Elizabeth Parker - IR, KCSA Strategic Communications Carl Schwartz - CEO Gerry Vardzel - CEO, Helomics Corporation Bob Myers - CFO.

Analysts:.

Good day, everyone, and welcome to the Precision Therapeutics Q2 2018 Business Update. Today's conference is being recorded. And at this time, I would like to turn the call over to Elizabeth Parker, Investor Relations at KCSA Strategic Communications. Please go ahead..

Thank you all for participating in today's call to discuss Precision Therapeutics financial results for the second fiscal quarter of 2018. Joining me today are Dr.

Carl Schwartz, Chief Executive Officer of Precision Therapeutics; Bob Myers, Chief Financial Officer of Precision Therapeutics; and Gerry Vardzel, Chief Executive Officer of Helomics Corporation.

Before we begin, I would like to caution that comments made during this conference call by management will contain forward-looking statements regarding the operations and future results of Precision Therapeutics and Helomics Corporation.

I encourage you to review the company's filings with the Securities and Exchange Commission, including without limitation, it's Forms 10-K, which identifies specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements. With that said, I would like to turn the call over to Dr.

Carl Schwartz.

Carl?.

Thank you, Elizabeth and welcome to everyone who has joined us today for today's second quarter 2018 earnings call. The focus of today's call will be on exciting changes that have happened at Helomics in the recent weeks.

These developments have reorganized Helomics business model and are expected to support a rapid increase in revenue generation during the second half of 2018 and beyond.

Helomics is now expecting to report approximately $3 million of revenue at the second half of 2018 which if the merger is completed and Helomics is operating as a wholly-owned subsidiary of Precision Therapeutics would be recorded as revenue to Precision.

Later in the call, I'll also provide an update on our Skyline Medical division which as a reminder sells our STREAMWAY System which is our fluid waste management system for the healthcare industry. But first, an update on our activity in the Precision medicine industry.

Since our last earnings call, we have signed a definitive merger equipment with Helomics. On completion of the merger, our ownership will increase from 25% which is our current equity stake to 100% and Helomics will start operating as a wholly-owned subsidiary of Precision Therapeutics.

In very high level terms, Helomics is a fully integrated Precision medicine company that provides both clinical testing to patients, and contract research, CRO services to pharma and diagnostic companies to improve the effectiveness of current cancer treatment and help design new therapies for the future.

This merger will provide Precision Therapeutics with all access to Helomics artificial intelligence, Precision Oncology insights integrated CRO capabilities which improves patient care and advanced development, innovative clinical products and technologies for the treatment of cancer.

The merger is expected to close over the next few months subject to certain closing conditions including the shareholder vote. Integrating Helomics under Precision Therapeutics represents a unique opportunity for our shareholders to participate in an industry that is experiencing rapid growth and changing the face of medicine.

As pharma and biopharma companies increasingly turn their focus to discovering and delivering targeted personalized therapy, the promise of personalized medicine is quickly becoming a reality.

Whereas traditionally therapies were administered based on general characteristic, today we profiled the thesis [ph] to deliver the right therapy, at the right dose, at the right time that is the most effective for the patient.

With the dramatic increase in industry investment and research in this area scientists are now developing a deeper understanding of how cancers might behave differently depending on their genetic background and the specific mutations that drive.

Precision medicine enables clinicians to decide how to treat the patients particular cancer taking a wider range of genetic and environmental factors into consideration. The foundation of this access is through reliable scientific dataset that can be leveraged, remit and detecting these at earlier stage, personalize interventions and improve health.

The services that Helomics provide are at the core of the shift for personalized medicine hoping to provide more effective and efficient treatment with an initial focus on ovarian cancer. Helomics will also focus on breast, pancreatic and colon, lung, and brain cancer to drive this long-term expansion strategy.

It's mission is to be the leading Precision medicine's solutions provider for these specific cancers and based on their current offering I believe they have a strong platform for much to achieve this all [ph]. With that I'm going to turn the call over to Gerry Vardzel, CEO of Helomics.

After the merger is completed, the management of Helomics are expected to remain in their respective leadership positions of the company, so I'm pleased he can be here again today to speak with our shareholders and prospective investors about the ways in which Helomics is on the crux of leveraging this major opportunity to achieve meaningful revenue growth, establish itself as a leader in the market.

Gerry, please go ahead..

Thank you, Carl. On our last earnings call, I discussed our unique offering which is made of three interconnected pillars, each of which generate revenues in their own right while also driving business to each other, which is expected to accelerate sales momentum in the business.

As Carl mentioned, over the past several weeks Helomics business model has undergone a transformation into one that still utilizes our unique and highly sought after offering that is supported by more sustainable revenue stream. As a reminder, our three pillars are as follows; precision oncology insight, CRO services, and the dChip.

dChip is an acronym for digital health insights platform which is our AI, artificial intelligence, powered by informatics engine. I'm going to start today by talking about the first pillar, the precision oncology insight business which provides a personalized roadmap for oncologists to guide therapy and positively impact patient outcomes.

We recently commercially launched the precision oncology insights platform which is already generating revenues for the business and is expected to be our main revenue driver through the remainder of 2018. This unique platform has living tumor tissue from the cancer patient to determine how the tumors respond to drug.

When then we combine this drug response profile with other genomic and molecular data, the results are then analyzed by our artificial intelligence knowledge base detail to generate a roadmap that provides additional context to help the patient's oncologist to personalize their treatment.

Not only does this drive revenue, but when we work to create a treatment roadmap for a patient, the profile of the patient's cancer tumor is added to the detail. As our patient specimen volumes grow and the data contained in dChip expands, dChip becomes even more effective and the value of this intangible asset grows.

With the commercial launch of this precision oncology insights platform, we are executing on our strategy of losing from a traditional diagnostic company focused on offering specific tests and depended upon unreliable reimbursement policies to a fully integrated precision medicine business.

We believe this new business model which provides more consistent billing approach will benefit payers and patients while improving revenue consistency. Moving now onto the second pillar of our business, the CRO services.

With growing industry-wide investments in the development of precision therapy, the role of contract research organizations in drug discovery is becoming even more critical.

Through our CRO business, Helomics was positioned to help pharma, biopharma and diagnostic companies develop the next-generation of precision therapy by improving the effectiveness of their drug discovery program.

Earlier today, we announced the commercial launch of Helomics discovery program which brings together our CRO services with the dChip providing pharma the development of next-generation precision cancer therapy.

The Helomics discovery program empowers the search for new biomarkers for disease and drug response that facilitates drug screening program and helps drive the selection in monitoring of patients during trial. To briefly explain how it works, Helomics grows tumors in it's CLIA lab.

Our client can then use these tumors as a platform to test new drugs, repurpose old drug and discover new biomarkers. The tumor profiles that are created by these tests are analyzed using our dChip linking the genomic and the drug response profile to uncover novel insights of value to our partners.

To monetize the Helomics discover program, we've already commenced outreach to our network of pharma, biopharma and diagnostic companies, and we believe this will be a significant revenue driver for the company in the form of milestone project based payments.

While these sales efforts are in their early days, there is already a proven market for CRO services and the Precision Oncology space, and we are extremely confident that the unique combination of the dChip knowledge base together with our ability to grow and test real tumors is of tremendous value to the Precision Oncology market.

Now, to talk a little more about the dChip which underpins our competitive advantage in the market and forms our third pillar; it's hard to underestimate the potential value of the dChip knowledge base to pharma company.

Pharma companies want to find out whether the drug works on a particular disease and thanks to our dChip database of over 150,000 unique drug response profile, we can tell them how tumors respond to drug.

We expect to generate ongoing subscription-based revenues from pharma companies accessing the dChip in addition to the milestone payments already mentioned.

Key to the value of dChip is that both, our precision oncology insights and CRO services business drive the collection of additional tumor specimens and data which informs the learning of the dChip, AI engine, continually unlocking actionable insights into genomics and drug response profiles for many different cancers.

Currently, we are securing approximately 40 to 50 specimens a month, but as our commercial efforts for CRO services and our precision oncology insights continue to ramp up, we expect those rate of specimens and the rate of data generations to increase.

As Carl mentioned earlier, we expect to generate approximately $3 million by the end of the year based on forecast from our precision oncology insights, our CRO service, and dChip pillars. So that covers our recent developments in Helomics. But before turning it back over to you Carl, I'd like to just say a few words about TumorGenesis.

TumorGenesis is a wholly-owned subsidiary of Precision Therapeutics, and is managed by the Helomics management team. It is pioneering a powerful new approach to growing cancer tumors in laboratory with an initial focus on ovarian cancer.

To advance this strategy, we are working towards securing solid tumor samples for several of ovarian cancer mutation, and we expect to begin work on the first tumor sample over the next few weeks, at which point we'll start working towards validating our model of growing tumors outside the body in a more robust, rapid and scalable manner with the current mouse model.

These tumors will be used in drug discovery projects with pharma Helomics CLIA laboratory as part of our CRO service offering. We look forward to updating you on our progress towards these milestones on our next earnings call. With that, I'd like to now turn it back over to Carl so he can provide an update on sales of the STREAMWAY System..

Thank you, Gerry. In the Skyline Medical Division we continue to focus our effort on growing sales of the STREAMWAY System resulting in 9 units sold in the second quarter and a further 2 sold subsequent to the quarter-end.

All of these sales were to hospitals, the medical centers in The United States including 2 units in the VA in Puerto Rico which came through our alliance relationship. Sales of the disposable products grew 19.5% in the quarter two than quarter one.

We expect STREAMWAY sales to be heavily weighted towards the second half of the year as both domestic and international sales ramp. We are making solid progress against our commercialization product strategy in the international market with national [ph] focus on Europe.

In July we were pleased to grant a European [indiscernible] with STREAMWAY to protect our competitive positioning in the market which we see as a validation of it's one of a kind value proposition that fulfills unmet need in Europe.

We also trained a distributor for Portugal during the first week of July and hired and trained a distributor for Switzerland and Austria to target brand [ph].

Furthermore, we remain committed to investing in our marketing efforts [indiscernible] in Frankfurt, November which is the largest medical trade fair in the world attracting more than 5,000 exhibitors from 70 countries, as well as the first Interventional Radiology Convention at Portugal in September, and the IFAS Healthcare Convention in Zurich to commence this October.

With that, I'll now discuss the financial results for the quarter. The financial results for the fiscal quarter ended June 30, 2018 were filed with the SEC earlier this afternoon. Revenue for the quarter ended June 30, 2018 was $359,000 compared with $107,000 for the quarter ended June 30, 2017.

We sold 9 STREAMWAY systems during the second fiscal quarter compared with no STREAMWAY systems in the second quarter of 2017. Our sales and marketing campaign has continued to generate solid results and we now sold 25 STREAMWAY Systems in the first half of the year.

We expect this campaign for the STREAMWAY System will continue to drive sales growth throughout the remainder of the year.

Further our awareness campaign to improve the use of disposable filters and cleaning products has continued to produce recurring revenues from higher usage by existing customers with sales from disposable products growing 20% [indiscernible] quarter one 2018.

Complimenting this we expect to see meaningful growth out of Europe in the second half of this year. Gross profit for the quarter ended June 30, 2018 increased to $250,000 compared with gross profit of $85,000 in 2017.

Gross profit margin was 69.6% of revenue, a decrease of nearly 10 basis point due to a higher cost compared with a gross profit margin of 79.4% of revenue for the same period in 2017.

As sales continue to increase, we expect that overtime this will enable us to achieve volume purchasing discount on both, the equipment component and our cleaning solution which should both grow our margin.

Total operating expenses for the quarter ending June 30, 2018 were $1.7 million, a decrease of approximately $966,00 compared with $2.6 million in the prior year period.

General and administrative expenses decreased by $1.5 million year-over-year primarily for investors stock compensation that we've recorded in 2017 due to our registered direct offering in November of 2016 with more of that invested in 2017.

This was offset by higher operations expense which increased by $196,000 due to increased stock based compensation and R&D costs, and higher sales and marketing expense which increased $323,000 with the addition of sales reps and increased participation at medical conferences.

The net loss available to common shareholders for the quarter ended June 30, 2018 was $1.4 million compared with a net loss available to common shareholders for the quarter ended June 30, 2017 of $2.5 million. The company also reported $960,508 loss related to the company's equity vested [ph] investment in Helomics of which we own 25%.

Our comprehensive net loss for the quarter which includes this loss and equity method investment with $2.4 million or $0.20 per share and 11.9 million weighted average shares outstanding compared with $2.5 million or $0.41 per share and 6.2 million weighted average shares outstanding for the period - for the second quarter of 2017.

The company had cash, cash equivalents and marketable securities of over $1 million as of June 30, 2018 compared with $0.8 million as of December 31, 2017. The increase in cash was from the net proceeds of our January 2018 public offering, and the over allotment option exercised by the underwriter.

With that, I'll now turn the call back to the operator to open the line for questions.

Operator?.

[Operator Instructions] Our first question will come from Dana Allen [ph], private investor..

On the STREAMWAY sales Carl, so you see this as just a seasonal or timing issue, you're not disappointed that the sales were down slightly from the first quarter?.

I'm not like disappointed but yes, it is a seasonal thing and we're advancing our sales group over - increase the size and the breadth and width, and of course Europe sold, we - it just takes time to sell our system, so as we get all this going, we're going to have a much better third and fourth quarter as we move forward.

So, I'm happy with them and I'm always disappointed, I'd like to have done more..

Do you still think 100 units is possible for 2018?.

We maybe a little bit short of that but it will be a good year, and it will be a hell of an advancement over last year which we didn't do anything..

I'm glad to see the reduction in expenses, I did try, I couldn't read the whole 10-Q because it's big.

But you mentioned it had something to do with investor cost or stock compensation, can you go with it in more detail and what the primary reason was that your expenses are down?.

I would ask Bob if you can go into he can go into that in a little more detail if you can Bob?.

Our expenses are down because we have been very cautious of what we've been doing and we have managed to consolidate our operating expenses and keep our costs low. The only area that we've gone high is in sales because we've increased our sales staff and we have eyed increased sales, we have hired technicians.

So I think that we're in very good controlled path in terms of that..

But what was the thing that Carl mentioned about - something about investor cost or was that for bringing in money or what was that cost?.

We are currently looking at some investment strategy partners that we would not have to go back to the market in the third quarter. And these are partners that are looking at our Helomics discovery and our AI chip or artificial intelligence dChip partnerships, and this is much like foundation medicine [indiscernible]..

And with Helomics in the prior Q you talked that it would be cash flow neutral or positive in the third quarter, do you still feel that way?.

Yes, we do..

That will be extremely impressive and I know, that - these mergers I've been through myself, do take a little bit time but do you think that we're fairly close to the Helomics deal being totally - 100% finalized?.

Yes, I would say we're close. I don't see - there will always be a snake in the oil, but right now I believe we're closed..

And there are certain unusual things about your stock and I'm sure you guys are 100% aware of this.

Your borrow rate per short is like 99% which makes it one of the highest expensed stocks to short out there; and I was wondering if your delisting in Germany was related to that that you saw some danger in being on the German market - where was your reasoning behind asking them to take it off, the German Exchange?.

I really don't want to talk about it, that particular aspect of it but it was - we were not happy with that, but that's so much of what I want to say..

And then another thing is - again, on this very high borrow rate but the services like NASDAQ stays at only like 10% or 20% of your stock is short but being at it has this extreme interest rate on it. So that means that shorts this year have lost like 70% of their money even if with the stock just was level.

Do you think that that is the reported short percentage is wrong or - I'm sure you guys must think about this..

No, I don't know that we do think about it that much. The shorts are going to do what the shorts are going to do, we just have to focus on our business and move forward..

I think the moves you're making are very impressive and you guys have a very bright future, so I'm very enthusiastic about you.

At this point, is there anything you think the stock market investors are missing and if you pick one thing that they are missing about the future value at Precision what would it be?.

I don't know that to be any one thing but certainly we're on the crux [ph] of it, I think a lot of growth in an area that we are positioned very well to grow in. So I would say to keep a close eye on it, so I think we're going to look really good here coming up in the next few months..

[Operator Instructions] We'll go next to Steve [ph], he is also a private investor..

Has Helomics voted on in the merger, internally?.

You want to answer that Gerry?.

We still have to do a vote but we're anxious to move forward and as Carl alluded to earlier, we don't see any reason why we can't get this closed..

Timeline-wise, when will the shareholders be boarding the AIPT side? Is that going to be announced soon or….

I would think that starting the next 60 days or so if not sooner.

I'm not quite sure of this but - Bob, you have anything to add to that?.

Yes. We will have a filing that will come out in the next couple of weeks that will have a date for the annual meeting, that will be combined with the shareholder vote, we hope to have a vote by the end of September..

What were the totally fully diluted share count be post-merger?.

We're not prepared to answer that question at this moment, it depends on the final negotiations of the deal. So soon as we have that we'll get that to you..

Have you guys thought about testing non-approved drugs like drugs that have not even hit the FDA - they are still in the phases as far as testing against tumors and things like that and being a service that way to prospective drug companies?.

Gerry, you want to answer that?.

I think with that - that's exactly what we're looking at. Of course, we're under - as a CLIA lab, we have to proceed under the regulatory rules but with the recent signing of the law of the right to try a bill, we believe Helomics is positioned on this new law and how it will impact patients, drug makers and regulators.

So we are looking at that area and we are moving forward. So this is exactly the area that we want to go down in terms of moving forward.

We've had some initial discussions with multiple stakeholders to be able to move this and minimize the risk for both, the pharma company and others but we've been basically doing the right to try for the past decade and this is exactly where some - where we believe we have a significant impact in Precision medicine.

So that's where we're going, we're not there yet but we believe we are well positioned..

Our next question will come from Randy Savage [ph], private investor..

It was announced that you got the patent in Europe but is there any other regulatory issues or anything like that holding you back from selling a unit in Europe? And if not, when could you estimate that private first unit [ph] would be sold?.

We're not aware of any crump [ph] we have from a regulation standpoint, and I think we're within 30 to 60 days of starting to - with starting to place units in Europe..

Is it more difficult to deal with - I guess, some place in Europe or healthcare controlled by the government versus kind of private hospitals in U.S.? And do they make their sales cycle easier or more difficult?.

I don't know that it makes it more difficult; obviously, right now it appears to be that our product builds a need in Europe and we're going to - we think we'll do fairly well there. So we don't anticipate any really serious regulatory problem with anyone at any of those European countries..

Thank you. And with that ladies and gentlemen, that will conclude our question-and-answer session. I would like to turn the conference back over to Dr. Carl Schwartz for any additional or closing remarks..

Thank you operator. We are very pleased with the foundation we have laid in the first half of the year which we believe positions the company for a meaningful revenue ramp during the remainder of 2018 at both Skyline and Helomics to report sales [ph]. To recap, we expect Helomics to generate additional revenues for its CRO services business.

Most importantly, Helomics is launching it's dChip offering for the pharma companies which will drive both project-based revenue and subscription payments, thereby providing revenue growth and stability for many years to come.

Moreover, as the specimen volume at Helomics has access to growth, so does the number of tumor profiles that are added to dChip which in turn increases the value of Helomics by also creating a more effective platform to improve treatment options for the patients of tomorrow.

According to the report in BIS Research, the global Precision medicine market is expected to reach $141 billion by the year 2026 with the oncology market segment expected to grow at a compounded annual growth rate of 10.4% from 2017 to 2026.

The role of Big Data and CROs is critical to this industry and this is where Helomics has a clear competitive advantage. Moreover, with genetic data becoming an increasingly valuable resource for drug makers, we are witnessing large sums of investment going into this market.

Roche, for example, has spent US$4 billion to US$4.3 billion this year buying out two specialists in the cancer field, Foundation Medicine and Flatiron Health. Despite this there are currently limited means of investing in data for healthcare business through the public market.

We are therefore very excited about the prospect of including the Helomics business under the Precision Therapeutics umbrella as we believe it is truly unique opportunity for investors.

This is a transitional time for the company and I would like to thank all the investors who have joined us on this call today, and are supporting us since we began this journey. With that, I'll turn the call back to the operator for closing..

Thank you. Again everyone, that will conclude today's conference. We'd like to thank you all for joining. And you may now disconnect..