Operator: Greetings. And welcome to the Interpace Biosciences financial and business results conference call. [Operator Instructions] As a reminder, this conference is being recorded.
During this 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 call -- conference call are described in the safe harbor statement in today's earnings release as well as Interpace Biosciences public periodic filings, including the discussion in the Risk Factors section in our Form 10-K filed with the SEC on April 22, 2020, which includes discussions in the section on forward-looking statements. Investors or potential investors should carefully read and consider these risks. Interpace Biosciences 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 performance. A table reconciling the GAAP information to non-GAAP information is included in the company's earnings release, which will be available on its website.
I'd now like to turn the call -- the conference call over to the President and CEO of Interpace Biosciences, Mr. Jack Stover.

Please go ahead, sir.

Jack Stover: Thank you, Hector, and thank you all for joining us this afternoon on such short notice. I'm pleased to introduce our new Chief Financial Officer, Fred Knechtel, who will provide our financial overview.
For today's call, I will focus on our achievements to date, provide a general business update and provide an update on our response to the COVID-19 pandemic. Fred will review our 2019 financial performance in more detail and provide an update on our general performance to date as well as preliminary first quarter 2020 results.

Following that, we will open up the call for questions.
You have heard me on past call start by describing Interpace to you. Today, as most of you are aware, we are now Interpace Biosciences, and we are providing a broader range of unique and sophisticated, specialized diagnostic based custom services.
Fiscal 2019 was a transformational year for us as we acquired the BioPharma business of Cancer Genetics in July of 2019 and raised a total of $47 million in preferred stock from sophisticated private equity investors, in 2019 and early 2020. We believe that the combination of our clinical services and acquired pharma services business uniquely positions us for growth and expansion in the fast-growing bioscience diagnostics sector where we can provide our unique diagnostic capabilities to a broad customer base and support our aggressive growth plans.

In many ways, we believe the quality of our new investors as well as the diversification of our revenues have helped to derisk our business, especially during these uncertain times.
In December, we announced that our Medicare administrative contractor, MAC, Novitas, had issued a new draft local coverage determination, or LCD, for the company's ThyGeNEXT test, one of Interpace's proprietary commercialized molecular tests. We are anticipating this pricing to increase shortly. Additionally, our assay ThyraMIR, the first microRNA gene expression classifier on the market, which can measure the expression of 10 microRNAs, received an increase of approximately $1,200 in Medicare reimbursement, retroactive to January 1, 2020. Together, ThyGenX and ThyraMIR are our largest commercial products currently.

Earlier this year, we acknowledged the acceptance of the first manuscript reporting the clinical performance of these tests in the Journal of American Society of Cytology. This was the first report on the clinical performance of the combination of ThyGenX and ThyraMIR in predicting cancer free survival of patients with indeterminate thyroid nodules.
Importantly, we are anticipating additional important clinical utility results to be reported for our thyroid assays during 2020. We also made progress with BarreGEN, our proprietary assay for Barrett's Esophagus, or BE, that is in our clinical evaluation program. Earlier this year, we announced a collaborative study being performed in partnership with the University of North Carolina Division of Gastroenterology, aimed at exploring potential use of BarreGEN in patients undergoing radiofrequency ablation.

RFA is typically known as a cancer preventive therapy that either delays or arrests the progression of Barrett's Esophagus to esophageal cancer. We expect to announce results of this study in 2020 to help support further clinical acceptance, and we will seek to gain sufficient initial reimbursement to commercially launch BarreGEN with our already existing gastrointestinal, or GI, sales force.
Reimbursement coverage has grown over the past year. We have announced contracts for ThyGenX and ThyraMIR with Blue Cross and Blue Shield in Alabama, Arkansas, Arizona, California, Massachusetts and Michigan as well as new agreements with SelectHealth, Independence Blue Cross and others.
Obtaining contracts help secure timely reimbursement for our test.

New agreements are typically the precursor to entering into contracts and participating as an in-network lab. Our pharma solutions team focuses on global pharmaceutical and biotechnology company customers with a client base that includes top global pharma companies as well as smaller biotech companies. We support clients with a full range of services that include assay development, Phase I, II, III and IV clinical trial support. In late 2019, we began expansion of our pharma solutions business development team to cover all key pharma biotech concentrations, including San Francisco, San Diego, the mid-Atlantic region and the Boston area.
We also formed a strategic partnership with Genecast to support our global pharma partners who are in need of support for their clinical trials in China.

The addition of Ampersand Capital Partners in 2019 and 1315 Capital in 2020 as private equity investors is perhaps the most important change for Interpace. These are significant financial and strategic partners and investors in Interpace. And in our opinion, not only help to provide validation of our model and plans, but also provide the basis to aggressively seek future synergistic acquisitions that we believe will help differentiate us from many of our competitors. With the support of these investors, we are focused on realizing the synergy of our traditional clinical and our new pharma solutions business -- businesses, including rightsizing of labs, benefiting from consolidated administration and accelerating our growth due to our combined resources and expanded capabilities.
As everyone knows, billing and collections in our diagnostic business is very complicated and at times unpredictable.

In 2018, we decided to transition our billings and collections activities to another vendor, primarily to focus on additional data as well as improve collections. This transition resulted in billing and collection delays, however, which included a $3.5 million receivable reserve adjustment that we previously announced in Q3 2019 and an additional $5.2 million receivable reserve for possible uncollectible accounts in 2020. Fred will discuss this in more detail. As a result, full year 2019 net revenue was $24.1 million, a 10% increase over fiscal 2018. Our recently acquired BioPharma business contributed approximately $6.7 million of our net revenues in 2019.

I know everyone is interested in how COVID-19 is impacting our business and what we are doing about it. Most importantly, we are committed to delivering critical answers to patients even in the face of unprecedented challenges such as this. We believe we have taken all necessary precautions to safeguard our employees. Our labs are fully operational, and all nonessential employees are on a work from home arrangement. As soon as we had insight as to the potential issues with COVID-19 across the U.S., we took immediate action to reduce lab and overhead support costs before seeing even any volume drop.

Actions include eliminating nonessential discretionary spending, temporary furloughing of employees where activities were reduced, a hiring freeze, deferral of incentive bonuses and a 10% to 15% reduction in base pay of all salaried employees, including all members of our leadership team. In response to customer interest and community needs, we have acquired and installed processing equipment to perform serology antibody testing for COVID-19 at our high-tech CLIA lab in Pittsburgh. We are in the process of validating processes while acquiring acceptable kits and reference samples and expect to be able to offer this testing to customers in the next several weeks.
Now I'd like to hand this off to Fred, our CFO, to discuss in more detail our financial highlights for the quarter and full year 2019. Fred?

Fred Knechtel: Thank you, Jack, and good afternoon, everyone.

Today, I would like to focus on the key elements of our financial performance and position. As previously mentioned, our full year 2019 net revenue was $24.1 million, up 10% from the same period in 2019. Net revenue of $24.1 million included $6.7 million from the acquisition of the Bio -- from the acquisition of the BioPharma business from Cancer Genetics in the third quarter of 2019. 2019 net revenue also included approximately $8.7 million adjustment reserve in accounts receivable, $3.5 million related to 2018 billings, and $5.2 million related to 2019 billings that was recorded in the fourth quarter.
Net revenue for the fourth quarter of 2019 was $4.1 million, a reduction of 30% from the prior year fourth quarter.

2019 fourth quarter revenue included the $5.2 million accounts receivable reserve related to our new vendors collection shortfall in the first 3 quarters of 2019. While our vendor is optimistic about collecting a significant portion of the cash related to the $5.2 million of open 2019 receivables, we have not yet seen sufficient cash collection improvement through March to support a lower reserve. If collections of these open accounts receivable, primarily from 2019, improve in 2020 then we will record these collections as revenue in 2020. We are working very closely with our billings and collections vendor, and we believe both Interpace and our vendor have enhanced the overall process, added and better aligned resources and have common goals and objectives.
Recently, we conducted collaborative sample to cash Kaizen to develop improvement initiatives to increase billing timeliness and accuracy, reduce the number of denials and improve the processing time of denials.

We have already realized small but promising amount of incremental collections in April and expect to regain historical collection rates in the future.
Overall, our clinical diagnostic gross margin percentage averages in excess of 50%. Gross margin percentage of our growing Pharma Solutions business is in the low [ 30s ] range, and should continue and improve with growing revenue and the integration activities over the next year.
Gross profit for the year 2019 was $8.2 million and our gross margin percentage was 32%. 2019 gross profit included $3.5 million accounts receivable reserve related to 2018 billings.

Gross profit for 2018 was $11.7 million, and gross margin percentage was 53% since this included our legacy clinical diagnostics business only.
Operating expense for 2019 was $34.6 million and included $2.5 million of transaction costs related to the acquisition, and $4.7 million of additional operating expense related to the approximately 6 months of inclusion of the BioPharma business acquired in July. Fiscal 2018 operating expense was $23.8 million.
Full year adjusted EBITDA was negative $17 million, which included a $3.5 million reserve. Adjusted EBITDA for the fourth quarter was a loss of $9.4 million and included the $5.2 million of accounts receivable reserve related to prior periods.

At the end of 2019, our cash balance was $2.3 million relative to $6.1 million at the end of 2018. During the first quarter of 2020, we raised approximately $0.4 million net from the issuance of common stock raised under our ATM, $19.5 million net from the issuance of preferred stock and borrowed $3 million under our bank line of credit.
Now as of March 31, 2020, we had a cash position of approximately $14.5 million and a total of $16.8 million of cash and availability. And as of April 21, 2020, we had $18.4 million of cash and availability. It should also be noted that the $47 million being added in January to our total shareholders' equity included a modification to the terms of the original $27 million preferred stock investment.

The modification includes a waiver of dividends and certain conversion price adjustments and include the terms of the original $20 million preferred stock investment made in January 2020.
Just a few comments on our first quarter 2020 operating results, which are preliminary at this time. First quarter 2020 net revenue is expected to be in the range of $8.8 million to $9.3 million as compared to $6 million reported in the first quarter of 2019, which was only our diagnostics business revenue. In spite of our test volumes dropping throughout March in 2020 due to the coronavirus pandemic, diagnostics average daily test volume increased approximately 25%, and pharma services average daily test volume increased approximately 64% when compared to the first quarter of 2019.
However, March's 2020 diagnostic average daily test volume declined approximately 27% from February 2020 and declined a further 56% for the period April 1 through April 20, 2020.

Pharma services revenue improved throughout the quarter and leading indicators, bookings and backlog, point to a strong back half of 2020. However, we have seen a softening of demand in the near-term and as a result of our global footprint and testing activity through April 20, 2020, was down 19% relative to March.
In April, we received a $650,000 grant from Health and Human Services related to COVID-19 virus and antibody testing. On April 21, 2020, we received a $2.1 million cash advance for future Medicare billings reimbursement related to our historical Medicare billing activities. In addition, we applied for a $3.5 million loan from the Small Business Administration's payroll protection program, or PPP, under the CARES Act.

As of today, we have not received approval from the SBA or our application -- for our application, and we were unable to enroll in the first tranche of federal funding. We anticipate participating in the next round of funding. However, there can be no assurance that additional funds will be provided or that will be approved.
As a reminder, last year, we entered into a 3-year up to $4 million credit facility with Silicon Valley Bank. We originally had an agreement to term sheet to expand the facility to $8 million, and we will add the acquired pharma services assets to the borrowing base.

We expect to close the transaction in the early part of May, although we can't assure you of this.
Accounting for 2019 and 2020 financial performance was somewhat complicated given the pharma services acquisition, capital structure redesign, changes in revenue related to prior periods and impact of the coronavirus pandemic. So based on my 3 months in the business, I would like to share my assessment of the business performance and how I'm thinking about the business going forward.
In 2019, we added the pharma service assets, which contributed $6.7 million in revenue on top of a diagnostics business that grew its molecular test volume 25% year-over-year to a revenue base of about $21 million. We also added overhead to support additional growth and integration activities.

Total 2019 net revenue adjusted for out-of-period reserve that was recorded during 2019 was about $28 million, which includes only a half year of pharma services. EBITDA generated on this revenue base was a loss of approximately $13 million. Considering the full year impact of the pharma business, our revenue base should be thought of as about $36 million and adjusted EBITDA loss of $15 million. Exiting the year, fourth quarter revenue should be thought of as about $9.5 million and adjusted EBITDA loss of $5 million. Indeed a transformational year, as Jack stated.

Prior to the coronavirus pandemic, we were well positioned for continued growth to achieve $50 million in revenue through growth of molecular test volume, increased price and coverage of thyroid and pancreas assays, improved diagnostics collections rate, increased pharma customer base and expanded clinical trial support. We are also focused on achieving breakeven EBITDA through thoughtful overhead optimization, integration of and consolidation of the pharma assets and centralization of support work activities. With the additional funding backing from 1315 and Ampersand Capital, we have the resources to execute our plans for 2021 with over $18 million of cash and availability as of April 21.
With that, I'm going to turn the call back over to Jack for his closing comments. Jack?

Jack Stover: Thanks, Fred.

As we navigate the coronavirus pandemic in these uncertain times, we will continue to prioritize transparency and execute on our business strategy. However, with all of the uncertainty in the marketplace today, we believe it is prudent to withdraw our previously announced annual revenue guidance for 2020. We expect to have an updated outlook in our first quarter earnings announcement and conference call in a few weeks.
Several additional points I would like to leave you with number one, we've demonstrated our ability to reduce our operating and overhead costs in this uncertain time while integrating our BioPharma business we recently acquired. We are laser-focused on streamlining and improving operational efficiencies and we are building a reliable platform to support future long-term growth.

While many companies are writing off 2020, we are not. We are very excited about the prospects and getting back on track.
Now let me turn the call back over to the operator for Q&A.

Operator: [Operator Instructions] Your first question comes from the line of Jeffrey Cohen with Ladenburg Thalmann.

Jeffrey Cohen: So I guess I wanted to focus more on the balance sheet and income statement.

So the $5.2 million against your Q1 revenues, what about the previous $3.5 million from 2018? Where is that reconciled? Is that going to be reconciled in the previous K?

Jack Stover: Yes. Let me help you with that. For clarity, if you remember, in Q3, we had announced a $3.5 million, I guess, was actually the cumulative adjustment. Not a cumulative adjustment from an accounting point of view, but it was related to the prior periods and our concerns about this NRV issue in terms of receivables. And remember that because of 606 accounting, where typically you would reflect this perhaps in a different way where you'd reflect it through a bad debt reserve because that's what it is, it, in fact, reduces revenues.

So that happened through Q3. The $5.2 million -- and by the way, most of that $3.5 million was related to billings that took place through 2018, and effectively were on the balance sheet at the end of 2018. Think about how our business works on the diagnostics side. Most of our collections take place 3 to 6 to 9 months after we actually perform the service. So the same thing applies to the $5.2 million.

The $5.2 million we took in Q4 is related to the prior periods in 2019, not 2018 and is hung up in our balance sheet as a receivable. We took a reserve against it.
We have a new billing and collection partner. And I think we previously announced it as XIFIN. And as Fred said, we're really confident about the progress we're making with them.

They've been reasonably confident that they will be able to collect that money on our behalf. However, as we said here in March, due to a variety of reasons, including the pandemic and the fact that a number of the insurance companies have slowed down payment and things like that. And also due to our own transition as we were bringing in new people, we thought it was prudent to take that as a reserve at the end of 2019.
Now if we collect that and certainly a portion of it we will collect, it will be reflected in 2020 revenue in accordance with the 606 accounting requirement. So it's crazy, Jeff, in that the mechanism -- when you make an adjustment like we did to -- for collection, it comes out of revenue.

And so it makes our gross profit look bad for the quarter, even though it was reflective of several quarter activities. All that being said, if it does come through in terms of collection in 2020 it goes right to the bottom line.

Jeffrey Cohen: I got that. And then I'm just trying to clarify here, your commentary on cash-and-cash availability. December 31st, you had $2.3 million of cash, $10.19 million in receivables and the rest was other.

So I mean, it's not quite matching up with the $14.5 million and then the $18.4 million, but it's -- the $18.4 million you said from April, but I should assume, again, it's assets plus cash and cash equivalents plus accounts receivable?

Jack Stover: I am not sure I'm following you.

Fred Knechtel: So maybe, Jeff, I can help you. So $2.3 million was the total cash, just the cash we had on our balance sheet. Plus we had another $700,000 of availability on our credit facility ending December, which gets us to $3 million of cash and cash equivalents -- not cash equivalents, but borrowing ability. And then in April, over the last couple of days on the 20th, we had a total of $18 million of total cash and bank availability.

So it's not the receivables we can collect. It's actually the cash on hand in the bank plus what we have available under our credit facility. So I think the mix right now is about $16 million of cash and $2 million of availability on our credit facility, but that's the funds that we have available to invest back in the business as of today.

Jeffrey Cohen: Okay. Got it.

Will you share with us the approximate range or the amount of the PPP filing that you plan to submit?

Jack Stover: Yes. What do you want to know? I'll be happy to share with you what we know since it's happening as we speak.

Jeffrey Cohen: Could you disclose the amount that you plan to file?

Jack Stover: I think it was $3.5 million.

Fred Knechtel: Right. Jeff.

We stated that.

Jeffrey Cohen: Okay. Got it. And then lastly for me, could you just talk big picture about margins and what kind of upside you think you can have provided that the business continually increases? And then secondly, just some commentary, big picture on April volumes. I know you talked about March from April -- March from February and April from March decreases.

Is that kind of baseline you feel you're at now from April onwards, based upon what you've learned in the past few weeks. That does it for me.

Jack Stover: So Fred, let's break it into pieces.

Fred Knechtel: Sure.

Jack Stover: Why don't you talk about margins first.

Okay.

Fred Knechtel: Okay. So we have 2 businesses that have very different margins. The diagnostics business margins are in the range of 50%, and this is gross margin. And a very different model.

It operates in really one lab, there's 3 tests and a few other activities that go through the lab. So from an efficiency standpoint, we're going to get better gross margins out of that.
And then the pharma business, it's a new business for us. The revenue right now is a little lower for the footprint that they have. They operate in 2 labs.

So the gross margins are on the lower side in the low 30s. And think about the margin improvement as we continue to increase our price. And that's going to improve our margins going forward, consolidate the assets, make it more efficient and really leverage our overall fixed cost base on higher revenues generated from both businesses. So we see margin expansion going forward, not just top line, but also from operating much more efficiently.

Jack Stover: So Jeff, Fred is 100% right.

As we look at it and we look at the potential for margins down the road, our 50% or mid-50% margins in the diagnostic business, we think, have some sizable upside. On the pharma side, we know they have sizable upside. If we were running or maintaining our current volume that we're currently seeing in the BioPharma business or the pharma services business, we would be above 40% very, very quickly. We will see a reduction in volume in April. And that reduction in volume, as Fred said, also is a challenge because of the fixed cost structure that we currently have as we're transitioning kind of this carve out business to consolidate on the Interpace side.

As we look at the combined potential for margins, we're pretty excited about what we see. But we've got to be able to get the volume through the lab and consolidate some of the operating costs as well.

Fred Knechtel: And Jack, we had -- March for the pharma business, a high fixed cost but the volume in March was pretty good, and it showed the capability of what the margins could look like as we get more volume through that facility.

Jack Stover: That's why we're excited about it. By the way, the -- it's interesting, and I'm sure that as analysts, you're running into a lot of pure diagnostic companies.

And I think the beauty of being a diagnostic company or a lab-based company in this volatile environment is that as far as I know, we're all working. We're working at different volumes, but we're still working. What we're seeing now is that different regions of the country are coming back up and online. And I think I saw yesterday that about 20 states are either operating or moving to, I guess, I use the word open up business. What you're seeing is that many of the hospitals that needed -- potentially needed facilities for coronavirus victims, basically moved in and looked at endoscopies, et cetera, as potentially procedures that were priorities, we're beginning to see that come back already.

So it's encouraging because, in fact, the health care system has continued to operate. They've just been diverted towards the virus and the health care system needs what we do, especially since what we're really doing is helping to project or predict the progression of cancer. Especially on our clinical diagnostic side. You've heard me say this, and our commercial team is talking to physicians about this, that part of our value proposition is that there's over 80% unnecessary surgeries just focused in thyroid and pancreatic cancer. And part of our pitch has been, listen, you guys have constraints in terms of volume.

Using us more often and more effectively can help basically free up your surgical suites where you won't be doing unnecessary surgeries. So we're -- we think we're pretty lucky in terms of where we are.

Fred Knechtel: Yes. Yes. And I think from our view, this isn't a new norm.

The volumes haven't fallen down to the point where they're going to be sustainable at low levels, that this is more of a bump in the road because these are essential procedures that -- and tests that people will do. And after the space gets freed up and hospitals and people are more doing -- doing more of the diagnostic work then our volumes will come back to the higher level.
And actually, over the last couple of days, the cases that are coming through the lab, particularly in the Pittsburgh lab where the diagnostics has picked up as some of the country is starting to open up again. So we're seeing some positive signs over the last couple of days. Maybe not yet to point to a trend.

But from your point and your question, do we see it bottoming it out? We do see it bottoming it out and maybe starting to come back a little bit.

Jack Stover: Yes, Jeff, if I can say one other thing. If you really see what we're saying or you can picture it, what's really happened is in Q1, we started off with both parts of our business doing really well in January and February. And then our diagnostic or clinical business started to wind down, as strong as it has been, but we haven't seen through March any of that reduction on the BioPharma side. There's beauty to that balance that I'm not sure everybody appreciate until we saw this crazy situation that we're in.

We are seeing, obviously, a reduction on the BioPharma side in terms of accessions in April, at least that's what we think we're seeing based upon the work we've seen. But it's still a strong balancing situation of having those 2 businesses, I'm thrilled about it.

Operator: Your next question comes from the line of Kevin DeGeeter with Oppenheimer.

Kevin DeGeeter: I appreciate the effort of everybody at Interpace, it's obviously challenging times. I want to push back a little on one of those last comments, just to sort of appreciate the following, which is I guess we all sort of assume that most of these patients on the clinical side are sort of -- they're not lost, they're just sort of pushed out because, as you referred to, these are generally thought of as central test.

But do you have any analogs or historical basis to assess what portion of these patients, ultimately, are kind of lost to the system or slippage and particularly for PancraGEN. Unfortunately, one can envision some of these patients, some of this volume eventually just kind of disappearing from the system, depending on the duration of potential delays. So how do we think about the question of what's pushed out versus what might ultimately be lost if we assume that things are beginning to open up currently and take 6 to 8 weeks to begin the trend upward?

Jack Stover: Yes. And Kevin, I don't think it's a 6- to 8-week trend, I think it will -- I think different parts of the business, we will see it because -- and by the way, we want to keep that, where we see where our orders are coming from, and we overlay it against the progression of the coronavirus. And so we can see what happens in areas that open up.

And believe it or not, one of the areas that we've been getting sizable amount of tests from has been New York. And so those are already hospitals that have been opening up. We don't have any real data specifically on what's been lost. But if you think about what we are, we basically are a pre cancer company on the diagnostic side. What I mean by that is that we're looking at -- we're looking at nodules, we're looking at cysts and a biopsy is done, and then we're getting basically indeterminate biopsies Sure.

There are situations in there where patients progress more quickly. But generally speaking, the patients that we look at with the nature of the cysts we're looking at are early stage. So that's a positive in terms of our overall business.
The other is, you know what, we're in the cancer progression business. This is not something that you want to wait on very long.

So patients are being triaged more quickly because they are cancer patients. And then I'd say the third piece of that is that we're not anticipating losing anything. As we always talk about it as compared to an airline or a cruise ship or even a restaurant where if somebody is not in that seat, that seat, they don't come back and eat more or travel twice as much as they thought they were going to, that revenue is lost forever. We're somewhat fortunate in that most of those patients, we believe, are going to come through. So as we've begun to lay out what we believe is going to happen for the rest of the year.

As we look at the even Q3 and Q4, we're anticipating a pretty sizable recovery. That's one of the reasons why we also want to be careful about how we manage our technical employees because we believe in a relatively short period of time, not only are they going to come back, but they're going to come back and be very busy.

Kevin DeGeeter: I appreciate that color, super helpful. And then with regard to BarreGEN, can you just talk a little bit more about go-to-market positioning and strategy for that test, I think you alluded that the test will be sold primarily from the existing sales infrastructure. But when we think about positioning and there are some other tests that are either out there or in development as well, kind of how that landscape might evolve in your view?

Jack Stover: Sure.

I'd say we're either involved with, meaning, talking to or we're watching anybody that is in the space, and that is potentially emerging. So we have a pretty good understanding of what the horizon is. We've really broken it into 2 groups, basically, the large market, which is effectively a screening tool, and a smaller market, that's more in the range of what we're comfortable with, which is the ablative evaluation process. And so the ablative evaluation process that we're currently working on and that we are talking to or running trials on is a market size that we think we can really manage. And what I mean by that is that we can help to be able to understand the success or failure of ablation, which is the single biggest cost in the BE space.

The other piece, which is more in the screening arena, which is $1 billion plus market, we think, are areas that we are looking and talking to potential partners around. The key for us is being able to continue to make progress, seek partners to be able to do larger studies and be able to gain at least baseline reimbursement. The beauty of the Barrett's assay is that it's basically on the PathFinder platform, which is the same platform that basically PancraGEN has been approved on. It's the same platform that our lung cancer assay has been approved on too. So we're encouraged, but it takes a lot of work and a lot of effort.

We think there's a sizable opportunity as we always have.

Kevin DeGeeter: And last one for me, and then I'll get back in the queue. Business development acquisition has always been an important part of Interpace or at least the more recent iteration of Interpace. Have you had the bandwidth to even see whether there's an evolution in valuation, appetite for sellers, kind of given the level of economic stress? Or is that sort of a question of whether or not BD going forward is ultimately easier or harder that you haven't really even had an opportunity to think about in light of just trying to keep your head above water with the core operation?

Jack Stover: You mean in terms of acquiring things?

Kevin DeGeeter: Yes. Things getting cheaper, easier to buy or...

Jack Stover: I mean think of who our partners are in this space, right? These are really deep pocket people. I would say with confidence that they are waiting for us to prove ourselves, which we'll do in 2020 in terms of managing the acquisition of the BioPharma business. It's not a big business, but it's a complicated business, even though there's a lot of synergies with what we already do. And we're excited about that situation. If it wasn't for the coronavirus, I would say optimistically that we would be looking at something in the second half of 2020 without a doubt.

I will tell you that I am already getting inbound queries from people that are running out of options in restrictive nature of potential capital raising that I think you're right. I think there's going to be a lot of buying opportunities out there. All that being said, it's strange to me that it really hasn't accelerated so far. But I think there'll be plenty of opportunities in the near future.

Operator: Your next question comes from the line of Paul Knight with Janney Montgomery Scott.

Paul Knight: Jack, could you talk about the fourth quarter volumes? I think you mentioned that the year volumes were up 25%, but what was 4Q and then on the same tone, topic rather, pricing, ThyraMIR was Jan 1 retroactive. ThyGenX is, when is that happening? So could we talk on volumes and then pricing for the 2 tests?

Jack Stover: Yes. Volumes are a little tough, Bob. We tend not to break out the diagnostic volumes from the other volumes -- we just try to deal with them, generally speaking. And maybe I'll ask Fred to kind of comment on that as well because I know he's looking at it, and part of it was in his discussion.

So we're just cautious about how we do that. But in terms of the ThyGenX and ThyraMIR pricing, but basically, what we're looking at is a combined value proposition for ThyGenX and ThyraMIR that is in the -- in excess of $5,000 in terms of reimbursement overall. We're a little cautious about the ThyGenX piece until that gets finalized. I will tell you that it's already in the public register. It just hasn't been finally approved and our only caution around that is that with the virus, we're not sure what they're doing or what they're not doing.

Our expectation was that it would happen in April, and it hasn't happened yet.
And from a planning point of view, we kind of modeled it to start in June. The second piece of that, which is actually as important and maybe more important in terms of the retroactive nature to it. Is that as we said, back to January 1, and it's still a significant increase to us. But the piece that's important is that when you look at our thyroid assays compared to our GI assays.

Our GI assays are primarily reimbursed by Medicare because the patient age is typically over 65. Our thyroid assays tend to be a younger person's disease and roughly around 30% or so of our thyroid patients are Medicare patients as well. But I can tell you more about it as we kind of get closer to it, so I'll be happy to update you on it.

Fred Knechtel: Yes, Paul, I can give you some insight on volume. And I guess -- I think first quarter is somewhat of a proxy.

If you're not looking at year-over-year, although that diagnostics did fall off a little bit in March, but how we measure the volume in the Diagnostics business is going to be different than how we actually measure growth in the pharma. And in diagnostics, we're looking at, really our molecular testing that's driving most of our volume. It's our 3 main tests. And year-over-year first quarter, diagnostics volume was up around 25%. So that will give you a proxy.

And that was consistent with what we saw for the full year. So it continues to grow at that level throughout the year at those quarters. And then pharma volume, their testing volume was up 64%. And remember that the pharma business was an acquisition that was under duress last year, and it was underfunded. And when it came under Interpace, there was more funding available.

They were able to pay their vendors, they were on credit hold a lot of time last year. So they were really able to grow their business significantly relative to last year. And the 64% is going to vary. It's not really a good proxy because the type of testing they do. They do NGS testing.

They do some slide work as well. So depending on what the volume is, it could drive a lot of revenue or not, depending on whether it's NGS type testing, which is more reimbursement than you would see on some of the others. But in general, I think 64% growth on that -- pharma is probably about right when you look at the pluses and minus.

Paul Knight: With your Q1 guidance, what assumptions do you make regarding collections? Is it 30% collection rate? Or the 30% pay rate, what goes into your Q1 guidance? We can obviously back out a number on pharma solutions, but we're looking at, obviously, a diagnostics business that you were giving the guide here that it's going back to normal. But what are -- what's in your equation regarding collection rates, et cetera, that we don't have another 606 issue emerge regarding Q1 and going forward.

Jack Stover: Paul, that's a good question for both Fred and I. Let me just comment on this. Fred, I know you're -- Fred's all queued up for this one. And so by the way, Paul, we had anticipated in Q3 that we weren't going to run into that problem in Q4, which we did. But if you look at what we've done on pricing, we basically maintained our pricing at the level we've added under the reduced NRV at the end of December.

So we're feeling very comfortable about that. But more importantly, we're seeing collections improving, but we're not going to adjust the NRV with the collections we've seen so far. Go ahead, Fred, you can answer it more eloquently than I can.

Fred Knechtel: Yes. Yes.

I don't think we disclosed specific reimbursement rates. But I think to give everybody a count, we did a lot of analysis over the course of the last 3 months since I joined to really understand by the test, by the payer group, what the reimbursement was. So we can really get a good understanding of what occurred in '19, the end of '19 and then rolling into 2020. And we measure that on a monthly basis. And we're always looking -- going forward, we'll continue to look at what the reimbursement rate is.

To ensure just what you said is that, first, we accounted for it properly at the end of 2019 and as we -- every month we go, we're confirming that we do have the right reimbursement rate in NRV. And then how we're applying that same rate going forward into Q1? And that rate has been consistent through the end of '19 and into Q1. So I have a lot of confidence that we are accruing and we are booking our billings at the appropriate level based on where we're seeing collections today. And we'll evaluate it and as collections get better and the percentage gets better, then we'll apply that percentage to the most recent billings in accordance with 606. And that gives us a lot of confidence that there won't be a lot of adjustments either up or down as we go through the quarters that we're tightening the window and we're evaluating it really almost on a daily basis.

Operator: [Operator Instructions] The next question comes from the line of Ben Haynor with Alliance Global.

Benjamin Haynor: Just -- you mentioned earlier about the messaging that you've gone out there with. I mean I guess it really hasn't changed about eliminating the unnecessary surgeries and how that maybe is more acutely felt pain with COVID. But can you talk a little bit more -- provide a little bit more color on kind of how that has resonated with accounts? And maybe what your -- if you think that improves your close rate going forward? Or anything there would be helpful?

Jack Stover: Yes. Obviously, it's subjective, Ben.

And I hope you're doing well. Are you in Puerto Rico?

Benjamin Haynor: I am.

Jack Stover: We haven't heard anything about Puerto Rico -- for you guys are being -- things are going better there than in the U.S.?

Benjamin Haynor: Yes. It doesn't seem like it's too bad here, so it's good.

Jack Stover: Maybe I'll come there.

Benjamin Haynor: Come on down.

Jack Stover: Anyway, on the COVID side, basically, you were talking -- are you talking about the...

Benjamin Haynor: On the clinical services.

Jack Stover: On the clinical services side.

Benjamin Haynor: This is the unnecessary surgery...

Jack Stover: Yes. It's all over the place, Ben. But what we've seen, and we have -- one of our pathologists works part-time in a local hospital in West Virginia. And we've been working or talking with her really on a daily basis about how she's doing and what's going on in the hospital. And what we're seeing is that there's a lot of availability that was drawn for beds and physicians.

And very quickly, there seems to be more beds and physicians standing around doing little than before. And so the hospitals that are so dependent on the kind of procedures that support us are transitioning back. Otherwise, they're going to be filing bankruptcy. So it's a strange environment. So as recently as today, our volume in Pittsburgh, which we actually are talking every day.

We have a call every morning at 10 o'clock, and we see what comes in into mail. Our volume was twice what it was on average for the last week or so. So are we seeing a turnaround, et cetera, we believe we are. But what we know is the volume is not going away, and we see where it's coming from with heat map. So actually, we started doing better in California.

We started doing better in Texas. Some of the states that are opening up quicker. And as I mentioned, we are still picking up volume from New York, which is very interesting to say the least.

Benjamin Haynor: Okay. That's definitely helpful.

And then just curious on your ability to kind of close new pharma services contract, working remotely over the phone. Is that something that gets done? Or is that any impact there that you can talk about?

Jack Stover: Yes. That's really a good question, and it's really interesting because it's not clear. So 2 things. We've -- as we said in our release, we've effectively doubled the size of our business development, which is our commercial team.

And we have a really strong leader that's managing that process for us. And they've been extremely diligent about it. What they're finding is that, especially in big pharma, that people that are typically on the road and traveling that they might struggle to get meetings set up with are now available. And so what we're seeing is the pipeline is improving at an exceptional rate, even though the pull-through may have a little volatility to it. It is very interesting.

My business development guys couldn't be busier.

Benjamin Haynor: That's excellent. And then I guess -- lastly for me, on the COVID-19 testing that you're working on. I mean is that something that -- if you're successful, you expect a significant revenue from? Or is it just kind of more to keep people busy in the absence of other testing volumes?

Jack Stover: Yes. So it's a serology test.

And we're also looking at a PCR test as well as a combination. The cost of getting into it is not great. The volumes that we can manage are not huge volumes. But because we have people in our labs, and the importance of serology testing, as we go forward, we think it's important to potentially have. It is more of a -- it's a kind of a moral issue.

Being a high-quality lab, what we're seeing is a lot of lower quality labs trying to get into the space and get into the market and issue press releases around it when we have -- we really have the experience and the infrastructure to do it. And so we think we have a moral obligation as much as anything else.
All that being said, with some of our pharma partners who have thousands of employees, they've reached out to us to help them and serology testing seems to make a lot of sense. And one of the things we did do on our diagnostics side was we reached out to almost all of our customers. And we got a surprising response about the number of customers that would be interested and let us do that kind of work for them.

It's not in any of our models. We don't anticipate it. We plan not to lose money, but we're not planning on building a big business. But it gets us in the hematology space and at a higher level. And if you look at a lot of the business we do with big pharma, a lot of our business is in hematology.

So it's very kind of centric with our pharma business.

Operator: Your next question comes from the line of Yi Chen with H.C. Wainwright.

Yi Chen: My first question is on the reserves in the fourth quarter. Could you clarify whether it comes from -- it came from clinical testing services or maybe from pharma services as well? And do you expect to have it as a recurring item in the fourth quarter of this year, but potentially on a smaller scale?

Jack Stover: You want to handle that Fred?

Fred Knechtel: Sure.

So the $5.2 million reserve that we took in the fourth quarter that was related to billings in our diagnostics business, from Q1 to Q3. And that was to recognize that the billings that were -- the rate that the billings were booked at for revenue purposes, the collections were lower than what we had originally booked it at. So we had to reconcile that level of revenue based on what we were currently seeing on the collections as a percentage. So we trued that up, so to speak, for revenue for all of 2019. And as I discussed a little earlier, we're keeping track of all of our reimbursement rates for each -- actually, down to the detail of every test that we do, every bill by payer, we track every one of those from the time of the test until the time of collections so that we can ensure that we're understanding what the collections rate is and that we're applying it properly.

So we have a pretty good understanding of where we are in real-time so that these reserves will not recur. These are not going to be recurring reserves that we will have the revenue that were booked in line with the actual collections going forward every month and every quarter.

Yi Chen: Got it. Second question, have you booked any revenue from the China market in collaboration with a partner?

Fred Knechtel: In terms of our partner?

Yi Chen: Yes. Have you booked any revenue from the Chinese market?

Fred Knechtel: I can't tell you how much it is, Yi, but I can say with almost certainty that we have and let me tell you why.

When -- about the time we announced that partnership, we had a flurry of activity. Now I don't know if that's really in the pipeline or it's gotten pulled through revenue yet. So I don't want to mislead you, but we certainly have had bookings, et cetera, from the participation and working with the China partner. As a matter of fact, what's interesting about it is that in many ways, they are through the pandemic there more than we are in terms of being back to work.

Yi Chen: Okay.

Last question on the serology antibody test for COVID-19. When do you expect to enter clinical validation? And when do you expect the test to be commercially available? And how is the test differentiated from other serology antibody out there such as the test offered by LabCorp?

Jack Stover: Yes. So I'm not really familiar with what LabCorp is doing per se in serology. And we haven't sort of worked out all the pieces of it. In the last week, we have -- we've gotten reference samples in.

We have the equipment up and running, and we are heading towards validation. And we have multiple kits that are usable for it. We don't have a process or a methodology of how we're going to recruit or collect blood samples, other than basically doing them through collection sites. And so again, we will start with our own partners. We have customers that have access to collection.

They'll provide those to us. It does require a blood draw as opposed to other tests. And that's probably all I can tell you at this point in time.

Yi Chen: But since you already -- you're already operating CLIA -- 2 CLIA labs. Can you just buy kits from other companies, such as PCR test kits and provide those tests which, in theory, should have a higher sensitivity and specificity than a serology test?

Jack Stover: Yes.

So we're focused on the PCR side as well. And you're right. We do have a CLIA lab. But we also recognize the volume, if you will, on the PCR side. So we're not as interested in that as we are with -- on the antibody test.

But give us another week or so as we move towards validation, and I'll have more to talk to you. I can tell you that our lab people in Pittsburgh are confident that we will be -- I use the word up and running in the next 2 to 3 weeks. And again, this is not a big commercial play for us. It's more of an internal play. And it's interesting, though, as pricing begins to change, it looks to be more attractive, right? PCR testing has been -- was capped at, what, $51 in the last week or so, it's now over $100.

Operator: And ladies and gentlemen, that was our last question of the day. And everyone, have a great night, and thank you for your participation.

Jack Stover: Thank you, everybody.

Fred Knechtel: Have a good afternoon.