Executives: Jack Stover – President and Chief Executive Officer Jim Early – Chief Financial

Officer
Analysts: Kevin DeGeeter – Ladenburg Thalmann François Brisebois – Laidlaw Yi Chen – H.C. Wainwright Naureen Quibria – Maxim Group David Reed – Morgan Stanley Lauren Chung – Westpark

Capital
Operator: Good afternoon, everyone, and thank you for joining us for the Interpace Diagnostics Conference Call to review the Company’s Financial Results and Operations for the Second Quarter and Year-to-date of 2018 as well as Recent Developments. The earnings release detailing second quarter results was issued after the close of the market today and should be available on Interpace’s website at www.interpacediagnostics.com. Before we get started, during the course of this conference call, the company will make forward-looking statements. We caution you that any statement that is not a statement of historical fact is a forward-looking statement.

This includes remarks about the company’s financial projections, expectations, plans, beliefs and prospects. These statements are based on judgment and analysis as of the date of the conference call and are subject to numerous important risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These risks and uncertainties associated with the forward-looking statements made in this conference call are described in the safe harbor statement in today’s news release as well as Interpace’s public periodic filings, which include the Form 10-K filed with the SEC on March 23, 2018, and Form 10-Q for the quarter ended March 31, 2018 previously filed, as well the 10-Q for the second quarter expected to be filed shortly, which include discussions in the Risk Factors section and the section on forward-looking statements. Investors or potential investors should carefully read and consider these risks. Interpace assumes no obligation to update these forward-looking statements to reflect future events or actual outcomes and does not intend to do so.

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 historical and future 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. Now I would like to turn the call over to Jack Stover, President and Chief Executive Officer of Interpace Diagnostics.

Jack Stover: Thank you, Darren.

Good afternoon, and thank you for joining us today for a review of the quarter ended June 30, 2018. With me today is Jim Early, our Chief Financial Officer. I will begin the call with an update on our progress both for the second quarter of 2018 and to date, we will then review our financial performance in more detail. Following that we will open up the call for your questions. Let me remind you of our mission as I do on all calls.

We are a fully integrated commercial and bioinformatics company that provides molecular and related first line diagnostic tests and pathology services by leveraging the latest technology in personalized medicine for better informed clinical decisions and improved patient management. As you may know, we currently have four diagnostic tests commercialized on the market. First, ThyGenX, now ThyGeNEXT is our next-generation sequencing test for cancer risk assessment of thyroid nodules that improves preoperative diagnostic accuracy by providing physicians with greater confidence to rule-in cancer for determining thyroid nodules. ThyGeNEXT is typically combined with ThyraMIR, which is our first microRNA gene expression classifier for thyroid nodule identification. When ThyraMIR is used in combination with ThyGeNEXT, this combined analysis is highly sensitivity and specific corresponding to clinically actionable outcomes in a single testing service providing what we believe is a superior solution.

PancraGEN is the first and only U.S. commercially available integrated molecular and bioinformatics test for evaluation of pancreatic cysts and assessment of risk of concomitant or subsequent cancer. Our fourth and newest commercial product, RespriDX, has been recently launched and is a molecular test that differentiates between new primary lung tumors and metastatic tumors by identifying the unique molecular fingerprint of a tumor using a series of markers and loss of heterozygosity. The second quarter of 2018 was another outstanding quarter for Interpace. This represents the sixth sequential quarter of improved revenues with second quarter revenue growing over 14% compared to the first quarter of this year.

Our second quarter revenue grew 43% over the second quarter of 2017 and year-to-date revenues grew over 41% when compared to the same year-to-date period of 2017. Our test volumes grew and our pricing improved for both our GI and endocrine franchises, resulting in record revenues. Further, we continue to aggressively grow our business while rationally margining our cost, while improving our gross profit. Our net loss for the second quarter of 2018 was a 70% improvement over the comparable period of 2017. Importantly, we remain in a good cash position with $10.1 million of cash and cash equivalents on hand at the end of June 2018, while maintaining stockholders equity in excess of $38 million and no long-term debt.

Our commercial progress included successfully launching ThyGeNEXT our proprietary new expanded mutational panel for indeterminate thyroid nodules, at the American Association of Clinical Endocrinologists Annual Meeting. ThyGeNEXT now includes numerous additional molecular markers, gene mutations and RNA fusions as compared to ThyGenX and interrogates a more comprehensive set of indicators to not only identify malignant or benign nodules but also ascertain aggressiveness of cancer and other characteristics. Overall ThyGeNEXT, ThyraMIR combination both rules in and rules out cancer enabling physicians to make treatment decisions with a level of precision we believe is not available with other molecular products. We also entered into an agreement with Vanderbilt University Medical Center in Nashville, one of the largest academic medical centers in the country providing access to ThyGeNEXT and ThyraMIR. And we also entered into an agreement with BJC HealthCare in St.

Louis the largest integrated healthcare system in Missouri providing access to ThyGeNEXT and ThyraMIR again. We launched the expanded application of PancraGEN beyond pancreatic cysts to include both biliary strictures and solid pancreatic lesions and a number of former Rosetta Genomics thyroid customers began transitioning to us following Rosetta’s bankruptcy filing. As we were able to support their desire to use slides as to access the potential progression of indeterminate thyroid nodules biopsies. We expect the benefits of this transition to be felt more in the near-future. As you know, reimbursement is the lifeblood of a diagnostic company.

Year-to-date we announced that 27 Blue Cross Blue Shield plans have agreed to cover ThyGeNEXT and ThyraMIR. Also recently, Cigna one of the nation’s largest healthcare plan providers agreed to cover ThyraMIR in addition to ThyGeNEXT, which it has covered since 2017. Today approximately 80% of the ThyGeNEXT orders are accompanied by an order for ThyGeNEXT testing as well, given the performance of the combination testing platform in both ruling-in and ruling-out cancer. Our clinical progress included the acceptance of five abstracts by the American Thyroid Association for their upcoming October Annual Meeting. Further progressing with our clinical validation study for ThyGeNEXT with sufficient samples to complete the data analysis and submit for publication by the end of the third quarter.

We successfully also enrolled nine institutions in a registry study for our thyroid tests to determine the impact of test results on patient outcomes and management decisions and plan to publish on interim results later this year or early next year. Presenting new data on the incremental value of PancraGEN to patient outcomes when used as a companion molecular diagnostic to traditional imaging modalities at the Digestive Disease Week, DDW meeting in Washington D.C. and preparing data from our thyroid registry, which we plan to submit as a manuscript to a peer-review journal for publications. We’re expanding peer-reviewed evidence for PancraGEN publishing a manuscript describing the clinical validity and utility of using PancraGEN beyond pancreatic cyst and further expanding and progressing on our BarreGEN CEP program, which we will discuss in a moment. We also made operational progress on several fronts as well.

In March, we renewed our major laboratory lease in Pittsburgh and have since initiated a construction project to more than double the size of our CLIA and CAP certified lab there. On July 30th NASDAQ notified us that we were again in compliance with their minimum $1.00 bid price requirements and that the listing requirements matter is now closed. We also initiated the process of redesigning the Interpace website including the Investor Relations section to make it more user-friendly and we expanded our in-house billing and reimbursement team to focus on cash collections. We also successfully completed an independent assessment of our in-house Laboratory Information Systems and determined that it supported our ability to scale up our business in the future and meet growing customer demands. Our pipeline progress is critical to our future and is principally focused in three key areas.

First and foremost is BarreGEN; which I will update you on next. That we are also focused on offering and partnering our data and capabilities in bioinformatics, and lastly continuing to expand our product offerings by utilizing and levering our commercial team who have access to many high-level physicians in the GI and endocrine practices. And therefore in acquiring our licensing in products, while also seeking expansion of our product offerings outside of the United States. Today approximately 1% of our revenues are outside of the U.S. So let me update you on BarreGEN, we’re excited about BarreGEN.

BarreGEN is a major pipeline focus of ours in 2018 and likely 2019 as well. As you may know, BarreGEN is a risk classifier to be used on patients with Barrett’s Esophagus with the aim of assessing at an early stage a patient’s risk of developing esophageal cancer. Today in the U.S. approximately 3.6 million adults have Barrett’s Esophagus. We have over 10 years of data and BarreGEN has been developed on our own PathFinderTG platform, by the way the same platform that we utilized to obtain approval for PancraGEN assay.

As of today however, we do not have reimbursement coverage for BarreGEN. However, we are aggressively working to change that as follows; we are seeking and gaining key opinion leader or KOL support of BarreGEN. Importantly, our second clinical validity study is now underway to support the ability of BarreGEN to identify patients at risk of progression to esophageal cancer, years prior to any visible signs of cancer. We are continuing to expand usage of BarreGEN by way of our Clinical Experience Program or CEP the purpose of which is to gather additional experience and data to seek both physician adoption, guideline support and of course, reimbursement. Further, we are currently working to validate BarreGEN on variable esophageal specimen types such that we can provide physicians with BarreGEN options convenient to their individual practice.

Lastly, but I’d say most importantly, we continue to assess the use of BarreGEN with other companion technologies where we believe that we have the opportunity to be a leader in this important disease state and provide critical risk assessments and information to potentially improve the standard of care. With that I would like to hand the call off to Jim Early, our CFO, to specifically discuss the financial highlights for the quarter and year-to-date. Jim?

Jim Early: Thank you, Jack, and good afternoon, everyone. Today, I would like to focus on some key elements of our financial performance and position. As previously mentioned, net revenue for the second quarter of 2018 was $5.5 million, a 43% increase over the comparable period of the prior year and a 14% increase over the prior quarter.

Year-to-date revenue was $10.3 million an increase of $3 million or 41% from the comparable year-to-date period of 2017. The principle reasons for our revenue growth were expansion of units and reimbursement, improvement in both our GI and endocrine franchises. The majority of our growth continues to be in our endocrine business. The accounting change from cash basis to accrual under ASC 606 mentioned before adopted at the beginning of the year was also a part of the increase. Management estimates this to be approximately $0.3 million of the increase for the quarter and $0.7 million year-to-date.

Our gross profit percentage for the second quarter of 2018 was 59% as compared to 51% for the second quarter of the prior year, resulting in an over $1 million increase in gross profit. Year-to-date our gross profit percentage was 53% in 2018 as compared to 50% for the same period in 2017. Our gross profit percentage grew primarily due to efficiencies in production relative to the increase in case volumes as many of the costs charged to production are fixed in nature versus variable. Sales and marketing costs for the second quarter of 2018 were $2.1 million as compared to $1.6 million for the comparable period of the prior year as we expanded our commercial activities across the board especially in our thyroid business where we have increased our spending particularly in adding sales and service representatives to help further expand our product acceptance and accelerate our revenue growth. Year-to-date our sales and marketing costs were $4.1 million an increase of $1.4 million for the same period of 2017.

Importantly as a percentage of revenues sales and marketing costs were 38.1% for the second quarter of 2018 as compared to 40.3% for the comparable period of 2017. Research and development, R&D costs for the second quarter of 2018 were $0.5 million as compared to $0.4 million for the comparable period of 2017. R&D year-to-date were $1 million as compared to $0.7 million for the same year-to-date period 2017. General and administrative expense, G&A for the second quarter of 2018 was $1.7 million as compared to $2.8 million for the comparable period of the prior year. Year-to-date G&A was $3.9 million as compared to $4.3 million in 2017.

Overall our G&A costs are lower in 2018 due mostly to reduced transaction fees and consulting costs compared to 2017. As a result of the information just noted, the net loss for the second quarter of 2018 was $1.9 million as compared to a loss of $6.3 million for the comparable period of 2017, which included a $2.7 million loss on extinguishment of debt in 2017. Additional year-to-date net loss for 2018 was $5.1 million as compared to $3.9 million for the comparable period – comparable year-to-date period in 2017, which included a $5.8 million favorable change in fair value of contingent consideration as well as a $4.3 million loss on extinguishment of debt began in 2017. 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 loss from continuing operations, excluding interest, taxes, depreciation and amortization expenses as well as adjustments related to the revaluing of contingent consideration, stock-based compensation, asset impairment, fair value loss on extinguishment of debt, mark-to-market adjustments to our warrant liability and other non-cash charges.

Accordingly our adjusted EBITDA for the three month periods ended June 30, 2018 and 2017 was negative $0.6 million in 2018 second quarter and negative $2.4 million in the same quarter in 2017. Adjusted EBITDA year-to-date 2018 versus 2017 was negative $2.3 million versus $3.5 million confirming – this confirms our ongoing operating trend of revenue gains and cost containment. Cash position. Our cash position at the end of the second quarter was $10.1 million and our monthly cash burn year-to-date has averaged $0.8 million, included in our cash burn in 2018 and to a greater extent in 2017 were restructuring costs, transaction costs and expenditures from discontinued operations. These types of costs have been declining and amounted to less than $200,000 per month for 2018 through June 30.

Our estimated cash burn for the year factoring in collections and forecasted spending remains at $500,000 per month. Our accounts receivable, on a net basis increased from $3.4 million at the end of 2017 to $7.6 million principally due to recognizing all of our revenue on an accrual basis effective January 1, 2018 under the adoption of ASC 606 compared to the prior year when revenue from certain payer groups was recognized on a cash basis. Total assets were $51.4 million and total liabilities were $12.8 million resulting in stockholders’ equity of $38.6 million at June 30, 2018. Importantly, we had no long-term debt as of the end of the quarter. Our headcount is currently 78 as compared to 77 at year end 2017 made up of 29 people in sales and marketing, 32 in operations and 17 combined in R&D and ministration.

With that, let me turn the call back to Jack and the operator. Operator?

Operator: At this time we will be conducting a question-and-answer session. [Operator Instructions]

Jack Stover: Darren?

Operator: Yes?

Jack Stover: I think you missed the section in terms of the closing commentary. Let me sort of take it from before we do the Q&A.

Operator: Okay.

Jack Stover: Okay. So let me just wrap the call up before we do the Q&A and I’ll get to it quickly. In 2018 to date we continue to demonstrate our ability to deliver continuous improvement in growth. Our plans for the remainder of the year are to build on that performance to date, while we obviously cannot guarantee any or all of these factors we do believe we have multiple opportunities that could be inflection points and important value drivers such as the following. First and foremost, organically delivering over $20 million in annual sales would be a major milestone for us and that is our target, we’re reconfirming that.

Our confidence in attaining this target is growing based upon a number of things; first of all, our success in gaining and retaining reimbursement such as the 27 Blue Cross and Blue Shield plan that we talked about as well as the Cigna coverage. We have also chosen to further expand our highly capable commercial team and have been converting more than our fair share of Rosetta accounts to our thyroid assays due principally to our ability to process slides as well as FNA or fine needle aspirations. This should be ramping up further. The launch of ThyGeNEXT, our supported thyroid assay targeting more aggressive biomarkers makes it easier for physicians to evaluate and participate in our assays, and of course the resurgence of PancraGEN now that the 14 day rule for outpatient molecular diagnostic services has largely been effect eliminated effective January 1. Thus allowing hospitals to order PancraGEN in a more timely and effective manner.

Additionally and importantly, we have expanded PancraGEN for both biliary and solid lesions and we think this bodes well for the future as well. Beyond growing sales utilizing our microRNA capabilities and experience not only in cancer but in other therapeutics as well to allow us to focus on uniquely delivering strong positive and negative predictive value for our assays and creating opportunities we are positioning ourselves on importantly in less occupied niches as a prognostic assessor meaning that we’re focused on the activity and what will happen with patients over the next five years not necessarily simply classifying them today. We believe our growing commercial operations also create a unique opportunity for us to acquire or license in synergistic products. We already have the infrastructure in place. And we’re constantly seeking new opportunities certainly the key for us is finding the right opportunities.

And of course, leveraging our data as you may have remembered last year we announced and were recognized by CIO Applications, a well known trade magazine as one of the top 20 bioinformatics companies in the country. To be honest with you, we really never embraced that until we saw the evaluation done by CIO Applications, we are in fact the bioinformatics company. And the opportunity for us is to monetized over 40,000 patient tested assays and products in the marketplace. And of course, we are very confident that BarreGEN remains an important asset that can risk classify at a molecular level those patients with early stage Barrett’s Esophagus, who will most likely progress to esophageal cancer versus those who will remain in cancer free. Barrett’s Esophagus is a growing healthcare problem in the U.S.

and it’s even considered an epidemic by many. We feel like we’re in a very strong position. Our GI commercial team is well positioned and anxious to take advantage of this opportunity. So we believe these opportunities and more set us apart from our competition and other less robust molecular diagnostic companies. We believe we have created a unique opportunity in the future of personalized medicine.

Operator?

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

Kevin DeGeeter: Thanks for taking my questions and congratulations on a really, really nice quarter here. Jack, can you just comment the business that you’re bringing over from the former Rosetta customers.

Are you capturing revenue primarily just for ThyraMIR for those cases or are you also capturing revenue for ThyGenX as well for those patients?

Jack Stover: Yes. It’s both Kevin. We don’t really provide ThyraMIR as a standalone, it really is a combination assay. And so we are doing both but we’re doing it on slides not just on FNAs. So that’s really kind of the opportunity.

But what it has also done for us is, it has allowed us to expand our product offering even though we’ve been approved for slides, we are now a much bigger player in the slides space and we’re finding new and exciting opportunities for slides.

Kevin DeGeeter: Great. And then thanks for calling out all of the progress you’re making with Barrett’s. Can you just remind us again for the ongoing second clinical validation study two questions I guess? First, just simple timeline question, when might we see some data there and then secondarily can you remind us the sample type that you’re collecting for that evaluation?

Jack Stover: Yes. So let’s talk about the timeline.

The timelines are still in the process of being developed. And so we are gathering as much data and as much information as we can. It’s very difficult because of – it’s difficult to get access to progressers that really be able to put a specific timeline on when we will have data. But as we make additional progress in that area, we’ll be reporting that. Right now, we’re looking at data and information in 2019 and maybe even later in 2019 as we move forward with that program.

The mechanics of really the biopsies for Barrett’s is basically it’s a pretty straightforward assessment. The name and the game for us is that typically when a patient is having a normal GI process so to speak, done that with the nature of the BarreGEN assay with a relatively small amount of material we’re able to make a prognostic determination. And so while there are plenty of biopsies and access to information if you will, or data the challenge for us is identifying progressers, we need to embrace and get our arms around progressers as well and be able to identify them. Much like other cancers there are a lot of Barrett’s Esophagus patients but a relatively small number actually progressed to esophageal cancer. The problem is much like pancreatic cancer the ones that do progress, you want to and you need to know about it early.

And with that you need to direct basically radiofrequency ablation and other new emerging technologies to work with those patients. It’s basically the biopsy indication is too late there’s not much you can do with an esophageal cancer patient.

Kevin DeGeeter: Great. And then if I can sneak in one more, then I get back in the queue. I recognize company doesn’t provide a product level, revenue breakdowns but you did call out the year-over-year growth for PancraGEN and the GI.

Can you just kind of qualitatively hapless appreciate, just general trends in that business recognizing that – it seems like you mentioned that the majority of the absolute growth is coming from the current thyroid side of the business.

Jack Stover: Yes. And for clarity, what we’re seeing in the second quarter is, we’re seeing growth both in units and in dollars in both PancraGEN or the GI franchise as well as the endocrine franchise. So we’re excited about that. What we have said in the past is that at the end of 2017 roughly half of our revenues were driven by each of those groups.

As we move into the second quarter of 2018 clearly our thyroid business is larger than our PancraGEN business. What we are also seeing is that we’re seeing the consistency of growth of both the GI and the endocrine business. And so sometime in the future Kevin is, we get more confidence and we get more data, we’ll certainly be considering sharing more specific information on actual units. All that being said, we’re very pleased about the progression of both sides of our business as we move forward.

Kevin DeGeeter: Great.

Thanks for taking the questions.

Operator: Our next question comes from François Brisebois of Laidlaw. Please proceed with your question.

François Brisebois: Thanks for taking the questions. Congrats on nice beat.

I just was wondering in terms of ThyGeNEXT hopefully I’m saying that clear enough, so I’m not confusing with the other one. But any feedback and the impact basically from the medical community here between ThyGeNEXT and the old ThyGenX and do you think that was kind of part here of the revenue.

Jack Stover: So I – it’s hard to tell because that qualitative data, it’s a little hard to get our arms around. But obviously, we’re talking with our sales and service representatives all the time. And so effectively by offering and expanding our biomarker or markers of aggressiveness, I think that is part of the reason or rationalization for the continued growth in our thyroid franchise, yes.

François Brisebois: Okay. Great. And then you mentioned, you’re always looking through the right opportunity maybe in terms of M&A. Can you just remind us what kind of fits the sweet spot here maybe someone that has interesting technology but just not the sales capacity that you guys have or would you be willing to look at something to – just get new sales force or a different kind of thing. What fits your eye as the right opportunity?

Jack Stover: That’s a good question.

And we are seeing a lot of opportunities frankly, and we have for a while. So a couple of things that are really interesting to us. First of all, to identify products that fit into our already existing GI and endocrine franchise is a good opportunity. We would love to expand those groups even more. As we look at the kind of companies that are coming to us, we’re seeing some very good technical companies that have assays but don’t necessarily have the commercial infrastructure that we do.

And we’re also seeing public companies that have had some problem in the marketplace oftentimes around reimbursement and they’ve had a stall and they’re looking to utilize our expertise to help them move beyond that or potentially acquire or co-market their products. We’re not opposed to looking at other products that could also fit into that vertical because of the qualitative nature of our sales force. We think we could do even more. But right now we’re really kind of overwhelmed with just the nature of those products and opportunities. Further, most of our business is reimbursement driven.

And so as we look at opportunities that are not so much driven by reimbursement such as the bioinformatics player opportunity that we have with pharmaceutical companies that revenue is harder to garner, but it’s a high quality revenue if and when you’re able to garner it.

François Brisebois: Understood, great. That’s helpful. And then I heard you mention 20 – in terms of headcount you had 29 reps now, is that something that you guys are looking to grow throughout the year or do you feel pretty comfortable with that number now?

Jack Stover: So let me comment on that on a couple fronts. I think we talked about our commercial team being 29 people.

I think right now, our sales force is roughly 24 people, maybe 25 but that space we’re in. Quite frankly, we have brought on several former Rosetta reps some of which who had been previously in or pays reps to add to our sales force and that was easy to do as well. We’re very pleased with what we call the accretive nature of the sales reps that we’re adding, meaning that they’re able to get to kind of cash flow positive on their own, more quickly than we had anticipated earlier. So we’re very happy about that. Remember too Frank that if you look at where we came from Interpace really was hatched as part of PDI a professional detailing company in therapeutics and diagnostics.

So we have the infrastructure and the opportunity if you will on the commercial side to expand that even greater. So we’re more of a commercial company than we are a scientific company not that we don’t embrace science obviously we do. But first and foremost, it’s about getting products to market.

François Brisebois: Understand. And then lastly just to make sure, did I hear right that you still looking at that top line guidance of $20 million for the year?

Jack Stover: Yes.

We actually – the guidance we provided was over $20 million, we didn’t identify how much over $20 million. But as we look at the first half of the year being in excess of $10 million, it certainly gives us a lot of confidence that our guidance is supportable.

François Brisebois: Excellent. Thank you very much. Congrats, again.

Jack Stover: Thanks.

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

Yi Chen: Thank you for taking my question.

Hi, Jack, congratulations on a solid quarter. Given that the quarterly revenues in 2017 there it doesn’t seem to be a quarterly fluctuation from first quarter to the fourth quarter. And if that trend continues in 2018, it looks like you can easily be $20 million guidance in 2018. So would you rather say $20 million is – or rather conservative guidance?

Jack Stover: My job always, Yi is to exceed expectations. So what we did say was that we expect to be over $20 million in 2018 with the results we’ve been able to generate.

Yi Chen: Okay. And also looking at the gross margin, it does fluctuate from second quarter of 2017 to the second quarter of 2018. I think, second quarter and third quarter of 2017, it was around low 50’s gross margin. And then in the fourth quarter it goes up to 6 – over 60% and then the first quarter of 2018 it’s below 50%. So can you give us some additional regarding the gross margin?

Jack Stover: Sure.

For the most part what we’ve been doing is that we really haven’t needed a cost system. So what you see in there with some of the gross margin activity has to do with effectively us buying raw materials and excipients and expensing them when we acquire them. As we look at sort of our activity going forward and now that we’re growing at the rate we’re growing, we really need to evaluate developing a cost system to better manage that cost and target specifically the gross profit issue. When I look at our gross profit, I’m happy with where we are for the quarter, we’re almost at 60% and certainly year-to-date we’re growing. Our target range though is in the mid-60% range and some of that will be a function of automation and we’re just at the point now where as we expand and I mention that we’re doubling the size of our lab in Pittsburgh that will permit us to be able to utilize that automation and be able to expand that gross profit as well.

So you’re right, there’s a little lumpiness out there in terms of the gross profit mostly a result of how we kind of manage cost at a smaller level. But we’re well aware of it and I think we’re in the right trend heading to the mid-60% in the future.

Yi Chen: Got it. Final question, regarding the second clinical validity study or Thyrogen assuming the results of positive, would that be sufficient to support reimbursement for the BarreGEN test.

Jack Stover: Yes.

Good question, Yi. As we look at it we have a lot of insight from the regulators about what they’re looking for. So first of all, it’s the results of that test will be important to determine if and how it gets reimbursed that’s most important. But secondly, we designed the test with the expectation that with positive results that we will be able to defend and potentially gain reimbursement. We recognize that BarreGEN is potentially a large market opportunity and we’ve said in our corporate presentations that we think the space that it’s in is over $1 billion market opportunity.

So we believe it’s also important to have potential partner working with us in that space. But we’re very optimistic about our ability to gain reimbursement because effectively, the platform that we’re using for BarreGEN is the same platform that we’ve already got reimbursement on for PancraGEN. So we’re already a long way down that road the regulators know the platform and the only issue that’s outstanding are really the results of the trial. The other part of that is, let me just say this, it’s not about always one trial it’s about continuous improvement and continuous trials. So it’s not like, you wrap up a trial, you put it on the shelf, you’re always expanding that trial to gain more patients and better results.

Yi Chen: Okay. Thank you, Jack.

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

Naureen Quibria: Hi.

This is Naureen Quibria on behalf of Jason McCarthy. Congrats on the quarter. So quick question, I was just wondering this was touched upon a little bit earlier with regards to opportunities with pharma. If we’re looking at ThyraMIR and ThyGenX our view is that based on a better predictive value from ruling-out thyroid cancer, we see them as superior asset over – your competitors such as their side of product. But there’s been some activity in April with regards to Veracyte partnering with Loxo in a research collaboration for advancing the development of some medicines in defined – genetically defined cancers including thyroid cancer.

So while Interpace platform continues to grow from a diagnostic side. Is there any plan to have discussions with potential partners to integrate into the drug development process?

Jack Stover: The answer is yes, absolutely. And we are in the process at the data and of assessing that currently. The nice part of where we stand is that we have lots of samples. So it’s not just data, we actually have biopsy samples as well.

So we can actually reengineer some of that process. And actually we’re encouraged by the fact that that Veracyte’s moving into the pharma space. We see it as a great opportunity. And I’d say, with exactly the same evaluation that the size of the thyroid market is substantial enough that there’s room for both of us in that space both on the pharma side as there is in the diagnostic side. We both agree that the diagnostic thyroid market is $300 million to $350 million in size and today I think on a combined basis we’re both probably less than $100 million.

And if you look at it on the potential pharmaceutical opportunities obviously there’s lots of opportunity there as well. And I think as you pointed out if you look at the nature of our assays, we’re confident we have a superior solution. That superior solution in diagnostics, we believe will translate to a superior solution in the pharmaceutical evaluation as well.

Naureen Quibria: Great. And just shifting gears a little bit talking about the same products.

Have you spoken about what percentage of the uptick that there’s been between the breakdown of the doctors are they between community practices and if we’re not just within community practices that versus institutions is there like a 50-50 breakdown, would you be willing to comment on that?

Jack Stover: Yes, we haven’t provided that in the past and we’ll certainly consider that but we haven’t done that – we’re not prepared to do it at this point.

Naureen Quibria: All right, all right. Thanks. Thank you for taking the questions and congrats again.

Jack Stover: Thank you.

Operator: Our next question comes from Brianna Larsen of Edison Group. Please proceed with your question.

Brianna Larsen: Hi. Thank you so much for taking my question. I actually have two.

So my first question is pretty quick, are you still planning on offering ThyGenX after the launch of ThyGeNEXT or you’d facing that out entirely?

Jack Stover: It will face out. There’s really no purpose going forward. So today it’s available but it won’t be for long.

Brianna Larsen: Okay, great. Thank you.

And then my next question had to do with reimbursement. So are you planning – can you just provide a quick update on the RespriDX reimbursement from Medicare. I know that it is covered by private payers and as well as Medicare Advantage.

Jack Stover: And that’s where we are currently. We’ve been in the market only a short time since – I guess it was the fourth quarter of 2017.

So we’re gaining some experience. But right now, we do not have primary Medicare coverage – we have Medicare Advantage coverage. And the interesting part about RespriDX as well is it’s on the same PathFinder platform as PancraGEN and BarreGEN as well. So we think we have a really good chance of getting Medicare coverage, but we don’t have it yet.

Brianna Larsen: Okay.

Great. Thank you so much.

Operator: Our next question comes from David Reed of Morgan Stanley. Please proceed with your question.

Jack Stover: Hi, David.

Operator: Perhaps your phone is muted Mr. Reed?

David Reed: I’m sorry, can you hear me?

Jack Stover: Now we can David.

David Reed: Okay, I’m sorry. Congratulations to all of you on your great quarter. And Kevin questions answered many of mine but I have one other.

With the demise of Rosetta and the fact that you’ve already been able to pick up some of their sales staff, looking at 12 where do you think your sales group that’s currently at 24 could realistically be?

Jack Stover: David, it’s funny – we’re already preparing and developing our action plans for 2019. We’ll be meeting in the next couple of weeks to finalize that. So I don’t want to get out in front of my partner, great Richard on that. But all that being said is, we have been able to add more sales reps and get them more effective and efficient quicker in the last year or so than we ever thought possible. So it’s also a function of evaluating and developing territories because as you know not all of our assays are covered by all insurers yet.

So we need to be careful that we’re basically fishing where the fish are. That requires a relatively complex analysis. All that being said, my guess is, we would be adding well more than 10% of our sales force to our 2019 plan.

David Reed: Okay, that’s seems kind of a modest amount but it is being a little more than that. The other question I had was – I guess that’s it.

So I think that you answered all my questions. Again, thank you for your time and congratulations.

Jack Stover: Thanks, Dave.

Operator: Our next question comes from Lauren Chung with Westpark Capital. Please proceed with your question.

Lauren Chung: Thanks for taking the call and congratulations on the quarter. Going back to acquisition of Rosetta accounts and this question might have been answered to a certain extent before. Are Rosetta’s accounts, so their products are completely cannibalized by your products or to the extent that Rosetta’s IP exist? How much of acquisition of their products expand your presence in the thyroid cancer diagnostic market?

Jack Stover: Yes. Good question, Lauren and thanks for being on the call. It’s not a simple answer in that when Rosetta filed for bankruptcy as it turns out we were really the only molecular company that had approval to evaluate slides for thyroid and without our encouraging and with our kind of late knowledge Rosetta actually communicated to their customers to basically send all their tests to interface.

So that’s how things kind of got started and effectively that’s how we picked up their business. A portion of that business exists in New York and we still don’t have approval in New York but we’re in the process of filing for a slide approval in New York shortly. So that should really help our business even beyond the activity. What I said on the call was that very little Rosetta business is really in Q2 and we’re really expecting that to ramp up in Q3 and Q4 as we move forward. So that part is very encouraging.

So the answer is that we effectively acquired isn’t the right word, it’s probably assumed their business that to a certain extent was competitive with us because they also had a microRNA platform. But in addition to that we’re focused on the sly capabilities and expanding that for ourselves as well. And even beyond that we’re evaluating and looking at their equipment that obviously going through the bankruptcy process could be very attractive to us and help us speed up our already existing processing. So it’s been a very good activity for us in terms of unfortunately what happened with Rosetta.

Lauren Chung: Thanks very much.

Operator: Ladies and gentleman, we have reached the end of our question-and-answer session. I would like to turn the call back to Mr. Jack Stover for closing remarks.

Jack Stover: Great, Darren. Thanks and thank you all for joining us this afternoon and following us and your thoughtful questions.

I’d like to specifically thank the sell-side analysts that follow us. And we look forward to continuing to update you on our progress. If you have any further or unanswered questions please feel free to reach out to us as well. Thanks again.