ProPhase Labs (PRPH) CEO Ted Karkus provided an update on the company's strategic initiatives and product pipeline during the first quarter 2024 earnings call. Karkus detailed the potential of Pharmaloz and Nebula Genomics, discussing their development stages and future revenue prospects.
He also addressed the market conditions for microcap companies and the potential valuation of the company's broad-based antiviral product, Equivir. The CEO expressed confidence in the company's assets, including the BE-Smart Esophageal Cancer test, and the company's ability to generate significant returns for shareholders.
Key Takeaways
- ProPhase Labs is exploring strategic alternatives for Pharmaloz, including a potential sale or capacity increase.
- Nebula Genomics, with a lab in New York, is expected to generate sufficient business within six to twelve months, leveraging a new go-to-market strategy.
- The company is developing the BE-Smart Esophageal Cancer test, which has multibillion-dollar market potential.
- Equivir, a broad-based antiviral, is planned for sale in stores and online, with a potential market of $7 billion to $14 billion.
- Legendz XL, an existing product, generates annual revenue of $2.5 million to $3 million.
- The company is not considering equity financing at present and is assessing market conditions for a potential IPO of subsidiaries.
Company Outlook
- CEO Ted Karkus highlighted the historical success in execution and generating shareholder returns.
- Karkus expressed excitement about the value of the company's assets and the potential for significant progress with the esophageal cancer test, Nebula, AI initiatives, and Equivir rollout.
Bearish Highlights
- Nebula Genomics faces significant management costs for its New York lab in the short term.
- Meaningful revenue from Nebula may take several quarters to materialize.
- There is uncertainty regarding the commercialization and revenue potential of the BE-Smart Esophageal Cancer test.
Bullish Highlights
- Pharmaloz has seen increased demand, indicating a positive outlook for its strategic alternatives.
- Nebula Genomics' bioinformatics platform, reporting system, and database are seen as key assets for future growth.
- The BE-Smart Esophageal Cancer test is believed to have multibillion-dollar potential.
Misses
- The company has not commercialized the BE-Smart Esophageal Cancer test yet, with uncertainty about potential revenue and partnerships.
Q&A Highlights
- Discussions about the valuation and claims for the Equivir study are ongoing.
- The company is working on obtaining CPT codes for their esophageal cancer test and assessing market dynamics.
- Share count changes, potential partnerships, and insurance company acceptance for the esophageal cancer test were addressed.
ProPhase Labs' first quarter earnings call offered investors a comprehensive view of the company's strategic direction and product development efforts. CEO Ted Karkus emphasized the company's commitment to creating shareholder value and expressed optimism for the future, despite some uncertainties in the product pipeline and market conditions.
Investors were encouraged to stay informed on company updates as ProPhase Labs continues to navigate its growth strategy and product commercialization.
InvestingPro Insights
ProPhase Labs (PRPH) has been navigating a challenging market environment, as reflected in the company's recent performance metrics and analyst insights. Here are the key InvestingPro Insights that investors may consider:
- The company's market capitalization currently stands at 90.95 million USD, which is indicative of its microcap status and the scale of its operations within the pharmaceutical and genomics industries.
- ProPhase Labs has a negative P/E ratio of -7.61, underscoring the company's current lack of profitability. This is further emphasized by the adjusted P/E ratio for the last twelve months as of Q1 2024, which is -3.85, suggesting that investors are valuing the company's earnings prospects cautiously.
- Revenue growth has been a concern, with a significant decrease of -69.59% over the last twelve months as of Q1 2024. This contraction highlights the challenges the company faces in scaling its operations and achieving financial growth.
InvestingPro Tips for ProPhase Labs suggest that the company is quickly burning through cash and has experienced a notable stock price decline over the last week and month. Analysts do not anticipate ProPhase Labs will be profitable this year, which aligns with the company's recent financial data.
Despite these challenges, it is important to recognize that ProPhase Labs has achieved a high return over the last decade and a strong return over the last five years, indicating potential for long-term investor value. Still, the company does not pay a dividend, which may influence the investment decisions of income-focused shareholders.
For investors looking for more in-depth analysis and additional InvestingPro Tips on ProPhase Labs, they can explore further at: https://www.investing.com/pro/PRPH. There are currently 8 additional tips listed in InvestingPro to help investors make more informed decisions. Remember to use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
Full transcript - ProPhase Labs Inc (PRPH) Q1 2024:
Noella Alexander-Young: Welcome to today's presentation. My name is Noella Alexander-Young, Virtual Event Moderator here at Renmark Financial Communications. On behalf of [Technical Difficulty] for joining us today for ProPhase Labs' First Quarter 2024 Results. ProPhase is trading on the Nasdaq under the ticker symbol PRPH. Presenting today is Ted Karkus, Chairman and Chief Executive Officer. Following the presentation is a Q&A session for which you can participate using the chat box on the top right-hand corner of your screen. That being said I will now hand over to Ted.
Ted Karkus: Thank you, Noella. Really appreciate you moderating as always, big shout out to Renmark. We do virtual non-deal road shows with Renmark approximately once per month. So if you miss anything in any presentation or you want to get -- be kept up regularly feel free to sign up with Renmark if you want to be up-to-date with what's going on with our company. I think that these virtual presentations are a great way not only for when I do the VMDRs, but also we are now doing them for the earnings calls as well. Feel free to give me feedback if there's a different approach you think we should take, but I love this approach. Before we get started, forward-looking statement, just very quickly. For the VMDRs, I don't read them. But for the earnings calls, I think I should. Before we get started, I'd like to remind you of the company's safe harbor language. During this presentation, we will make forward-looking statements including statements regarding our strategies, plans, objectives and initiatives and underlying assumptions. While we believe that these forward-looking statements are reasonable as and when made, forward-looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties include, but are not limited to our ability to obtain and maintain necessary regulatory approval, 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 filings with the SEC filings. This call will present non-GAAP financial measures such as adjusted EBITDA. Reconciliation of these non-GAAP measures to the most comparable GAAP measures are included in the earnings release furnished to the SEC prior to this call and available on our website. So with that, first of all, I just have to give a shout out to ThinkEquity who we have close to a 4-year relationship with was instrumental in financing our initiatives when we built out the COVID business that went down to a couple of hundred million in revenues, they brought us some fantastic acquisitions that are now developing. So I always give a shout out to ThinkEquity, also to the other companies that follow us on an analytical -- research analytical bases including H.C. Wainwright and Diamond Equity Research. So with that, I don't want to go through the presentation again, not that much has changed in the presentation itself from the last time I did an earnings call just six weeks ago. And so I was going to start the call by saying not that much changes in six weeks, but the fact is if you read the press release today, a lot has developed in the last six weeks. So before I get into it, I always like to put a little perspective. I really do believe that a history of execution in a microcap company is critically important. When a management executes historically, your probability of success goes up, on the next initiatives that management is focusing on as opposed to a management team that's new, that's starting up a company for the first time has quoted some breakthrough technology that they're excited about. The risks are much larger when you have a management team that you can't assess. So I'm not going to go through all of this again. But again in 2012, when I restructured the company the stock was $0.65. Stock is around five and change right now, paid out $2.40 in special dividend. So we're up 11 -- 10, 11, 12, 13 times in total returns in the last 11 or 12 years. More recently, a few years ago, our stock was about $1.5. It's more than tripled. We paid out another $0.90 in special dividend since that time. So we've been in the last few years, tremendous returns to the shareholders. We are now -- we've transitioned multiple times now. Some years we're a development stage company spending money to develop assets. Some years we're generating revenues and earnings. And it goes back and forth and that's the life and cycle of a development stage company. So first we turned around the Cold-EEZE brand, lost money building the brand, sold there for $50 million. I did the same thing by the way with IT Biomedical. I was instrumental in the turnaround of the company that ultimately was sold for $1.4 billion. That was before I did the same thing with our company. All right. So I have a history of doing this. And it's not just me. We have a great management team in place here, all right? So in any event after we sold the Cold-EEZE brand then we went back really to being a development stage company. Again, we did stock buybacks and dividends at the time. And then we got the COVID generated a lot of revenues, made a lot of money. But now we're back to a development stage company again. And so you can expect in a development stage company, developing assets, you're going to lose money. I have no interest in focusing on the losses over the last couple of quarters. We're going to lose money next quarter again. But at some point with the new assets that we're developing, they're going to take off in value. So the one that I really want to focus on today that's the focus of the earnings report is formalized because there are some interesting new developments. So just very quickly, so we're all on the same page here. Pharmaloz the business we've owned for decades. The supply/demand over the last several years for manufacturing of lozenges has shifted where there is less supply of manufacturing and there's enormous demand both globally and domestically here in the United States. And so for the last two years I understand this isn't – there's the line about the 20-year overnight success. And I actually looked up some quotes about 10-year overnight successes and it takes 10 years to be an overnight success. Well Pharmaloz is sudden going to sound like an overnight success but besides the fact we've been developing it for a long time, specifically over the last year or two, we've been specifically focusing on building the capacity, so that we could take advantage of the global demand so that we could have an asset where tremendously more over the next six months relative to what it was worth last year. So last year we did about $9.3 million and actually lost a little bit of money. We increased prices on all of our customers. They all accepted the price increases. They're kicking in now. We got two new orders in from two new brands that adds another $5 million of revenues. So between the price increases and the two new orders going into the second half of the year just on existing business on the first manufacturing line, we're going from $9.3 million losing money to about $16 million in annualized run rate of revenues and making substantial money somewhere in the order of $3.5 million of profits. That will be our run rate as the current new customers ramp up their business. One, we started to ramp up already, the other one we're going to be ramping up probably later in the second quarter or we're very close in hand. So going into the third quarter, all of a sudden the numbers dramatically changed for Pharmaloz. More importantly, we have a second line of manufacturing equipment. We have additional automation equipment coming in. It's going to significantly increase our capacity, which now for the first time sets us up to be very attractive to very large brands who need capacity. And so as I announced today, we are exploring strategic alternatives with Pharmaloz. I don't make that statement lightly. It's not just an idea. This is something that's been in the works literally for 1.5 years to two years in terms of the planning and then the execution of building out the capacity and then starting negotiations with large brands. I mentioned, probably I don't know – I can't remember. It was two earnings calls ago that we were in talks. So I understand even just the talks with the large lozenges brands have been in effect for many, many months. This isn't just some new idea "Oh we're going to talk strategic alternatives. This is very far along in discussions. And it's the only reason that I even mentioned it. It doesn't mean there's a guarantee it's going to happen. So it's not a guarantee that we will accept any offer that comes along if there is an offer and I don't want to get into details because we have lots of options here. We could either sell the facility now potentially or we could negotiate for the second line, which is of course going to have tremendous capacity and will be very attractive to some very large lozenges brands, they may want to lock up the capacity. If they may want – if they lock up the capacity and going to want a down payment because it means cutting out all the other customers that we're meeting that want the capacity as well. We were recently at an expo, we have potentially a dozen new customers, smaller customers that could potentially fill up the second line as well. So we have different possibilities, couple of opportunities there, a couple of possibilities for significant liquidity events. So this is all very exciting. Happy to talk about it more in the Q&A. I'm going to try and get to the Q&A, a little earlier today. And not -- I really don't want to spend a lot of time on slides that I've reviewed in the past. This entire presentation by the way is available on our website. When there are updates, go to our website at least once a month. Any time we have a new press release, we usually update this presentation as well. So feel free to go to the website. So that's really exciting for today. Conceptually before, we get into the next slides, we're going to get into Nebula Genomics very briefly. I just want to explain that when you're developing assets, when you're developing businesses there are always bumps in the road. There's no such thing in just snapping your fingers, and taking the business and making it worth $5 million. And all of a sudden, it's worth $50 million or $100 million. Every once in a great while, it happens with a technology company. You only hear about the one technology company that just takes off. You don't hear about the other 99 that fail, unless you're invested in them. And it's not easy building a new business. And so with Nebula Genomics, we have a new go-to-market strategy. And I'm not going to go too much into what Nebula Genomics is, other than the fact that it was founded by George Church world renown in the field of genomics. We have -- we built a world-class lab. We converted -- we were doing COVID testing. We converted to a world-class lab here in New York. That lab costs a lot of money to manage right now. We're not generating the business currently to support the lab. However, I believe that six and 12 months from now, the Nebula business is going to take off and we're going to be happy that we have the lab. We don't need the lab. Historically, when we acquired Nebula Genomics, it didn't have a lab except, all the specimens to a partner lab, but our thought is we could provide testing even less expensively, if we did it ourselves, but that's in the long term. But the other part of having lab, it's not just the P&L of sequencing a specimen in-house versus sending it to another lab. There are some other factors that play here. One is in the long term, if somebody is interested in our business, it's going to be a lot more attractive if we're vertically integrated and horizontally integrated and we have a lab and we have all of these other pieces. The other part of it is, a lot of people are so worried about data privacy these days. They don't want you sending your specimens abroad. The fact that -- we can do the sequencing right here, in New York. And then ultimately, with four world-class latest greatest state-of-the-art platforms of equipment that allows us to be the most efficient, in terms of turnaround times pricing and so forth. So, it's incredibly well situated. But the truth matter is the real value in Nebula, it's in our bioinformatics platform, it's in the reporting system. And separate from that, it's in our database. So I'm not going to -- I can go more into it in the Q&A, but understand the real value of Nebula is our reporting system and our database that we're going to leverage over time. We're building a very exciting, new go-to-market strategy where we're going to leverage some world-class social media and podcast experts. We're potentially going to bring in some well-known celebrities to really get behind this. I just think of products and I'd love to think of Prime, because it's just a hydration drink that came out and know where it got some celebrities and some social media behind it. And now, they've sold 1 billion bottles out of nowhere. Now I understand it's a completely different business, but the concept is the same. I believe, we have the right people in place. It took time to figure this out. And that's why I say, this is a work in progress. Nebula is a work in progress. But to understand, it's nice to have different assets in different stages of development so that we have Pharmaloz -- is about to kick in with either liquidity events or profitability. And that was two years in the making to get it to the point, where it is now. Nebula, will be next. I can't tell you which quarter it's going to take off. It's going to be probably the fourth quarter and first quarter of next year. But Nebula is a really exciting business with enormous potential and the different directions we can go in with it. And again I'll talk more about it in the Q&A. I'm not going to talk more about it now. But then next we get into our esophageal cancer test. Again this is all the development stage. This is six years. Nebula six years in its development BE-Smart Esophageal Cancer test is six years in this development. It's not an overnight wonder nothing happens overnight, but we're going to go from no one paying attention to this test. Clearly, I don't believe there's anything in our market cap for this test. And yet this literally has multibillion-dollar potential. This is a breakthrough cancer test that is sorely needed in the medical community and more importantly for patients. I sincerely believe this is going to save patients' lives. So -- and I think it's going to save insurance companies billions of dollars. So, it only makes sense -- I can't tell you exactly how we're going to commercialize this yet. But what I can tell you is I work 24/7. Everything I do is for the shareholders. I'm the largest shareholder in the company. Friends of mine the other largest shareholders. I create value over time. It's not a guarantee of the future but I always have in the past. And frankly what I'm working on and what our management team is working on right now I'm significantly more excited about than anything I've ever worked on literally my entire career forget everything else that I just talked about. Pharmaloz is to me is now just crossing Ts and dotting Is. That's just a matter of time before we generate some significant value to the shareholders. That I highly believe is going to happen one way or another whether we sell it, sell the second line -- the capacity of the second line or whether we just build the business and start generating a lot of revenues and earnings maybe sell it in 12 or 18 months. That's sort of on a fast track to success now not very complicated, right? Nebula Genomics I think has tremendously more potential than our Pharmaloz manufacturing facility, but it's probably I don't know six months, nine months behind in terms of the ramp-up in revenues and earnings and recognizable value. And then we have our BE-Smart Esophageal Cancer test, which is kind of the same thing. But what I like about these assets that we're developing particularly with BE-Smart this is not costing us a lot of money at this point. It's not like a cancer drug where you're spending tens and hundreds of millions of dollars in 10 years to develop it and we're about to commercialize this. And we're not spending $10 million a year or $15 million a year right now getting it ready for commercialization. We're spending a small fraction of that just to complete. Right now we're not even really doing a lot of studies. We're doing statistical studies -- statistical analysis because originally this was focused on more as a test to tell you whether or not you have cancer. But our test actually does a lot more than that because we have breakthrough IP patented discoveries relating to the proteins that shift and are expressed differently when you're developing esophageal cancer. And so our test can recognize those shifts in proteins. That's something that by the way doesn't show up in blood until you're far too progressed and it's too late and you potentially you get diagnosed you're going to die of esophageal cancer. It's great. Is it really a great test? If it says yes you're diagnosed with esophageal cancer 80% to 90% of people that are diagnosed die. And if you get diagnosed and two years later you die of esophageal cancer. Is that a great test? I guess maybe to put your financial affairs in order. But when you like a test that actually saves your life then instead of tells you just before you die, it tells you years before that so that you can get an ablation procedure or take other actions to actually prevent getting the cancer. That's what our test does. So, we're actually fine-tuning the statistics right now not only to tell you whether or not you have cancer now that we can do with an incredibly high degree of accuracy. But in addition to that right now what we're working on are the statistics to tell you if you're in high risk or low risk. If you're a high risk, go out and get an ablation procedure, immediately to save your life. If you're a low risk, you don't have to get an endoscopy every year. Right now the insurance companies are spending billions and billions of dollars on unnecessary endoscopies. They're doing that because they don't know. The GI doesn't know if you should be getting an endoscopy every year or not. But our test will help guide the proper diagnosis and prognosis, best course of treatment for the patient based on whether you're a low risk, medium risk, high risk or you have esophageal cancer right now. So, this is an incredible test. It's just remarkable to me that there's nothing in our stock price for it. And listen, as a CEO, I don't know I should say this or not. There's no guarantee that's going to happen. Maybe somehow, we just don't figure out how to commercialize it. I don't know. I don't know how -- if there's even a possibility that we would fail in this I guess there's some forward-looking statements no guarantees. I don't see how this isn't going to be a monster test. You look at a company like Exact Sciences (NASDAQ:EXAS) with a $10 billion, $11 billion, $12 billion market cap. And by the way they came out with earnings and said that they have competition now, right? We don't have any competition for our test. And what's the value of it in our stock? I don't know 0. What's the potential? It's not an at-home test now, but we're also going to develop Stage two -- Phase 2 and Phase 3 of this test. Who knows one day it might be. But right now, what we're focused on are the endoscopies because there's millions and millions of endoscopies performed every year. And we're not telling people get endoscopies. But if you're getting one take a test alongside of it and it'll give you a high degree of accuracy for diagnosis and prognosis and course of treatment that you don't have without our test. So I think I stated pretty clearly the excitement of this test. So we have Pharmaloz that we're going to realize significant value very shortly, whether through the -- whether it's through sale or sale of the second line or through just building revenues and earnings for it. And then behind that, we have Nebula and BE-Smart Esophageal Cancer test. And I'm not going to go more into the numbers again. I can do that in the Q&A. Again, our focus is seven million endoscopies per year. Our goal once we get CPT codes assuming, we get them I believe we're going to very soon, if we get them that the insurance will reimburse somewhere around $1,000 to $2,000. It makes it a $7 billion to $14 billion market with no competition pretty incredible. Elsewhere Equivir just really quickly. Again, we're developing this at very, very little cost. At this point we're just completing one study. Typically, a dietary supplement. The class action attorneys jump all over you. If you don't have two studies that total 100 patients, we're totaling over 300 patients. So we're doing this the right way. I learned from Cold-EEZE. I turned around Cold-EEZE myself. Equivir is a broad-based antiviral. We're going to sell in the same stores. We're going to do the market the same way. I don't want to talk about Cold-EEZE it's not right. We actually still manufacture Cold-EEZE for the owners of Cold-EEZE. So I don't want to get into that. But I can tell you Equivir has a lot of potential in the marketplace. We have all the infrastructure in place to roll this out ourselves. We don't need consultants and advisers. We don't need other companies for manufacturing and distribution and logistics We have all that in place a turnkey solution to rolling this out. We're going to roll it out online first. In order to get into stores, it always takes longer. So I don't want to mislead anyone about that. But it has nice potential no value in our stock price. It's a nice fourth asset or initiative to mention I don't make a big deal about it right now but it will fit in nicely. We also have a product called Legendz XL that's already in the store. It does $2.5 million $3 million a year of business makes about $0.5 million a year. It's a nice little product. I think Equivir can be a lot bigger than that. And actually, with the social media podcast experts that are working on Nebula Genomics, we may spread out to a bunch of different health tests that may include things like our Legendz XL product like Equivir. So we could with the social media podcast infrastructure we're building, we ultimately should be able to leverage that not only with Nebula Genomics, but with other health tests and other health products and dietary supplements like Legendz XL and Equivir. So that's an awful lot. I'm going to leave it there. I did that in about 24 minutes. I'm happy. I hope there's a bunch of questions. I love the Q&A. And I want to thank you all for joining me today. Thank you all for those of you that are shareholders for supporting us. I think that I guess I shouldn't really talk about risk reward. But given the value of some of our assets the fact that we may realize some pretty significant value in the short to intermediate term for Pharmaloz should provide a lot of comfort in terms of downside support. And the upside as I just laid out, we have several initiatives with enormous upside and a management team with a history of success and execution. And with that, Noella, thank you for being with me today. I'll turn it back over to Noella for the Q&A. Don't be shy, feel free to ask a question. I love to be an open book and talk about our company.
A - Noella Alexander-Young: Thank you, Ted, for the presentation. So now we'll begin the Q&A. The first question is, we're interested in the growth plans of Nebula Genomics.
Ted Karkus: I'm sorry, you said, we're interested in.
Noella Alexander-Young: Yes.
Ted Karkus: I'm interested too. Is that a question.
Ted Karkus: It's not a statement, but I'm missing --
Ted Karkus: Okay. That's an interesting way to kick off the Q&A. Listen, I'm interested in the growth plans Nebula as well we are evolving and developing the best go to market strategy, there are a couple of core assets to Nebula that have enormous potential among them are our reporting -- our bioinformatics reporting system, which is one of the best in the world. Another is our database, which is one of the biggest, most diverse in the world. It's equivalent of 150 million ancestry test. We can leverage that potentially in enormous ways. I didn't even talk about -- I'm sorry, because it was in the slide. Our most recent AI initiative, which is actually a very big deal. And our AI initiative, we built a world-class AI platform that's going to leverage this database and it's also going to leverage the knowledge that we've learned -- the IP proprietary discoveries that we've learned with our esophageal cancer test and our initial focus are ADCs, anti-drug conjugates, that source the cancer cells directly and kill the cancer cells, leaving the healthy cells alone. This is the next stage of medical research. It's a very big deal what we're working on. It's relatively in its early stage, but I understand that our database was six years in the making in 130 countries worth of testing patients from 130 countries, six years in the making of developing the esophageal cancer test and the proprietary knowledge we have. So again, it's one of these overnight successes, but some very big things could happen from the AI leveraging our Nebula. Separately, in terms of the go-to market strategy, there are several different strategies, understand from the B2B perspective. When we built out the lab and attracted businesses that don't want to send their specimens abroad, but a lot of these business are new businesses. They haven't done whole genome sequencing before. So for instance, I talk about this telemedicine platform. They're moving slowly. It's frustrating. But it's very real and the potential is very large. But this is an organization that hasn't done whole genome sequencing before. So they want to do it the right way. Planning and details and big deals like that take several quarters, not several weeks, but several quarters to develop. So we're in the stage of developing many businesses like this, both here and abroad, we announced one deal abroad. Again, that's just the beginning. We have one of our lead sales guys in another part of the world right now, meeting with big players who are very interested in what Nebula is doing. So there's a lot going on the B2B side. It's going to take time. On the direct-to-consumer side, I already mentioned we are working with world-class social media experts, very involved in the podcasting world. And I can just tell you, and this Jason Kark has overseen. It's a young man's world for dealing with podcasts and social media and all that stuff. I don't even want to be involved. I'm happy from a distance to oversee and make sure strategically, we do this the right way. I think it's going to be very, very big. But it's going to take time. It's going to take a couple of quarters before you start to see the results of that. Thank you, Noella. What's the next question, please?
Noella Alexander-Young: Next is, why did you enter into a standstill agreement with ThinkEquity on April 18 without explanation?
Ted Karkus: So I don't get into investment banking decisions. By its very nature, when you're working with an investment bank, it's usually proprietary and sometimes material non-public information, but it's kind of interesting the responses that I got to that. And what I can tell you very specifically, it says that we specifically are not going to issue equity for the next couple of -- and everybody said, oh, this means you're going to issue equity. Actually, it's just the opposite. We're not going to issue equity. So we're always working on various strategies. Again, we have a relationship with ThinkEquity going back almost four years. They've helped us build tremendous value in our company. And again, I'm the largest shareholder in the company. Everything I do is for the best interest of our long-term shareholders. It doesn't mean I won't ever do in a round of equity financing. If it's called for and it's the best strategy for the company, it doesn't mean I won't take other actions. I had a shareholder reach out to me and say, hey Ted, how can you not buying back stock? How can you not paying more dividend? Well, if we had a large block of cost that we didn't need right now. I probably wouldn't be buying back stock, but that's just not a possibility right now. There's no reality to that thing. To be a shareholder, of course, you always want to be buying back stock and paying stock dividends. I do it when strategically it makes sense. Right now, it doesn't strategically make sense. So by the same token work with ThinkEquity we're always working on various strategies and various planning and I'll leave it at that. But at the present time, I even put it in the press release. We have no interest at the present time of any sort of equity financings. In fact to the contrary, I just mentioned, there are three -- I mentioned in the press release, there's three potential liquidity events that could occur in the next couple of quarters. That's what I'm popular. Now none of those happened, then I'd have to reconsider. But as of right now, I'm not even considering anything like equity offers. Thank you.
Noella Alexander-Young: Thank you for clarifying. Your next question is, do you think ProPhase will have to raise money in the second or third quarter this year?
Ted Karkus: I just answered that question. I don't need to repeat myself. As of right now, the answer is no.
Noella Alexander-Young: Thank you, Ted. Next, why not do an IPO for Nebula or Pharmaloz or both, and raise all the growth capital you need for expansion and also create end market value for these assets that the Street is totally overlooking?
Ted Karkus: That's a great question. It's something that I considered for quite a long period of time. One issue is that the books and records of both subsidiaries have to have completely separate audited financials to spin them off. That takes time to completely set them out. They are wholly-owned subsidiaries. But right now, it's a little complicated. You need independent. You need orders to do an independent review of all the finances and sign off on separate financials for each company. So in effect they have their own fully audited statements. And then the timing has to be right with the market. For microcap, we've been in a bear market for three years. For the larger companies, they had a great year last year. All indications where this -- that money would start to flow into the microcap, it actually started to in the first quarter, things look great, and then all of a sudden inflation rose it’s head. Fed talks about -- we thought we were going to start cutting interest rates now, we're not. And that put a damper on things. We had a significant sell up in April in the microcap. And in fact there were a lot of IPOs that were canceled. So yes, I think it's a great idea at the right time, but I'm not going to do an IPO for either one of those subsidiaries at the wrong time and the wrong market conditions, because instead of getting a large valuation and raising money at a high valuation, we do an IPO at a low valuation. The money you raised are giving away a big chunk of the company. And again I think about what's best for the shareholders long-term. So, I would love to do an IPO of either subsidiary under the right market conditions. By the same token with Pharmaloz, there's also the possibility that we just sell. And we don't have to do the IPO. So we'll see. Again, these are decisions. These are strategic decisions and discussions that I'm having on virtually a daily basis. I live breath and think about our company 24/7, and these are some of the things that I think about, literally all the time. Thank you for that question. It's a great question. I'm sorry I don't have a better answer. But honestly, a part of it is market conditions and a part of it is strategically what's best for the company and how to optimize value for the company and its shareholders on a long-term basis, not to get a pop in the stock short-term.
Noella Alexander-Young: Thank you, Ted. Next and you’re asked, can you provide additional information on the valuation seeing in sales licensing transactions for CDMO?
Ted Karkus: I don't understand the question. I don't know what's subsidiary. I apologize. I don't understand the context. If the person asked a question wants to send a question and clarifying. I'm happy to take the question if he want to put them back in the queue. Can we go to the next question please?
Noella Alexander-Young: Certainly. Next question is regarding Pharmaloz, are we in the early stage of negotiation -- negotiating a sale or at late stage?
Ted Karkus: It's a great question. I have to be very careful and sensitive. You never know who's watching these presentations. I don't want to say or do anything inappropriate. So I'm not sure how to answer the question except to tell you there isn't anything put in our press releases to hype the stock or pump people up. Everything I say in our press release is real. That's what I truly believe. And so if I put a statement, which is one of our headlines of our earnings release that Pharmaloz is exploring strategic alternatives. We're not at the beginning stages of exploring strategic alternatives if that's the headline of our press release. I think that answers your question. If it didn't then replay this piece, because I'm pretty sure I answered the question. Go on Noella, next please.
Noella Alexander-Young: Next, when can we expect meaningful revenue from Nebula? Keep hearing about all the potential yet to see anything being sold?
Ted Karkus: Yeah So I addressed that in the presentation. We have completely transitioned our go-to-market strategy, including hiring some great people, a new management team, some great people as I said were podcasts and social media experts. We are putting together a plan. The assets are there at Nebula. We've developed them, all right? As I said, the database, the reporting system, we've continually fine-tuned, the reporting system building out the lab. We have all the right pieces. But as I said, there's no such thing as an overnight success. And I'm pretty sure I addressed -- I know I addressed in my presentation a short while ago. It's going to take a couple of quarters. And we're going to lose money at Nebula for a couple of quarters. The money being lost in the company right now is a combination of the overhead of the company and the cost of running the lab. If I didn't think that the potential was enormous and that the lab was a part of that, I would just shut down the lab. I can do that tomorrow. But I believe we have liquidity events that are going to dwarf the cost of keeping the lab. So I'd rather keep the lab for you and see how that plays out. But as far as generating the revenues, we have multiple avenues or pass to success. We're working on all of them. But it will take time. And I feel like I'd say I'm sorry, it's going to take an actual two or three quarters. But as I said, I build the value of the company long-term for shareholders not short-term. And in the meantime people should be really excited about what we're doing with Pharmaloz today, which then gives us the flexibility without wiping out to shareholders with big dilutive round of financing it gives us the flexibility to develop these other assets and Nebula being one of them.
Noella Alexander-Young: Excellent. Thank you, Ted. Next question with the Equivir study coming to completion, can you share with us what claims you expect to put on the package?
Ted Karkus: Those are actually a work-in-progress. I'd rather not misstate that. I mean, I can just imagine a class action attorney, six or nine months from now we commercialize the product. And they say, oh, Ted said on a conference call nine months ago that it could do such and such. So I have to be very careful. It's premature to talk about the claims. What I can tell you is our study, it was a really great study that was done over a long period of time with more than 300 patients, which is an enormous study for a dietary supplement. And we tested it all through the entire cough/cold season, the entire viral season and we tested it and compared people who got COVID, cough cold, flu with people that didn't people that were that took our product versus took a placebo, and the results so far have been fantastic. Now it doesn't mean we can make a COVID claim. It doesn't mean we can make an RSV claim. It doesn't mean we can make a flu claim, but the results are palpable. If you have 150 people over here and 150 people over here, and randomly they're in one group versus the other. And the group that took our product got significantly less sick and the group that didn't take a product took placebo got significantly more sick with all of these viruses, flus, COVIDs and so forth, the results are pretty impressive. What we can say is claims on the packaging, we're going to work that out with the attorneys. We want to complete the study first, then work with the attorneys, get the right claims to the packaging, create the packaging and then we're up to the races. And so to get to the market quickly, we will go online first with our product. It will take longer to get into the stores, but we will demonstrate the success of the product online. And then ultimately, we anticipate distribution of the stores thereafter.
Noella Alexander-Young: Excellent. Thank you, Ted, for that response. Next is, since we're almost halfway through the second quarter, what growth in revenue do you expect in Q2 as compared to Q1?
Ted Karkus: So I can't comment on Q2 today. I haven't even looked at Q2 numbers consider Nebula, esophageal cancer test, Equivir are all development stage. As I mentioned, Nebula really isn't going to ramp up maybe fourth -- maybe third quarter -- hopefully, maybe fourth quarter, I can't tell you all guessing. Pharmaloz is really going to start to ramp up third quarter. So second quarter, I'm not putting -- I never put out projections and I have to be careful what I say on this conference call right now. But based on what I just said, I wouldn't expect much in our second quarter. I will tell you that our adjusted EBITDA, our cash flow improved dramatically in the first quarter versus fourth quarter of last year. But the next significant jump also understand Pharmaloz, we're in our seasonally weakest period right now. But then come third quarter, it starts getting -- that starts heating up. We -- I believe that for our first line of manufacturing, Pharmaloz will -- we built the capacity on the first line, I believe we'll be running at full capacity. I believe we already have the demand for full capacity for the third quarter. And then it just quickly a question of how quickly we open up the second line and bring in customers for the second line. And again, we're in strategic discussions right now. And so it's a little complicated, not sure how the second line plays out or when it plays out. But the numbers of Pharmaloz are improving that, certainly, from the fourth quarter last year. I mean, they're going to improve, but the real improvement of Pharmaloz is going to occur in the second half of the year. I hope that answers your question.
Noella Alexander-Young: Thank you, Ted. We're coming up on your last two questions. The first one is, in the earnings release, share count jumped from 18 million last year to 90 million this year. I missed the 72 million share. Please explain?
Ted Karkus: I'm not going to get into specifics of share count changes. I appreciate the question. Shares change in significantly over time. I'll let just leave it at that.
Noella Alexander-Young: Thank you, Ted. We actually have another question that came in. So I'll do the first one. Ted, I have two questions regarding BE-Smart. Have we filed for the insurance code? How expensive will our advertising campaign educating the doctors?
Ted Karkus: Yes. So the CPT codes, we're working on that right now. We're working with consultants. We're making sure we get all the information in at the right time correctly. The application of the CPT codes is coming through. And there's only a window, one month out of every three months. So there's another window in, I want to say in about six weeks. And our goal -- I think it's -- don't quote me on that. But sometime soon, there's a window to submit, and then it's just a question of how quickly we get a response. But at the same time that we're working on the CPT codes, we are also working with several different groups towards a game plan for commercialization. So we're not waiting for the CPT codes. We have other things in progress. We've even talked to -- we talked to a very large company in the past about potentially partnering. But again, all that is premature. But there's a lot that goes into this, and there's a lot behind the scenes, but we're working on several strategies at the same time, one of which are the CPT codes. At the end of the day, you need the CPT codes to go to next steps, but we're planning for getting the CPT codes, and we're already planning for the next steps after the CPT codes. But the gating issue right now are the CPT codes.
Noella Alexander-Young: Thank you, Ted. And this will be your last question. Speaking of partnering [indiscernible] what are the odds of partnering with someone on BE-Smart or doing it in-house?
Ted Karkus: That's interesting. I think I already addressed that. The odds -- I can't give odds. We're open to exploring all possibilities. I simply look at risk/reward and what's best for the shareholders long-term. I mean if esophageal cancer test -- if that test I really believe it has multibillion-dollar potential. It's just hard when you're sitting here -- you haven't even commercialized it yet to say, yes, we're going to generate $2 billion in year three. I have no idea what we're going to do with this test. I would hate to sell it short and partner with somebody and kind of block the money upfront. I don’t what that block of money would like. So it could very meaningful to the shareholders short-term but it could leave 90% of the value of BE-Smart on the table for somebody else just because we weren't patient for a year or two. So I really have to see how this plays out? It has to do with dynamics are and have see to what the acceptance is of the insurance company? What the acceptance is? What the reception is of the GIs that would actually order the test. All those dynamics and so we actually start to sell the test, try to sell the test, commercialize the test – although those – you don’t know how people – how companies are going to respond until we're actually out there and actually commercializing it. So I think it's really premature to make a decision on that. If I told you I knew which way it was going to go that to me wouldn't be prudent. I wouldn't be doing a great job as our CEO and guiding the company. So these are decisions to be made later in the year.
Noella Alexander-Young: Excellent. Thank you very much Ted for your responses. That concludes the Q&A session. But before we go I will turn back before to Ted for final remarks.
Ted Karkus: Thank you, Noella. Thank you all for joining. Again we do these virtual non-deal roadshows with Renmark once a month. So feel free next month to sign and even if it's not an earnings call to sign up with Renmark. And look I say it in the press release and I mean it when I say the best is yet to come, I truly believe the best is yet to come. We're in an interesting turning point in our company. I can't tell you which month the stock is going to be at its bottom which month it's going to go up. But I can tell you in terms of the value of the company right now we're at an interesting juncture given the most recent developments at Pharmaloz. And from the recent developments of Pharmaloz as those progress that could lead into very significant developments with our esophageal cancer test with Nebula with our AI initiative with the rollout of Equivir and so on and so forth. So I appreciate all of you joining me today and sitting with me for an hour. And for those who are shareholders of course always appreciate your support. We're on the same side we're on the same team. And the one thing I can tell you I am working my best off to make sure we have a world-class management team that we're working on world-class subsidiaries and that we're doing everything to the best of our ability to really kill it for all of you. Thank you. Have a great day. Thanks again, Noella.
Noella Alexander-Young: Thank you very much, Ted. And thank you everyone for joining us today for ProPhase Labs first quarter 2024 results. ProPhase is trading on the NASDAQ under the ticker symbol PRPH. The playback for this presentation will be available on our website 24 to 48 hours after this presentation under the VMDR Library tab. Please stay tuned for other presentations and see next time.
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