Operator: Greetings, and welcome to the Interpace Diagnostics Group First Quarter 2019 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. [Operator Instructions] In addition, to supplement the Generally Accepted Accounting Principle or GAAP numbers, we have provided non-GAAP information.

We believe that this non-GAAP information provides meaningful supplemental information and may be helpful in assessing the company’s performance. A table reconciling the GAAP information to non-GAAP information is included in the company’s earnings release, which is available on its website. I'd now like to turn conference over to CEO of Interpace Diagnostics, Jack Stover. Please go ahead sir.

Jack Stover: Thank you, Hector, and thank you all for joining us this afternoon for a review of Interpace's financial results and business highlights for the first quarter ended March 31, 2019.

With me on the call today is Jim Early, our Chief Financial Officer. For today's call, I'll provide a brief summary of our results, a general business update as well as some upcoming key milestones. Jim will review our financial performance in more detail. Following that, we will open up the call for questions. As I start every call, I would like to remind everyone of Interpace's mission.

Interpace is a fully integrated commercial and bioinformatics company that provides molecular and related first-line diagnostic test and pathology services by leveraging the latest technology in personalized medicine for better informed clinical decisions and improved patient management. We currently have four diagnostic tests commercialized. Our endocrine or endo-franchise includes ThyGeNEXT, our next-generation sequencing test for cancer risk assessment of thyroid nodules that focus on ruling out cancer for indeterminate thyroid. ThyraMIR is the first microRNA gene expression classifier for thyroid nodule identification focused on ruling in cancer. ThyraMIR and ThyGeNEXT typically work together.

Our Gastrointestinal or G.I. franchise includes PancraGEN, the first and only US commercially available molecular and bioinformatics test for sophisticated evaluation of pancreatic cysts and now solid masses as well as biliary strictures. We also have a recently launched product in the smaller market RespriDX, which helps physicians differentiate between metastatic or newly formed primary lung cancer. I think it is important to note that we are at a high-end specialty diagnostic business, especially focused on risk classifying patients who both will or will not progress to metastatic cancer an important tool for both physicians and patients. Now to review the highlights for the quarter; during this quarter, we continue to make excellent progress expanding use and acceptance of our products and improving reimbursement coverage, which remains a high priority for us.

We also advanced our product pipeline and received further clinical validation for our products. Most importantly, we recognized over $6 million in net revenue for the quarter. Based on our performance to date, we are pleased to provide annual 2019 net revenue guidance in the range of $27 million to $28 million or approximately 25% growth over last year. For the quarter we are on our plan for the year and importantly our overall growth for the first quarter was especially highlighted by strong unit growth and both our G.I. and endo businesses.

Today about 60% of our net revenues are generated by our endo or thyroid assays and 40% by our G.I. or PancraGEN assay, a very nice balance. Commercially, we continue to invest in our growth opportunities. To that end, we added eight new representatives to our commercial team already in 2019 and recently added a new Head of Marketing to support both of our key franchises. During the first quarter, we finalized the validation of our third specimen type known as formalin-fixed paraffin-embedded or FFPE samples for our thyroid test.

Interpace now offers the most expensive set of biopsy choices in the thyroid assay industry, including RNA retained samples, slide psychology samples and now FFPE samples, increasing our flexibility and responsiveness to customer needs. To support our lab processing, we also received College of American Pathology Accreditation or CAP for both our Pittsburgh, Pennsylvania and New Haven Connecticut clinical labs. Importantly, we received a very difficult to obtain New York State regulatory approval of ThyraMIR for FFPE tissue samples. Accordingly, ThyraMIR is now the only thyroid molecular test approved to be used on indeterminate thyroid nodule samples presented via fine needle aspirant and RNA retained cytology slides and FFPE fixation in the State of New York. We announced further reimbursement expansion of our thyroid business with Medica, one of the largest health plans in the Midwest, extending coverage of both ThyGeNEXT and ThyraMIR to it's 1.3 million covered lives and we also entered into an agreement with the University of Maryland Medical System to provide all of Interpace's products to the entire Maryland network and we continue to transition the 30 or more Blue Cross, Blue Shield plans we brought on for our thyroid products in 2018.

Currently LabCorp, a leading global life sciences company that is deeply integrated in guiding patient care is our largest single thyroid customer, which helps provide us access to important payer groups and of course provides us a great deal of credibility and we believe potential for future opportunities. Interpace also announced several important clinical studies supporting our products and services during the first quarter, which is key to both differentiating our products in the marketplace as well as expanding reimbursement. Diagnostic Cytopathology published data on our thyroid products, confirming the value of complementary use of ThyGeNEXT and ThyraMIR testing in the management of patients with indeterminate thyroid nodules by cytology. The ThyGeNEXT and ThyraMIR combination now represent the only test on the market that includes both rule-in properties and next generation sequencing with rule-out properties in a microRNA classifier and BMJ Open Gastroenterology published new data on our lead pipeline product BarreGEN, which provides the first independent evidence of the clinical utility of BarreGEN in identifying patients who are likely to progress from Barrett's Esophagus to more advanced stages of the disease associated with cancer. Focusing on BarreGEN, Dr.

Tina Narick of our leadership team is now leading all of our activities in the Barrett space. We also engaged Dr. Nick Shaheen of the University of North Carolina to lead Interpace's Barrett's key opinion leader. Dr. Shaheen is a gastroenterologist and epidemiologist was is known for his groundbreaking research on Barrett's esophagus.

A major theme of Dr. Shaheen's research has been developing and testing new endoscopic methods for treatment of patients with Barrett's. Along with Dr. Shaheen, we also secured agreements with 11 prominent Barrett gastroenterologist to participate in our Barrett's KOLs group. The progress that Dr.

Narick is making, our recent clinical data and studies that are developing as well as potential partnership discussions give me confidence that we are on track and have a commercially important asset in BarreGEN. Our financial plans for 2019 do not include significant revenue from BarreGEN, while we are seeking reimbursement approval and continuing our CEP or clinical experience program. However, upon receiving approval, our expanded GI team stands ready to launch. All in all, we had a strong and very productive first quarter and look forward to continued progress throughout the year. While we cannot guarantee the accomplishment of any future event, we do believe that we have several important milestones that could be important value inflection points for us.

Our commercial infrastructure and sophisticated reps provide us the opportunity to bring on additional products that are synergistic to our Endo in G.I. franchises and we are prepared to launch BarreGEN when ready. \ We are expecting additional expansion of our existing products. Our business is a constant learning process as we gather more data and see obvious opportunities and improve our product offerings and work to meet customer expectations. Our expanding customer base should further support improved reimbursement with payers with whom we are in active discussions.

With three top KOL group now advising us in Endo, G.I. and now Barrett's, we should elevate ourselves to a higher level of awareness in the market and position ourselves for future partnering. The credibility we have established working with a sophisticated partner like LabCorp has helped to further validate our business model and has provided additional recognition in the marketplace. We’re pleased to have extended this exclusive arrangement for three more years recently. Our development activities focus both on our key pipeline product BarreGEN as well as the potential to leverage our data into the biopharma sector of Molecular, we believe are important near-term growth opportunities for us and lastly expanding our international base beyond our successful Canadian experience is a priority.

With that, I’d like to hand the call off to Jim Early, our CFO to discuss in more detail our financial highlights for the quarter. Jim?

Jim Early: Thank you, Jack and good afternoon everyone. Today, I’d like to focus on some key elements of our financial performance and position. As previously mentioned, net revenue for the first quarter of 2019 was $6.01 million, up 25% from Q1 of 2018. The principal reason for our net growth was unit growth in both our GI and endo franchises.

Our gross profit percentage for the first quarter was 56% an improvement of 10 percentage points from 46% in the first quarter of last year due to volume leverage of our increasing units processed as well as cost management. Sales and marketing costs for the quarter were $2.4 million, an increase of 21% over Q1 of 2018. This increase is due to our continued investments in commercial activities especially in the first quarter of the year required to support our continuing revenue growth anticipated throughout the year. Important to note as a percentage of net revenues, sales and marketing costs were 40% for the quarter improved from 41% in the prior year’s first quarter indicating that we are appropriately leveraging our commercial investment. Research and development costs were $0.5 million for Q1 of 2019 up 5% from the year-ago quarter.

General and administrative or G&A expense for the first quarter was $2.9 million up from $2.2 million in the first quarter of 2018 due principally to higher professional costs in the current period primarily related to our most recent public offering as well as other costs related to potential collaborations. As a result of the information noted above, full-year loss from continuing operations for Q1 of 2019 and Q1 of 2018 was $3.4 million and $3.1 million respectively. As we noted in our earnings release and discussed above, we often refer to adjusted earnings before interest, taxes, depreciation and amortization or EBITDA a non-GAAP financial measure when evaluating our cash usage. We define adjusted EBITDA for our purposes as income or loss from continuing operations excluding interest, taxes, depreciation and amortization expenses as well as costs relating to the revaluing of contingent consideration, stock-based compensation, asset impairment fair value loss and extinguishment of debt mark-to-market adjustments to our warrant liability and other non-cash charges. Accordingly, our adjusted EBITDA for the three months ended March 31, 2019 and 2018 was negative $1.82 million and negative $1.76 million respectively.

Our monthly operating cash burn average $0.9 million in the first quarter of 2019. Our first quarter spend was higher than normal this year due primarily to first quarter deposits and payments for the year and the transition to a new billing and collections service provider in 2019. Our accounts receivable increased to $11 million from $6.4 million at the end of Q1 of 2018 principally due to our growing revenues and partially due to the impact of the adoption of ASC 606 when we were required to begin recognizing all of our revenue on an accrual basis effective January 1, 2018. Prior to that date, revenue from certain payer groups was being recognized on a cash basis. Therefore as of March 31, 2019 we have been using the full accrual basis for 15 months as compared to only three months as of March 31, 2018.

As previously mentioned, we changed our billing and collection service provider effective January 1, 2019 and we’re still in the process of finalizing the transition. While the transition did not impact our net revenues, we do believe that in excess of $1.2 million of accounts receivable that was hung-up in the transition process will be collected in Q2 or early Q3. Our projection is that our monthly cash burn for 2019 will average approximately $600,000 in line with our spending plans for growth declining to an estimated $350,000 per month later in the year. Cash and cash equivalents totaled $9.1 million as of March 31, 2019 and included $6.1 million of net proceeds from a public offering in January 2019. Also as a reminder last year, we entered into a three-year up to $4 million credit facility with Silicon Valley Bank including a revolving line of credit for working capital purposes and an $850,000 term component.

To-date, we have not borrowed any funds under this line and for clarity this line of credit facility is not diluted. Total assets were $54.1 million and total liabilities were $18.5 million resulting in stockholders equity of approximately $35.6 million as of March 31, 2019. At quarter-end as of today, we have no long-term debt outstanding. Our headcount is currently 89 as compared to 79 at the end of the fourth quarter as we added several commercial Account Managers, sales reps, lab personnel and marketing resources as planned to our team. With that, let me turn the call back to Jack and Hector the operator.

Hector?

Operator: At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Jeffrey Cohen with Ladenburg Thalmann. Please proceed with your question.

Jeffrey Cohen: Hi Jack and Jim, how are you?

Jack Stover: Good Jeff.

Jeffrey Cohen: Just kind of first through a few for you.

So can you talk about reimbursement, number of insurances and payers, number of covered lives, what you think covered lives can get to by the end of 2019?

Jim Early: That's a big, big order of questions Jeff. Let me kind of give you the overview as that as far as that goes. On in our GI franchise basically with PancraGen, majority of our reimbursement there is covered by Medicare and by the way Medicare covers virtually all of our products except BarreGEN which is in development. In terms of and that's an age related issue, right. Pancreatic cancer is typically an older patients disease, thyroid cancer is typically a younger patients disease.

In terms of younger patients and thyroid cancer, the prospect of thyroid cancer we have over 200 million covered lives in terms of thyroid including adding the most recent plans that we brought to Barrett. A good deal of our effort today is focused on converting those careers if you will to contracts as appropriate and as we look at our thyroid coverage, a smaller percentage because the patients typically are younger are covered by Medicare.

Jeffrey Cohen: Okay, got it. And could you talk about the commercial team that you spoke about eight plus one that were added. How do you see that by end of the year as far as size, I mean more adds from today?

Jim Early: Yes, our plan is not to add any more people effectively and some of this you see in Q1, we basically target or identify what our growth plan is and prospects leaked in the previous year-end and then we begin the hiring process at that point in time, so that we're coming out of the starting gate, if you will with those individuals in place.

This year we took on and went after this a little differently. We've added Account Managers along with sales reps, our Account Managers have a different skill base. They’re more administratively oriented and they're supporting the group we have that are true sales reps in the organization. In addition to that, we brought on a new Head of Marketing as well. And so in total as we look at it on a year-to-year basis, we've been targeting about 30% growth.

And in terms of headcount on the commercial side and that's been translating typically to around 30% revenue growth as well.

Jeffrey Cohen: Okay, got it. One more if I may. Could you talk about the G&A a little bit. It seemed a little heavy for the quarter, should we think of this as closer to a $10 million G&A line or $12 million G&A line for this year?

Jim Early: Yes, so the G&A number, the question is what's the cash component of that.

And as opposed to the G&A cost, I think in our case, people are mostly concerned about the cash component as we've analyzed that cost on a cash basis that's closer to an $8 million number than it is a $10 million number. There's two pieces in there that are virtually non-cash items that tend to boost that up in the first part of the year.

Jeffrey Cohen: Okay, super. That’s it from me. Thanks again for the questions.

Jim Early: Yes, thanks Jeff.

Operator: Our next question comes from the line of Yi Chen with H.C. Wainwright. Please proceed with your question.

Yi Chen: Thank you for taking my question.

Could you maybe give us a rough breakdown of the revenue between thyroid test and pancreas test, what were the main drivers driving both tests going forward during 2019?

Jack Stover: Sure, Yi. How are you? Yes, in fact our split between PancraGEN or GI in thyroid or endo is about 60% in favor of our endo or thyroid business and about 40% in terms of our PancraGEN business, what I did say was that our growth was primarily driven by units. And what we're seeing in the marketplace in terms of the growth in units is basically the novelty or the expansion of our current product lines from last year as we focused our thyroid assay on adding additional biomarkers of significance. And in PancraGEN we’ve expanded that into focusing into solid lesions as well as pancreatic biliary lesions and so the product expansions themselves of our existing core product have really been the lead growth factors. Adding to that of course has been the growth of our commercial team where we've added about 30% growth to our commercial team on a year-to-year basis.

That's a headcount issue not a dollars issue.

Yi Chen: Got it. Thank you.

Operator: Our next question comes from the line of Ben Haynor with Alliance Global. Please proceed with your question.

Benjamin Haynor: Good afternoon guys. Thanks for taking the questions. Just following-up on the commercial team, where do you stand in terms of headcount there now? And then also when you think about expanding the commercial team each year, when the time of the year comes about how do you think about where to place those individuals is it completely new territories, is it splitting territories. How does the kind of the internal process work there?

Jack Stover: Yes, good questions Ben and how are you today?

Benjamin Haynor: Doing great, thank you.

Jack Stover: We have today in terms of our sales force and as we start to look at commercial teams and we're now utilizing scientific Liaison Managers et cetera but strictly our people that I would say that are in the field, I believe the number is now 16 in our thyroid business and 12 in our GI business.

And as I mentioned part of our expansion this year has been basically adding Account Managers, so effectively what we've done is we've identified Account Managers in both GI and in endo to assist our existing group, while we've added additional sales reps. And what I mean by that is there’s bit of an intermediary between us and us in terms of the lab and the patients or the physicians in terms of managing the process et cetera and allowing our commercial team or our sales reps to spend more time in the field. The analytics that go into selecting the territories and picking the right geography et cetera varies really on a year-to-year basis but it's solidly data based. It's based upon information that we acquire or data that we acquire about where physicians are identifying which physicians we've called on, which ones we haven't been able to reach geography with 16 and 12 personnel, you got to be really cautious about not providing territories that are too big. And then also emphasis, so I would almost call it an algorithm Ben in terms of how we make those decisions and where we put people.

The nice part about it is that our sales reps that we've added first of all come with a great deal of experience. I think today, the minimum experience a sales rep needs to have in the sector we're in is around five years. And in addition to that, they typically come with a book of business or a series of relationships. And what we're really proud of is that they can become accretive in a relatively short period of time several months. So it's a pretty powerful model right now.

Benjamin Haynor: Great, that's very helpful. And then I know it's these papers have only been out a short time now but just kind of looking to gauge any reaction you guys have gotten from the recent BarreGEN publication and then also the thyroid paper that came out?

Jack Stover: Yes, so first of all our commercial team is thrilled to have that information especially on the thyroid side, it gives them another very credible source of data and information to talk to potential customers about. On the BarreGEN side as I mentioned, it really was the first independent evaluation done by a very credible organization that provided us that information basically from our registry. And so we're expecting additional follow-on studies as well to help expand that opportunity.

Benjamin Haynor: Okay, great.

And then that kind of dovetails into my final question is what should we be on the lookout for in terms of potential additional clinical data and publications during 2019?

Jack Stover: Yes, I would say that every one of our major areas thyroid, pancreatic and Barrett's are areas that we are working on clinical studies, I can’t promise the results will happen in 2019 but as we look out a year from today, I think will have important studies in all three of those key areas. Of course, most of the focus today is moving to basically prognostic evaluation determining basically the clinical utility of products and evaluating those in the future and of course that takes time to be able to pull those studies together, the nice part about it is that we have some great partners especially with our expanding KOLs that are able to provide data for us where we don’t have readily accessible data. And we also have up to 10 years of experience in the sector. So we’re able to utilize that to build into kind of our future evaluation or future data assessment models. So I think we're really up and running and that's a big emphasis for us is obviously clinical data.

Benjamin Haynor: Great, thanks for the color. Good luck at DDW.

Jack Stover: Thank you.

Operator: Our next question comes from the line of Jason McCarthy with Maxim Group. Please proceed with your question.

Naureen Quibria: Hi, good afternoon. This is actually Naureen on for Jason. Congrats on the progress. With regards to your endo platform, I was just wondering now that you have three different platforms or three different specimen types shall we say within ThyGeNEXT and ThyraMIR that you can assess in the context of patient samples, where do you see in the future with the greatest demand would be and demand and volume to come from?

Jack Stover: Naureen, yes historically our greatest samples have been basically with the cyst accessioning and so that has been a primary focus of our selling group. However we've seen a lot of growth with basically in the slide area especially with our acquisition of the assets last year of Rosetta Genomics and that's really helped expand that activity tremendously.

And I would also say that with the FFPE opportunity we're also beginning to see that as well. So I think what you're seeing is a real balanced approach to biopsies and effectively our sales reps are now able to go into a pathology group and offer them individually the kinds of biopsy based services that they're most comfortable with.

Naureen Quibria: Great. And in terms of now you've seen the launch of ThyGeNEXT, right that’s been launched for a few quarters now. Has that translated to an increase in physician interest or is it more about maintaining a competitive edge in the space?

Jack Stover: Yes, I'd say it's both certainly providing biomarkers of interests and biomarkers that matter certainly gets physicians interest and also from a sales reps point of view, they’re certainly able to get increased access and I think you see that in the general growth in terms of what's driving our revenue trend which is unit growth.

Naureen Quibria: Right. And just one more from me. You mentioned expanding your international base beyond Canada. Can you speak to what your commercial strategy will be to expand outside of the U.S. and what territories that you might be focusing on next?

Jack Stover: Yes, we have one advantage that not many people in our space have in that, we’re able to evaluate or to package samples in RNA Retain and avoid having to refrigerate samples.

That opens up a relatively wide market. In the thyroid area especially and now add to that, our capabilities and our utilization on our ThyraMIR assay of microRNA and we also get additional stability of samples. We've been successful in Canada for a number of reasons. One is that we've been able to focus, we're able to get there, we have easy access and we have physicians or a group of physicians that have a lot of interest in what we're doing in spite of the medical system in Canada. With that though, we believe we have opportunities in other areas.

So we’ve been already outside of Canada, we’re currently in Israel and other Western Countries, we need to establish a bit of a presence there from a commercial point of view and we’re looking to build that not necessarily with our own sales people but through partnering in those regions.

Naureen Quibria: Great, that’s helpful. That’s it from me today. Thank you.

Jack Stover: Yes, thank you, Naureen.

Operator: [Operator Instructions] Our next question comes from the line of François Brisebois. Please proceed with your question.

François Brisebois: Hi, Jack and Jim. Just a couple here. I was just wondering is this the type of growth that we should be expecting kind of going forward, could anything trigger higher growth and could you just talk about how to make the difference between right now it seems like a one to one correlation between the sales rep percentage that you add and the sales growth, is that something that we can kind of see higher sales growth versus the rep growth?

Jack Stover: It’s not by the way hi, how are you today? It’s not quite that simple, while we’ve been looking at the number of sales reps and increasing that growth by around 25% to 30% translated so far into 25% or 30% revenue, it’s not a dollar to dollar issue, it’s not like we’re adding the same number of dollars in sales costs that we’re driving in terms of sales revenue.

We’re getting greater leverage from that. And I know I remember what Jim said was when we’re talking about sales and marketing costs as a percentage of revenue, we’re seeing that number continue to drop. So we're getting leverage, the management if you will in terms of growth is really somewhat the limiting factor in that, we want to be sure we're picking the right territories, the right people and that we're not over spending in the front end in terms of the development of those individual territories. But we’re seeing is with this new model of adding Account Managers along with the sales reps, I think we're doing a better job of kind of cost managing that growth process as well. It's a bit of a experiment but so far in Q1 has been going pretty well.

And I do see it continuing for the near future and of course as we sit here and look at various sites with a much larger sales force and a much more concentrated activity, our hope and our plan is to be able to drive additional products across that commercial team as well.

François Brisebois: Okay. It's very helpful and it seems like you guys have a ton of data and analyzing all the data would help a lot in terms of the bioinformatics molecular side of it. Any thoughts on the potential artificial intelligence AI players out there to kind of the machine learning to get all this data together, so it can accelerate your process?

Jack Stover: Yes, when we look at our sequencing approach, we are a Targeted Sequencing group. And so we have been working in the AI space and I guess I would also call it machine learning to evaluate the data that we have.

Certainly what we like is and what we understand is in the two key areas of thyroid and pancreatic cancer, we're seeing more products in both sectors in terms of therapeutics, looking to be developed, looking for clinical trials and looking to find ways to the market even in pancreatic cancer. And when you add to that our microRNA capability, I think it puts us in a unique position but add to that, the reduced cost of next-gen sequencing and even where we have targeted sequencing as long as we're able to maintain samples which we are with our RNA Retain model, the cost of actually broadening out sequencing for bioinformatics we believe is a very reasonable cost and a very reasonable opportunity for us as well.

François Brisebois: Understand then just lastly you mentioned that you had -- RespriDX had been launched. Any comment on the sales there, how much of that $6 million might be RespriDX or is this still more thyroid and pancreatic cancer.

Jack Stover: It's more a thyroid and pancreatic assays that we're focused on.

I think I said this a while ago, when we launched it, we were really looking to dip our toe into the long space. The product RespriDX itself is relatively small product in terms of how it differentiates potential lung cancer and it's been a learning experience for us. We're not disappointed with it, but we haven't put the commercial resources behind that either.

François Brisebois: Understand. That's it for me.

Thank you Jack.

Operator: Ladies and gentlemen, we have reached the end of the question-and-answer session. This concludes today's conference. You may disconnect your lines at this time. We think you for your participation.