Q4 2020 Applied DNA Sciences Inc Earnings Call
[music].
Good day and welcome to the applied DNA Sciences fiscal fourth quarter and full year 2020 financial results Conference call. All participants will be any listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero after todays presentation, there will be an opportunity to ask questions to ask a question.
You May press Star then one on a touchtone phone to withdraw your question. Please press Star then two please note. This event is being recorded I would like now to turn the conference over to Sanjay Hurry. Please go ahead.
Thank you Matt Good afternoon, everyone and welcome to applied DNA Its conference call to discuss our fiscal fourth quarter 2020 financial results and business update you.
Can access the press release that was issued after market close today and slide presentation accompanying this call by going to the Investor Relations calendar page of our web site.
Speaking on the call today are Dr., James Hayward, our CEO and Beth Jantzen our CFO.
Before we begin please note that some of the information you will hear today during our discussion.
May consist of forward looking statements I refer you to slide two of the presentation and the company's form 10-K filed today December 17th 2024 important risk factors that could cause the company's actual performance and results to differ materially from those expressed or implied in any forward looking statements. We undertake no obligation to update or revise.
Any forward looking statements or other information provided on this call as a result of new information or future results or developed.
Now, it's my pleasure to introduce the first speaker for today's call Beth Jansen. Please go ahead.
Thank you Sanjay good day.
Afternoon, everyone and thank you for joining us.
I will begin this afternoon, but their review of our consolidated financial results for the fourth quarter of fiscal 2020.
Then dr. James Hayward, our president and CEO.
I will summarize the company's achievements in the year and outline our key initiatives for fiscal 2021.
Well then open the call to questions from our analysts.
The problem is my review of our financial results for the fiscal quarter ended September Thirtyth 2020, we.
We continue to experience a decline in revenue from our tagging and related supply chain services business that is primarily due to the shutdown of global supply chains at the onset of the pandemic.
Specifically the effect of the shutdown continues to adversely impact the textile industry that historically has been our largest contributor to revenue.
In response.
And as I detailed and are active on our fiscal third quarter investor call.
Shifted a significant percentage of our headcount and resources towards addressing the fight against Kobe Night Club.
As such our financial results also reflect investments made in the build out of our COVID-19 testing products and services.
And to a lesser extent, our vaccine development program.
However, as you all know when I review the statement of operations in a moment.
Revenue for the fourth fiscal quarter does not include significant revenues from our COVID-19 testing products and services.
That's the first contracts were signed late in the fourth quarter.
We have continued to increase during our first quarter of fiscal 21.
Starting with the consolidated statement of operations.
Total revenues for the fourth quarter fiscal 20 declined to 314000 from 1.7 million in the prior period.
That's year over year decrease in quarterly revenue is mostly attributed to a decline in product revenue.
Associated with shipments of DNA concentrate to protect the cotton supply chain during the prior fiscal year.
Product revenues declined to 123000 for the fourth quarter of fiscal 2020.
Compared to 1.3 million in the prior period.
Consequently service revenue fell to 191000 for the fourth quarter of fiscal 2020.
423000 in the prior period.
Cost of revenue a day percentage of product revenue in the fourth quarter of fiscal 2020.
Increased to 126%.
As compared to 26% for the prior year period.
The year over year increase reflects low fixed cost cost absorption.
Given our reported product revenue.
The increase is also due to the change in product sales net adds.
The prior period was comprised primarily of cotton DNA product revenue.
That carries a higher gross margin.
Total operating expenses increased 31% or by 1 million to 4.2 million anyway.
In the fourth quarter fiscal 2020.
Compared with 3.2 million in the prior period.
This increase was driven principally by greater EPS, DNA and R&D expenditure.
[noise], that's DNA expenses for the fourth quarter fiscal 2020, Inc.
Increased by 631000 to 2.9 million.
2.3 million in the prior period.
The increase reflects the addition of staff associated with the formation of our applied DNA clinical laboratories subsidiary.
And the reversal of voluntary salary reductions.
Taking by members of senior management.
To reduce cash burn in prior year.
R&D expenses for the fourth quarter of fiscal 2020 increase.
Increased by 353000 to 1.2 million.
From 887000 over the prior period, reflecting the development of our linear Kobe 19 diagnostic assay as well as the write off of certain development costs for tagging system that are not expected to be used commercially in the cannabis market.
Net loss for the fourth quarter fiscal 2020 widened to 4.1 million.
Compared to 1.2 million a year ago period.
Net loss per share for the fourth quarter of 2020.
Improved to 82 cents compared to a net loss per share of one dollar and 44 cents for the same period in fiscal 2019.
Excluding non cash expenses consolidated adjusted EBITDA was negative 3.8 million for the fourth quarter.
Fiscal 2020 compared to a negative 1.6 million in the prior period.
[noise] [noise], turning to our balance sheet cash and cash equivalents totaled 7.8 million on September thirtyth.
Our average monthly cash burn rate net of financing in warrant exercise proceeds for the 12 months ended September Thirtyth 2020 was 980000 compared to 465000 for the year ago period.
An increase of 111%.
The increase is due to lower cash receipts as a result of the decline in revenue period over period.
An increase spending due to the development and build out of our Carbonite team products and testing services discussed above.
You will recall in May.
[noise] that in May we received a paycheck protection program long in the amount of 847000.
Under the care of that.
The S.P.A. has begun to process applications for loan forgiveness.
Amended our loan forget [laughter] Sydney, our loan forgiveness application in October 2020.
Currently under review by the FDA.
Total debt at fiscal year end was 1.5 million cash.
Price about secured convertible notes.
We'd be paid the full amount of these outstanding notes subsequent to September Thirtyth I will provide more detail on this repayment shortly.
Subsequent to September Thirtyth, we received three warrant exercises for on November 2019 margin that have an exercise price of $5.25.
The first warrant exercise occurred in October.
Total net proceeds of approximately 1.7 million.
We utilize these proceeds to repay our outstanding secured convertible notes of 1.7 million that represents the full outstanding amount of the note plus interest through the notes scheduled maturity.
In accordance with the warrant exercise agreement, we issued approximately 159000 replacement.
With an exercise price of $7.54.
This repayment resulted in the extinguishment of approximately 1.5 million of debt and liabilities from our balance sheet.
As a result with the exception of the P.P.P. alone we are now debt free.
Which will be reflected in our quarterly report for the quarter ended December 31st.
We filed our fiscal 2020, 10-K, a short while ago, and which we disclosed that based on our historical financial results.
Our substantial doubt about our ability to continue as a going concern.
For one year from the issuance of the financial statement.
Our ability to continue as a going concern is dependent on our ability to raise additional working capital.
Our cash position on November Thirtyth was approximately 4 million.
We received two additional exercise is the November 2019, Warren last week that easy yielded total net proceeds to Oh.
Of approximately 1.5 million.
As a result of these exercises in accordance with the warrant exercise agreement governing these warrants we issued 100000 additional replacement Warren.
50000 of these margin, having an exercise price of $6.57.
And 50000 of such replacement warrants have an exercise price of $6.46.
Approximately 460000 2019 margin our outstanding as of December 10, 2020.
This concludes my prepared remark.
Thank you for joining us today.
I have a happy and healthy holiday season, I will now turn the call over to Jim for his comments.
[noise]. Thank you Beth and good afternoon, everyone I Hope you and your families are keeping well in these kobin times as many parts of the country indoor rising infection rates and as the first vaccinations a book frontline workers are underway.
The subject of rising infection rates, and specifically the ability to detect and surveil for cope with 19.
It would be a recurring theme in my remarks today.
In addition to the publication of our financial results for fiscal fourth quarter and full year, a short while ago.
We also announced today a pooled surveillance testing award from the Suffolk County government local to US here on long Island.
This award as a maximum value of $2 million over the next six months on a fully realized would be our largest such contract today.
The six month term and the value of the award maybe increased at the counties discretion to meet additional testing demands I'll provide additional detail on this award shortly.
Hi to score. This award reflects continued execution on our pivot towards <unk> 19th.
I'll begin my remarks today with a brief review of how we respond to the to the pandemic that put us on a path to securing certain milestones in fiscal 2021.
And as the World Breeze is certainly a relief as you weigh authorize vaccines make their way into the general population globally.
I will discuss how we are currently preparing for a post co would 19 world.
No since the outbreak of COVID-19 in China in late 2019.
The Sars koby to virus has invaded every corner of the populated world gold.
Oh, Good 19 was declared pandemic, while the World Health organization in March 2020.
A combination of travel restrictions public shut downs in China's national Emergency response, effectively grown to a whole general business activity across global supply chains.
It does best noted, especially in jewelry as to US was the shutdown of the textile supply chain that runs through Asia and from which we have historically derive the greater portion of our revenue.
Countries began to shut down in the pharmaceutical and biotech industries mobilized to pursue diagnostic tests and vaccines against Sars koby to see.
See that speeds never before seen or imagined.
And we seized on the opportunity.
To use our 15 years of PCR expertise to rapidly develop a PCR based molecular diagnostic and to promote the use of our linear DNA platform for the development of nucleic acid based vaccines.
In February we began development the linear DNA based cobot vaccine candidates in collaboration with our Italian biotech partner Tac as a these ducs.
That's cool, but 19 surge through Europe, and especially Italy.
Pack is developed five plus mid based.
COVID-19 vaccines that target the spike protein.
Based on previously generated positive data from a tech is applied DNA linear DNA cancer vaccine and animal models.
It was our belief that the manufacture of alumina or is form of the vaccine candidates for cope with 19 would generate positive preclinical data sufficient to take to human trials.
Equally important to us it would serve as a real time opportunity to prove our linear DNA manufacturing platform is a true alternative to current plasmid based vaccine manufacturing technology.
Our initial preclinical linear DNA COVID-19 vaccine results were very promising.
Over the summer, we announced that all five of our joint vaccine candidates yielded strong antibody and T cell responses, even a very low doses of linear DNA.
Our results seen in mice echo those seen by Pfizer and Madonna and their human trials.
Our initial all belong with taxes was up the compelling data, we offered with linear as DNA would attract partnerships with large pharmaceuticals.
They investigated and our platform did work.
Moreover.
Do you expedience I mean, however, rather you expedients required by.
Operation Warp speed and other pressures for speed preempted the introduction of novel platforms, such as ours.
Into the tried and true arena already dominated by DNA plus <unk>.
And as I have stated in prior calls among the benefits of linear DNA is.
Because its absence of exposure to bacterial contaminants income.
Including unintended DNA, my do Jones bacterial cell wall components and assorted toxins.
We believe that some of these components may play a role in the rare allergic response to the M. arent any vaccines.
PCR produce linear DNA from synthetic templates might lessen the allergic response to edmar and vaccines and application. We are currently investigating.
Our goal remains to broadly commercialize our linear DNA platform as an alternative to plasmid DNA manufacturer.
And we are well on our way to achieving this goal.
As a company with a strong IP portfolio and a long history in the manufacturer linear DNA.
We look to establishing partnerships with nucleic acid based therapeutic developers.
Who has the financial and the regulatory expertise to support preclinical and clinical development of linear DNA forms of their drug candidates.
Our linear DNA subsidiary is currently engaged with many customers in this regard.
We are now using preclinical data for the COVID-19 vaccines to pursue the development of a linear DNA candidate for veterinary use.
The regulatory pathway fruit of a veterinarian candidate runs through U.S.D.A., rather than F.D.A. and is it potentially much shorter and much less costly path to commercialization to commercialization and would give our platform. The validation we see two trends.
Blade eventually towards human vaccines.
Our linear DNA veterinarian vaccine trial is currently set to launch in our March quarter in Brewster New York.
With domestic cats.
Well, our known viral reservoirs that transmit the virus rapidly two other cats.
The goal of the trial is to evaluate the vaccine candidate as a strategy for the prevention of Sars Koby too.
Feline companions to humans.
That would mitigate the animals as a potential reservoir for infection in humans.
The Brewster trials primary endpoint is to demonstrate safety and immunogenicity.
Upon completion of the Brewster trial [laughter] excuse me, we plan to initiate a challenge trial against COVID-19.
Biosafety level three facility using a second cohort of cats.
In this follow on trial, the cats will be dosed with the linear DNA vaccine candidate and upon Ciro conversion. The vaccinated cats would then be placed among a co bid 19 infected cohort.
[noise] the rates of transfer COVID-19, among the vaccinated cats.
We'll be studied with a plan and point to revealing the vaccines candidate the vaccine candidates overall efficacy against active disease.
[noise], we anticipate multiple updates for a better ordinary linear DNA COVID-19 candidate across our June and September fiscal quarters.
If the primary end points on that for both trials. We you know the the next expect to apply in our fourth.
In our fiscal fourth quarter for U.S.D.A.A. says conditional license that is very much akin to the EU approval for human vaccines.
For our linear DNA COVID-19 vaccine candidate for domestic cats.
With at least 58 million domestic cats in the U.S. and a likely first mover advantage of veterinarian vaccine could be extended to other animals such as mink.
We have begun to see commercial partners already in the vaccine business.
No. It's vaccine development was our overage or against COVID-19.
Our second that is the establishment of our diagnostic and surveillance testing programs.
We swiftly designed and validated a novel real time reverse transcription PCR test for the detection of Sars Koby too.
Most of sales in the market target singular aspect of the Sars koby to genome.
Our us say targets two highly conserved sections of genes coating for the spike protein and.
And inefficient multiplex style say.
Net tests in a single step.
Our molecular test obtained emergency use authorization from the F.D. in May of 2020 for diagnostic use and can be used on high throughput nucleic acid extraction and PCR systems.
We believe our assays as best in breed.
With high sensitivity and high specificity.
In fact, it can detect as little as two copies of the Sars koby to virus and the sample.
Which means that our us a potentially allows for very early detection of infection.
The faster, we can identify and infected individual the.
The faster our clients can mitigate virus spread within their schools corporations and government agencies.
Our assays been validated and implemented a stony Brook University hospital, our first significant customer and a very important ally in our community.
We continued to secure amendments to our you weigh that expand the installed base of equipment enhancing high throughput and commercial relevance.
Now we have multiple lines of revenue from our diagnostics. Firstly, we are the manufacturer.
Shipments to several accounts for validation within their quality systems, our pipeline for kit sales to certified diagnostic laboratories is increasing and today stands at more than 15 diagnostic laboratories.
But the larger story is how we seize the opportunity to put our own diagnostics to work in fighting the virus in our own community in New York.
Since the onset of the pandemic there have been shortages of regional testing.
A man for testing is broader because of the remarkable role both asymptomatic spread.
We constructed stuff.
Established workflows and compliance and our applied DNA clinical labs subsidiary in record time.
Our long term strategy is to attain flow regulatory compliance as a club CLIA certified diagnostic lab.
But we recognize the opportunity for impact was far greater as a provider of pro active surveillance testing.
This mode of testing impacts more people more.
More frequently.
And with a greater opportunity to curtail infection.
This benefit comes from pooling patient samples carefully and that's the appropriate pool size.
And frequently retesting establish cohorts.
Instead of testing a single diagnostic patient two passes through only once our.
Our contracts are for extended periods that keep us in close contact with cohorts Act.
Actively trying to keep the virus that day.
Pooled surveillance testing has been used in many situations and it's different than diagnostic testing as an individual patient result is not rendered instead pooled surveillance testing is used to look at the infection rates within a specific population such as ASCO.
Uhhuh workplace, the government agency, a family or college.
To identify potential early infections within the population such that the infected population members can be referred for diagnostic testing and medical care.
Food surveillance testing is easy to implement.
Does not require private health information or prescription Inc.
And can be tailored for a client specific needs.
We were an early mover in the surveillance testing market and our efforts are certainly paying off both for a long island community.
And for the company.
Now we have branded are pooled surveillance testing platform safe circle.
Powered by our linear co the 19 I say.
A second line of revenue for this platform.
Excuse me.
The sales circle platform is service volume.
Our wholly owned subsidiary applied DNA clinical laboratories.
With infection rates climbing nationally and the promise of vaccines for the general population the better part of a year away.
We quickly implemented process.
And automation to meet the demand we're seeing in the marketplace.
We've also turned our sales circle proprietary surveillance testing know, how and platform into a consulting and implementation service to help other laboratories into high throughput pooled surveillance centers using our linear I say.
We have book accomplice Justice through our partnership with Stony Brook University Hospital.
We chose critical needs to keep staff and faculty at work safely.
The economics of pooled surveillance testing to us are very compelling with one PCR reaction analyzing up to five individuals instead of one.
Our sales circle testing uses fewer resources and materials and leaves open more capacity such that we can service large populations.
We announced in October that we established an initial base of testing revenue, which has continued to grow since that announcement and we will be more fully evident in our first.
Fiscal quarter 2021 results when they are announced in mid February.
We have targeted markets.
That provide good margins on our diversified.
We believe we're in a strong position to growth say circle revenues in the coming quarters.
To tap the market opportunity more fully for pooled surveillance testing and to further streamline the process for managing customers and enabling them to easily self manage their own programs.
We have partnered with cleared for a.
Digital health care company to offer a full solution.
This morning's Suffolk County Award was won in partnership with cleared for isn't it.
An excellent example of the value our two companies working together bring to our clients.
Day Circle will test Suffolk County government employees weekly Intest pools of up to five samples utilizing our anterior nasal swab sample collection kits.
As I mentioned previously this award has a six month term and a maximum value of $2 million let's.
Lets Suffolk County has the option to extend the period of performance by an additional six months and has the option to include the participation of the counties entire 10000 person workforce.
Some of these employees such as Suffolk County law enforcement are deemed non essential workforce.
[laughter] excuse me and cannot perform their duties by working from home.
Ongoing cash.
Consistent.
And proactive pool testing can help identify potentially infected members of the county work force sooner and help protect coworkers family members and communities.
We also have been approached recently by other municipalities.
We believe this award represents a tipping point for applied DNA, representing an escalation in the markets awareness of our safe circle offering.
And acting as a reference customer demonstrating to other counties facing the same pressure to deploy a broad PCR based surveillance testing measures.
From a financial perspective.
This award has the potential to materially improve our consolidated financial performance.
We continue to install robotics and expand our capacity.
In summary.
Across both our COVID-19 vaccine programs and testing surfaces.
We have laid the groundwork for inflection points to our top line in fiscal 2021.
Even as we focus on the here and now have co been 19, our linear DNA platform has much broader applicability independent of COVID-19 vaccine development and diagnostics.
The value proposition of our linear DNA platform can be a benefit.
Not just for COVID-19 vaccines, but to every nucleic acid based program under development for therapeutics today.
Our linear DNA manufacturing platform is a proprietary process that enables large graham scale production of DNA through Pcr.
We believe that our platform is a cleaner and higher performing alternative to traditional DNA manufacturer.
And enjoy certain advantages, including the speed of production the potential for high level expression.
The absence of antibiotics and their resistance genes the absence of any bacterial contaminants.
The purity of the resultant DNA simplicity of design and importantly, the stability during shipment requires no refrigeration.
The economics of these messenger arent any vaccines themselves make for a compelling case for linear DNA.
Vaccines typically require a cold chain.
Where Madonna and Pfizer require a minus four degrees Fahrenheit and minus 94 degrees Fahrenheit respectively.
25% of all vaccines manufactured last year were thrown away because they degraded during transit due to failures in the cold chain.
By one estimate vaccine spoilage, resulting from temperature mistakes are estimated at $34.1 billion annually.
This figure is almost three times the $12 billion invested in Cove at 19 vaccines today.
The COVID-19 pandemic has shown that the general public and worldwide regulatory agencies are willing to accept nucleic acid based vaccines.
This back to sharpen our focus on the development of our linear DNA platform, which we believe will.
Well, a broad utility to the nucleic acid based vaccine market.
One of our main goals for the coming years, the validation of our linear DNA platform for vaccines and potentially.
Other forms of nucleic acid based therapeutics.
Now it is still non on weather cold with 19 will be a one course pandemic or become endemic like.
Like influenza.
We believe that the established mutations in Saars koby to that increase fitness. So this virus are demonstrative of the potential this virus has for persistence through change.
We further believe that our platform has the ability to evolve with co that 19 and future per pandemics.
Today, we are proud to count, leading biotechnology and pharmaceutical companies working in the field sales nucleic acid based medicine.
As contract research and development customers.
As one would expect however, COVID-19 has lengthened their ongoing evaluations of our constructs.
With much of that evaluation based on cell models. This.
This isn't the kind of work they can do from home.
In the second half of the fiscal year and going into the first quarter low 2021.
We've seen an uptick in contract research activity for bio therapeutic applications of our linear DNA.
That we take to reflect the increasing value being placed on linear DNA by drug developers.
We are seeing activity in a broad range of therapeutic and diagnostic technologies ongoing activities with our linear Rx customers include the use of linear DNA as a template for on a production.
Multiple projects investigating the use of linear DNA as the necessary templates for recombinant add no associated virus production.
Recent repeat orders for the use of linear DNA for the study of T cell transfection.
We have a funded study to investigate the use of linear DNA was lifted nanoparticles for delivery to T cells.
And we will continue performance under a long term supply agreement for the use of linear DNA in in vitro diagnostics.
As you can tell were very motivated by the strength of linear Rx and the attention we've garnered from the biotech and pharmaceutical industry.
We expect the coming year to demonstrate the efficacy of linear DNA in a variety of compelling therapeutic settings.
With the formation of our clinical labs, we're also us executing on a strategy to expand our market reach through value added services complimentary to a growing portfolio of diagnostic and surveillance assay.
The clinical labs allow us to be a direct beneficiary of our own diagnostics development beyond the sales will kits to qualified laboratories.
And provides the clinical sampling framework necessary to obtain the data required by state and federal regulatory authorities to develop an improved diagnostics and vaccines.
One of our businesses that continues to receive clear testimony to the value from our clients is our invasive circulating tumor cells or EIS CTC based platform for cancer diagnostics.
In October 2019, we reported that our IC DC platform demonstrated superior correlation over prostate specific antigen per se.
In an ongoing phase two trial in recurrent prostate cancer that was conducted by time technologies.
Published studies have shown that the concentration of ice ctcs in blood correlates with disease status across other hard tumors, including metastatic sarcoma.
[laughter] excuse me pancreatic ovarian breast lung and colorectal cancers.
We believe our proprietary platform can help diagnose these difficult accounts is early and with superior predictive capability.
In November 2019, we signed a definitive agreement with time technologies to supply our eyes, CTC assai and associated services for use in their pivotal stage of the time 88, Hank clinical trial for patients with third line pancreatic cancer.
We're moving to expand the commercial utility of our eyes CTC platform through the application of PCR based methods to enhance the value of our IC do see testing to be commercially but offered as a laboratory developed test.
A cancer assays developed by club CLIA Laboratory out applied DNA and sold as a clinical lab service.
Could be marketed to oncologists to both diagnose and follow the course of therapy for their cancer patients.
Key to monetizing this and future lab developed test is a need for a club Cleo diagnostic laboratory, while we are disappointed with the speed with which we've progressed.
Through the certification process, we are on track with milestones for certification in the first calendar quarter or 2021.
Finally.
We believe our proprietary save circle platform has broad applicability outside of surveilling for cold at 19.
While we believe the market for COVID-19 surveillance testing will remain strong in the immediate future there will thankfully become a point in time, where the demand for coal with 19 surveillance testing will likely diminish.
With this in mind save circle was built as an adaptable platform, whose proprietary high throughput pooling testing techniques can be utilized to screen populations for a myriad of other respiratory viruses, such as influenza or viral pneumonia another moderate to severe respiratory.
Tori illnesses that are great public concern assays.
The specialty two entities such as schools municipalities businesses colleges on long term care facilities.
In addition, [laughter].
When a new Sars like virus emerges in the future.
Save circle platform could be very quickly adapted to provide surveillance testing services for such a virus.
With heightened awareness of the public health risks by respiratory viruses. We believe there is a strong future for the safe circle platform in a post COVID-19 world.
With all hands on deck, focusing to serve our community with cobot, 19, diagnostics and therapeutics and the simultaneous shutdown of global supply chains.
Just a quick note to let you know we have maintained our ongoing contracts in our tagging businesses.
Bright spots appear to be the world's focus on wellness with continued engagement in dietary supplements as evidenced with our nutrition 21 business.
Cosmetic trials underway and pharmaceutical pipeline building with color com.
As evidenced by their turning up the volume with their recent marketing promotions.
In addition, during the current fiscal year, we obtained several issued patents that we believe greatly strengthen our tagging business in both continents Cellulosics fibers.
Now. This concludes my prepared remarks, operator were now open to questions from our listeners. Thank you.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if years using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question. That's been addressed and you would like to withdraw. Your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Our first question comes from E. Chen with H.C. Wainwright. Please go ahead.
Hi, Thank you for taking my questions. My first question is regarding the call.
Good luck with the ski cellphone GAAP accounting elements.
So could you clarify what growth is clear clips for slating, a contract and whether it be share part of the 2 million.
Yes cleared a four has a remarkably flexible platform for tracking information.
About the client base.
And it is a platform that allows us fast sound communication.
Between the sponsor Oh.
The surveillance program and its members.
We're very impressed with their adaptability with their ability to pull in customers.
And day greatly facilitate.
The service, which we consider to be so important.
To maintaining.
Our surveillance customer relationships and yes, we pay them a fee for that service.
And you know, we're very happy with it.
Okay got it.
And second question could you tell us how many customers do you currently have on the sales circle.
Moving to code surveillance testing and whether the revenue you would expect to receive it.
Current quarter, what be sufficient to make up for the lost revenue in the textile industry.
Very good questions here I appreciate it thank you for asking them. So oh, our surveillance customer base includes multiple schools.
Businesses small and large.
Hospitals wellness operations, a medical school.
Families colleges.
Let it teams.
And more.
So.
There's very little risk concentration, it's very diversified customer base.
And.
They're compulsion to test is quite strong.
And.
Very successful, it's certainly well over 30 customers at this stage.
And in terms of you know we don't provide.
Provide guidance.
But certainly.
The revenue is we'll see.
From.
The say circle surveys.
Surveillance business.
Good.
Will exceed the growth rate, we were expecting for our tagging business driven especially by textiles.
Got it. Thank you and lastly could you tell us whether the.
The the cash passing is still on track to the Cat best interest to you are correct the initiate it.
What happened for the human lasting way should we expect to have an update for the year ahead of us.
Sure we.
We can see two roles in the human vaccine I'll answer that question first.
First of all we hope that our progress with our veterinary vaccine shed more light on the potential we can bring to the marketplace with our linear DNA vaccine.
Also.
The public's appreciation of the demand for cold chain.
Has increased.
Increased the awareness.
Of the value of linear DNA, because once freeze dried into a formulation that's rehydrate it out the patients side that freeze dried powder is extraordinarily stable I've.
I've joked that I would ship it across the Sahara without concern.
But it is remarkably stable, we do expect the.
Cash vaccine trial to stay on course, we have great partners in the execution of those trials.
And so we're really looking forward to it we think that this is.
Not simply an anecdotal kind of application.
But that it's very important.
In the case of the pandemic such.
Such was caused by the Sars koby to virus.
That humans don't accommodate to keeping a free.
Reservoir of virus.
Their foot side.
And the cure it and that is to vaccinate cats and eliminate cash as a potential carriers vaccine in of the virus in the household.
Okay got it thank you.
Thank you.
As a reminder, if you have a question. Please press star then one to be joined into the queue. Our next question comes from Anthony Vendetti with Maxim Group. Please go ahead.
Thanks.
So Jimmy just a little more on the Suffolk County government contract. It's 2 million you said initially over six months.
And the opportunity is is to expand that after six months.
Can you talk a little bit more about what that expansion what would potentially be would that be for another 2 million or is the expansion.
Beyond six months.
Would have to be determined the the dollar amount after the first six months would potentially be a different dollar amount depending on on the magnitude of the expansion.
Sure.
You know first of all I have to say that I astonished.
And hopefully impressed by the agility of the self accounting government.
Their capacity for decision making.
Or response to events.
And two strategy.
Is I just have not seen before and we as a company find ourselves sprinting to keep up with their agility.
It's really wonderful to see interest stores your phase and government.
The expansion could occur in real time.
Does not have to wait for the end of the six months.
And is in part influenced by the reception of those we would be protecting by this surveillance campaign.
And I can tell you from our first meetings with the.
Agencies and people like the members of the police Department.
The chief of police.
Their reception is very strong they're very anxious to participate there.
They ask whether or not their families can participate and I think the opportunity for it to broaden.
It is a genuine and frankly I think the wider and deeper.
Deeper it gets the better job, we can do it helping to protect Suffolk County so.
I am very optimistic and.
Anxious to.
To go.
Going.
Okay, great great sounds like that.
It is a significant opportunity that could continue to expand you also mentioned on the call Jim that fit other municipalities have.
Reached out or youve been in contact with other municipalities.
Where would you say that those other municipalities are in terms of.
The pipeline are they.
Close to making a decision.
Or they're just not as nimble as Suffolk County, and it could take a while.
You know, it's kind of hard for me to say with assurance. Anthony you know, we're seeing even in the schools that have to make decisions about.
They looked back in retrospect about the impact of the Thanksgiving holiday on infection rates and can clearly see what.
Enter a household visits did to the infection rates thereafter, and that was with a two day holiday in a four day weekend.
With the coming holiday.
We see the schools many of the communities.
Tacking as you would in a sellable or.
To ensure they are heading in the right direction.
And we respond in real time right with them.
So you know I think we could see a very significant increase in our activity in this area.
After the first of the year and I'm, just hoping that people are was about the way they visit one another and limit the opportunity for infection.
Yes, it makes sense and.
And then just on the the veterinary opportunity.
You said everything is moving forward.
With the fee line.
Trial, what ultimately.
What is that overall opportunity if everything goes well I would say in terms of a dollar amount.
What do you think the market opportunity there.
Well I think it's it's broad enough on the basis of of.
Cash you.
No.
We've seen estimates from the 58 million I quoted to well over 100 million. That's even in household accounts. If you combine that with feral cats is a huge opportunity.
But early on in the who.
Oh workshops, the World Health organization workshops.
The Ferret was identified as one of the best.
Clinical pre clinical laboratory animals to work with.
And the reason for that is because unlike cats ferrets developed symptoms and many eventually die from the disease and ferrets or in the same family as mix and as you know a very significant commercial business.
Has been perhaps permanently impacted by the impact of this virus on mix, but.
But we believe that if our vaccine is functional in cats. It would also be functional and some animals and very important commercial value like mix.
Okay, and then other and then secondly, the data that we would get from these trials and use.
After approval.
Could very well be helpful and our potential coal the vaccine based on linear DNA.
As well as a host of other nucleic acid based therapeutics that we're working on.
Okay, and then just switch gears, a little bit I I think Pat mentioned during her opening remarks that it.
It was a write off for some development expenses.
Not expected to be utilized by the cannabis industry.
Can you elaborate on that.
We are we have continued our close.
Connection to the kind of this industry and it's.
It's very clear that as it becomes approved more globally that there was still a requirement to be able to track kind of as to its original source.
And.
As the methods of harvesting and subsequently.
Subsequently isolating distillates and other components becomes clearer.
We realize that our initial methods [laughter] may not be as excuse me has relevant.
To tagging in the field.
As to tagging during the chemical processes early after harvest.
Where the material is still close to its starting point.
But.
A very eligible for attacking.
Okay. Okay, you see so bottom line is you still see.
An opportunity there. It's just it's the type of opportunity has shifted is that correct yeah.
Yeah exactly so we've moved to tagging net another point in the supply chain instead of wallets out in an open field.
Okay and then just the last question on the.
CLIA certification that those deficiencies.
<unk>.
What what were they and and I know you said you were addressed.
Addressing them.
Day.
Did you say you expect them to be addressed.
Early in in 21.
Yes, we believe we actually have addressed most of those concerns already.
And now documenting how we have addressed them and supplying those documents back to New York State Department of Health is the key issue most.
Most of the concern dealt with the flow of data in electronic systems, typically and you know those systems are or have been implemented and are being improved as we speak.
Okay, Great all right. Thanks, very much appreciate it okay.
Okay. Thank you and.
Our next question comes from Matt Paluch with Maxim Group. Please go ahead.
Hi, Thanks for taking my question just a quick follow up on from a modeling perspective.
Any additional color on how you guys think about gross margin and SGN expenses going into fiscal 21, and how that cadence might play out. Thanks.
[noise], that's you want take that one.
[noise] choice I think we had as we mentioned increased development costs in the fiscal fourth quarter, but then I would expect sta levels you.
It's slightly down from where they were on this fiscal quarter.
And I must remain fairly consistent as we kind of focus some efforts.
And move some of our resources price tagging and things like that over to the company nightclub in the biotech sector.
Okay.
And then on gross margin.
On the gross margin really the best projects. So far in Q4, because we didn't absorb some of the fixed costs that are flowing through cogs at the low product revenue the gross margin on that surveillance testing.
It's very getting similar if not better than like our textile industry sales.
Same with the diagnostic kit itself.
Okay. Thank you.
You're welcome.
This concludes our question and answer session I would like to turn the conference back over to Dr., Jim Hayward for any closing remarks.
Okay, well thank you.
Very much and thanks to everybody for listening in.
It's been a year clouded by anxiety illness, and fear, but we have found encouragement in the on unfold during commitments of our employees and our colleagues our investors our development partners and our customers.
As I said before we are amazed at the agility of a.
The tripartite and translational calibration the collaboration between government academia and industry.
And as we close this call one year, we have found strong reasons to be optimistic about our future as a company as an industry and the country and we wish you all piece and the health thanks very much.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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