Q3 2022 Applied DNA Sciences Inc Earnings Call
[music].
Good morning afternoon evening and welcome to the applied DNA Sciences fiscal third quarter 2022 financial results Conference call all participants will be in listen only mode.
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Please note this event is being recorded.
I would now like to turn the conference over to Sanjay Hurry. Please go ahead.
Thank you Jordan good afternoon, everyone and welcome to <unk> conference call to discuss our third quarter fiscal 2022 financial results and corporate update.
You can access the press release that was issued after market close today as well as the slide presentation accompanying this call on the Investor Relations section of our website.
Speaking on the call today are Dr. James Hayward, our chairman, President and CEO and Beth Jantzen our CFO .
Judy Murrah our.
Placer rock, our Chief legal officer head of business development also be available to answer 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 our Form 10-Q filed a short while ago were 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.
Other information provided on this call as a result of new information or future results or developments.
I also want to inform you that management will participate virtually at H C Wainwright, 24th annual global Investor investment.
Paul.
He's got in touch with your H C. Wainwright represented to schedule a one on one.
Yes.
Now, it's my pleasure to introduce our first speaker on today's call Beth Jantzen you just go ahead.
Thank you Sanjay.
Afternoon, everyone. Thank.
Thank you for joining us on our third quarter fiscal 2022 investor call.
I will begin today with a review of our consolidated financial results for the third quarter of fiscal 2022, which ended on June 3rd yet.
I will then turn the call over to Dr. James Hayward, our president and CEO .
Who will offer context on the equity capital raise we conducted subsequent to the close of the quarter.
And outlined the company's expectation and development milestones over the balance.
The fiscal year.
And into fiscal 2023.
For each of the end markets we serve.
As a reminder for our newer investors.
At September 30th fiscal year.
We will then open the call to our analysts and institutional investors.
Perfect. Thank my review of our financial results.
As we discussed on our prior Investor call in May we implemented a cost management program in the fiscal third quarter designed to optimize our cost structure to align resources to our linear DNA platform for biotherapeutic applications to achieve maximum value for sure.
Our holders from current and future opportunities.
Okay.
Beginning with the statement of operations total revenues for Q3 or 4.3 million.
Compared to one 7 million in the year ago quarter.
The 153% year over year increase in quarterly revenue is primarily attributable to increased clinical laboratory service revenue comprised of COVID-19 testing and related services.
On a sequential basis Q3 total revenues declined from $6 1 million in Q2.
This is due to lower COVID-19 testing services.
Due in part to the summer session seasonality inherent in our academia heavy testing client base.
Yeah.
Product revenues were 220000 in Q3 compared to 640000 in a year ago period.
The year over year decrease of 420000 is primarily related to a decrease of approximately 459000 in sales of our diagnostic test kits and supplies to Stony Brook University hospital as they are testing levels declined.
Service revenues were 183000 compared to 234000 in the year ago period.
This decrease is attributable to a decrease in research and development projects.
As a reminder, our service revenues comprised of research and development pilot project as well as the authentication services associated with our industrial DNA business.
Clinical laboratory service revenue increased to $3 9 million compared to 826000 in a year ago period.
As a reminder, we had not yet secured the CUNY contract in the year ago period.
On a sequential basis clinical lab service revenues decreased 29%.
A $5 5 million in Q2.
In large part to the aforementioned.
Seasonality in testing demand.
Yeah.
Beginning in Q1, we began allocating depreciation expense versus showing it as a separate line item on our statement of operations.
As a result, we are presenting a gross profit line on the statement of operation.
The gross profit percentage was 24% and 34% for Q3 and the year ago period, respectively.
The decline in gross profit percentage resulted from a substantial portion of our clinical or clinical laboratory service revenue coming from testing contract, where we also provide and staff the testing centers.
Which in our case, it's predominantly CUNY.
This contract has higher associated costs compared with our other COVID-19 testing contract, where we only perform the testing services.
As you know.
We recently reported a 12 month contract extension with CUNY.
In preparation for year, two we have worked to squeeze costs out of this contract and believe that we are currently at an appropriate baseline of fixed cost given the requirements of the contract.
We in Q&A have learned a lot about how to efficiently implement very large scale COVID-19 testing operations.
And we will continue to closely monitor support levels going forward.
With an aim to minimize our costs and maximize our margins within the confines of the contract.
Further.
CUNY is now in its break prior to the start of the new academic year.
As such we expect a lull in testing rates between now and the start of the New school year in late August .
CUNY, then ramping up testing thereafter.
Total operating expenses in Q3 were flat at $3 9 million compared to 4 million in a year ago period.
Reflective of the implementation of our cost management initiatives. During this Q3 total operating expenses on a sequential basis declined 15%.
Driven primarily by a reduction in head count from 95 to 75 or 27%.
Q3 loss from operations decreased to $2 8 million from $3 4 million in a year ago period.
Given the transaction costs related to the warrant liabilities and the unrealized change in fair value of the warrant liability is included in our net loss.
Going forward, we all have loss from operations is being the best representative of the company's operations.
Our Q3 net loss decreased to $1 1 million or 13 cents per share.
As a net loss of $3 4 million or 48 pence per share and a year ago period on a higher number of weighted average shares outstanding.
Excluding noncash expenses consolidated adjusted EBITDA for Q3 was negative 2.3.
Compared to negative $2 8 million in a year ago period and negative one 6 million in Q2.
Turning to our balance sheet.
At June 30, our cash and cash equivalents totaled $4 7 million.
And accounts receivable stood at $2 9 million.
Yeah.
For fiscal 2022 to date, our average monthly cash burn stood at 620000 on June 30th.
Representing a 46% reduction from fiscal 'twenty to 'twenty, one average monthly burn of $1 2 million.
And is reflective of increased cash receipts and the cost controls I highlighted earlier.
Subsequent to the close of the quarter, we conducted a public offering of common stock and two series of warrants for gross proceeds of $12 million.
We also received an exercise of warrants in connection with this offering for an additional net proceeds of $3 6 million.
Inclusive of the public offering and exercise of warrants cash and cash equivalents on August 9th stood at approximately $16 8 million.
Based on our current average monthly cash burn our cash runway is currently 25 to 27 months.
Our word balance increased as a result of the recent public offering.
Now have a total of 7.3 million warrants outstanding.
With approximately $2 2 million of these warrants have an exercise prices ranging from $2 80 to $2.84 per warrant chair.
And $5 1 million of these warrants have an exercise price of $4 per why aren't sure.
We carry no debt on our balance sheet.
As a result of recent funds raised our just filed 10-Q for the third quarter eliminates our substantial doubt as a going concern.
This concludes my prepared remarks, thank you for joining us today I will now I'll turn the call over to Jim for his comments.
Thank you Beth good afternoon, everyone and thank you for joining us on our fiscal 'twenty two in third quarter Investor call.
My remarks. This afternoon will focus on the company's bio therapeutics market opportunity and development plans for our linear DNA platform.
I'll also provide updates on the expansion of our diagnostic testing services at our clinical labs subsidiary.
And all of our textile tagging business, especially given the weak or forced labor Prevention Act that went into effect on June 21st.
Let me begin first by putting our recent equity raise into perspective for our newest shareholders. The equity raise was the latest stuff on our strategy executed across the past two years to further evolve our components of sustainable growth.
Those who have followed us during these two years, we will not.
We weathered the pandemic impact on our textile supply chain integrity business.
We opportunistically stood up a molecular diagnostic testing practice applaud DNA clinical labs were a D C L.
Presently centered on Covid, 19, and with new ongoing test development.
All of them into a launch pad for continued growth when the pandemic eases and.
We accelerated our pivot to a bio therapeutics opportunity grounded in our almost two decades of P. C. Our expertise.
We have expanded on an already voluminous library of preclinical data that showcased linear DNA has advantages over plus boats, even as the demand for therapeutic DNA grows nearly exponentially.
On the supply chain is bottleneck.
From Beth's prepared remarks, you've heard that we've cut our average monthly.
Cash burn by.
By 46% since the beginning of the fiscal year.
Operational expenses were reduced 15% primarily from a reduction in head count of 27%.
These organizational adjustments have enabled us to optimize our cost structure and to reallocate resources to the value, creating potential of our linear DNA platform.
We believe that the equity raise will fund the development of the linear DNA platform as well as our current expansion of the clinical labs commercial diagnostic testing off right and put us on a path to sustainable and profitable growth.
Beginning first with our linear Rx biotherapeutics subsidiary and the linear DNA platform.
Our recent fund raising will serve to accelerate the platform's development across three key service applications.
RNA templating from linear DNA.
Veterinary DNA vaccines and longer term gene and cell therapies.
The biotherapeutics industry is coalescing around the realization that plasmid DNA as a sub optimal DNA construct.
Now these numbers are amazing there are currently over 3633 gene cell and RNA therapies in development from pre clinical through pre registration stages.
Most all of which use DNA in their manufacturing process.
Now this number increased by over half just since may of 'twenty one.
Demand for nucleic acids is increasing at a rate never seen before.
We believe that the use of linear DNA.
Smith for plasmid DNA can help so many of the challenges currently experienced by DNA based therapy developers and manufacturers.
And that belief was enhanced by our experience at the summit on messenger RNA based therapeutics in Boston.
The end of July just weeks ago.
We presented a plenary paper on the use of linear DNA as the template for messenger RNA drug manufacturing, which was extremely well received.
You'll find our recent presentation posted on our linear Rx website.
Apparently many scientists in messenger RNA drug development no share our opinion.
Linear DNA is a far better drug development platform and plasma as well.
We have already been approached by several companies to quickly complete proof of concept experiments after which we.
We would expect larger projects on commitments.
On our last call in May.
But our initial focus would be on linear DNA as a template for messenger RNA production.
We did exactly that.
I will share a small selection of results in the next couple of slides.
Our studies have shown that linear DNA has two major advantages over applause.
Okay.
Oh, it's template for messenger RNA.
But first advantage.
It's the fact that equal mass.
Linear DNA contains a greater copy number although DNA target sequences compared to plasma DNA.
This fact alone less mass so linear DNA to be used as compared to plasmid DNA to achieve the same or in a yield.
While the magnitude of the linear DNA copy number that it varies a bit based on <unk>.
Specific target and plasmid DNA sequence, it's always Brooklyn.
Our studies have shown that on average.
Linear DNA can be used at 25% to 50%.
Oh, the massive plasmid DNA to achieve the same RNA results.
The second advantage is derived from the high purity of linear DNA and the fat.
The plasmid DNA struggles with amplifying the challenging DNA sequences.
That are necessary for messenger RNA production.
In this slide we use the model therapeutic gene a marker called green fluorescent protein or G. F. P to measure the efficiency of messenger RNA production from two different DNA templates, and then measure the ability of that messenger RNA to yield the.
Intended protein in the cell.
The fluorescent green protein mimics the expression of a vaccine or therapeutic protein.
The upper image with the strongest fluorescence was obtained from a linear DNA template that had a poly T tail that was transcribed homogeneous Lee into a highly functional poly a tail on the messenger RNA.
The lower images, the messenger RNA product from a plasmid in which the messenger RNA was Paula your dental aided after I V T production.
And it's made perhaps most easily understood and the bar graphs on the right.
That quantify the protein expression for the linear DNA templates on the left.
Which express is 40% more protein than the plasmid templates on the right.
The key issue is 40% more of the target protein Purdue.
Produced from the same amount.
Of DNA, if its linear DNA.
These experiments highlight the importance and advantage of linear DNA is the ability to incorporate a precise number of poly twos into a messenger RNA template and they approved improved expression of the target gene.
Now imagine that instead of looking at Green fluorescent protein you were looking at the expression of a vaccine or therapeutic protein.
The advantage of linear DNA is clear.
More on a per mass of linear DNA.
And more consistent expression of efficiency.
Which together we believe strongly.
<unk> late to a better drug.
In addition to messenger RNA templates, we're also commercializing the linear DNA platform for veterinary DNA vaccines.
Interim muscular administered nucleic acids delivered via lipid nanoparticles altered the course of the COVID-19 pandemic.
And quite literally save millions of lives.
But without encapsulation blood lipid nano particles.
The so called naked nucleic acids on not taking taken up efficiently bothers cells in the body.
Our announcement just yesterday of the successful delivery of linear DNA construct spine constellation and lipid nano particles or island PS.
Followed by a simple intramuscular injection was a genuine milestone for the company and our investors.
L M P's evolved out of the nearly 50 year history of <unk> liposomes.
Which were much more difficult to work with.
Well, which we have a very deep experience.
Our scientists produce sterling PS that facilitate the delivery of RNA and linear DNA to target cells in culture.
Or two cells in the body following simple injection.
Now we know we can deliver linear DNA efficiently to patients whether they are animals or humans.
Linear DNA L N P column strokes hold the potential.
To be used across a wide variety of therapeutic applications near.
Near term, we're working to formulate our canine lymphoma vaccine candidate for I Am administration by a L. M P.
L M P's may even one day enable freeze dried linear DNA.
To be delivered as a simple nasal spray.
Yeah.
Okay.
Turning now to our clinical.
Excuse me earlier this week, we announced a 12 month contract extension with the city University of New York through July of 'twenty to 'twenty three.
Since the initial award in August of 'twenty, one the contract has fueled the company's record fiscal 'twenty one revenues.
A level that we surpassed in just the first half of this year.
COVID-19 testing has been a significant driver of applied DNA is Rosa revenue growth over the last 18 months.
It has required exceptionally large scale operational execution.
Now in our second year of the CUNY contract. We are confident that we can execute our testing strategies.
Better margins than in our first year.
Now COVID-19 was not the end game for or clinical labs, but rather just the start.
The clinical labs are commercializing two diagnostic platforms.
The first is high throughput infectious disease testing.
And the second is genetic testing, specifically pharmacogenomics or P. G X testing.
I'll address each of these platforms in turn.
No the clinical labs business model is to develop a specialized mix of P. C. Our diagnostics.
That leverage our deep science bench and through which we generate revenues and cash flow.
Yeah.
With access to applied DNA has expertise in DNA and through COVID-19, the clinical labs established a track record of developing securing regulatory approval for and deploying PCR based molecular diagnostics that can positively impact.
Correct.
Click health.
No our path to market.
For our newest diagnostic.
As long as a laboratory developed test or L. D. Ts the regulatory path that specifies review and approval by the New York State Department of health prior to commercialization.
Armed with an approved L. D T. Our sales strategy will focus on the clinical lab serving.
As a reference lab.
Excuse me.
Reference lab to hospital systems, and larger clinical hubs in New York State.
As well as clinical hubs located in other states.
I'll I'll sample processing by clinical labs permitted under the New York State Department of Health Clinical Laboratory evaluation program.
Currently that's approximately 46 states nationwide.
No we have experience in this model.
And we have served as a reference lab for Covid testing.
Offering reference lab services as a cost efficient way.
If you go to the market.
And it Leverages, our clinical labs existing testing in it and reporting infrastructure.
This path to market reduces sample acquisition costs.
Marketing costs.
And removes the burdensome process of seeking third party payment.
We can stick to what we do very very well.
Test rapidly test accurately and report those results quickly as we have in our partnership with cleared for and are cleared for us digital health management and results reporting platform.
No high throughput infectious disease testing is principally geared towards high volume testing that recurs within a population such as COVID-19.
Our monkey pox virus test fits under this rubric and utilizes the exact same workflow.
Exact same laboratory equipment, Ozark COVID-19 testing practice.
As such we've had no equipment investments for a monkey pox.
We expect to offer a superior turnaround times that can help to mitigate monkey pox virus spread.
Superior turnaround time, and should give us the sales advantage compared to other monkey pox testing providers in the marketplace. Most of whom are for testing based on the C. D. CS Orthopoxvirus tests that is less specific for a monkey pox.
Additionally, commercial labs appear to be aggregating their testing in other states, thereby increasing their turnaround time.
And that heightens the potential for further transmission.
Now if we've learned anything from COVID-19, as a nation as an industry its that short turnaround times improved containment, even more than test sensitivity.
Our proximity to the National National Upbeat Center in New York City, We believe gives us another advantage in a marketplace that we already serve.
Analytical are a validation of our monkey pox virus test is ongoing once completed if the results are in line with our expectations, we'll submit the validation package to the New York State Department of Health, who review our submission.
We intend to update our investors via a press release, when we move forward with that submission.
Now moving on our pharmacogenomics edition to our portfolio, whose capital investment was completed in Q3 last quarter.
Offers high margin testing and a growing diagnostic field that is related to therapeutics.
We believe the economics of complex molecular diagnostic testing services, such as our pharmacogenomics panel.
Our especially favorable to our business.
R. P. G X panel or pharmacogenomics panel is designed to interrogate multiple DNA targets.
And provide geno typing information initially relevant to certain cardiac.
Mental health and pain management therapies.
Unlike COVID-19.
For which our test has a single target of course in the virus.
Our pharmacogenetics genomics test will utilize a remarkable 120 target panel test to evaluate the unique geno type of a specific patient.
Help guide precision individual drug therapy decisions.
As a fall or more complex tests relative to COVID-19.
It should be significantly accretive to our clinical lab margins contingent of course on testing rates.
We are pursuing the L. D T route for a P. G X panel and have already begun analytical validation.
We anticipate the validation package submission to the New York State Department of Health. This fall and if approved we are targeting in early calendar 'twenty two 'twenty three service launch.
Yeah.
Now to provide.
Real World example of Pharmacodynamic testing and its value to individuals.
The psychotropic drugs and how they often are prescribed it's not uncommon for our patients medication to be changed several times before the right combination of drug and dose. So determined a process that can literally take years.
Using pharmacogenomics, a physician will have the data necessary to prescribe the right drug.
The first time at the right dose based on the patients genetics, saving health care costs and improving patient outcomes.
This is the future of.
Precision medicine.
Okay.
Yeah.
Now, let's turn to our textile supply chain business the implementation of the week or forced Labor Prevention Act or U S. L. P. A.
On the twenty-first of Juno's brought home the potential for a very real world negative impact, both financial and Reputational to textile brands and supply chains contracting with geographic centers that use forced labor.
[laughter] excuse me.
For the first time, the federal government has recognized this DNA traceability and or isotopic testing.
As evidence of compliance with the U F L. P. A.
Since the twenty-first through June the conversations around regulatory compliance.
Ive turned toward our certain T platform.
Due to its layered technology first done forensic approach.
No. This makes we believe.
Certainty well suited to helping clients standing the rigor of our customs and border protection enquiry.
Oh goods about to enter the U S marketplace.
And that can also help to secure our supply chain for brands and backstop their product climates.
Certainty platform is large scale and it's been field proven for many years focused primarily on U S cotton with footholds in other major cotton producing countries, including India, Egypt and Australia.
Our focus is on driving DNA tagging volumes.
For profitable growth and cash flow.
The certainty platform is large scale and his field proven.
And.
We've begun onboarding certain.
Platform customers initially for isotopic abundance of textile goods prior to reaching American ports.
It's our expectation that as U F. L. P. A enforcement becomes ubiquitous south American ports these customers and others will migrate in time to DNA tag across the entirety of their supply chains.
We are also pursuing cotton opportunities in the U S and worldwide.
We now have a vested interest in differentiating their cotton and textile production from those under the U F. L. P. A scrutiny.
Currently we are broadening the application of DNA tagging that historically focused on home goods to conclude.
Paul.
Before we open the call to questions, let me offer a brief recap.
We are centrally focused on the bio therapeutics opportunity in the further development of our linear DNA platform, which we believe can be the common denominator for the next generation of genetic medicines.
Our recent equity offering serves to fund the development of the linear DNA platform and the expansion of our diagnostic offerings.
Our clinical lab and textile businesses are positioned the sources of continued revenue and potential cash flow with which to mitigate cash burn associated with the development of the linear DNA platform all the way through to commercialization.
We are well funded for the foreseeable future.
We are centrally focused on the value creation opportunity and growth should the trajectory ahead of us.
Thank you all for your time and attention this afternoon and operator, please open the call for questions.
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Okay.
Yeah.
Yeah.
Yeah.
Our first question comes from the past Patel with each C. Wainright. Please go ahead.
Ladies and gentlemen, this is the cash but tell on behalf of your 10-Q.
I mean right.
A couple of questions and then a follow up when.
When do you expect to complete the analytical validation of the Monkey Pox, PCR test and how long will it take New York State Department of Health to review the validation package.
Sure I can put an hour on the monkey pox validation, but I can tell you is it's very soon certainly within the next two weeks if not sooner.
And New York State does not tell you in advance.
How long it will take two examples.
In your filing, but we've had conversations with them that give us hope.
Okay, and then I can follow up how do you expect your monkey pox test to compete with other monkey Pox PCR test Dot Com you available for instance lab for quest.
Sure.
We learned some wonderful lessons in Covid.
And we did design a test that was for Covid that was extremely sensitive.
And extraordinarily selective.
But the lesson we learned.
Is that if your goal is.
Is to curb the spread of our cohort you're servicing and surveillance testing.
Those terrific aspects of science hardly matter.
What matters is your turnaround time.
And essentially what is the service mentality of your team.
And our head of operations, Judy Murrah has cultivated a remarkable sentiment amongst everyone involved in the field.
And in the laboratory.
And our turnaround times are are really second to none.
So we've done a great job of protecting our COVID-19 clients.
Further spread we intend to do exactly the same.
In the case of Monkey Pox now we have designed an assay, which is we did not just take the C. D. C. I say off the shelf with the group, which is what the great majority of current testers have done.
We designed our own target.
Selective for the signature DNA of Monkey pox, so it's highly selective.
We've contrasted it very carefully against the genomes or anything else that.
We could encounter in a test sample and it is highly specific.
But as I say, great science is not the only.
Means.
Providing.
In a pandemic or in an Oh an.
Issue epidemic geological concern of providing the best service. The best service comes from the fastest turnaround time, and we have finally holding those skills.
Got it and then last question currently what is the number of shares outstanding.
[noise] 12 million.
Around $12 9 million.
Right. Thank you so much.
Okay.
One.
Next question.
I'm showing no more questions at this time. This concludes our question and answer session I would like to turn the conference back over to Doctor Heyward.
For closing remarks.
Okay, well, thank you operator.
Thank you to all of our investors, who joined us on our call today.
On behalf of the management team and all of our employees. We thank you for your continued support.
And we look forward to speaking with you again on our fiscal fourth quarter call.
Stay healthy and goodbye.
Yeah.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.