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Edited Transcript of POAI.OQ earnings conference call or presentation 19-Aug-19 9:30pm GMT

Q2 2019 Predictive Oncology Inc Earnings Call

EAGAN Sep 4, 2019 (Thomson StreetEvents) -- Edited Transcript of Predictive Oncology Inc earnings conference call or presentation Monday, August 19, 2019 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Amelia Wall Warner

Predictive Oncology Inc. - Member of Scientific Advisory Board

* Carl I. Schwartz

Predictive Oncology Inc. - CEO & Director

* Gerald J. Vardzel

Predictive Oncology Inc. - Director

* Robert L. Myers

Predictive Oncology Inc. - CFO & Secretary

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Conference Call Participants

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* Jason Howard Kolbert

Dawson James Securities, Inc., Research Division - Director of Research

* Mark A. Collins

Helomics Holding Corporation - VP of Innovation & Strategy

* Scott Gordon

Core Ir - Co-Founder, President & Editor-In-Chief

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Presentation

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Operator [1]

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Good afternoon, and welcome to the Predictive Oncology Earnings Conference Call for the Second Quarter Ending June 30, 2019. (Operator Instructions)

Participants of this call are advised that the audio of this conference call is being broadcast live over the Internet and is also being recorded for playback purposes. A replay of the call will be available approximately 1 hour after the end of the call through July 31, 2019. I would now like to turn the conference over to Scott Gordon, President of CORE IR, the company's Investor Relations firm. Please go ahead, sir.

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Scott Gordon, Core Ir - Co-Founder, President & Editor-In-Chief [2]

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Thank you, Ben, and thank you for joining today's conference call to discuss Predictive Oncology's corporate developments and financial results for the second quarter ending June 30, 2019. With us today are Dr. Carl Schwartz, company's Chief Executive Officer; and Bob Myers, the company's Chief Financial Officer; Gerald Vardzel, President of Helomics; and Amelia Warner, COO of Helomics. At 5:15 p.m. Eastern time today, Predictive Oncology released financial results for the second quarter ending June 30, 2019. If you have not received Predictive Oncology's earnings release, please visit the Investors page at www.predictive-oncology.com.

During the course of this conference call, the company will be making forward-looking statements.

The company cautions you that any statement that is not a statement of historical fact is a forward-looking statement. This includes any projections of earnings, revenues, cash or other statements relating to the company's future financial results; any statements about plans, strategies or objectives with management for future operations; any statements concerning proposed new products or services; any statements regarding anticipated new relationships or agreements; any statements regarding expectations for the success of company's products and services in the U.S. and international markets; any statements regarding future economic conditions or performance; statements of belief and any statements of assumptions underlying any of the foregoing.

These statements are based on expectations and assumptions as of the date of this 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. Some of these risks are described in the section of today's press release titled Cautionary Note on forward-looking statements and in the public periodic reports the company files with the Securities and Exchange Commission. Investors or potential investors should read these risks. Predictive Oncology assumes no obligation to update these forward-looking statements to reflect future events or actual outcomes and does not intend to do so. It is now my pleasure to turn the call over to Dr. Carl Schwartz, CEO of Predictive Oncology. Dr. Schwartz?

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Carl I. Schwartz, Predictive Oncology Inc. - CEO & Director [3]

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Thank you, Scott. Welcome, everyone, and thank you for joining today's conference. Predictive Oncology focuses on applying its smart tumor profiling, an AI platform to extensive genomic and biomarker patient data sets to predict clinical outcomes. Today, we are proud to announce initiation of our new corporate focus Cancer Quest 2020. The goal of our Cancer Quest 2020 is to partner with pharmaceutical companies to bring on more effective therapies to patients in real time. Jerry Vardzel of our Helomics division will describe how recently signed projects fit into tactical business plan for Cancer Quest 2020. And Amelia Warner, COO of Helomics, will show how she will leverage these projects to partner with pharmaceutical companies. Then our CFO, Bob Myers, will preview and review the quarterly financials. As we focus our -- shift our focus to Helomics, our second goal is to monetize the value of our STREAMWAY business, to build a roadmap for it we have engaged a firm to help us understand the value of the STREAMWAY business as a standalone entity or in combination with an industry player. We are currently involved in sensitive discussions and cannot comment further on the developments at this time. I would like to turn this call over to Jerry Vardzel of Helomics and -- for his comments. Jerry?

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Gerald J. Vardzel, Predictive Oncology Inc. - Director [4]

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Thanks, Carl. Today, it's my pleasure to frame our corporate initiatives Cancer Quest 2020. There are 4 drivers of this initiatives that are critical valuation drivers for the company going forward. Before I explain the initiative, let me briefly recap the foundation on which we are launching the program. Predictive Oncology has 2 unique assets from its acquisition of Helomics. First, a clinically validated patient-derived tumor-performing platform, which has had over $200 million invested in it. This platform generates drug response and biomarker profiles and it was clinically validated in ovarian cancer. Importantly, this asset can be leveraged both to generate new data as well as generate additional and deeper information on existing samples. Second, our existing database has drug response and biomarker profiles of over 150,000 tumors and that is across a 137 cancer types that has been obtained from over 10-plus years of clinical testing.

Now let me introduce Cancer Quest 2020. There are 4 steps in executing on this plan: Number one, we are validating our first AI-driven predictive model in ovarian cancer by leveraging our recently signed collaboration with UPMC and Magee-Womens Hospital. This will provide retrospective data on outcomes from over 400 patients that already have their drug -- tumor drug response tested at Helomics. This will also generate deeper genomic data. Dr. Mark Collins is leading this initiative. Number two, following our recently signed collaboration with Interpace Diagnostics, we are analyzing their clinical testing to develop AI-driven predictive models of indolent and aggressive thyroid cancers. Dr. Mark Collins is also leading this initiative. Third, we are expanding our predictive models to lung. This is accomplished through our reach back program to key clinical centers. I am personally leading this initiative. Four, Dr. Amelia Warner, our Chief Operating Officer is focused on monetizing the first 3 steps by partnering with pharmaceutical companies, following the capital markets plan of Foundation Medicine and Roche. As part of these drug discovery programs, we intend to offer an additional way for new drugs to be tested against various cancers with our TumorGenesis system.

The system is being designed to allow new drugs to be tested against tumors created in the lab that more closely mimic the behavior in the patient. I'm very happy to report that we have made significant progress in advancing Cancer Quest 2020. First, Helomics recently announced a joint collaborative agreement with UPMC to study the use of artificial intelligence to improve clinical decision-making for ovarian cancer patients. Second, Helomics and Interpace Diagnostics are modeling Interpace's existing clinical data to identify new drugs for treatment of indolent and aggressive thyroid cancers.

Next, Helomics signed a collaborative research agreement with a Pittsburgh-based company based on molecular imaging, ChemImage to better determine disease progression in prostate cancer. Helomics is also contracted to provide CRO and data analysis services to SpeciCare for a precision medicine trial. Finally, Helomics initiated a collaboration with Viome to determine the role of gut microbiome in ovarian cancer.

These are exciting times for us and we look to continue to build out these collaborations and relationships. At this time, I would like to turn it over to Dr. Amelia Warner for a few comments as it relates to our market acceptance of our Cancer Quest 2020. Amelia?

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Amelia Wall Warner, Predictive Oncology Inc. - Member of Scientific Advisory Board [5]

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Thanks, Jerry. There's extreme interest in the field and I came on board more specifically because I was excited by the direction that Jerry and Mark had pivoted the focus of innovation here at Helomics towards. We are currently evaluating several possible pharmaceutical partners at this time and as we progress through the program that Jerry just outlined, we intend to release interim milestones during the year for both investors to better understand our progress and learn about our initiatives and how we're pivoting the market. Bob?

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Robert L. Myers, Predictive Oncology Inc. - CFO & Secretary [6]

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Thanks, Amelia. I'm pleased to announce that we have restructured the STREAMWAY business for 2 reasons: first, to reduce the burn rate while we focus on Cancer Quest 2020; second, as we progress our strategic discussions with industry players, we wanted to eliminate potential redundancy.

Revenue for the quarter ended June 30, 2019, was $286,151 compared with $358,586 for the same period of 2018, a 20% decreased year-over-year. Revenue included the sale of 14 STREAMWAY systems and disposable supplies, 10 domestically and 4 internationally, compared to 25 sales of the system in the comparable period of 2018. Cost of sales was $118,000 in the second quarter of 2019 compared to $109,000 in Q2 2018. Gross profit margin declined to 59% versus 70% in the second quarters of 2019 and 2018, respectively.

Operating expenses for the quarter ended June 30, 2019 was $1,271,258 compared to $378,906 for the second quarter of 2018.

General and accounting expenses were approximately $3,310,368 compared to approximately $729,528 during the same period of the previous year. Sales and marketing expenses remained relatively consistent at $685,029 compared to $554,084 for the second quarter of 2018. Carl?

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Carl I. Schwartz, Predictive Oncology Inc. - CEO & Director [7]

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Thank you, Bob. I would like to now turn -- have the operator open this call for questions, if you would, please, or he?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Jason Kolbert with Dawson James.

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Jason Howard Kolbert, Dawson James Securities, Inc., Research Division - Director of Research [2]

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Could you please take a few moments with me and just kind of walk me through what you see as the next catalyst, particularly on the AI diagnostic side? And then I want to go through a couple of the financial numbers, better understanding both the G&A expense and the sales and marketing expense in the quarter? And how we should be looking at kind of the burn rate given the balance sheet of the company?

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Carl I. Schwartz, Predictive Oncology Inc. - CEO & Director [3]

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Jerry, you want to answer the Helomics side?

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Gerald J. Vardzel, Predictive Oncology Inc. - Director [4]

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Sure. So the next steps of walking through is to leverage our assets to build the predictive tumor models. So right now, we're building the AI-driven multi-omic predictive models. And 2 other things that outcome in multi-omics data that we have from 2 collaborations, the Magee study and the U.K. project is really the focus right now to generate clinically actionable models. We'll continue to rapidly generate this multi-omics data going forward. So the next steps, for example, would be to sequence approximately 400 bank ovarian tumor samples that were sent by Magee. We'll continue to do that and reach back to the patients for consent additional data as we build out these predictive tumor models going forward. So it's monetizing the asset, these 2 collaborations and the ones recently signed are the first step as we continue to validate the model going forward and we're excited about it. Hopefully, that addresses your question.

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Jason Howard Kolbert, Dawson James Securities, Inc., Research Division - Director of Research [5]

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Yes. Very clear. So can you digress with me a little bit on the finances? Given the fact that you had a very high burn rate in the quarter, balance sheet is not as strong as I'm sure you'd like it to be. Help me understand kind of how things are going to unfold going forward?

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Carl I. Schwartz, Predictive Oncology Inc. - CEO & Director [6]

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Bob, you want to take that?

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Robert L. Myers, Predictive Oncology Inc. - CFO & Secretary [7]

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Sure. I think when you look at the 10-Q that's recently been filed, you'll notice that there's lot of finances there in the expenses that are paper expenses and things that occur one time. We just went through a major acquisition with -- the merger with Helomics. And there are some additional expenses there that are rather large. As we said, we begun looking at our burn rate in order to remove redundancy to become more effective and more efficient. I think our balance sheet is certainly strong for a company coming off a merger, and I think that you'll see improvement in the future.

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Operator [8]

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Our next question comes from [Nicholas Guerrieri] who is a private investor.

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Unidentified Participant, [9]

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Congrats on the progress of Helomics, and I see that there's a lot of activity there. But my question is more so focused on the STREAMWAY system. Last year, you guys projected around 100 units, you guys were going to sell. And let's say, you guys came up short, only getting around 50 or so. The last 6 years, it looks like you guys are floating around 150 units sold and seems like that focus is starting to drift away from STREAMWAY. I don't know if you touched on this earlier, but what do you see as the barriers to why you guys can't reach meaningful sales in there? And what are some things you guys are looking to do differently in order to ramp sales in that department?

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Carl I. Schwartz, Predictive Oncology Inc. - CEO & Director [10]

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Well, this is to Dr. Schwartz. We have pared back our burn rate at Skyline. And we will continue to sell, but as we said earlier, we're looking at all our options with this company, which would include as a standalone or as merging with someone else that could help us along. But that's about all we can say at the moment. But we understand your concerns. We have the same concerns.

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Unidentified Participant, [11]

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Okay. And just further go in that. I appreciate the answer. What did you see specifically as the -- what's holding you back in selling those units?

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Carl I. Schwartz, Predictive Oncology Inc. - CEO & Director [12]

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Well, I don't want to get in too deep. But it's always been a problem both -- we're sort of a one-trip pony. So we just have the one product and sometimes it's very difficult to break down the barriers in the hospitals as they're put up by very large companies that sort of limit our penetration into these hospitals. But overseas is starting to pick up. So we are encouraged by that.

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Unidentified Participant, [13]

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Okay. And did you guys increase your number of salesmen, your sales force? Did you increase that? Or did you have some layoffs? Or what's the current standing on your sales force in terms of STREAMWAY?

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Carl I. Schwartz, Predictive Oncology Inc. - CEO & Director [14]

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I don't want to say much more about STREAMWAY at the moment. This time, we're doing a critical evaluation and we'll be back with you as soon as we can talk about it. But we understand your concerns and we have the same concerns.

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Operator [15]

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Our next question comes from [Steve Whacku] who is a private investor.

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Unidentified Participant, [16]

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I wanted to dive in the path profitability here with Helomics a little bit more. Last year, when this first came about, you got the 25%. You had talked about late last year, you'd be profitable and then that's led to March. Now where are we at? Where -- when do you think Helomics will be profitable? And what's holding us back?

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Carl I. Schwartz, Predictive Oncology Inc. - CEO & Director [17]

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Jerry?

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Gerald J. Vardzel, Predictive Oncology Inc. - Director [18]

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Bob?

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Robert L. Myers, Predictive Oncology Inc. - CFO & Secretary [19]

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Yes. Carl, I think I'll take that if you don't mind. This is Bob. Nothing is holding us back whatsoever. I think that it would be foolish for me to tell you when we think would be profitable. What we're looking at right now with the milestones that we've made and were listed in our call that are extremely important to the success of the business and will bring in revenue from that, especially on the AI side and the CRO side. So be a little bit patient, keep your eye on us, watch our announcements. But you'll see that, I think that over the course of the next 6 months there will be some good changes in -- towards profit. But again, I don't want to say that we'll be profitable in 6 months.

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Unidentified Participant, [20]

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And -- okay. So that 6 months mark sounds great. We need to be over $1 again in the next 6 months. Do you see that happening? What was our case to NASDAQ to actually get this last extension?

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Robert L. Myers, Predictive Oncology Inc. - CFO & Secretary [21]

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Well, we filed with NASDAQ for an extension and we did with -- everybody does. We presented the fact that we have strong business strategy going forward that we've had some successful collaborations and deals going with the UPMC and some other organizations. And we've focused on the fact where we are moving. So they gave us an extra 6 months and we have the time now for some of these things to bear fruit and have the stock rise on its own accord.

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Unidentified Participant, [22]

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Okay. And then last question. Database sequencing, so it's my understanding, it was not properly sequenced for enrich data -- like to the extent that Roche -- or Foundation's was for Roche? Where are we at with that? And when do we expect to finish that deeper sequencing to monetize this database?

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Mark A. Collins, Helomics Holding Corporation - VP of Innovation & Strategy [23]

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So this is Mark Collins. So in terms of the sequencing, you're correct. The initial sequencing data that was acquired by generating the size of Helomics' clinical test is in next-generation sequencing. It looks at a targeted set of biomarkers, targeted set of genes. We expect to complete that sequencing, assuming everything's aligned appropriately, I would imagine by the end of the year, at the latest in terms of sequencing those Magee samples that we need to validate our first predictive AI-based model of ovarian cancer. And we're also doing deeper sequencing. And -- don't want to get too technical, but sequencing both mutations and gene expression. So we have a fuller picture of the sequencing and that sequence data is more in line with what pharma customers expect us to have.

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Unidentified Participant, [24]

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So with that, sequencing put us on par with Foundation per se?

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Mark A. Collins, Helomics Holding Corporation - VP of Innovation & Strategy [25]

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That sequencing data, together with the outcome data that we're getting from Magee, would certainly allow us to build a model of ovarian cancer that would be, in our opinion, extremely valuable to pharma and eventually for use clinically.

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Unidentified Participant, [26]

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What percentage of our tumor database is oncology?

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Mark A. Collins, Helomics Holding Corporation - VP of Innovation & Strategy [27]

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A 100%.

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Unidentified Participant, [28]

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100%? Okay. And did we go under the $70,000 in the bank? Did I miss that part, Bob?

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Robert L. Myers, Predictive Oncology Inc. - CFO & Secretary [29]

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We have not discussed our cash at this point in time. But we certainly have a fair amount more than that at this point.

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Unidentified Participant, [30]

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Okay. Can you tell us how much we have?

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Robert L. Myers, Predictive Oncology Inc. - CFO & Secretary [31]

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No. I'm not at liberty to discuss that.

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Operator [32]

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This concludes our allotted time for question and answers, and also Predictive Oncology's earnings conference call for today. Thank you for attending today's presentation. You may now disconnect.