Applied DNA Sciences Inc. Q2 2023 Earnings Call
Speaker 1: ["Pomp and Circumstance"] you
Speaker 1: The wely, the TA clo uncon conse.
Speaker 1: And SPE.
Speaker 2: Hello, and welcome to the applied DNA Sciences Physical Second Corps 2023 financial results.
Speaker 2: All parties will be in the Sonali mode. Should you need assistance, please take the one conference special and for a professor resting the star fee followed by zero.
Speaker 2: After today's presentation, there will be an opportunity to ask questions.
Speaker 2: To ask a question you may press star then 1 on your touch tone phone. To withdraw your question please press star then 2. Please note, today's event is being recorded. And now I'd like to turn the conference over to Sandhya Hari, Head of Investor Relations. Please go ahead.
Speaker 2: You can access the press release that was issued after market closed today, as well as a slide presentation accompanying this call on the investor relations section of our corporate website.
Speaker 3: and our CFO . Clay Chirac, our Chief Legal Officer and Head of Business Development will also be available to answer questions on the Q&A portion of this call.
Speaker 3: Before we begin, please note that some of the information you will hear today during our discussion may consist of forward-looking statements.
Speaker 3: I refer you to slide two of the presentation and our Form 10Q files a short while ago for important risk factors that could cause the company's actual performance and results for different materially from those expressed or implied in any form of statements. We undertake no obligation to update or revise any forward-looking statements.
Speaker 3: please contact your maximum representative. Now it's my pleasure to introduce our first speaker on today's call, Beth Janssen. Please go ahead. Thank you, Sanjay. Good afternoon, everyone. Thank you for joining us on our fiscal second quarter investor call.
Speaker 4: I will start this afternoon with an overview of our results for the quarter-ended March 31, 2023.
Speaker 4: I will then turn the call over to Dr. James Hayward, our President and CEO who will discuss business initiatives.
Speaker 4: and anticipated milestones in the second half of the fiscal year and as we enter fiscal 2024.
Speaker 4: We will then open the line for questions from our analysts and institutional investors.
Speaker 4: Before I begin my review and as a reminder,
Speaker 4: We report segment data in our 10Q filing that reflects the results of operations for our three reporting segments. The executive management team uses these data to manage the company's performance on a segment basis, assess expected future cash flows.
Speaker 4: and make more informed decisions about our three business segments going forward. We provide these data to investors as a measure of transparency into our management of these segments.
Speaker 4: Our three reporting segments are.
Speaker 4: therapeutic DNA production identified as linear RF, our majority owned biotherapeutic subsidiary.
Speaker 4: MDX or molecular diagnostic testing services, which is our ADCL clinical laboratory.
Speaker 4: And DNA tagging and security product, which is our supply chain traceability segment.
Speaker 4: Our second quarter results were driven cheaply by ADCL and its COVID-19 testing service. We also recorded contributions from our therapeutic DNA production segment for the accelerated delivery of linear DNA under a large recurring order.
Speaker 4: Turning to our consolidated results for the quarter, total revenue was $4.4 million.
Speaker 4: compared to 6.2 million in the prior fiscal period. The approximate 1.7 million decrease in total revenues reflects a decline in our COVID-19 testing revenue.
Speaker 4: Reflective of an overall weaker environment for COVID-19 testing demand.
Speaker 4: Last Friday, we reported that CUNY, our largest COVID-19 testing customer, terminated its COVID-19 testing contract, effective no-later than June 30th of this year.
Speaker 4: Our use of vendors and certain staff that support on-campus collection centers will be reduced commensurate with our wind down plan. In the near term, our COVID-19 testing service will remain in scaled down operation to support our remaining testing contracts. Thank you.
Speaker 4: The red costs will be fully absorbed by these ongoing contracts.
Speaker 4: As Jim will discuss in his remarks, ADCL staff will transition to pharmac genomics testing upon approval of our ASA by the New York State Department of Health.
Speaker 4: and once we secure contracts for pharma genomic testing. Rose profit for the quarter was 1.8 million or 41 percent compared to 2.5 million or 40 percent in the prior fiscal period.
Speaker 4: Total operating expenses were consistent at approximately 4.5 million and 4.6 million across the second quarter and the prior fiscal period respectively.
Speaker 4: Operating loss for Q2 was 2.7 million.
Speaker 4: compared to an operating loss of 2.2 million in the prior fiscal period.
Speaker 4: Given the unrealized gain on the change in spare value of the Lawrence that are classified as a liability included in our net income line, we highlight operating income as best representing the company's operation. Excluding non-CAS expenses.
Speaker 4: Consolidated adjusted EBITDA for Q2 with negative 2.1 million.
Speaker 4: Now, turning to our balance sheet, cash and cash equivalents excluding restricted cash totaled 12.3 million are March 31st compared to 12.9 million on December 31st. As of March 31st, a count you seeable stood at $2 million, which should be expected to collect the majority of this amount in the current quarter. Year to date, our average monthly cash burn is 488,000 compared to 786,000 in the prior comparable period.
Speaker 4: This range is contingent on several factors that Jim's remarks will discuss in greater detail, including the timing of PGX testing start and service uptake. Certain T authentication platform sales for DNA tagging, order flow for linear DNA for IBT templates, tap X necessary to establish a linear DNA test. To establish a linear DNA production capacity suitable for clinical use and to support ongoing platform development.
Speaker 4: We believe that with our current cash balance reserves and a continued focus on cost management, we can absorb a short-term increase in cash burn as we match our eight contract opportunities. However, if any of the above revenue streams do not ramp up on our current forecasted timeline, it will have a negative impact on our cash position and financial resources. Our cash position on April 30 was approximately 11.1 million. This concludes my prepared remarks. Thank you for joining us today.
Speaker 5: to evolve our new revenue opportunities and to advance the development of linear DNA platform for bio therapeutic applications. My prepared remarks today will update you on our activities across each of our three business segments, with the focus on the breadth of opportunities at ADCL and within our supply chain segments that are expected to contribute to our revenues within our fiscal and current calendar year.
Speaker 5: In the aggregate, we do not expect these near-term opportunities to replace COVID-19 revenues in their entirety.
Speaker 5: They are, however, revenue-oriented with much of the development cost behind us.
Speaker 5: And consequently, these opportunities can facilitate ongoing strategic investment in linear DNA and support our consolidated operations.
Speaker 5: thereby helping in the management of our cash fund, that Beth referred to.
Speaker 5: Regarding our linear DNA platform, which we believe is the cornerstone to our long-term growth and value creation for shareholders.
Speaker 5: We achieved several milestones this quarter.
Speaker 5: We produced and shipped the most DNA in the company's history in a fiscal quarter for a large diagnostics customer announced previously. To achieve this production level, we introduced new efficiency methods in the linear DNA platform that we believe.
Speaker 5: will also be relevant to higher value biotherapeutic DNA production. This customer now has also ordered additional linear DNA constructs for other products also on a recurring basis.
Speaker 5: Now we've been converting a large commercial customer to receiving production grade materials after multiple quarters of repeated research orders.
Speaker 5: We received a second order from one of our previous biotherapeutic customers, now underway for fulfillment. And orders were received from our key names in the pharma and biopharma industry for evaluation scale.
Speaker 5: of linear IVT templates that could blossom into larger orders.
Speaker 5: Three orders were completely fulfilled and another will be partially shipped in the current quarter.
Speaker 5: The orders were completely fulfilled and another will be partially shipped in the current quarter. Finally.
Speaker 5: To the extent I am able at this time, I will offer momentarily some insight into the rationale for potential acquisition that we believe will give us market advantage in the use of linear DNA-IVT templates for messenger RNA production.
Speaker 5: As she also noted, we will continue to service other customers whose testing requirements will fully absorb our COVID-19 operating costs. Now I want to compliment our CUNY partners and our team for their dedication of the past 22 months. I know that together we saved lives.
Speaker 5: and we made higher education safer during an extraordinarily challenging time for our country. COVID-19 testing and CUNY proved that the single-payer enterprise-scale service model works.
Speaker 5: Laying the business strategy for ADCL's future in genomic testing.
Speaker 5: Now lessons learned from Enterprise Scale COVID-19 testing services are the basis for the development of our pharmacogenomics.
Speaker 5: Lessons learned from enterprise-scale COVID-19 testing services are the basis for the development of our pharmacogenomics or PGx.
Speaker 5: testing service that establishes a clear economic value to the customer and offers a very attractive return on investment to large customers and to us at scale.
Speaker 5: Compared with COVID-19, our PGX testing service, which is branded as TR-8 or Trate, will roll out at lower testing levels but with a higher expected price and gross margin for test.
Speaker 5: There is an economic rationale for PGX's growing use, particularly for large self-insured entities.
Speaker 5: Genetic screening and testing can help provide powerful information to inform healthcare decisions and improve patient outcomes.
Speaker 5: There is extensive evidence in the literature attesting to the return on investment for PGX. When you map the individual PGX benefits onto large populations, Also find it needed to establish one that Foreign 1973 is earlier sticker,
The elimination of third party reimbursement ensures faster cash collection. And this is the same model that we used quite successfully within our large COVID-19 customers. We submitted a validation package for our PGX assay in March to the New York State Department of Health. And we're awaiting its review as a laboratory developed test.
Since genetic testing is a new permit category for our clinical lab, our PGX assay falls under the high complexity category.
for which one to two quarters is a standard review cycle. The New York State Department of Health is one of the most rigorous regulatory bodies in the entire country. And as such, their review is highly comprehensive.
Yet at the same time, that high regulatory burden acts as a barrier to entry for many labs. We believe that this will give us a significant competitive advantage upon test approval and make New York a greenfield opportunity for us.
Upon approval of our PGX testing service, we have the capacity to perform over 150 tests per day. And we're discussing partnerships and platform enhancements to support higher volumes.
We are already engaging with enterprises likely to adopt our PGX testing service.
and feedback to date has been very positive, although the lack of an approved assay gates our customer acquisition.
It is clear from ourselves and marketing efforts that there is little in the way of competition in the state.
which puts us in a thought leadership and market educated role.
One of the key prospective customers is sponsoring a conference this fall on precision medicine.
and has asked us to speak about our testing service and to help develop their event.
Our supply chain traceability segment also offers us the opportunity for COVID-19 replacement revenues.
We continue to see momentum and new customer acquisitions for our certainty authenticity platform.
The CertainT platform encompasses multiple forensic testing tools, including isotopic testing, genotyping, DNA tagging, and other methods that are valuable to importers of cotton goods in order to comply with the Weiger Forced Labor Prevention Act.
or UFLPA and with other due diligence regulations globally.
As a reminder, the Customs and Border Protection Agency recognizes two technology platforms for compliance under the UFLPA. It's the topic testing and DNA technologies.
We are the only company to offer an approach that integrates both technology platforms for compliance. Since the UF LPA went into effect last June , we've added many new source verification customers. Source verification expands.
increase in segment revenue. To that end, we are advancing discussions with source verification customers who view the deployment of DNA tagging.
as the next natural step in their compliance under the U.F.L.P.A.
We are experiencing increased interest in DNA tagging, especially from apparel manufacturers.
Now we've completed a commercial pilot with an established North American apparel brand that utilized DNA tagging and isotopic testing in its global supply chain.
This first apparel initiative prigned the supply chain and were actively working on follow on tagging programs.
to keep the cotton flowing. Other opportunities to deliver tanked cotton to the market are also underway.
We anticipate initiation of an additional supply chain in the fiscal fourth quarter.
Now, transitioning to the file therapeutics application of our PCR expertise.
We are firmly committed to our linear RX subsidiary and our linear DNA platform as fundamental building blocks to apply DNA's sustainable growth and value creation story.
Within the biotherapeutic industry's remarkable focus on genetic medicine...
Our initial priority is in vitro transcription or IVT.
And that is DNA templates for RNA production.
The platform has marked advantages over plasmid DNA and other non-PCR-based enzymatic DNA manufacturing platforms. And last summer, we launched our IVT templating service to raise awareness of LinearDNA's unique advantages.
to establish an ecosystem of partners, to enhance the value proposition of our services and advance the transition to linear DNA for therapy developers with active pipelines.
Now momentum for linear DNA for IVT is building.
We are receiving evaluation orders from marquee, excuse me, customers and the feedback we have received is that linear DNA is very well suited to empower the manufacturer of mRNA therapies.
This then creates new pathways for additional potential order flow and demand for larger quantities of linear DNA. With these early successes under our belt.
We focused on optimizing our manufacturing workflows, and we've invested in larger commercial capabilities in recent quarters.
We have already achieved certain key milestones, including increases in scale. The gating factor to our deeper penetration of the IVT template opportunity is the need to deliver a DNA that is suitable for mRNA for clinical use.
suitable for clinical IVT.
This capacity will allow us to support existing customers from their research and development phase.
to the clinic while generating higher value and larger orders for linear DNA. We are on track for this capacity to come online by the end of calendar 23, with an initial forecasted manufacturing capacity of about 50 grams of linear DNA per year.
And to put this in perspective for you, this is enough IBT template.
to produce over 250 million vaccine doses.
We are actively recruiting partners who share our vision.
Art partnering interest lie at the front end of the workflow.
and with the next generation DNA synthesis companies that can make higher quality, brand new DNA sequences quickly and cost effectively.
A fully synthetic IVT workflow, we believe, can outperform plasmid DNA for IVT across all the relevant metrics.
while delivering market-leading turnaround times. Now, this may be especially important in view of the exciting workflows for individualized patient-specific immunotherapies against aggressive cancers.
as has been demonstrated by Merck and Moderna for melanoma, or just announced today.
by BioNTech for resected pancreatic cancer.
Business development activities are wrapping up, concurrent with our investments in our commercial capabilities highlighted by our presence at several MRNA conferences.
throughout the coming summer where we will be showcasing linear DNA's advantages.
Finally, I'd like to discuss a unique and potentially transformative opportunity for linear RX that we have identified in the messenger RNA market.
We've looked at the mRNA manufacturing value chain.
of which IVT templates represent
less than 5% of the total cost and frankly we desire more. We have identified and we are moving toward an acquisition target that gives us access to a more significant portion of the market.
of the mRNA manufacturing value chain, thus significantly increasing our potential total addressable market.
Our analysis over the past several months makes a compelling case that the combination of linear DNA and the target's assets can impact up to 25% or more of the mRNA value chain. To be clear,
We currently have no design to manufacture messenger RNA at scale.
But instead, we're looking to enhance the unique advantages of linear DNA-IVT templates to improve other aspects of messenger RNA manufacturing by our customers. We feel this is a 1 plus 1 equals 3 business opportunity that superchargers are offering.
by unlocking several unique and important benefits relating to the manufacturer of messenger RNA that can only be empowered by the combination of our linear DNA and our targets assets.
The transaction value being contemplated will be commensurate with the target's early stage of development.
We hope to close on the acquisition in the current quarter and will have more details to offer at that time.
Before opening the call to questions, let me briefly recap some key points I've made today.
We are preparing for a wind down for COVID-19 testing revenues.
that should come online in the next several quarters.
These revenue opportunities are unlikely to offset the loss of COVID testing revenues fully. However,
the short-term increase in cash burn while continuing to execute on key priorities.
The biotherapeutic industry is responding very well to linear DNA and are offering for DNA IVT templates. This gives us the confidence to continue to commit further resources. We have identified and are moving toward an acquisition that we believe is the best solution for the future.
of our growth strategy.
As the pandemic error comes to a close, we are proud of the positive impact we've had on our communities.
and we will truly miss the synergistic relationships we have developed with our customers and our partners. And we are appreciative of the lessons learned that have armed us with new capabilities as we move forward to this next chapter.
Well, this concludes my prepared remarks. Operator, can you please open the call to questions?
Yes, thank you. At this time we will begin the question and answer session. To ask a question you may press star then 1 on your touch tone phone.
If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble the roster.
And the first question comes from Jason McCarthy with the Maxim Group.
Hi Jim, thanks for taking the question. Sounds like a lot of progress. I want to stay with the biotherapeutic side or portion of your business. Can you talk a little bit about some of the manufacturing bottlenecks that the COVID vaccine mRNA companies face? It was in the news quite a bit a couple months ago. You know it was 10, 20, 30% cost savings by flipping to a linear approach might be more ideal and maybe where something like your IVT platform can have success.
Sure, we definitely believe that our linear DNA offers.
cost savings and simplicity to mRNA manufacturers.
But what's becoming clear, Jason, you, I'm sure, will appreciate the BioNTech announcement today.
is that with the dawn of science like pharmacogenomics
and the ability to sequence the neoantigens in cancers.
The opportunities for personalized medicine.
are growing at a very rapid rate. AI is only going to help that as well. And when it comes to personalized medicine, speed is going to be of the essence. So incorporating a fully synthetic path that doesn't have us relying on plasmids.
at all for the initial template before PCR and allows us a very rapid turnaround time.
That will be the secret, we believe, both to bulk manufacture, look at how rapidly the COVID vaccines were rolled out.
and to personalize manufacturer, which is a really exciting opportunity for the patient. Okay. So as far as you're newer bio-pharma customers that are exploring IB...
you know in oncology it's going to be very challenging to use mRNA. Obviously Moderna and BioNTech are proving that to not be the case and that could open up a tremendously much larger opportunity. Yeah absolutely I think it could be. Can you help me with your question again Jason? Can you tell us what categories the biopharma customers are for IBT? What are they looking at? Vaccines or oncology or whatever.
So some are vaccines, some are immunotherapies, like the BioNTech approach, some are customized targets.
And, you know, I think honestly in future the range of products is going to be very diverse from very large...
PCR products to reasonably small ones. And that diversity requires a tremendous know-how.
for PCR and we believe we lead the industry in that regard.
And last question, can you give us a little bit more clarity on the acquisition in terms of what types of assets that they could have and how they pair with IVT or is that something we're going to have to wait for until it's a little bit further along?
Well, you have to wait just a little bit I think but you know, I focused some of my commentary on the importance of speed. I think the importance of cost of goods will also be essential. You know, there are over
4,000 nucleic acid drugs in development and cost is going to be important. I don't think.
will be in a position to repeat the history of monoclonal antibodies, you know, with extraordinary prices for their early to market products. We're now on the heels of vaccines which typically can't be very high priced. And I think that by competing both in speed, in efficiency, and being able to compete on price, we have the chance of taking a good share of the market.
Thank you very much, Jim. Okay, thank you, Jason. Thank you. Thanks for listening.
Hi, sorry about that. Thank you for taking my questions. My first question is, could you clarify whether ADCO is currently performing any non-COVID tests? We have developed a number of non-COVID tests, but commercially,
We have limited ourselves to this institutional business model, which we think is very novel.
But as a consequence, it limits us in our variety. We will not have the variety of assays.
because of their inability to negotiate prices with these third party customers. We think our business has been much simpler. I'm sure Beth would attest to that as well, having large institutions paying us monthly bills and it's very simple. But that also means our offering has to be suitable for that marketplace, which is not unlimited in terms of its offering. But things like wellness.
assays and the ability to predict potential
more abilities will be doable on a large scale with a single payer.
Okay. Regarding the PGx assay, could you give us some additional color on what level of revenue can we look forward to once it receives approval from the New York State Department of Health?
else. Yeah, that's kind of hard to predict. You know, we could be having cash
top-line run rates, similar to what we enjoyed at the peak of our COVID testing by doing only 150 PGx assays a day.
Now, we're talking to multiple cohorts right now for commercial relationships, all of whom, not one of whom has less than 50,000 members in their cohort. So being able to...
recruit from a cohort of that size means with a little imagination you could imagine those numbers well exceeding 150 per day and generating much more significant revenue than we're currently suggesting however.
That will require two kinds of selling. Firstly, we have to sell to the institution.
And to an extent, we have to educate the members of the medical community. So, you know, we'll have to see just how steep the slope is of our acquisition of customers, but we think they'll be highly localized within the cohorts we sign. And our hope is that the barrier to recruiting them won't be very high. And certainly from the interest we've solicited.
in our kind of pre-selling while we await approval from New York State, we think will be successful in that regard. That's helpful. My last question is, are the Baltech customers waiting for the CGMP certification of the linear DNA production to make big amount purchase of the IVT templates?
Yes, they are using, you know, their initial evaluations are at the bench. And so they're really research quality. But it's not long before therapies, nucleic acid therapies, go from
cell models to simple animal models and then from animal models the stretch to the clinic is is not that far especially
since there are so many of these nucleic acid therapeutics.
and the concerns over safety and toxicity will diminish as the whole category makes progress.
So I think the march to market will be faster than most people expect. So we have to be there with CGMP and we have to do it quickly, which is why it has so much of our attention.
Thank you James. You welcome. Thank you. Thank you. And this concludes the question and answer session. We're glad to return to the call Dr. James Hayward for any closing comments. Thank you.
Well, thank you operator and thank you all for joining our call today. I hope, like us, you feel that this is an exciting time for us and we look forward to a rapidly evolving future. And we'll speak to you again next quarter. Thanks very much.