Precipio Inc. (NASDAQ:PRPO) is a specialized cancer diagnostics company that has been steadily navigating the challenges of the healthcare industry to emerge as a promising player in the field of cancer diagnosis and treatment. With a strong focus on addressing the pervasive issue of cancer misdiagnosis, Precipio has developed innovative technologies and services aimed at improving diagnostic accuracy, enhancing laboratory workflow, and ultimately, delivering better patient outcomes.
Business Overview and History Precipio was founded with the mission of addressing the pervasive problem of cancer misdiagnoses by developing solutions in the form of diagnostic products and services. To deliver on this strategy, the company structured its organization to develop diagnostic products, including operating CLIA laboratories in New Haven, Connecticut and Omaha, Nebraska where it provides essential blood cancer diagnostics.
A key aspect of Precipio's business model is its reliance on its CLIA laboratory to support research and development of the products it develops. This approach allows the company to significantly reduce development costs and timelines. As a clinical laboratory, Precipio is always the first user of every product it develops, which enables the company to optimize important laboratory functions such as workflow, inventory management, regulatory and billing issues. This unique position also lends Precipio significant credibility with existing and prospective customers, as it demonstrates the company's confidence in its own products.
Over the years, Precipio has faced various challenges, including substantial operating losses and use of cash in its operating activities. The company has worked to address these issues through cost-cutting measures and improving the efficiency of its operations. Despite these challenges, Precipio has made progress, as evidenced by its increasing revenues from $9.4 million in 2022 to $15.2 million in 2023, representing a 60% year-over-year increase.
Financial Performance and Outlook Precipio's financial performance in recent years has been characterized by steady growth and a concerted effort to reach profitability. In the fiscal year 2023, the company reported unaudited revenues of $15.2 million, a 60% increase from the prior year's $9.4 million. This growth was driven by strong performances in both the Pathology Services and Products divisions.
The Pathology Services division, which provides essential blood cancer diagnostics to healthcare providers, exceeded its breakeven point in the fourth quarter of 2023, demonstrating the division's ability to generate positive cash flow. The Products division, responsible for Precipio's suite of diagnostic tools and assays, also showed promising progress, with revenues increasing by 115% year-over-year.
Financials The company's focus on cost-cutting measures and operational efficiency has been instrumental in its journey towards profitability. In the fourth quarter of 2023, Precipio's cash burn from operations dropped below $100,000, a significant improvement compared to the previous quarter's $1 million burn rate. This achievement, coupled with a cash balance of $1.4 million as of December 31, 2023, positions the company well to continue its growth trajectory without the need for dilutive capital raises in the foreseeable future.
For the fiscal year 2023, Precipio reported revenue of $15.20 million, with a net income of -$5.85 million. Operating cash flow (OCF) was -$3.56 million, and free cash flow (FCF) was -$3.69 million.
In the most recent quarter (Q3 2024), the company reported revenue of $5.21 million, representing a 15% increase compared to the same quarter in the prior year. Net income for the quarter was -$626,000, while OCF improved to $41,000 and FCF was -$68,000. The increase in revenue was primarily driven by a 23% increase in service revenue from the Diagnostic Testing segment, partially offset by an 18% decrease in product revenue from the Biomarker Testing segment.
The Diagnostic Testing segment, which generates revenue from providing essential blood cancer diagnostics, recorded service revenue of $4.60 million in Q3 2024, up from $3.74 million in Q3 2023. This increase was driven by a 70% rise in the number of patient cases processed, from 2,100 in Q3 2023 to 3,580 in Q3 2024. However, the increase in case volume was partially offset by a lower average price per case due to a shift in product mix. Gross profit for this segment was $2.28 million in Q3 2024, representing a gross margin of 44%, compared to $1.89 million and 42% in Q3 2023.
The Biomarker Testing segment, which provides biomarker testing services to biopharmaceutical companies, generated $681,000 in product revenue during Q3 2024, down 18% from $831,000 in Q3 2023.
Overall, Precipio's total net sales for Q3 2024 were $5.21 million, an increase of 15% compared to $4.52 million in Q3 2023. Gross profit for the company as a whole was $2.28 million in Q3 2024, up from $1.89 million in Q3 2023, with an overall gross margin of 44% compared to 42% in the prior year period.
Liquidity Precipio's management has set a goal of reaching breakeven in 2024, a milestone that would mark a significant turning point in the company's history. By eliminating the need for ongoing capital raises, Precipio can focus its resources on further enhancing its product offerings, expanding its market reach, and delivering sustainable shareholder value.
As of the end of Q3 2024, the company had $1.05 million in cash on hand. In May 2024, Precipio secured a $500,000 short-term credit facility to help address any delays in cash collections due to the Change Healthcare cybersecurity incident. The company's debt/equity ratio is 0.044, indicating a low level of debt relative to equity.
The company's current ratio is 0.73 and quick ratio is 0.60, indicating potential liquidity concerns that the company is working to address through improved operations and cash management. Precipio's cash burn was reduced by 75% from Q3 2023 to Q3 2024, going from approximately $1 million to $226,000. Management sees no need for capital raises at this point, as they are rapidly approaching breakeven.
Competitive Landscape and Risks The cancer diagnostics industry is highly competitive, with numerous players vying for market share. Precipio faces competition from both established industry giants and emerging startups, each offering a range of diagnostic solutions. The company's ability to maintain its technological edge, forge strategic partnerships, and effectively market its products will be crucial in navigating this competitive landscape.
Additionally, Precipio operates in a heavily regulated industry, with stringent requirements for product approvals and laboratory certifications. Navigating the regulatory landscape and ensuring compliance with various healthcare regulations is an ongoing challenge that the company must manage diligently.
The company's reliance on a limited number of large customers, as well as the potential for reimbursement changes or delays, also pose risks that Precipio must address. The company's ability to diversify its customer base, secure favorable reimbursement terms, and adapt to industry changes will be key factors in its long-term success.
Pandemic Impact and Recovery The COVID-19 pandemic had a significant impact on Precipio's operations, as healthcare providers focused their resources on addressing the public health crisis. This resulted in a temporary slowdown in the company's diagnostic testing volumes and revenue growth. However, Precipio demonstrated its resilience by implementing cost-cutting measures and leveraging its innovative technologies to adapt to the changing market conditions.
As the healthcare industry gradually recovers from the pandemic's effects, Precipio is well-positioned to capitalize on the renewed demand for its diagnostic services and products. The company's focus on addressing the critical issue of cancer misdiagnosis remains highly relevant, and its ability to deliver accurate and efficient diagnostic solutions is likely to drive increased adoption of its offerings.
Future Outlook and Guidance Precipio has reiterated its goal of reaching breakeven in 2024, stating that their Q3 2024 growth demonstrates they are well on track to achieve this objective. For the Pathology division, revenues exceeded the division's breakeven point at $4.5 million per quarter, representing an 18% increase from Q2 2024. The company's goal is to reach a $20 million run rate for the Pathology division and remain above the breakeven point. To support this, Precipio may hire one more salesperson to provide additional revenue stability for the division.
The Products division saw a 13% increase in Q3 2024 revenues over Q2 2024, reaching $680,000. Precipio has three key customers in various onboarding stages, with the full impact of these customers expected to be seen in Q4 2024 and Q1 2025. The Products division is anticipated to become the main growth engine for the business going forward due to its recurring revenue, customer retention, and higher margins compared to the Pathology division.
Conclusion Precipio Inc. (NASDAQ:PRPO) has emerged as a resilient and innovative player in the cancer diagnostics market. With its proprietary technologies, integrated business model, and a steadfast commitment to improving patient outcomes, the company is poised to capitalize on the growing demand for accurate and efficient cancer diagnosis. Despite the challenges posed by the competitive landscape and regulatory environment, Precipio's progress towards profitability and its strong financial position suggest a promising future for the company and its shareholders.
The company's focus on reaching breakeven in 2024, coupled with the strong performance of its Pathology Services division and the potential growth in the Products division, provides a solid foundation for future success. As Precipio continues to execute its business plan and achieve consistent strong performance, investors can expect more detailed guidance on future revenue and EBITDA performance in the coming quarters.