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ProPhase Labs’ Resolution for 2025: Nail Down a ‘Liquidity Event’

by Ron Shinkman | Jan 9, 2025 | Deals-lir, Essential, Lab Industry Advisor

The company has lost nearly $36 million since 2023, but its CEO is aggressively pursuing new revenue options

Close-up shot of a digital stock market tracking graph illustrating a crash in stock prices and economic challenges — iStock, solarseven

Facing recent tough times, biotech, genomics, and diagnostics company ProPhase Labs is taking equally tough measures to address losses.

Ted Karkus, chairman and chief executive officer of ProPhase Labs, said repeatedly during the most recent of what his company calls videostreamed roadshows that he is seeking a “liquidity event.”¹

The Garden City, NY-based ProPhase’s corporate footprint is not unlike a divining rod, with various businesses casting around for the liquidity its leader is seeking.

An interesting history

ProPhase has had a colorful history. It was originally known as Quigley Corp., based in Doylestown, PA, and best known as the manufacturer and distributor of the cold remedy product line Cold-EEZE. Karkus invested in the company in the 1990s and was named its CEO in 2009 after a contentious proxy battle.² He later renamed it ProPhase and moved it to just outside of New York City.³ ProPhase sold Cold-EEZE for $50 million in 2017.⁴ Karkus is ProPhase’s largest individual shareholder, owning 16.7 percent of the company’s shares.⁵

ProPhase’s diagnostics offerings

In the diagnostics area, ProPhase’s most promising product is BE-Smart, a mass spectrometry-based test for evaluating the risk of esophageal cancer in patients with Barrett’s esophagus. ProPhase said it has “initiated strategic partnership discussions with two multi-billion-dollar cancer diagnostic testing companies” about distributing and marketing the laboratory-developed test.⁶

According to a recent report issued by Diamond Equity Research, a joint agreement with another company on distributing and marketing BE-Smart could yield an upfront payment of $30 million to $50 million. However, as noted in the Disclosures section of the report, ProPhase has paid Diamond Equity Research $112,500 since March 2023 to produce research materials on the company.⁷ ProPhase issued the same estimate about a month before the Diamond Equity report was released.⁸

ProPhase also operates Pharmaloz, a division that primarily focuses on manufacturing medicinal lozenges. The company said it “is entering the final phase of contract negotiations with a major lozenge brand” that would add $35 million a year in revenues if consummated.⁹

Recent challenges

But until any deals are closed, ProPhase is in perilous territory. Its revenue crumbled with the end of demand for COVID-19 tests after the nationwide public health emergency was lifted in the spring of 2023—a common occurrence for many labs, according to an industry observer. That has unleashed an ocean of red ink from which the company is struggling to surface.

A ProPhase subsidiary known as Nebula Genomics handles most of its COVID-19 testing. ProPhase installed Ted Karkus’s 26-year-old son Jason Karkus as president of Nebula in January 2024.¹⁰ Jason Karkus has been with ProPhase in various positions since not long after he graduated from college in 2020.

“I’m not going to really go into Nebula Genomics. That has not been a focus of the company lately,” Ted Karkus declared during the streaming roadshow.

Financial losses

For the first nine months of 2024, ProPhase reported losses of $19 million on revenue of $9.3 million. That compares to a loss of about $8 million on revenue of $40.9 million for the first nine months of 2023.¹¹

ProPhase’s losses have totaled nearly $36 million since the start of 2023.¹¹ Its cash at hand at the end of the third quarter was just $501,000, compared to $1.6 million at the end of the third quarter of 2023.⁶ ProPhase has also seen upheaval at the top recently, having had three chief financial or chief accounting officers in a 15-month period between October 2022 and January 2024, according to its most recent proxy statement.¹² In addition, the Internal Revenue Service lodged a $1.8 million tax lien against the company last April, court records from LexisNexis show.

Addressing the difficulties

Meanwhile, ProPhase has obtained some breathing room for the more sanguine parts of its business. The company announced in early December that it had secured an agreement with what it called “a billion-dollar global private equity fund” to provide debt financing.

“The partnership with this global private equity fund should secure low-interest rate financing at our disposal, with the goal of eliminating discounted equity offerings in the near-term,” Ted Karkus said in a statement.⁹

The specific company was not mentioned in ProPhase’s news release, or the terms of the financing. It has also not been disclosed in the company’s filings with the U.S. Securities and Exchange Commission.

The company also raised $3.5 million before expenses last November through a new initial public offering of its stock. The offering was priced at 72 cents a share.¹³ ProPhase was trading at $7.35 a share in mid-April of 2024.¹⁴ Ted Karkus repeatedly said the stock price was “ridiculous” during the streaming roadshow.

In addition to the financing, ProPhase announced it was cutting its costs by $6 million annually, which would represent a nearly 17 percent reduction in its annual expenditures.⁹ Details were not disclosed in either a press release or the streaming roadshow. Ted Karkus said during the roadshow that the situation was “sensitive.”

Meanwhile, his compensation has soared in recent years. According to filings with the SEC, it rose from $225,000 in 2019 to $425,000 in 2020, and $915,000 in 2021, dropping slightly to $875,000 in 2022 and 2023. Ted Karkus’s pay between 2020 and last year included $725,000 in bonuses. He also receives a $15,000 annual car allowance to defray the 10-mile commute between his home and ProPhase’s headquarters.¹⁵

A spokesperson for ProPhase did not respond to written questions about the company.

Ted Karkus was also less than forthcoming when reached by phone, stating that he had instructed the spokesperson not to answer questions, and declining to answer any queries himself—for now.

“We have some significant additional developments [coming] within the next few weeks,” he said, adding that he would be happy to answer questions once those developments come to pass.