© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Greetings and welcome to the Interpace Biosciences third quarter financial and business results conference call. [Operator Instructions] As a reminder, this conference is being recorded and will be available on the Interpace's website at www.interface.com.
During this call, the company will be making 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 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 forward-looking statements made in this 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, as amended and the forward-looking statements section of our Form 10-Q filed with the SEC effective January 20. Investors or potential investors should carefully read and consider these risks. Interpace Bioscience 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 is available on its website.
I'd now like to turn the conference call over to President and CEO of Interpace Biosciences, Thomas Burnell.
Thank you, Devon. And thank you all for joining us this afternoon for a review of Interpace's financial results and business highlights. With me on the call today is Fred Knechtel, our Chief Financial Officer; and Tom Freeburg, our Chief Accounting Officer. Fred and I will make some brief comments on our third quarter and year-to-date financial progress and provide a general business update. Following that, we will open the call for questions.
But before we get started, I'd like to take a moment to wish Jack Stover well in his retirement. I'm excited about the opportunity to be leading a company that Jack was so instrumental in creating. Together with the continued support of our private equity investors and our common shareholders, we will accelerate our goals as market conditions improve through 2021.
I'd like to briefly introduce myself. I come to Interface with 25 years of leadership experience, having led clinical diagnostics, pharma services, laboratory services, health care, biotechnology and nutrition services company -- companies. Having worked in multiple areas of the health care spectrum, coupled with the strength of the existing corporate resources, I am confident that Interface will continue to excel in its core strength of supporting patient care, physicians and novel drug developments. It is our expectation to align the company with its lab operations in order to create sustainable, profitable revenue growth.
We anticipate presenting 2021 goals and objectives when we meet again to review the 2020 full year results in March. We are pleased with our third quarter performance as market conditions improved from the second quarter lows as a result of the COVID-pandemic slowdown. Net revenue was $8.2 million, up 52% relative to the second quarter and exceeded the top end of our range. Clinical services molecular test volume, a ThyraMIR price increase and higher payer reimbursement rates were significant contributors to the third quarter improvements, which continued into the fourth quarter. In addition, this month, we began realizing reimbursement on the Medicare ThyGeNEXT price increase, which was effective as of December 13 date of service. However, our pharma services testing business and testing activity slowed in the third quarter and continued down in the fourth quarter. Given these recent trends, we expect fourth quarter net revenue to be in the $9 million to $10 million range.
Now I'd like to hand the call off to Fred to discuss in more detail our financial highlights for the quarter. Fred?
Thank you, Tom, and good afternoon, everyone. Third quarter 2020 net revenue was $8.2 million, up 7% from the $7.7 million in the third quarter of 2019. Our year-to-date net revenue was $22.8 million, up 14% from the same period in 2019, which included the Pharma Services business starting in early Q3 of 2019. Clinical Services revenue represented 68% of total net revenue in the third quarter. Third quarter net revenue was 52% higher than the second quarter. Increased revenue was driven by higher molecular test volume as we recovered from the pandemic lows in the second quarter, better reimbursement rates and realization of our ThyraMIR price increase. Pharma Services revenue declined through the third quarter and continued down in the fourth. Third quarter 2020 gross profit was $3.1 million, and total gross margin was 37% compared to $2.9 million gross profit and 37% gross margin in the third quarter of 2019.
We are pleased to announce as of December 19, we have successfully transitioned the testing capabilities from our Rutherford, New Jersey lab to our Morrisville, North Carolina lab. The Rutherford lease terminates March 2021. The North Carolina lab offers an end-to-end solution all under one roof, allowing for optimization and efficiency in supporting our pharma and CRO partners. In addition, we completed finance and accounting integration activities related to the acquisition and have focused on building business backlog. Third quarter operating expense was $9.1 million, $0.9 million lower than $10 million in the third quarter of 2019, but $1.7 million higher than $7.4 million in the second quarter of 2020. As clinical services volume improved through the third quarter, we added back employee costs, which were reduced in response to lower volume due to the pandemic. The added costs included reinstatement of the 10% to 15% reduction in employee salaries and callback of furloughed employees. In the third quarter, there was $1.1 million of nonrecurring expense related to the billing investigation and pharma lab transition.
Third quarter 2020 adjusted EBITDA loss of $2.9 million. Improvement in EBITDA is primarily driven by the higher clinical services revenue and lower operating expense, which was adjusted for nonrecurring expenses. On January 7, we successfully closed on a $5 million secured bridge loan with our existing equity investors, Ampersand Capital Partners and 1315 Capital Partners, which further demonstrate their commitment as a strategic partner to the company. Concurrently, we terminated the SBB line of credit, which had no borrowing availability. As of January 15, we had a cash balance of $6.1 million, net of restricted cash.
During the first 9 months of 2020, we used $12.4 million in cash from operating activities as compared to $12.6 million for the comparable period of 2019. On January 19, the company filed an amended Form 10-K and 2 amended Form 10-Qs, which reflected restated financial statements in connection with an impairment charge and amortization expenses recorded primarily from our Barrett's intangible asset, which impacted fiscal years 2014 through 2019. Barregen is currently in a clinical evaluation program under which we continue to gather information from physicians using it to assist us in collecting clinical evidence relative to the safety and performance of the test and also provide us with data that will potentially support future payer reimbursement. The current net value on our books for the Barregen after these recorded charges is approximately $1 million. While we still believe Barregen is a viable asset, and we continue to support commercialization and reimbursement efforts, there is no guarantee that we will be successful in fully launching the test and realizing revenues. As a result of the impairment and amortization charges, our net loss year-to-date, stockholders' equity on September 30, 2020, is negative $21.8 million, and we are currently not in compliance with NASDAQ's $2.5 million minimum stockholders' equity listing requirement. We are currently exploring options to improve our liquidity position and also meet the $2.5 million minimum stockholders' listing requirement. However, there can be no assurances that we will successfully -- in remediating the deficiency.
Tom, back to you for closing statements.
Thank you, Fred. Over the course of the past 6 weeks that I've been associated with Interpace, I have worked with the Interpace team and the Board to gain a solid understanding of the details of this business. My observations of the company, is a quality-driven, technology-based commercial organization with a strong platform to support patient care as well as novel drug development. The focus will be to continue to leverage the current foundation while simultaneously aligning our resources with the needs of the company to support revenue and profitability growth. It certainly was a challenging year and time for the company as it adjusted to the implications caused by the COVID-19 pandemic, a reimbursement investigation as well as accounting issues.
If there remains a strong platform for growth and improved profitability, we have strong support from our shareholders and PE investors to support our growth, and I'm currently working with the Board to evaluate all of our options to capitalize the company, consistent with our growth strategy. I intend to keep you all updated on our progress as we finalize our options. We're pleased with the improving business trends that we saw in the third quarter and are continuing to see in the fourth quarter, as well as the progress we are making in streamlining our pharma services business and improving overall operational efficiency of our diagnostics business. We will continue to be responsive to changing conditions, while proactively improving business processes and further integrating our service offerings.
So with that, I'd like to turn it back over to the operator for Q&A.
[Operator Instructions] We do have a question from the line of Yi Chen with H.C. Wainwright.
My first question is what would be the main goal or a main strategy for the company in 2021?
Thank you for the question. The focus and strategy for the company in 2021 is to put itself in the position to achieve cash flow breakeven through a number of actions that would allow us to grow our diagnostics business, grow our biopharma services business in North Carolina and align our resources along with those laboratories to allow that to happen.
And do you think which segment has the biggest potential during this year? Is it the diagnostic testing service? Or is it the biopharma services?
This is Fred. I think we have some really exciting things that are going on in the Diagnostics business. We just announced, and if you picked up on it, the ThyGeNEXT price increase, and that's going to be a nice contributor, particularly as volumes start to improve through the year. And it's quite a substantial increase for us. It's going up to $2,900. So now both ThyGeNEXT and ThyraMir are priced at $2,900. So that's going to provide some really good upside opportunity as we continue to go through. PancraGEN continues to be pretty strong for us in reimbursement. And we're seeing improved reimbursement rates across the board really in Medicare due to the price increase, but also Medicare Advantage. We're starting to see a lot of pull-through on the Medicare Advantage. We signed quite a few contracts, particularly in the Blues this year, that will continue to foster some good growth into 2020 -- 2021. So we see a lot of exciting opportunities not just on the front end, but also in making our lab much more efficient, as Tom alluded to, there's some nice projects around automation that will improve our gross margins going forward. And with the higher volume, we should really be able to leverage that more efficient footprint quite nicely through the end of the year.
Okay. In terms of the biopharma services, do you think that has the potential to outgrow the testing service?
Certainly not in the near term. We're seeing some rapid growth in diagnostics. The pharma business is seeing still a little bit of an impact from COVID just with participation and getting started with where we operate. And we continue to build the backlog. And -- but the backlog is with some bigger contracts and the longer-term contracts that will provide some nice revenue for us as we go through the year, and we'll see that business continue to grow through the end of next year, but still, I think, a little challenge this year. So really it's probably not until later in the year into 2022 that we're really going to start seeing that pharma business catch up to diagnostics.
Got it. So within the first half of 2021, what catalyst share can we expect to occur?
Catalyst as far as?
Yes, catalyst in terms -- for the company.
I think...
For example, additional agreement with payers.
Yes. So some of the catalyst -- the main catalyst is watching how some of the regions start to recover from COVID. And that's -- we're starting to see a little bit of slowness in some of our important regions like Florida, California, Midwest and more recently in New York, where less and less patients or more COVID patients are in the clinics and the hospitals and some of the screenings are starting to slow down. So as the vaccine comes in and, I think, we learn to operate a little bit more freely, that's going to be a big catalyst is how we recover, particularly in the first quarter as we're starting to see signs of slowness -- slowing down. And then in the pharma business, the catalyst is going to be continuing to build the backlog, get some contracts with some of our bigger customers, particularly in the first quarter and focusing a lot more on that year-on-year revenue, maybe shorter-term contracts, quick hit contracts that we're able to leverage our state-of-the-art facility in North Carolina. Now that it's all consolidated into one lab, we'll see -- we'll start seeing some good margins now that we're operating on a lower cost footprint, which lowers our breakeven point. So as we produce some of that more year-on-year revenue, we're going to see the margins in that business improve probably quite dramatically going into the second quarter.
[Operator Instructions] There are no further questions at this time. I would like to thank you on behalf of Interpace Biosciences for joining the call today. You may now disconnect your lines and have a wonderful day. Yes. Thank you, everyone.