Q4 2021 Applied DNA Sciences Inc Earnings Call
Good day, and welcome to applied DNA Sciences' fourth quarter and full fiscal year 2021 financial results Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero after too.
Today's presentation there'll be an opportunity to ask question.
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Please note this event is being recorded.
I would now like to turn the conference over to Sanjay Hurry director of Investor Relations. Please go ahead.
Thank you Ali and good afternoon, everyone and welcome to applied Dna's conference call to discuss our fourth quarter and full fiscal year 2021 financial results you can access the press release that was issued after market close today as well as the slide presentation accompanying this call by going to the Investor Relations page of our website.
Speaking on the call today are Dr. James Hayward, Chairman, President and CEO and Beth Jantzen our CFO.
Judy Murrah, our CLO and <unk>, our chief legal officer will also be available to take your questions on the Q&A portion of the call.
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 to the company's Form 10-K filed today for important risk factors that could cause the companys actual performance or results to differ materially from those expressed or implied in any forward looking statements.
Take 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 developments.
Now, it's my pleasure to introduce our first speaker on today's call Beth Jantzen. Please go ahead.
Thank you.
Thank you Sanjay good afternoon, everyone. Thank.
Thank you for joining us on our fiscal year end call.
I'll start this afternoon with a review of our consolidated financial results for the fourth quarter of fiscal 2021 ended September 30th.
I will then turn the call over to Dr. James Hayward, our president and CEO.
Who will outline our key initiatives for the 2022 fiscal year.
We will then open the call to our analysts and institutional investors for a question.
As detailed.
In our press release and 10-K that were filed moments ago. We are pleased to report continued quarterly revenue growth.
As well as announce record revenues for the fiscal year.
Both of which are the result of our decision to enter the COVID-19 testing and assay manufacturing market.
COVID-19 related revenues in the fiscal year were driven by the establishment of applied DNA clinical lab or a D. C. L. A clinical laboratory subsidiary.
That provides population scale COVID-19 testing as.
As well as from sales of our linear one point, though COVID-19 assay kit and testing consumables.
Momentum in COVID-19 testing, especially in the second half of the fiscal year with the acquisition of new customers.
Supported our continued investment in a T cell that is now largely complete.
In our fourth fiscal quarter, we were able to set up.
Staff and supply COVID-19.
Testing site and commenced COVID-19 testing at over 23 sites spanning the five boroughs of New York City, Westchester and long island as well as prepare our testing lab for higher testing volume.
This is all done with an extremely tight time frame from CUNY contract award until the first test was performed.
Although we experienced revenue growth in our fourth fiscal quarter, we are continuously monitoring and right sizing our valuable costs related to the CUNY testing program.
As well as the testing.
As the testing levels have been less than originally projected by the quiet due to the combination of increased vaccination rates and vaccine mandates.
In addition, we are also utilizing the infrastructure implemented for this testing program to serve as several other New York City test in clients that were acquired subsequent to 930.
Yeah.
Starting with the statement of operations.
Like to note that due to the dollar value and it being a separate revenue stream.
We are now presenting the COVID-19 testing revenue.
As well as the cost of providing the testing services performed by a D C L.
A separate line items in our statement of operations.
Beginning with the filing of our 10-K today.
Cost of clinical laboratory service revenue is comprised of payroll and consumables to support our COVID-19 testing revenues.
The cost for Q4 of fiscal 2021 reflect an increase in payroll as we staffed up a D C O and preparation for our new higher education testing contracts.
Total.
Revenues for Q4 were $3 million.
Paired to 314000 in the year ago quarter, and $1 7 million in Q3 of fiscal 'twenty one.
This year over year increase in quarterly revenue is primarily attributable to an increase in COVID-19 revenues of $1 8 million.
For the purpose of today's presentation I'm defining COVID-19 revenues as those related to the sale of our COVID-19 testing granted that save circle.
As well as the sale of our linear assay kits.
I note that the year ago period contains only one month of surveillance.
COVID-19 testing revenues.
We had establish our clinical laboratory and it proceeded clept CLIA licensure R. A T C L.
Which we can now conduct diagnostic testing, we also had not yet sold any of our linear assay kits.
On a sequential basis Q4 revenues increased 79%.
The increase primarily due again to an increase in COVID-19 testing of approximately 813000.
As well as an increase in revenue of 824000, and our textiles market.
As a reminder, given saved circles substantial concentration of academic class.
Q3 reflected the summer break in between term.
I would like to note that Q4 revenue.
Only about six weeks of contribution from Q&A.
Product revenues increased to $1 1 million in.
In Q4 compared to 123000 in the year ago period.
This increase is due to increased sales of 810000 in textiles relate.
Related to the shipment of DNA concentrate to protect the cotton supply chain.
As well as an increase of 538000 for the sale of our linear one Plano assay kit and related consumables.
[noise] clinical laboratory service revenues derived from our COVID-19 testing increased to $1 6 million compared to 78000 in the year ago period.
This is a testament to the dedication and hard work performed by our team to implement and grow a business over a 12 month period.
Yeah.
Cost of revenue as a percentage of product revenue in the fourth quarter decreased to 30% from 49% a year ago period.
The year over year improvement reflects a better product mix as the fourth quarter of this fiscal year.
It was primarily comprised of sales of industrial DNA to the textile industry.
We're at a higher margin compared to the products sold during the same period in the prior fiscal year.
Total operating expenses.
In Q4 increased 34%.
Or one 4 million to $5 6 million compared to $4 2 million in the year ago period.
The year over year increase is primarily attributable to an impairment charge of 822000.
For the write off of goodwill and the remaining net book value of intangible assets associated with our 2015 acquisition of Vandalia.
And to a lesser extent an accrued bonus included in SG&A that was subsequently paid by the issuance of stock options.
As well as an increase in depreciation and amortization totaling $218000.
Recall that we acquire.
Excuse me recall that we acquired medallion core technology.
Portfolio that allows for the large scale production of specific sequences of DNA.
Using continuous flow Pcr.
We remain in this business. However, we have since migrated to a different PCR based manufacturing process.
Q4, net loss increased incrementally to $4 5 million.
$4 1 million in the year ago period.
Net loss per share improved to 60 from 82 cents in the year ago period on a higher number of weighted average shares outstanding.
Excluding noncash expenses consolidated adjusted EBITDA improved to negative $3 3 million in Q4 compared to a negative $3 8 million in the year ago period.
Turning to our balance sheet cash and cash equivalents totaled $6 6 million on September 30 F 'twenty to 'twenty one.
We used $5 6 million of cash during the fourth quarter.
The increase in cash disbursements is primarily related to capital expenditures.
The purchase of inventory and other supplies and consumables to support and service the CUNY Award that I discussed earlier.
These investments are essential since these supply chains work and remained under considerable pressure and we needed to ensure that future revenues would not be restricted by constrained supply chain.
These investments are also being utilized to service other additional safe circle customers.
Our cash position on November 30th was approximately $3 6 million.
Accounts receivable stood at $2 8 million on September 30th.
Compared to 737000 on June 30th.
Inventory stood at $1 4 million.
Compared to 429000 on June 30th.
As I noted the increase in inventory is related to our CUNY award principally the purchasing of materials necessary for the production of our linear assay.
Well the sample collection kits.
Our current warrants outstanding is 744000 of which 459000 warrants carry an exercise price of $5.25.
We carry no debt on our balance sheet.
We filed our fiscal 2021, 10-K, a short while ago and which we disclose that based on historical financial results. There is substantial doubt about our ability to continue as a going concern for one year from the issuance date of the financial statements.
Our ability <unk> ability to continue as a going concern is dependent on our ability to continue to increase our revenue or did you raise additional working capital.
This concludes my prepared remarks, thank you for joining us today I'll now turn the call over to Jim for his comments.
Okay. Thank you Beth.
Good afternoon, everyone. Thank you for joining us on our fiscal year end call.
I hope that you and yours are keeping safe and well during this holiday season.
The school 21 was a year of substantial execution for applied DNA.
In the midst of the pandemic, we stood up a high throughput clipped CLIA certified lab.
Stony Brook headquarters that serves as our diagnostic testing services subsidiary to support.
Population scale COVID-19 testing.
New York Clep, CLIA certification is especially challenging to achieve but we obtained certification and just a matter of months.
We put in place all the constituent components of a full service COVID-19 population testing grounded in our house developed EUA authorized us.
And proprietary automated pooled workflows.
We expanded our operating area to include all of long island, none within weeks of contract signing with the city University of New York, We added the five boroughs of New York City.
And then to the borders.
Of New York State itself.
The use of our diagnostic.
Well, we now referred to as our linear one version walnuts.
At our high throughput clinical labs generates very attractive margins when skilled.
Such fiscal 'twenty. One also reflects investments made to a D seals footprint to encompass testing programs capable of serving the entirety of New York State.
To support Ornella state well, it's safe circle customer base.
The result is the achievement of record annual revenues that more than cushioned depend that mix impact on our industrial DNA and linear Rx business.
Execution on our testing strategy did not end with the fiscal year and in a moment I'll speak to the launch of safe circle nationally with surveillance testing of samples beginning to flow to our clinical lab from 14 different states.
We believe that a D C. L can be an engine for growth for us throughout fiscal 'twenty two.
Our long term view of a D. C O given the foundation that we have put in place is that of an engine that can drive our financial performance and generate cash flow to support investments in our linear DNA and industrial DNA businesses.
But more than cash flow, we will marry the diagnostic capability is a D C L to the therapeutic applications of linear DNA.
That will ultimately enhance the commercial value of both platforms.
Our original linear Covid assay.
Which we are now referring to as version one targets to amplicons and the Spike gene.
It has been of enormous utility.
As the variance evolved we were able to identify also through delta simply by changes in the positive PCR patterns for patients infected by that variant.
Those altered PCR patterns were confirmed by our sequencing studies using next generation sequencing.
But with the arrival and propagation.
Of the Omicron variant.
The changes in the Spike gene are so large.
In number and an impact.
That we expect version one of our assay to lose sensitivity.
But however, there.
There is a significant silver lining to the story.
We expected the appearance of massively mutated spike gene and months ago developed and validated our version two <unk>.
The 2.0, what I'll say is the three target multiplex real time reverse transcription polymerase chain reaction I'll say targeting conserved regions.
Regions conserved, meaning they don't mutate at the same frequency.
Oh the viral.
Envelope gene and the viral nucleocapsid and gene in the human Rnase P gene gene and respiratory systems.
Linear too is variant agnostic.
This means that it is designed to determine the infectivity not whether a COVID-19 sample contains a variant of any specific COVID-19 lineage.
We have filed our two point OSA and supporting validation data with the New York State Department of Health.
Our strategy is to utilize the assay that detects the viral and an E genes to identify positive samples.
Then we our reflex testing those positives with our version one I'll say.
Samples that exhibit drop of the signals are likely omicron variance.
They will be positively identified by sequencing with N G S.
We have already identified all micron this way and we have strong interest from our existing customers.
To utilize these methods to more quickly identify one micron as opposed to sequencing.
Version, two has been validated for both single samples and food testing.
Anterior nasal swab collection.
So for our safe circle customer linear twos design includes a plug to.
Plug and play function that allows it to be plugged into the linear ones testing workflow seamlessly.
This means that we can process linear too with the same speed and efficiency.
And with the identical economics to our linear Wanna say.
To mitigate any disruption disruptions in the processing of those samples. So we are prepared to transition to linear to from our current linear one base testing workflow subject to review by the New York State Department of Health.
If this transition needs to occur prior to the completion of their review we have validated a third party EUA authorizes assay for use at a D. C. L until the review is complete.
Now as Beth noted.
Our current quarter ending December 31st.
We will reflect the first full quarter of <unk> contributions to our consolidated revenues.
CUNY modeling at the time of the award back in August was for 20000 to 65000 tests per week.
Weekly testing levels have not reached these levels. The result of a combination of increasing vaccination rates and after the award date CUNY is adoption of the vaccine mandate.
As well as low on campus attendance driven by concerns about infection.
As prime contractor CUNY and working with our partner cleared for.
We've been able to deliver value, adding services to enable CUNY to consolidate testing.
Vaccination.
Verification and site access control into a single platform, which is a real benefit for administrators and students and employees.
The evolving nature of the pandemic. However, it makes a strong case for the testing of vaccinated populations. In addition to the own vaccinated.
So effective two weeks ago, we started to test a random sampling of CUNY is vaccinated population every week.
The percentage of the randomly tested will be determined by infectivity rates as well as the number of students on campus.
We've seen an increase in weekly testing figures following the start of random vaccinated sampling, though it's too soon to determine whether testing will stabilize.
Any specific level.
Third party medical staffing in our operational footprint beginning in August were predicated on our outlook for customers utilizing this managed service model <unk>.
Including Q&A.
Suffolk Community College, Sarah Lawrence College and Malloy.
Our model is to continuously rightsize staffing.
And ancillary cost to an affordable operating footprint at the level of service that our customers should expect from us.
The path forward with CUNY and others is a promising one cooney.
<unk> vaccine mandates should bring students back on campus, starting with the spring semester.
We expect this to translate into increased weekly testing rates starting in the middle of January.
Now for fiscal 'twenty, two we expect that ADC L will continue to drive the company's top line growth.
We believe this growth will come from both continued and expanded Covid testing services as well as additional non COVID-19 molecular testing.
As I'll discuss in a bit we plan on using this topline growth to help fund the expansion of the linear DNA platform to capture the rapidly growing market for non plasmid derived DNA for biotherapeutic applications.
Recall that in the first months of 2020 as the World Grapples with COVID-19 and vaccine development.
We too were investigating the virus as a test bed for our linear DNA vaccine.
As a pure fast and flexible alternative plasmid DNA that has the benefit of speed of production without the additional burden and costs of cold chain storage required for global distribution.
And having become experts.
Mike we developed our linear one COVID-19 assay that has underpinned our diagnostics and testing business and has driven our top line performance in 'twenty one.
Since the introduction of linear one in May of 'twenty 'twenty, we've continued to expand our COVID-19 related diagnostic offering reflective of this residents.
The establishment of a mutation and variant and tracking program with North well health and the launch of saves circle.
Both powered by our linear wellness and feasible only through our genomics expertise and acquired next generation sequencing capacity gave us a front row seat to mutational drift into the evolution of the endurance.
From this knowledge, we developed our linear Sars Covid two mutation panel for which we are seeking EUA approval from FDA for the testing of genetic mutations prior to the administration of monoclonal antibody treatments known to be impacted by some of the muted.
<unk> that are detected bother mutation panel.
As you are likely aware our certainty you as had been rescinded buzzy.
F D a.
After the negative impact caused by mutations.
If authorized under EUA the administration of the right treatment match towards variant we believe.
And enable better standards of care and outcomes for the patients.
The economic rationale for mutation panel includes the potential re commercialization of monoclonal antibody treatments Uzi ways had been rescinded too.
To enable their continued commercial utility.
And the emergence of new mutations or the reemergence of known mutations makes clear the importance of our efforts to develop and provide tools that.
Can.
Rapidly identifying mutations of concern to assist health care providers in determining the appropriate treatments for COVID-19 patients.
Our COVID-19 diagnostic development plan and go to market strategy are aligned with our capacity to conduct population scale testing to meet the evolving demands of current and prospective customers.
The identification of the only crown variant and the introduction of our linear to assay only days later.
Speaks to our agility.
Two our ability to execute our diagnostics development strategy.
The operational framework, we established for Q&A is being leveraged.
To access segments of the market, we believe can be more durable in the face of higher education.
Rates.
While Osha has suspended vaccine enforcement pending resolution of the legal challenges we are seeing employers.
Continue.
To implement vaccine men mandates both in preparation for the federal mandate rule and to protect their workers and workplace.
Concurrently, we're focused on making our COVID-19, offering easier to distribute use and collect.
We plan to seek authorization for an at home sample collection system that when paired with the HIPAA compliant and vaccine Records management and test results reporting capabilities brought to us by cleared four makes.
It makes sales circle and exceedingly efficient service for employers to keep their employees safe as they return to work.
In addition, we are in discussions with several national telehealth providers for a synchronous medical oversight of testing programs located outside of New York State.
If successful we believe that these constituent parts.
Supervised home collection the CLIA.
For digital health platform and the out of state asynchronous medical oversight will empower the nationwide reach for our save Circle program.
Early fruits of these endeavors are shown by our recently launched customer a pilot project for surveillance testing in 14 states that will continue to drive incremental revenue starting next month in January.
In addition, <unk> impact on the linear will now say how's the silver lining even when we replaced by linear to Linda.
Linear one will still off a utility.
Reflex tests from Micron.
Our tests have shown that linear one likely exhibits.
Unique double S gene target drop that appears to be specific just to a crumb.
This unique double target drop appear.
Appears to be specific to linear 1.0, given that it targets S. Wanting us to on Spike where there are over 30 <unk> mutations.
The value of reflex testing using linear one is the time and potentially lifesaving speed with which it can be run versus standard multi day genomic sequence to potentially impact not only the patient standard of care, but also to inform public health officials.
<unk> to track the variants progress in our communities.
Kind of early warning system.
We have already been informed by a user of our linear one I'll say that they intend to use it in a genomic surveillance modality to identify potential cases, Oklahoma chronic in their population.
Finally, we are in the process of validating our dual COVID-19, influenzae and influenza B test as they share many symptoms and karma.
We believe this assay will be validated and ready for clinical use by the end of the calendar year.
I think it's safe to say that we have left no COVID-19 testing related stone.
<unk> turned.
We believe our existing and yet to be launched COVID-19 assets will serve us well.
In fiscal 'twenty two.
And while we believe that COVID-19 testing demand will remain robust through fiscal 'twenty. Two we are planning to introduce non COVID-19 testing services through a D C L.
Currently we are in discussions with a major assay manufacturer of pharma co genomics testing.
Pharmacogenomics as a form of genetic testing that assesses a patients risk.
Of an adverse response.
Or likelihood to respond to a given drug.
Pharmacogenomics can be used to help a doctor or a patient.
Informed drug selection and dosing.
Especially in the areas of psychotropic and cardiovascular medications.
We believe that there is a strong unmet need for pharmacogenomics testing and the long Island area.
And the development and commercialization of pharmacogenomics testing will be a focus for your D. C. L. In this coming fiscal year.
A D. C. L is also in the process of evaluating the eye CTC platform.
A potential source of valuable cancer Biomarkers.
If successful this project could result in a differential cancer biomarker identification platform.
We're currently in discussion with academic institutions to investigate whether the ICT C platform.
Can be used to identify a newly discovered cancer biomarker.
No the confluence of substantially heightened interest in nucleic acid therapies because of the COVID-19 vaccine.
Element.
Globally and supply chain issues impacting plasmid DNA availability.
Is driving the biotech and pharmaceutical industries to seek an alternative to plasmid DNA based manufacturer.
In short.
The concept of non plasmid derived bulk DNA is really catching on.
This is creating a very attractive window of opportunity for the linear DNA platform.
The plasmid DNA manufacturing.
Process is incredibly complex and expensive.
Yields vary considerably in batch failure is common.
And if there's one thing that the FDA does not care for its inconsistency of production.
When you use a manufacturing process grounded in the use of bacterial cells for amplification of the target DNA inconsistency comes with that territory.
As to additional costs associated with complex and expensive purification steps downstream.
It's no wonder that the bio therapeutics industry.
Which means never be seen for.
Well the biotherapeutics industry is looking for alternative DNA sources.
Excuse me.
In contrast, we produced linear DNA, enzymatically and without any cells prison, and with rapid turnaround times and exceptional batch to batch consistency.
There is no bacterial contamination and the need for purification is minimal.
Compared to the plasmids, it's a simple process to produce high DNA yields.
Based on internal costing analysis, we believe that the cost of cgmp linear DNA is comparable to or even slightly less than cgmp plasmid DNA.
In fiscal 'twenty, one we focused on both the validation and optimization of the linear DNA platform.
In terms of platform validation, we accomplished much this year.
Pacifically.
We obtained the first state of the linear DNA plasmid DNA for COVID-19 vaccine have equivalent performance in rodents.
We obtained the first data from higher order animals freelance.
That linear DNA vaccines produce high levels of neutralizing antibodies against Sars Covid, two and its variance.
And the initiation of the detailed ferrets study with Cornell University to study the efficacy of our linear DNA vaccine candidate against actual Sars Covid two infection. This trial is still ongoing but the data from the trial assuming it meets its endpoint.
We will provide invaluable insight into the efficacy of linear DNA vaccine.
Now in terms of platform optimization, we have also been highly successful.
Over the past half year, we put into place a cell biology suite designed to validate and optimize numerous aspects of the linear DNA platform.
This new asset allows the company for the first time to undertake substantial R&D activities on linear DNA in the house.
This investment has rapidly borne fruit with several breakthroughs in cellular transfection and expression.
Including the deployment of an in house lipid nanoparticle or LNP capability for the encapsulation and transfection.
Nucleic acids two cells to date, we have successfully encapsulated DNA with Lnp's that showed very significant expression in vitro.
This is an important proof of concept that supports our goal to develop LNP.
<unk> delivery of linear DNA for various applications, including vaccines.
We have seen substantial success with linear DNA construct by our team to substitute for plasmid constructs that we're already in use by our customers.
These construct which are often components of advanced therapy medicinal products like car T or mrna vaccines and gene therapy.
Our direct replacement for plasmid DNA used in these therapies.
As the plasmid DNA supply chain continues to struggle, we expect to see more request of this type of for linear DNA and we believe that the near term demand for GMP grade linear DNA.
A C D M O will be very strong.
And the economics of C. D M O as far exceeds that of <unk>, which is really our current business we.
We have <unk> relationships with major pharmaceutical players that need cgmp DNA in fact, our cgmp approach was catalyzed by one such C. R O customer who came to us to inquire as to our plans to offer a C. D M. All scale linear.
Our DNA production.
In addition, our COVID-19 veterinary vaccine development program has elevated linear DNA is profile in the marketplace.
Inbound inquiries to date are magnitudes above what we've experienced historically, both in terms of volume and in value.
To meet this interest and with our investment in <unk> largely complete.
We continue our pathway to implement a phased based approach to cgmp manufacturing capacity for linear DNA in fiscal 2022.
The volumes in quality necessary for phase one clinical trial can be achieved in our current footprint in stony.
Stony Brook facility.
In fact, we believe we can achieve phase two efforts.
Because see trunk trial volumes and quality also within our current footprint.
However, phase three will be scale up manufacturing, which will require a larger footprint in concert with planning undertaking with our regulatory consultants. We believe we can achieve phase one.
In fiscal 'twenty, two to cost of roughly $3 million in capital expenditure.
Once we are the manufacturer of record for the clinical trial. We believe we can grow as the sea deal no further customer throughout the clinical trial process.
In addition to planning and facility reviews. We're also working to put the necessary partnerships together to support successful cgmp. We're currently working with preliminaries manufacturers for the production of a cgmp grade enzyme the.
The most important aspect of our manufacturing process.
In addition, we're working with several device manufacturers to upgrade the devices in a large scale PCR workflows to meet cgmp compliance.
Further our new cell bio suite is developing the technical skills to support the quality standards necessary for cgmp manufacturer of linear DNA.
Once in place our cgmp manufacturing will be designed around parallel workflows that are well suited to rapid scaling.
We believe that once implemented the production of cgmp linear DNA is the C. D M O.
We will be a substantial catalyst for our growth.
In addition to our numerous linear DNA customers.
Allegation of our decision to pursue cgmp for linear DNA can also be found in a recent publication by the Prague Institute of Hematology and blood transfusion.
Their use.
Our linear DNA.
Are they suitable on cost of factor replacement two plasmid DNA in the production of car T cells with similar efficacy to the car sells manufactured with plasmids.
This paper highlights the use of linear DNA with a non viral transfection system.
In their case, a transposon transposase system.
We believe this combination overcomes many of the existing manufacturing complexities associated with plasmids and with viral vectors.
Thereby offering therapy developers, a rapid and cost effective tool for manufacturing preclinical car T cells.
This is very valuable validation for us as the majority of our <unk> customers are ordering from us linear DNA for car T cell applications.
We are currently in discussions with the institute of potential clinical trial with a new car construct targeting acute myeloid leukemia.
This would have the potential to leapfrog our development work in the U S to be a first in human trial for linear DNA.
Near term phase one.
Made possible through the auspices of new European Medical agency guidance that allows for the use of GNP like product to be upscale to cgmp for certain phase one trials.
I don't have additional details to share at this time, but the trial is currently projected to commence in fiscal 'twenty two.
Now turning now to our industrial DNA business and specifically our textiles practice, we're pleased to see the resumption of more normal demand pattern in the fourth quarter with the receipt of a one 6 million dollar purchase order.
Fiscal 'twenty, one was a challenging year with the continuation of COVID-19 impact on the textile supply chains.
As vacation rates increase so to begin and following of the global textile supply chain.
Given the impact of the ongoing pandemic.
Fiscal 'twenty, one was about progressing COVID-19 paused commercial scale trials and scale up commercial production in fiscal 'twenty two.
In fiscal 'twenty, one we completed a key proof of concept trial for the tagging of recycled pet.
With <unk> the largest producer.
In India.
Excuse me.
Recycled fiber.
<unk> and.
And died filament.
In fiscal 'twenty, two will continue to pursue pre commercial trial developments and recycled P. T production as well as from other textile customers in cotton downs and feathers.
Leather and thread.
These activities are necessary.
Yep to eventually tag commercial scale material volumes.
In cotton.
<unk> 21 was about progressing pre commercial trials in new textile categories like apparel.
Footwear and accessories in fiscal 'twenty, two cotton will be focused on scale up of these trials and commercialization.
It is particularly noteworthy that for the first time, both home goods and apparel brands and their suppliers are reaching out to us.
We have gained the attention of multiple apparel and footwear brands and their suppliers and we have traction.
Demands in 'twenty, two should approximate 21 levels, an increment as we execute on the scale up.
Our outreach activities during the fiscal year resulted in the evaluation of certainties strategic value with respect to customers' supply chains.
Certainties value proposition speaks to the need for compliance and to support our brands brand promise.
These are issues central to the brands and suppliers coming out of the pandemic and driven in part by their own ESG commitments as well as the standards against which their products are being measured.
By end consumers.
No.
Previously spoken about how the pandemic brought into stark relief.
The inefficiencies embedded in the modern supply chain that has textile brands sourcing finished product from factories globally.
The provenance of these textiles is often opaque.
The brands themselves.
Two regulatory bottles bodies and to consumers alike.
Social issues, so choose to use a continent produce through the use of forced labor.
I've also become a call to action for the industry and it's been taken up by regulatory bodies in the U S and Europe, some of whom are talking to us.
You know our certainty platform to be an end to end supply chain traceability platform that uses the immune to building.
Oh, DNA tag track and trace cotton through supply chain.
Go to your local bed Bath and beyond and pick up a set of 100% Pima Cot brand Pima cotton sheets.
The packaging says pure by nature proven by science.
Sure.
The science being referred to.
As applied DNA Sciences.
Our certainty work flow allows us to say with certainty. Yes. This is American Pima cotton, yes. This entire bedspread is made of Pima cotton.
Our call to action in 2021 was to bring the full measure of cotton genomics too.
To bear to answer the question, where does my cotton come from.
Utilizing our genomic sequencing capacity, we identified a biomarker.
Specific to the most widely used Egyptian cotton Giza 94, varietal used in the production of textiles.
We believe that it has proven for the first time that the geographic origin of cotton can be definitively ascertain via Geno typing.
The process of determining the differences in the DNA of living matter.
In short we believe that we can bring forensic proof as large into regional cotton varietals to give brands and relevant regulatory authorities access to fiber origin data regardless of the locations of finished goods manufacturer.
We filed a provisional patent application with the U S. PTO for the skis 94 cotton biomarker. We also brought to bear an additional test for cotton through a new relationship we will be announcing soon that brings the forensic fidelity of stable isotopic analysis.
<unk> two all certainty customers for cotton textiles.
Well those proceeds <unk> concludes my prepared remarks and operator.
Please open the call to questions.
We will now begin the question and learn crude zaslow.
I'll ask a question you May press Star then one on your question.
If you are using speaker phone. Please pick up your answer before question Mickey.
Withdraw your question. Please press Star then one.
Right.
Our first question comes from Jonathan Armstrong with Roth Capital Partners.
Thank you good evening and congrats on the progress.
My first question is about the Cogs, maybe you explained it and I missed it but what drove that roughly 97% Cogs for the fourth quarter.
So as we broke out cause into two separate lines. So we have the cost of the clinical laboratory service revenues and that mainly was driven by a ramp up in staffing.
And certain other mainly in staffing, that's where the consumables flow through for the.
With me.
COVID-19 surveillance.
<unk> testing and not all of our COVID-19 testing. So a lot of that we had a ramp up but then remember the higher education contracts didn't start until.
The latter part.
August and early in September.
Okay Alright. Thank you for that my next question's a broader one.
No.
There are a lot of things going on.
<unk> can you. Please rank your programs are more important than anything else by what you are spending on them.
So I can have a better sense of your priorities I mean, clearly it seems like Covid testing cotton linear DNA are the top three maybe in that order may be linear DNA before cotton, but what other.
Fitbit programs follow in that sort of decreasing.
Order of investment and what maybe some things in the past are no longer really anything that you're focusing on.
Sure we have a.
A very crystal go to market.
Our strategy and that is reflected in where we're spending our available bandwidth and.
Any investment money.
The investment in applied DNA clinical labs is largely behind us.
And we already have a pipeline of new developments to rollout.
Do you believe that that will generate new revenues increasing revenues.
And contribute to our cash.
We will at the same time.
Be focusing much more on bringing in linear or X customers for our linear DNA platform.
And that will be aided by the cgmp advancements will make to produce linear DNA, so that would be our number one priority.
Wondered by our number two priority is the clinical lab.
And by our number three priority and that is that the industrial applications of DNA. So that answer your question Jonathan.
Yes, so basically the other items I mean, the ICT see cannabis veterinary vaccine is there a zero investment here or.
Them under those three groups, so cannabis as an industrial DNA application where were doing tank tagging the ICT.
Platform as part of our a D C L diagnostics.
And I've forgotten what your third one was veterinary vaccine.
Yeah, that's under linear Rx.
Okay.
Sounds that sounds complete that.
Thanks, very much Jim.
Thank you.
Our next question comes from E Chen with H C Wainwright.
Thank you for taking my question My first question is.
Can you give some additional color on the additional test that youre going to offer at ADC and.
And how soon these non COVID-19 test will be.
We will start to generate revenue for the company.
Sure well, we are already validating the combination COVID-19 flu.
I say so.
So it is an extension of Covid, but the.
The issue is going to be for many people, who and especially.
Long term care institutions.
When a patient exhibit symptoms, which are similar for all three indications do you need to know what that is and to treat those opportunities appropriately and we actually have sales expertise focused very much on the.
Long term care facilities. So we believe we have a market we can develop there.
Assuming that that we're successful there.
The other kind of I'll say that the market needs to optimize the care of their patient.
As pharmacogenomics.
And so we expect to be rolling that out in this current fiscal year.
Got it thanks.
All right.
Second question is do you still plan to proceed with the clinical trial after veteran of reinvesting.
The clinical trial of blood.
Oh, the divesting and mix.
Yes that study is underway.
USDA has indicated that it is the only commercial vaccine, they're really interested in promulgating right now.
And our early data are quite promising.
So we want to bring that to close and begin to look for a partner to help us commercialize.
<unk>.
When do we when do you plan.
<unk> reported top line results from this trial.
Probably in the next.
Six to eight weeks.
Okay got it thank you.
Our next question comes from Jason Mccarthy with Maxim Group.
Hey, Jim Thanks for thanks for taking the questions I will take it.
Little bit.
Our direction.
You had mentioned.
And you're in your remarks about linear one and skiing that drop off in signal when it seems to be very.
Identifiable.
How long because the U S. As you know has lacked.
Tremendously and sequencing of samples.
How long have you seen that signal and did you start to get a sense that there was some kind of a variant even before we're really hearing about it.
Well we had.
The variance.
With a mutation density.
In spike.
Because it's not as highly conserved and it's the region of the genome most likely to be subject to mutation.
So.
We planned several assays.
Surrogates for our linear one assay.
But our linear one.
Which does target to spike amplicons had been of enormous.
Value.
In testing large populations.
Cause we were able to detect just from the PCR pattern.
Which variant we were dealing with.
When we filed our EUA with FDA.
We.
Gained a positive diagnosis.
For signal coming from either of our two spike ample accountants.
So in the case of Alpha we had an impact only on S. One.
And I remember late at night seeing the very first Alpha we believe we found the first one in New York State.
And.
The appearance on the PCR machine with is breathtaking.
And in the case of Delta.
The impact is more on us too and it's a minor impact, but it increases the <unk> value by two to three and it's enough for you to see right off the bat before the sample comes off the PCR machine. This is delta.
So the strategy of targeting spike.
Has paid off royalty for us really rather well and it led us to arm mutation panel.
Now we hope to use it again in the reflex testing of omicron.
And being able to shorten the time.
Two.
Diagnosing and infection is on micron.
In particular, if it turns out that there are monoclonal antibody therapies that are more effective against omicron.
And in the period between now and if omicron ever dominates the planet.
You will need though that assay.
Because otherwise you'll be waiting three years to four days to make a decision on a monoclonal antibody.
Have you seen.
Have you done any material standpoint have you seen signals in the in the PCR read out if theyre very specific identifiable, but theres more than one variance in one person overtime.
Yeah.
We have not seen that circumstance too often but.
Lee.
It is quite plausible.
Especially now with omicron, having a tendency for reinfection so.
So you may well see omicron and delta simultaneously in the same patient but.
Our biggest concern right now is detecting positive samples.
And monitoring the appearance and potential spread of armour crop.
Got it and just thank you for that and just the last question on the car T side, you had mentioned as opposed to using plasmids.
The advantages of using linear DNA, but using a transposon transposase approach.
Is that the.
Most ideal approach in terms of specific targeting.
Forgetting your genes in versus using something like a mega talent and some something that seems to be more much more precise with that with the gene editing.
Groups are doing or does it not really matter that much.
No I think it's an enormous benefit to tell you the truth because it avoids the need for viral vectors.
And subsequently increases the safety of the therapy.
And it seems to be more specific.
In terms of its integration target.
So at the moment, that's what I favor.
Got it great. Thank you.
Okay. Thank you.
And again, if you do have a question. Please press star one.
Hawaii.
Our next question comes from Anthony Vendetti with Maxim Group.
Okay. Thanks.
I'll follow up.
Hey, How're you doing Jim.
I just wanted to follow up with maybe some.
Financial questions and then just circle back to the pickup that Youre seeing post Thanksgiving and testing.
But first on the financials on the gross margin side.
Obviously with the filing of the 10-Q it looks like maybe the accountants said that cost that you were previously <unk>.
Including in SG&A are now being.
Being accounted for as part of cost of goods sold.
Is the new sort of 38% to 40% gross margin that you had this quarter is that the new sort of standard gross margin, we should be looking at or the ramp up in staffing.
It's sort of a somewhat of a one time.
And then and then gross margins to be able to move north of 40% from there I'm just trying to get a handle on.
On the new gross margin perspective, right. It's really the new gross margin came when we purchase a significant amount of consumables and then hired relating to the new higher Education Award. So some of the consumables are setting up an inventory.
But to your point it should go higher than the 40% because we had to staff up and things like that before the revenue started to and then the revenue followed.
So remember we only had six weeks at one of the higher education contract in the fourth quarter and then this quarter, we have a full quarter of that contract by some of the other new ones that came on.
So we have more utilization of power.
Power than we did in Q4.
That's helpful and then just.
In terms of the textile contract the $1 6 million purchase order.
It was all $1 $6 million of that recognized here in the fiscal fourth quarter.
It was not we recognize the lateral over 800000.
800000, this quarter, Okay, great and then just on the testing and the press release.
You said the debt.
Now that you are in your your fiscal first quarter.
'twenty two.
You've seen some of that testing pickup hanmi kron is probably related to that is it.
Omicron, mostly relate or is it more to do with.
Colleges.
And schools.
As opposed to the actual omnicom Darren.
Yes.
I would say certainly on the krona sensitized, everyone. If you werent before.
And.
Secondly.
Many schools.
Have reached decisions they've had difficulty making up until now and that is they are returning to the glass room.
And businesses are doing the same.
And the trick is how to do that in both cases safely.
So.
Now, especially with omicron.
Running reinfection.
Regardless of your vaccination status.
The simplest way.
To monitor prevalence.
Is by testing.
At high frequency.
Populations.
Okay great. Thank.
Thank you very much I'll hop back in the queue I appreciate it.
Okay. Thank you.
This will conclude our question and answer session I would like to turn the call back over to Dr. James Hayward for any closing comments.
Yeah.
Okay, well. Thank you very much every one.
Thanks to everyone, who joined us today.
We've put fiscal 'twenty one.
Place using the our capacity for genomic insights that we believe we can drive both.
Both towards precision health care, and expanding our molecular DNA and industrial applications.
The road ahead of us in fiscal 'twenty, two is really full of promise and supported by a remarkable group of employees.
Who are steadfastly focused on the company's success I'm grateful for their contributions everyday.
As I am for your continuing interest in a block DNA. So thank you all we wish you a good I'm good.
Good health and safety until we speak again.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.