend a small amount of advertising, we can make it incredibly efficient. If we spend a larger amount, it’s not quite as efficient. But I believe that if we wanted to, we could actually make Nebula a profitable business today. That doesn’t mean the company overall, but our overhead has dropped dramatically. I don’t want to give exact numbers today, but you’ll see obviously, second quarter is gonna be dramatically better than anything you ever saw in 2024. We’re basically a different company.

That’s why I didn’t wanna spend any time on 2024 numbers. I don’t even see the point of it. We are a different company than the company that reported 2024 numbers. You know, without the lab and without PMI. And with reducing overhead so much. I’m back to basics. The only reason I wasn’t back to basics before where, you know, whereas when I took over the company is we built a COVID business. It was so explosive. I had to hire hundreds of people in a very short period of time. It’s impossible to be that careful on every dollar of overhead while a bid building a business from zero to a hundred million dollars in a matter of months. If you can’t have it both ways, and so I did the right thing by building up that business at a tremendous amount of overhead, but had even more revenues and earnings associated.

And then again, when we built out Nebula, it was the same approach except the B to B business wasn’t there for Nebula the way it was for COVID. And, quite frankly, it was premature to build out that laboratory. And take out all that overhead. And so we’ve now cleaned that up. Jason cleaned all that up, and then Stu came in. He is as tight as Jason, and the two of them went to town and I supported him. Know, the three of us really cut everywhere. And by the way, a shout out to our finance team. Our head of finance Lance Pasaystar, who you know, frankly, we sold formalize at the beginning of January. Technically, we want to sell it December thirty-first, but that was a herculean test. We brought in new auditors plus sold a major operating asset of the company and to still get our press release out on time on March thirty-first.

Without even asking for an extension. We could we could have done the two-week extension. I thought shareholders wouldn’t wanna hear, oh, what’s this extension all about? So I really pressed Lance. I was like, I really wanna get this out. On time on March thirty-first, which we did. So I’m really proud of, impressed of Lance and the whole finance team. We actually had people who used to work for our company who came back just to help out which was incredibly nice. I’m not gonna mention them by name, I don’t wanna embarrass them or I don’t know it’s appropriate. And then also thank you to our new auditors. Frucci, who really did a phenomenal job to come in you know, late in the year. Our previous orders no longer do public companies. They let us know, like, at the last minute.

Somebody passed away that was very senior at the company. They no longer do public companies. We have to find new auditors. And so, really, herculean effort, and I appreciate the efforts of both. Do we have any more questions, Noella?

Noella Alexander-Young: We have a couple more if you have time for that.

Ted Karkus: Okay.

Noella Alexander-Young: Excellent. So this next question is, in today’s press release, it looks like you have seven hundred K in the bank. Can you comment on the credit facility, and what is the maximum amount you can access?

Ted Karkus: So look, we can always access capital. If we need it. My goal right now is to wrap up a multimillion-dollar loan which will bridge us to either selling Nebula or bridge us to Crown Medical collection starting to come in. That’s a goal. So we cut overhead tremendously. I’d rather do a loan even if it was a high-interest rate loan, rather than do something with shares and dilute shareholders further, So look, this is a dynamic world. No guarantees on how this all plays out. I haven’t closed on the loan yet. I’m very optimistic that I’m going to. That should then bridge it. And at the same time, bridge the gap. And then at the same time, Crown Medical has indicated me that there may be some low-hanging fruit. We may be able to take in some dollars short term before we formally bankrupt the subsidiaries.

And launch litigation against the insurance companies. And then again, once you launch litigation against the insurance companies, some of them will rush to settle before the litigation even gets going. They don’t want to spend the time, money, effort. They know that they owe the money. You settle on an amount. And we will be very happy with that. So we have to see. It’s a dynamic world. We have to see how But we have all these different liquidity events. So I have you know, I wish I could give exact answers to people. I just can’t. At the end of the day, my opinion is the stock price should be higher. There’s a disconnect between the value of the company and the stock price. Unfortunately, we’re in a market environment where the stock market doesn’t like companies that are losing money that need money.

So it put us in this position now I wanna get us out of this position. I never want to have to lie. On investment bankers, the stock market again, for capital, And so I want to get into a position. And so the best way to get in a position is to sell an asset like Nebula, partner B Smart. There’s a possibility we’d be we partner B Smart getting a block of money. Right? We have Crown Medical coming in and also potentially I have a loan that I’m that I’m lining up. And we’ll see the specifics. I don’t have the final terms of it, but we’re working on that now. So there are a number of variables. I wish I had definitive answers, but I can tell you I’m shareholder friendly. I have been in the past the largest shareholder in the company. I’ve been a shareholder.

Some of my shares I bought at six eight dollars a share in 2008. When I was just an investor. Okay? So obviously, my heart’s with the company, my soul is with the company, With the stock price, I’m on I am a shareholder-friendly CEO. I like to think I’m smart. I was smart for forty years, until this last six or nine months. I like to think I’m going to be smart again. I like to think we’ve turned the corner in terms of the outlook for the future of our company. In terms of the overhead, the cash flow coming in, I feel like we’re in a bit pretty good place right now. Thank you.

Noella Alexander-Young: Thank you, Ted. We do have a lot more questions left, but do you have time for one more?

Ted Karkus: Sure. One more. Find me a good can you find me a good one? You don’t know the good ones from the what I would consider a good one. Go ahead. What’s the next Let’s do one.

Noella Alexander-Young: So this last question is, with the closing of twenty-three and Me, does the company plan on increasing on does the company plan on increase leveraging that business opportunity to increase revenue through GNA complete?

Ted Karkus: Interesting. Interesting question. So look, my perspective on twenty-three and Me is that the ancestry business was a great business. If they had just focused on the ancestry business, they could have made a lot of money. It’s a great business. The problem is that all this cash and cash flow and then went into drug development. Now what did I say at the beginning? This is exactly what I’m not going to do. We have this great cancer therapeutic called linebacker. I’m not spending the money developing. I bet that’s as good as anything the twenty-three and Me ones develop. I won’t do it. It may create an opportunity we will see. What’s also interesting is that there are people looking at twenty-three and Me’s database as being incredibly valuable.

Well, guess what? We have a database. I don’t know how big their database is, but my guess is well, at the top of my head, our database is multiples of the size of theirs and much more in-depth because we’re studying the whole genome. So when we have information on a test, it’s significantly more in-depth and more valuable than a SNP based ancestry test. And as I said, we have the equivalent of a hundred and fifty million ancestry tests. So if you think they’re talking about the twenty-three and Me, you know, database being valuable, look at ours. Now having said that, there’s also a lot of issues about sharing personal information. First of all, we would de-identify all of the personal information. I don’t wanna get into all the politics involved in that.

I’m not implying that we’re gonna sell our data. I’m just saying it’s a very valuable database. And that comes with Nebula. That’s a part of Nebula. So there’s intrinsic value in Nebula. People don’t understand. The is a part of that. The answer is other opportunities? Look look, we’ll see. The bottom line also among other things, I mentioned our DNA expand product. We can go after twenty-three and Me’s customers. And what happens is with twenty-three and Me and MyHeritage and ancestry.com, you’re allowed as a customer to download your data from them. You download it, you can upload it to us and we can give you this very valuable health-related information and health insights which probably more in-depth than what the ancestry companies are providing you.

That’s the interesting thing. You know, we’ve been doing this for seven years. We have such an enormous database. It’s developed so nicely. Our reporting system is among the best in the world. So we can provide some really valuable insights. So we can do it at a lower price. There’s definitely a lot of potential there as well. And, again, the key to all this is marketing. We now have a marketing guru. Who’s COO of our company. It’s a really he is it’s great having him as a partner. Jason, Stu, and I, we do conference calls every day. Literally every day. And we’re all excited for the future.

Noella Alexander-Young: Excellent. Thank you very much, Ted, for your responses today. That concludes the Q&A session. But before we go, I will turn back the floor to you, Ted, for final remarks.

Ted Karkus: Well, I think we covered an awful lot in that hour. I wanna appreciate everybody for joining me today and being supportive. Look. On the one hand, I feel bad that our stock price came down. Over the last couple of years. I always look at all these other companies where the stock price came down where I say to myself, they just didn’t know what they were doing. I know exactly what I was doing, and yet we still got into this position. We did for different reasons because we got into a cash flow buying from accounts receivable. I want to clean that all up and get back to basics the way I’ve run the company for the last dozen years. And that is paying attention to both the top line and the bottom line, paying attention to the things that affect stock price, paying attention to dilution, Those are all things that got thrown out the door.

Over the last six, nine six or nine months. I want to get back to basics. We’re already eighty percent of the way there. Between selling PMI between shutting down the laboratory, between cutting headcount dramatically, cutting IT expenses dramatically, We’re moving out of our headquarters, which is another million almost million dollars a year. I mean, just cutting everywhere so that we are a lean, mean company. The amount of capital will require to in the future will be a mere fraction of what it costs in the past. At the same time, we got these great assets to develop have a history of being successful. In developing these asset in developing assets. And I’m look I’m really looking forward to very positive reports and surprises in the future.

Everybody have a great day. Noella, as always, thank you for being the moderator. I love having you on these calls. You so much.

Noella Alexander-Young: Thank you, Ted. And once again, this was ProPhase Labs, Inc., trading on the Nasdaq under the ticker symbol PRPH. Thank you everyone for joining us today for ProPhase Labs, Inc. fourth quarter and year-end 2024 results. Stay tuned for the next quarterly call, and see you next time.