Executives: Ilan Danieli - CEO Carl Iberger -

CFO
Analysts:

Operator: Good morning, and welcome to Precipio's Quarterly Shareholder Update Conference Call. [Operator Instructions] I would now like to turn the conference over to [Mary Radomski], Precipio's in-house Counsel. Please go ahead. Company Representative : Thank you. Good morning, all.

Statements made during this call contain forward-looking statements about our business. You should not place undue reliance on forward-looking statements as these statements are based upon our current expectation forecast and assumptions and are subject to significant risks and uncertainties. These statements may be identified by words such as may; will; should; could; expect; intent; plan; anticipate; belief; estimate; predict; potential; forecast; continue or the negative of these terms or other words or terms similar meaning. Risks and uncertainties that could cause our actual results to differ materially from those set forth in the forward-looking statement include but are not limited to the matters listed under risks factors in our Quarterly Report on Form 10-Q for June 30, 2018, and our Annual Report on Form 10-K for the year ended December 31, 2017, which is on file with the Securities and Exchange Commission, as well as other risks detailed in our subsequent filings with the Securities and Exchange Commission. These reports are available at www.sec.com Statements and information including forward-looking statements speak only to the date they are provided unless an early date is indicated, and we do not undertake any obligations to publicly update any statement or information including forward-looking statements whether as result of new information, further events or otherwise, except as per required by law.

Now, let me hand over the call to Ilan, Precipio's CEO.

Ilan Danieli: Thank you, Mary. Good morning. I'd like to thank everyone for joining this call, and in particular, the many shareholders that submitted questions in advance. We'll do our best to answer those questions throughout our call today.

I appreciate the attention, interest, and support of the Company's mission and after 14 months since the merger, I am more confident than ever in the value of our goal to relieve the untold suffering and wasted resources associated with disease misdiagnosis. Accelerating growth in the second quarter both in Pathology Services our Liquid Biopsy product development and other initiatives continue to demonstrate successful execution on our plan and our team's hard work and dedication in building the business. Following my update, Carl, our CFO, will share details of the Company's financial strategy, as well as provide an update on the quarter. As we've done previously, rather than the customary narrative of reciting the numbers recently filed in our 10-Q, we'd like to use this time to give you our perspective on where to extend and where the business is going. We hope you find this format more informative, and as always, we welcome your feedback by e-mail at investors@precipiodx.com.

So with that, let me provide a business update on our progress and then Carl will provide a financial update, followed by few closing remarks from me. The [indiscernible] of our business continue to develop our Pathology Services and our Liquid Biopsy offering. On the Pathology Services side, we've doubled our sales team since the start of the year, from four to eight and this quarter we're adding four more talented reps to our team. Our experience has shown that the sales rep can reach breakeven within the first six months of his or her involvement, and by the end of the year provide a 2x to 3x ROI. Our goal is to end the year with around 15 sales reps providing coverage to close to one-third of the U.S.

market. An important factor in our appeal to quality industry talent is our uniquely differentiated value proposition, the combination of sophisticated laboratory with a streamlined access to academic pathology expertise, providing a meaningful, competitive advantage that wins clients from competition. This expansion is bearing fruit with a 200% increase in our physician customer base and a corresponding 60% volume increase year-over-year. The lag between physician increase and case volume increase is due to the fact that the sales cycle begins with a few trial cases followed by a gradual conversion of all the business to our lab. We regularly hear from customers using our Pathology Services, about the life altering clinical impact of our academic level diagnosis.

We continue to market introduction of our Liquid Biopsy technology, ICE-COLD PCR, and have made important discoveries along the way. One discovery is that the expansion of our service offering i.e. the breadth of cancer patients addressed by ICP will be the key driver of adoption by large U.S. hospitals. The decision to onboard a new test is driven by the number of patients the test will impact.

Our current test menu creates a challenge for certain sized hospitals to onboard the technology at this stage. We've already planned to address this challenge through an expedited initiative to - by the end of 2018, double the current offering to include not only lung, melanoma, and pancreatic patients, but also colon and other test products that can address the larger portion of patients seen at a hospital. Furthermore, we're exploring various other alternatives to making the integration of ICP more attractive economically. More to come on that in the upcoming quarter. Based on positive market feedback, we expect to see stronger adoption of ICP among large cancer treatment hospitals, once the menu is expanded.

Meanwhile, the regional and national reference lab market segments do have the level of volume which testifies the introduction of our technology. Our sales pipeline is expanding as a result, with numerous pilot studies in the process of completion. Overseas, our ICP offering is especially competitive due to the fact that in many markets, medical decisions are often based on out-of-pocket considerations rather than payment reimbursement, as in the U.S. Our pipeline continues to grow as we see significant interest in ICP. While U.S.

competitors are offering large, complex, and expensive NGS panels, that are largely unaffordable by most patients and actually even in the U.S., many insurance companies are still reluctant to reimburse for these tests, ICP offers a very effective, cost efficient solutions to patients. Particularly in countries like China and India, we expect significant growth as these products and tests are rolled out. Finally, our advance into the pharma research of CRO market segments is producing material opportunities where we develop customized test for specific research initiatives seeking certain genetic mutations. In this segment, we maintain a significant competitive advantage in our ability to deliver customized test in under 12 weeks for less than [$25,000] [ph], a speed and cost we believe is unmatched by competition. Some of these tests could become companion diagnostics of therapies that ultimately reach the market creating significant revenue growth potential.

We expect that during the next quarter and into next year, to enter into several strategic revenue generating partnerships with some of the industry's largest players, as well as continue to build our customer base both domestically and internationally. While we expect 2019 ICP revenue to be comprised of approximately 25% from domestic and 75% international, we expect that mix to even out as our product offering expands and the U.S. market sales cycle matures. Addressing other commercial and research initiatives, our proprietary cell culture media IV cell continues to reveal new potentially high value commercialization options and we're still in a number of strategic discussions on this product. While we continue to work with interested parties as they conduct due-diligence towards a potential acquisition, we've also received enquiries from potential users of the media who are interested in using it in their clinical laboratory.

Although we don't anticipate Precipio becoming a manufacture of this media, we do think that establishing an active user base of this media will likely increase the value of the IP significantly, and pave the way for better monetization. We are especially excited about the potential to develop a disruptive artificial intelligence solution for the pathology field. Healthcare is among the greatest potential beneficiaries of AI innovation and it’s our mission to bring the most advanced pathology capabilities to the widest number of patients in need of care. We're working with our partner Nucleai to adapt their platform hematopathology and expect to deliver a working model ready for Alpha testing in six to 12 month. Beta testing could soon begin after with a full U.S.

market roll out towards the start of 2020. Now let me turn it over to Carl to give a bit more insight on the financial side and will return to share some final thoughts. Carl?

Carl Iberger: Thank you, Ilan. Good morning. This is Carl Iberger, Chief Financial Officer.

I’m glad to have this opportunity to provide additional insight regarding our company and our progress on 2018. Last week we filed our 10-Q. This filing and all of our quarterly filings are available to the public through our website or sec.gov/prpo. For today's call while I will focus on reported information, portions of my discussion will be related to ongoing business and therefore certain initiatives that may impact future events. During our Q1 shareholder call, I outlined five overarching financial initiatives necessary to grow our diagnostic business and to execute the business plan commercializing our genetic technology.

Ilan has touched upon some of this and he will provide further discussion following my review. The key financial initiatives we have been pursuing are restructuring the balance sheet, capitalizing the company, managing expenses and driving initiatives to minimize our cash burn and leverage in place infrastructure both our hard assets and our human capital. And lastly creating financial opportunities looking at either make buy decisions or migrating internal functions to lower cost for applications. Our business today is growing. We see the trends in our in-path business and we are excited about the market opportunities and potential deployment of ICP technology.

However today we are cash constrained, we are in a cash burn environment. Additional capital is necessary to fund the business and execute our business strategy. We’re actively pursuing financing and partnership arrangements which will allow the company to continue to move forward as we grow the diagnostic business and deploy ICP. Turning to our reported financials, we are encouraged by the reported results for Q1 and Q2. We have built momentum.

On the revenue side for revenue growth, the steady continued growth in reported revenue in hemapath and biomarkers reflects these estimates in the sales force. Efforts to expand the sales force were initiated in Q1 and as noted earlier, we will continue to add resources throughout the year. With the investment in sales, testing volumes has dramatically increased. Reported volumes are above our 2018 forecast. From January to June, we’ve increased testing volumes over 200%.

Being extremely selective in who we add to our sales force is a critical component to not only building our new business but sustaining growth. We anticipate continued growth as new reps transition through product training and their full-time sales impact is realized in the balance of 2018. From a geographic coverage standpoint, we now cover 14 states based predominantly on the East Coast, Southern New England, New Jersey, Florida, Georgia, Mississippi, Tennessee, Kentucky, Texas and Southern California. Plans are to expand existing coverage in Texas and California, as well as priorities within Southeast and Midwest states. In September, we will add Michigan and Missouri to the sales portfolio.

Margins, for the company and total margins for labs reduction operations are improving each quarter. Reported cost of goods reflects all activities and demands within the lab. This includes production testing in pathology and biomarkers, but also the transition cost and upfront non-recurring expenses attributable to ICP moving from R&D lab environment to the production lab where demo kits are being prepared for evaluation and testing by potential customers. Stepping back and segmenting our services, on the revenue generation side, hemepath and biomarkers comprised our reported revenues. Hemepath's margins are approximately 32% today and with projected volume growth should exceed 50%.

Hemepath's diagnostic testing is comprised of bone marrow and core [indiscernible] blood. On the biomarker side, this service is also in a state of transition. Currently we're completing several legacy contracts and margins on these are fixed at between 10% and 20%. Future contracts will generate margins up to 40% as process and production costs have been changed. Also key to our future is establishing the Precipio's co-marketing and working relationships with key diagnostic testing labs.

The strategy is to monetize ICP technology through partnership both in the U.S. and abroad. We anticipate future periods to benefit from the groundwork established by Steve Miller, our Chief Commercial Officer. We're very encouraged not only because of the number of opportunities that exist in the marketplace being discussed, but because our development projects over the last 8 to 10 months are now transitioning into the lab environment and quality review. We've customer evaluation on our kits and the clinical efficacy of the test we will get returns on.

These are the previously discussed R&D initiatives from the last period. So success in the quality review phase will allow the Company to expand the genetic ICP offering. Notwithstanding the above, positive aspects of our business, the revenue growth and ICP expansion, additional capital is necessary and we will be pursuing this in the early periods of this quarter and in Q4. Our continued investment in sales and R&D will require near term funding. So, the company will be formalizing plans in the coming week.

At this time, I'd like to turn the discussion back over to Ilan.

Ilan Danieli: Thank you, Carl. Lastly I'd like to elaborate on a few points that were brought up by investors who sent in e-mails, regarding our liquidity situation and our plan to regain compliance with NASDAQ listing requirement to maintain a share price of above $1. Let's begin with our capital needs. We are a growing Company, and it's no secret we will require additional capital to fuel the growth of the exciting initiatives I described earlier on in the call.

Every growth company faces the choice of organic growth, which is typically slower versus faster capital driven growth. If we can breakeven as quickly as possible with our goal, we could, for example, we have kept our sales team as it was at the start of the year rather than grow the team, and rely on organic growth as the sales force increases their business without any additional headcount and associated cost. We could have chosen not to invest in the development of marketing of ICE-COLD PCR and any one of the other technologies we've developed, and we could aim to reach breakeven much faster since the breakeven point would require less revenue. In the past as a Private Company, Precipio indeed reached breakeven at an approximate revenue run rate of $3 million. Theoretically the Company can reach a breakeven point and then slowly grow organically, reinvesting its own cash into gradual growth.

However, I don't think that's what anyone signed up for. In our industry and at our stage, shareholder value is driven primarily by top line growth, which demonstrates market acceptance of the Company's offering against competition. Secondarily, by having a decent gross margin, which as Carl described, we have. And third, manageable overhead cost that don't soak up those margins. We have all those ingredients and I believe we can be 100 million revenue Company with a significant equity multiple by continuing to execute on our plan.

A laser focused on investing in revenue growth and product development while maintaining cost as Carl has described. This requires capital and I think we've demonstrated we could put that cash to good use in terms of business growth as we've shown consistently in the past three quarters of results. We recognize that last capital raise was dilutive. This was a result of the company situation post-merger and aggressive structure that we previously discussed. With now our streamlined caps table those days are behind us and we put in place the structures and mechanisms to finance the company in a gradual manner to continue our growth trend so that the next time we seek to raise significant capital we plan to be conducted from a position of strength.

We continue to show the market that we are able to convert capital into results and future capital raises will only create further shareholder value. It may be stating the obvious but management and the rest of the team collectively own approximately 10% of Precipio's equity. So mine and my team's incentives are aligned with yours the investor to maximize shareholder value in a responsible manner. This brings me to the second point I like to address the share price and our NASDAQ listing. As a recap, we received notice from NASDAQ in March and we have six months to address this with the ability to file a six-month extension in September which we will.

This gives us the additional time we need to deliver on the goals described above. Our plan to regain compliance consist of delivering on these value driving developments to regain lost ground on our share price to reach the above $1 mark without resorting to a reverse split. Knowing our current pipeline, management is confident such a maneuver will not be necessary to regain compliance. Lastly, I've been asked by investors why investors should consider Precipio as an investment and I see two reasons. At a $10 million market cap, I believe our company is extremely undervalued and I believe that in the near future, the continue results we demonstrate will correct that.

The second reason is that we're doing something that is profoundly meaningful to all of us. You've heard me say this before and I've no doubt its true today, there is nobody on this call that hasn’t been touched by cancer, and many of us have been the victims of misdiagnosis. We're providing a significant value to all stakeholders, physicians, payers and most importantly to patients. And I've no doubt that this value will translate into return for those who participate in our journey. Finally, I like to thank you all for your continued interest and support in the company and I look forward to speaking with you all on our next call.

Wishing everyone a nice rest of your day. Thank you.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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