Business Overview and Detailed Company History:
Predictive Oncology Inc. (NASDAQ:POAI) is a pioneering biotech company at the forefront of leveraging artificial intelligence (AI) and machine learning (ML) to revolutionize the drug discovery and development process. With its proprietary biobank of over 150,000 tumor samples, cutting-edge AI/ML capabilities, and state-of-the-art CLIA laboratory, Predictive Oncology is uniquely positioned to accelerate the discovery of novel oncology therapeutics and transform the future of cancer treatment.
Predictive Oncology was founded in 2002 with the vision of applying advanced technologies to improve the efficiency and success rate of oncology drug development. The company’s origins trace back to its initial focus on the STREAMWAY System, an FDA-cleared automated fluid waste management solution for the medical industry. However, in 2017, Predictive Oncology underwent a strategic shift, refocusing its efforts on the promising field of AI-driven drug discovery.
In 2019, the company made a significant move by acquiring Helomics Corporation, a pioneer in the application of AI and machine learning for precision oncology. This acquisition provided Predictive Oncology with a robust biobank of over 150,000 cancer tumor samples, as well as Helomics’ proprietary AI platform and CLIA-certified laboratory. This expansive biorepository, combined with Predictive Oncology’s AI/ML capabilities, has become the foundation of the company’s innovative drug discovery approach.
Building on this strong foundation, Predictive Oncology has continued to expand its capabilities through strategic partnerships and acquisitions. In 2020, the company made two additional acquisitions – assets from Soluble Therapeutics and assets from BioDtech. These transactions further strengthened the company’s drug discovery platform by adding capabilities in protein production, solubility, and stability studies.
In 2021, the company acquired zPREDICTA, a leader in the development of organ-specific 3D cell culture models that mimic the physiological environment of human tissue. This technology has enabled Predictive Oncology to create more accurate in vitro models for drug testing, further enhancing its ability to predict clinical outcomes and de-risk the drug development process.
Throughout its history, Predictive Oncology has faced several challenges. In 2020, the company incurred significant losses and impairment charges, which led to a reverse stock split in 2023. The company has also struggled to consistently generate revenue and achieve profitability, relying on debt and equity financing to fund its operations. Managing the integration of its various acquisitions has also been an ongoing challenge for Predictive Oncology.
Despite these challenges, Predictive Oncology has made progress in developing its artificial intelligence and machine learning capabilities, expanding its proprietary biobank of tumor samples, and enhancing its in vitro drug testing platforms. The company continues to operate in the fields of oncology drug discovery and development, leveraging its unique assets and expertise to support its biopharmaceutical partners.
Financial Performance
Predictive Oncology’s financial performance has been characterized by ongoing investment in its AI-driven drug discovery platform and the integration of acquired technologies. For the fiscal year 2023, the company reported revenue of $1.78 million and a net loss of $13.98 million. Operating cash flow for 2023 was negative $13.19 million, with free cash flow at negative $13.49 million.
In the most recent quarter (Q3 2024), Predictive Oncology reported revenue of $345.69K, representing a 48.9% decrease compared to Q3 2023. The net loss for Q3 2024 was $3.09 million, a 2.2% decrease compared to the same period in 2023. Operating cash flow and free cash flow for the quarter both stood at negative $2.28 million.
The company operates through two main business segments: the Pittsburgh segment and the Eagan segment. The Pittsburgh segment, which focuses on AI-driven services and 3D cell culture models, generated revenue of $3.91K in Q3 2024, down significantly from $417.10K in Q3 2023. This decrease was primarily due to reduced sales of tumor-specific 3D cell culture models. The segment loss for Pittsburgh operations increased to $1.05 million in Q3 2024 from $674.95K in Q3 2023.
The Eagan segment, which produces the STREAMWAY System for medical fluid waste management, saw an increase in revenue to $341.78K in Q3 2024 from $259.53K in Q3 2023. This growth was attributed to higher sales of STREAMWAY systems. The segment loss for Eagan operations improved to $153.53K in Q3 2024 from $189.03K in Q3 2023.
It’s worth noting that Predictive Oncology only sells its products and services in the United States, with no international market presence reported.
Liquidity and Solvency
As of September 30, 2024, Predictive Oncology’s balance sheet showed cash and cash equivalents of $3.08 million, with total assets of $7.50 million and total liabilities of $5.53 million. The company’s current ratio stood at 1.20, and its quick ratio was 1.06, indicating a relatively stable short-term liquidity position. However, the debt-to-equity ratio of 0.10 suggests a conservative approach to leverage.
The company’s cash position has declined from $8.7 million as of December 31, 2023, to $5.3 million as of June 30, 2024, highlighting the ongoing cash burn. To address this, Predictive Oncology has undertaken several financing initiatives. In May 2024, the company raised $3.1 million in net proceeds through an at-the-market (ATM) facility, and in July 2024, it secured an additional $1.3 million through a warrant inducement transaction.
Furthermore, Predictive Oncology has implemented a cost reduction initiative expected to decrease its annual cash used in operating activities by approximately $2.5 million. This move aims to extend the company’s cash runway and improve its financial sustainability.
Operational Highlights and Key Developments:
Predictive Oncology has achieved several notable operational milestones in recent years that have strengthened its position as a leader in AI-driven drug discovery:
Launch of Organ-Specific 3D Cell Culture Technology: The integration of zPREDICTA’s 3D cell culture models has allowed Predictive Oncology to offer more accurate and representative in vitro testing platforms for drug candidates, improving the probability of success in clinical trials. This aligns with the projected growth of the 3D cell culture market, which is expected to expand from $1.4 billion in 2022 to nearly $5.3 billion annually by 2032, growing at more than 14% annually.
Collaboration with the University of Michigan: Predictive Oncology’s ACE (Accelerating Compound Exploration) initiative has led to a collaboration with the University of Michigan, providing the company access to a large library of natural product extracts and drug candidates for evaluation using its AI/ML platform.
Strategic Cost Reduction Initiatives: In 2024, the company implemented a series of cost-saving measures, including the consolidation of its Birmingham operations into its Pittsburgh headquarters, which are expected to reduce the company’s annual cash burn by approximately $2.5 million.
Warrant Exercise and Financing Transactions: Predictive Oncology has recently executed several financing transactions, including a $3.7 million at-the-market offering and a $1.3 million warrant exercise, which have helped to bolster the company’s cash position and extend its runway.
Risks and Challenges:
Despite Predictive Oncology’s promising technology and growth prospects, the company faces several risks and challenges that investors should consider:
Competition in the AI-Driven Drug Discovery Space: Predictive Oncology operates in a highly competitive market, with numerous other companies and academic institutions also leveraging AI and machine learning for drug discovery.
Ongoing Need for Capital: As a pre-revenue company, Predictive Oncology will likely require additional capital raises to fund its continued research, development, and operational expenses, which could result in dilution for existing shareholders. The company’s accumulated deficit reached $175 million as of June 30, 2024, up from $168 million as of December 31, 2023.
Integration and Execution Risks: The successful integration of acquired technologies, such as zPREDICTA’s 3D cell culture models, and the execution of the company’s strategic initiatives will be critical to its long-term success.
Revenue Volatility: The company has experienced significant fluctuations in revenue, as evidenced by the decrease from $490,000 in Q2 2023 to $279,000 in Q2 2024, highlighting the challenges in maintaining consistent sales growth.
Outlook and Conclusion:
Predictive Oncology’s unique positioning at the intersection of AI, machine learning, and oncology drug discovery has the potential to significantly disrupt the industry and improve patient outcomes. The company’s expansive biobank of tumor samples, coupled with its advanced AI/ML capabilities, provide a robust foundation for the discovery of novel therapeutic candidates and the identification of valuable biomarkers.
As Predictive Oncology continues to execute on its strategic initiatives, investors will closely monitor the company’s ability to translate its technological strengths into tangible commercial success, secure necessary funding, and navigate the regulatory landscape. The company’s recent achievements, such as the ovarian cancer study and the expansion into biomarker discovery, suggest that Predictive Oncology is well-positioned to capitalize on the growing demand for AI-driven solutions in the pharmaceutical industry.
Overall, Predictive Oncology’s compelling value proposition, innovative technology, and experienced management team make it an intriguing investment opportunity for investors seeking exposure to the rapidly evolving field of AI-driven drug discovery. However, the company’s financial challenges, including ongoing losses and the need for additional funding, underscore the importance of careful consideration and risk assessment for potential investors.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.