Progressive Care, Inc. (OTCQB:RXMD) Q2 2022 Earnings Conference Call August 11, 2022 4:30 PM ET
Stuart Smith - SmallCapVoice.Com
Alan Jay Weisberg - Chief Executive Officer & Chairman of the Board
Birute Norkute - Chief Operating Officer
Cecile Munnik - Chief Financial Officer
Bob Bedwell - Director-Administrative Services
Conference Call Participants
All right, everyone. Thank you for joining us on the call today for the Progressive Care shareholder conference call today, August 11, 2022. I'm going to be joined by key members of the management team, including Chairman and CEO, Alan Jay Weisberg.
Now, before we get started with the call today, I do need to read to you the disclosure regarding forward-looking statements. I also want to mention to the members of the management team that, they are currently muted on the call, and I will be un-muting them as their turn to speak arrives, starting with Jay Weisberg.
But here's the forward-looking statements. Statements contained herein on this call that are not based upon current or historical fact are forward-looking statements in nature and constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934.
Such forward-looking statements reflect the company's expectations about its future operating results, performances and opportunities that involve substantial risks and uncertainties. When used herein, the words anticipate, believe, estimate, upcoming, plan, target, intend and expect and similar expressions as they relate to Progressive Care, Incorporate, its subsidiaries or its management are intended to identify such forward-looking statements.
These forward-looking statements are based on information currently available to the company and are subject to a number of risks, uncertainties and other factors that could cause the company's actual results to differ materially from those expressed in or implied by the forward-looking statements made here on this call.
Now, with that, I am going to turn the call over to Alan Jay Weisberg. Alan – or Jay, the call is yours, my friend.
Alan Jay Weisberg
Good afternoon. Hi. And welcome to the earnings conference call for the quarter ended June 30, 2022. I am Alan Jay Weisberg, Chief Executive Officer and Chairman of the Board of Progressive Care, Inc. Today, we would like to discuss the results of the three and six months ended June 30, 2022, as well as our plans and initiatives for the remainder of 2022 and beyond.
Assisting me today are our Chief Financial Officer, Cecile; Birute, our Chief Operating Officer; and our Director of Administrative Services, Bob.
We continued to see improvements in several segments of our business. Our 340B Covered Entities business has continued to improve due to revenues related to dispensing prescriptions and third-party administrative fees, which have returned to the same levels prior to January 2022. We attribute this to the efforts of our pharmacy 340B division team, and the Covered Entities to identify and enroll patients in assisted programs that provide better reimbursement rates.
In our value-based pharmacy business, our revenues have improved to over $9 million this quarter, an improvement of over $1 million year-over-year from the same period last year. Our patient numbers have increased steadily quarter-to-quarter in 2022. However, our profitability continues to be hurt largely due to conditions that are mostly out of our control such as inflationary pressure on items like labor costs, transportation costs for delivery services and price increases in the drugs we dispense without sufficient increases in the reimbursement rate for these same drugs.
Another negative source on our profitability is attributable to continued increased Pharmacy Benefit Managers fees, sometimes referred to as DIR fees, which we have little control over. We continue to recognize pharmacy benefit management fees as a reduction of our pharmacy revenue, but that cost is the best estimate made by management and subject to changes such as clawbacks. There has been very little regulatory relief provided to independent pharmacy, touches ourselves from Congress, centers for Medicare and Medicaid services referred to as CMS or other government entities.
However, we are encouraged by recent investigations by the Federal Trade Commission, the New York State Attorney Journal's office and others and would have been alleged to be anticompetitive practices on the part of the Pharmacy Benefit Managers. For example, we have become aware of a Federal Trade Commission study on pharmacy benefit management practices, as well as a recent investigation undertaken by the New York State Attorney General and the CVS Caremark over allegations of unfair, anticompetitive practices and potential kickback schemes.
We cannot predict how these investigations will impact our profitability, but we are hopeful that Pharmacy Benefit Managers will be required by law to be more transparent in the future. For example, according to CMS, in 2024 PBMs will have to charge their fees at the point-of-sale and can longer clawback their fees.
Going forward, our marketing and business development focus will be on our more profitable business lines, which are our long-term care business, 340B contract pharmacy services and 340B third-party administrative services. We will also develop new and expanded services in the area of primary care management and remote patient monitoring. We have done a great job, identifying such opportunities in the past, with our testing business as an example, which helped us during the pandemic to improve our cash flow and liquidity. And we are extremely excited to enter the remote patient monitoring market.
For those of you not familiar with chronic care management or remote patient monitoring, I'll take a moment to address each area. Chronic Care Management, known by the initial CCM is a critical component of pharmacy care that contributes to better outcomes and higher satisfaction for patients. A chronic condition is an illness that lasts long or persistent, such as arthritis, heart disease, diabetes, osteoporosis or cancer.
CMS recognizes that providing chronic care management services takes providers time and efforts. In 2021, CMS established separate payment under billing codes for additional time and resources that a health care provider spent to provide the services between appointments and help that many patients need to stay on track with treatment and plan for better health.
We plan to work with chronic care management providers as to the medication treatment portion of the overall treatment plan for chronic illness patients and receive payments as part of the chronic care management services build for each patient.
We announced back in May our intention to enter into the rapidly growing Remote Patient Monitoring market, known by the initial RPM. The global RPM market is projected to reach $175.2 billion by 2027, growing at a robust 27% compounded annual growth rate over the next five years.
Over 67% of Medicare beneficiary had two or more chronic conditions, accounting for 94% of Medicare spending. Our team believes the RPM space is set to be one of the most important growth areas within the healthcare industry in the near future. And it is a most logical next step, given our broad base of patients who have multiple chronic conditions.
Therefore, we have identified RPM as another source of recurring revenue for the company.
As we plan to enter into collaborative agreements with providers and health care organizations and bill them monthly for RPM, the by setup and monitoring services provided by our staff.
We are in the process of finalizing the development of our RPM platform and expect to be ready for the launch of our RPM solution during the third quarter of 2022. These business line expansions did not happen overnight. They required an expenditure as significant amounts of capital to develop the business lines and establish marketing activities and relationships with healthcare providers.
We need access to capital that is available to publicly-traded companies to develop these business lines and grow quicker can make up for the decreased profitability in our value-based pharmacy business.
To raise capital we improved our accountability and transparency by successfully becoming a reporting company subject to SEC rules and regulations. We are still pending regulatory approval to proceed with our plan to raise capital through an IPO and in conjunction with the capital raise executing an uplift to NASDAQ.
In the interim, many of the financial opportunities that were afforded to us over the last year were not better than the current convertible financing that we have with Gilead Research. We have passed on those opportunities to avoid entering into financing arrangements that will cause further dilution and therefore, be profit to our company and shareholders.
We're proud of the initiative that we've undertaken in the past two years. such as expanding our value-based pharmacy business; 340B services, testing, and vaccine services have been financial -- have been financed organically without the use of outside capital.
However, it has not been easy for us to pursue the type of growth that we believe will be reflected in our stock price without access to reasonable capital cost.
Our goal remains the same; to raise capital to pay off the Iliad note, which removed dilutive pressure on our stock price to raise capital to take care of the capital needs of the company, including developing our 340B long-term care -- chronic care management and remote patient monitoring business and ultimately set the table for our plan to uplift to a national stock exchange.
Towards mid goal, we have discussed with potential strategic investors as to raising capital through forms other than a public offering. We will keep you updated with information as it becomes available to us.
And now, I'd like to turn the call to our COO, Birute. We have recognized that it's important to periodically provide you with a detailed description of our products and the services and the markets that we serve.
Thank you, Jay and hello, everyone. We are pleased to report that our second quarter activities have built upon and continued the momentum from our first quarter performance from all our business segments.
Our focus on growth and operational excellence has allowed us to retain a status of performance as a five-star pharmacy, which will maximize our reimbursement and will allow us to earn performance bonuses with certain payers.
This positive trend is already showing in our data. We also see uptick in new patient acquisition numbers, more than in the previous quarters, including patients testing positive for COVID-19, looking for the latest and most effective therapies to treat the virus.
As many of you may know, Pfizer has received approval for the drug Paxlovid, which is authorized to treat mild to moderate COVID-19 in adult’s and kids, ages 12 and older. Molnupiravir manufactured by Merck is authorized as well for these treatments. PharmaCo is among a limited number of pharmacies authorized by Florida Department of Health to carry Paxlovid andMolnupiravir both COVID positive therapies, in stock and is able to dispense immediately to patients once prescribed treat and minimize or reduce the symptoms of COVID.
Patients who report a positive tests are eligible for Paxlovid under the FDA authorization. The federal government recognizes importance of the pharmacist role in this pandemic and beyond, and with the FDA's recent revision of the drug's emergency use authorization. As of July 7, 2022, our pharmacists here at PharmaCo with some limitations can now prescribe Paxlovid COVID-19 antiviral for directly to patients who face high risk for severe COVID-19.
We also are one of the very few independent pharmacies that are able to purchase and distant CABENUVA, an HIV injectable treatment drug, and attitude and injectable PrEP therapy for reducing the risk of getting affected with HIV.
These are breakthrough therapies that we can obtain and provide the patients and increase compliance because it is easy for patients to be compliant since it is taken only once every month or every two months versus taking a pill every single day.
It gives us such a huge advantage as a 340B contracted pharmacy versus others, who have no such access. This advantage provides us with more opportunities to establish new relationships, and to grow our business.
We are continuing to make progress with our ClearMetrX platform development, currently undergoing beta testing, and providing access to select users. ClearMetrX will allow 304B entities to review certain aspects of their business in an easy-to-use portal, which displays many details of the covered entities performance, including, but not limited to, financial performance, their revenue collected, detailed information related to 340B qualified claims, and future collections, among others.
Our mission as a long-term care pharmacy is to provide accurate and safe medications in easy-to-use packaging for our customers and nursing health care centers. As long-term care changes to accommodate an aging population, our pharmacists must also consider ways to diversify offerings, save costs and improve medication adherence.
Management believes delivering medications in customized packaging, which we call Smart-Pack, can attract new businesses, while use of automation reduces touches to meds and prevents downtime with stock call-out. Our revenue from long-term care contracts results in higher profit margins, unlike our value-added pharmacy business, which has been negatively impacted by PBM fees.
We have begun marketing to long-term care facilities to provide services to patients. To enable us to service, the increased number of patients from our long-term care contracts, we purchased new technology from Parata called the Parata Perl, which will improve our efficiency and reduce our costs through pharmacist time savings. This new equipment will help us to increase our dispensing model, without increasing existing staff levels.
Remote patient monitoring, as Jay mentioned, is in the works. We are excited about RPM, because it provides new possibilities, and it can help doctors keep patients healthier, while generating additional revenue. It is a phenomenal solution for those patients that need help to stay on track on their health goals, and allow older and disabled individuals, to live at home independently longer, and to avoid moving to assisted or skilled nursing facilities, which is a goal of the health care system as a whole to keep patients happier and to save costs.
Let me explain to you how it works. A physician has to prescribe the patient in need of monitoring a device, like a blood pressure monitor, weight monitor, thermometer or blood glucose monitor. And we will provide everything needed to track it, and alert if there are any issue. We will set the patient up, contact over the course of a month, and provide billing and reporting to the prescribed physicians via our RPM platform. It is a recurring source of revenue, because patients can stay on a program for several months.
And doctors love it, because it provides them with a real-time data on patient conditions, so they can act immediately, if necessary, and prevent problematic outcomes and, most importantly, hospitalization.
Another exciting point about RPM that is, as the name says remote, opening up possibilities to expand throughout the United States. We are also working with a partner company on a pilot program for an exciting new device, which will allow us to merge pharmacy services and devices to a unique product service combination in order to increase patient adherence via technology and active monitoring.
We plan to dispense prescription medication in a special packaging which will allow us to know if the patients took their medication or not and will allow us to provide reminders to the patients via app and report to caregivers who subscribe their services online. It will be a recurring cash revenue opportunity, which would contribute to our bottom line.
We believe that the future of Progressive Care is in technology that will enable health care providers to monitor their patients remotely no matter what they are for their medication adherence as well as ongoing care. Furthermore, we believe RPM is the most promising solution to improve care, reduce costs and create efficiency. We are looking forward to updating you on the progress of our RPM initiatives in our future communications.
Back to you, Jay
Alan Jay Weisberg
Thank you, Birute. Let's continue with a summary of our quarterly financial report, which provides you with a financial position as of June 30, 2022, and results of operations, changes in stockholders' equity and cash flows for the three and six months ended June 30, 2022. The financial statements in the report were reviewed by our Independent Public Accounting Firm Daszkal Bolton. Please be sure to review our financial report, which is available both on the SEC and OTC website as well as our website.
Cecile, our CFO, will walk us through the financial results.
Thank you, Jay, and good afternoon, everyone. Like Birute said, we are pleased to report that our second quarter activities have built upon and continue the momentum from our first quarter performance. For the quarter ended June 30, 2022 and 2021, we recognize overall revenue for operations of approximately $10 million and $9.6 million, respectively. This is a $400,000 period-over-period increase. The increase in revenue was mainly attributable to an increase in pharmacy revenue of $1.1 million, which is offset by a decrease in COVID-19 testing revenue of $700,000 when compared to the same period in 2021.
Dispensing fee and third-party administrative revenue earned on our 340B contracts for the three months ended June 30, 2020 and 2021 were flat. However, our revenue from 340B contract showed a significant increase from the first quarter of 2022 to the second quarter of 2022, which is mainly due to our existing covered entities continued enrolling patients in alternative programs and insurance plans that provide greater reimbursement.
We have filled approximately 118,000 and 107,000 prescriptions during the three months ended June 30, 2022 and 2021, respectively. This is a 10% period-over-period increase in the number of prescription sales. This was also an increase of 6% over the 111,000 prescriptions we filled during the first quarter of 2022.
For the three months ended June 30, 2020 and 2021, we have earned approximately $400,000 and $1.1 million, respectively, from COVID-19 testing. The decrease was primarily due to lower COVID-19 testing sales. As the COVID-19 pandemic faded worldwide, the need for testing has decreased as it relates to travel and business continuity. However, despite the downturn of the COVID-19 testing needs, we have generated approximately $400,000 in COVID-19 testing revenue for the three months ended June 30, 2022.
It is difficult to project whether these conditions will be recurring, given recent COVID-19 pandemic conditions in Florida. We are well positioned to react if another COVID-19 outbreak occurs, as we have built a reputation of being a reliable partner for COVID-19 testing solutions. We have built reputable relationships with well-known media production companies, and these relationships provide us with recurring COVID-19 testing revenue.
Gross profit margins decreased from 27% for the three months ended June 30, 2021, to 20% when compared to the same period in 2022. The 7% period-over-period decrease is due to the decrease in COVID-19 testing revenues, which has significantly higher margins than pharmacy operations.
The loss from operations increased by approximately $12,000 for the three months ended June 30, 2022, when compared to the same period in 2021, due to the decrease in COVID-19 testing revenues, which is offset by an increase in prescription revenue and a decrease in overall operating expenses.
The decrease in operating expenses was mainly attributable to the following: decrease in salaries, wages and employee-related expenses due to period-over-period decrease in headcount and less time invested in training our pharmacy software, when compared to 2021; decrease in consulting fees, decrease in rent expense due to non-recurring leasehold improvement-related expenses, and a decrease in amortization expense due to intangible assets being fully amortized.
Our cost reduction efforts were successful in the areas of the employment related to costs, eliminating redundancies and consultant costs and reducing rent expense through renegotiating less costly lease renewal.
Our net loss was negatively impacted by non-operating items, such as unfavorable changes in the fair value of the derivative liability, attributable to the embedded conversion feature in the Iliad Research convertible note and other finance costs associated with the extension of the maturity date of the Iliad Research note.
Our cash position was over $2.2 million at June 30, 2022, up from the $1.4 million at December 31, 2021, and we expect our cash position will remain around this level through 2022. That completes my remarks on the financial results for the second quarter of 2022.
Back to you, Jay.
Alan Jay Weisberg
Thank you, Cecile. Our outlook for the remainder of 2022 and beyond is positive. We continue our progress towards diversification and expansion of our business lines in long-term care, chronic care management, and remote patient monitoring, a capital raise to pay off the Iliad Research notes and to provide the working capital to complete the development of our data platform and our ClearMetrX subsidiary and to achieve other strategic goals such as widening our geographic market that we serve.
On behalf of all of us working at Progressive Care, we are endlessly grateful to our shareholders for their continued confidence and support as we continue on our path for a record-breaking 2022. Today your loyalty and support is more valuable than ever and we are dedicated to rewarding you with continued loyalty and long-term support.
That concludes our remarks for the earnings call. We'd like to turn now to questions that we received in advance of the earnings call. Our Director of Administrative Services Bob will review the questions that were received prior to our call today and provide responses.
A - Bob Bedwell
The first question, what's the current balance of the Iliad convertible note? How many years do you think they will need to complete the whole conversion for the debt?
The balance of the Iliad convertible debt is currently $2.7 million. We have until May 2023 which is the extended maturity date to satisfy that note in full. If necessary, we'll work with Iliad to negotiate another extension with them. But as we said during this call, we are looking to eliminate the Iliad debt by raising capital through an offering that will provide us with much better terms.
The second question now that the company is fully SEC-compliant, are you eligible to get any conventional bank loans for business expansion and paying off the debt?
We've been trying very hard to use every opportunity to raise capital from traditional sources like banks. But the terms of the bank loans or other arrangements that have been afforded to us thus far have been very -- either very expensive in terms of interest cost or toxic as to dilutive effects to both the company and our shareholders.
We've also tried to finance our receivables, but there are a few companies that are willing to lend based on medical receivables. And again, the interest terms offered were very expensive. So we'll continue to pursue financing from the capital markets for available capital sources.
Question number three, when will the S-1 filing be effective?
The S-1 filing will become effective when the SEC declares it effective. However the effectiveness of our registration statement is contingent upon approval from other regulatory agencies.
Question number four, do you have any comment on the current stock performance? What has to be done to regain the retail investors' confidence in your company to raise the stock price?
It's management's opinion that the markets are severely undervaluing our company. We think our valuation is lower than that of a private company. So we believe we are trading at a significant discount. The officers have bought stock in the company from the open market in the past which we believe would reflect confidence in the company's current as well as future business.
Question number five, if the stock price remains at the current level will you consider canceling the reverse stock split and the uplift?
Management remains committed to our plans to uplift and implement a reverse stock split as necessary and if required for us to meet NASDAQ listing requirements.
Question number six. When will you hit breakeven and when will you reach sustainable positive cash flow?
The company is approaching breakeven from operations from our retail pharmacy testing and 340B businesses. We anticipate that our diversification into the new lines of business described in this call, such as long-term care, remote patient monitoring, and chronic care management that we've discussed will further improve our profitability.
Question number seven, how important is selling, general and administrative spending to drive revenue growth?
We believe that selling, general and administrative spending is very important to support our investments in marketing for expansion of our 340B third-party administrative business nationwide, the technology that underlies the new RPM and CCM business activities, again it's remote patient monitoring and chronic care management business activities. The expansion of labor and new equipment that is necessary to handle the increased volume of prescriptions from our long-term care business.
Question number eight. What new products are you anticipating that will help grow the topline?
We've mentioned during our call, our expansion into remote patient monitoring and chronic care management, as well as expansion into long-term care business, which we anticipate will be profitable additions to our bottom line.
Question number nine. Who is your major competition?
The big box SPARx [ph] pharmacies like CVS, Walgreens, Publix [ph] here in South Florida are our biggest competitors, but also the biggest opportunity for us to gain more patients due to our superior service. Our biggest challenge is PBM-owned, again its pharmacy benefit manager-owned and payer-owned mail-order pharmacies, as well as clinics and management services organizations known as MSOs that own their own pharmacies. However again they don't offer the same level of service that we do. So although they control the market, they offer us a large opportunity to gain more patients.
Question number 10. How do you work with the major pharmacy benefit managers?
We have preferred contracts with the majority of the major pharmacy benefit managers. We are considered to be one of the highest rated and performing pharmacies as to service. We get the most benefit from our contracts because of our high levels of standards for medication adherence.
Question number 11. What advantages do you have versus a major national pharmacy benefit manager or PBM?
Just taking a step back for a moment and let's define what a pharmacy benefit manager or a PBM is. They are companies that manage prescription drug benefits on behalf of health insurers, Medicare Part D drug plans, large employers and other payers. So we don't compete with the PBMs themselves. Who we compete with is the PBM-owned pharmacies. We're better than many of the PBM-owned pharmacies because again of our high level of service in terms of delivery services, medication adherence, data management and analytics that are focused on assisting providers and MSOs to meet or exceed their performance metrics that are required by the PBMs as well as third-party payers. Also PBMs cannot penetrate to the same demographics that we serve because of our relationships with providers, communities and health care organizations.
The final question, question number 12. Please clarify what had happened with the Iliad note on July 15, 2022? Why wasn't it paid off? The investor thought RXMD, Progressive Care had excess cash reserves to pay off the note that was diluting Progressive's shares. That's the end of the investor comment.
Our response; although, we have $2 million of cash on our balance sheet, our cash balance fluctuates up and down throughout the reporting period. Our cash outflows for operations don't always coincide with cash inflows from payers. So we need to maintain minimum cash balances for working capital purposes such as inventory purchases payroll and other accounts payable. We have used our operating cash as well toward development of the ClearMetrX platform as well as expansion into new lines of businesses like testing and vaccinations.
So that was all the questions we have for today. Again, we thank you for taking the time to join us on this call and for submitting your questions to us. We hope that you have a great remainder of the year, and we look forward to talking with you again in November during our next earnings conference call.
All right. Thank you.
Alan Jay Weisberg
Thank you everybody.
Sorry. Jay, go ahead.
Alan Jay Weisberg
Yes. Thank you everybody. Thank you Bob. Stuart, back to you.
Yes. I just want to let everybody know, because I did see some people come in after the start of the call for those that weren't able to hear the entire call, it's going to be available in about 30 minutes at SmallCapVoice.com click on our Clients tab. And of course, at progressivecareus.com that will be on their News Releases tab. So the archive of this will be available from now and for the next few months. So if you see anybody on the message boards, we'll drop it in there as well.
For all the team at Progressive Care, ticker symbol RXMD, we want to thank you for joining us today. Jay, Birute, Cecile, Bob, thank you so much for your participation. And, of course, to the shareholders thank you so much for your continued support. Have a great rest of your day.