Q3 2023 Applied DNA Sciences Inc Earnings Call
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Pardon me, ladies and gentlemen, the applied DNA Sciences call will begin shortly thank you for your patience.
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Good day and welcome to the applied DNA Sciences, Inc. Fiscal third quarter 2023 financial results conference call.
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Please note this event is being recorded.
I would now like to turn the conference over to Sanjay Hurry head of Investor Relations. Please go ahead.
Thank you Betsy and good afternoon, everyone and welcome to applied Dna's conference call to discuss our third quarter fiscal 2023 financial results you.
You can access the press release that was issued after market close today as well as a slide presentation accompanying this call on the <unk>.
The relations section of our corporate website.
Speaking on the call today are Dr. James Hayward, Chairman, President and CEO , That's Janssen, our Chief Financial Officer, and playful rock, our chief legal officer and head of business development.
Judy Murrah, our Chief operating officer will 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 for important risk factors that could cause the company's actual performance and results to differ materially from those expressed or implied in any forward looking statements. We undertake no obligation to update.
Or revise any forward looking statements or other information provided on this call as a result of new information or future results or developments.
Now, it's my pleasure to introduce our first speaker on today's call Beth Jantzen. Please go ahead.
Thank you Sanjay good afternoon, everyone.
Thank you for joining us on our fiscal third quarter Investor call.
I'll start this afternoon with an overview of our results for the quarter ended June 30th 2023.
I will then turn the call over to Dr. James Hayward, our president and CEO .
I'll take you on our ongoing business initiatives.
We will then open the line for questions from our analysts and institutional investors.
To preface our performance in the fiscal third quarter.
Our results reflect a weaker environment.
For COVID-19 testing demand following the federal declaration in early May.
Over 19, no longer constitute a public health emergency.
Following the declaration and as noted in our fiscal second quarter call.
The City University of New York, our largest diagnostic testing program customer.
Did not to renew their contract for our testing services.
The wind down of the CUNY program began in May at the end of the academic term and let's conclude it by mid June .
Okay.
With this as a backdrop total revenue for the quarter ended June 30th 2023, with 2.9 million <unk>.
Compared to $4 3 million for the same period last year.
Offsetting the decline was a year over year increase from Ara therapeutic DNA production segment of approximately 296000.
Related to a final delivery under our largest contract for linear DNA to date.
Okay.
Gross profit was $1 3 million or 44% compared to 1 million or 24% in the prior fiscal year period.
The improvement in gross profit margin was primarily driven right by improved margins at applied DNA clinical labs due to improved expense management management.
Associated with the CUNY contract and a higher percentage of the segment's revenues attributable to higher margin COVID-19 surveillance testing.
Yeah.
The operating cost of our molecular diagnostic diagnostics testing services segment are currently being absorbed by surveillance testing contract.
Total operating expenses increased approximately 6% to $4 1 million from $3 9 million in the prior fiscal year period.
The year over year increase in total operating expenses, primarily reflects an increase in SG&A.
Related to the implementation of quality system automation.
And then the allowance for doubtful accounts to reserve for an account balance that was deemed uncollectible.
With the unrealized gain on the change in fair value of the warrant classified as a liability included in our net loss line.
We now highlight operating loss as best representing the company's operations.
Operating loss for fiscal Q3 was flat at 2.9 million compared to the prior fiscal period.
Yeah.
Excluding noncash expenses consolidated adjusted EBITDA for fiscal Q3 was negative 2.1 million compared to negative $2 3 million in the fiscal year ago period.
This improvement resulted primarily from our improved gross profit during the third fiscal quarter.
Now turning to our balance sheet.
Cash and cash equivalents, excluding restricted cash totaled $10 8 million on June 30, as compared to $12 3 million at March 31st.
As of June 30th our accounts receivable stood at 683000.
Yes. This is collected the majority of this a R.
Year to date, our average monthly cash burn is 495000 compared to 620000 in the prior comparable period.
This improvement is due primarily to increased cash receipts under our CUNY contract.
As well as lower cost to support the CUNY contract.
Yeah.
Average monthly cash burn year to date does not include our restricted cash of 750000.
[noise] updating our cash burn projections post CUNY contract conclusion, we anticipate a monthly burn although about 1 million per month, beginning in the current quarter and moving forward.
This projection is contingent on an order flow for linear DNA.
I V T template.
The launch of our farmer genomics business and DNA tagging protect style.
The ladder as we approach the start of the cotton ginning season in the U S.
It is also contingent on capex necessary to establish a linear DNA production capacity suitable for clinical use.
And to support our ongoing platform development.
Based on our recurring losses from operations and continued <unk>.
Cash outflows from operating activities included in our just filed Form 10-Q.
Disclosure of a substantial doubt of a going concern.
Our ability to alleviate the going concern is dependent on our ability to implement our business plan further and generate revenues or raise capital.
Our cash position on July 31st was approximately $9 6 million.
This concludes my prepared remark. Thank you for joining us today I will now turn the call over to Jim for his comments.
Well. Thank you Beth good afternoon, everyone. Thank you for joining us on our call today.
In recent quarters, we have made steady progress on our strategic pivot towards the bio therapeutics market.
The unlocking the full value of our P. C. Our expertise apply it to the manufacturer of next generation nucleic acid therapies.
Remember.
DNA and codes for the transcribed messenger RNA.
Which itself encodes for the trends laid at amino acid sequence of an express protein.
The translation May take place in the patient.
As is the case for the messenger RNA vaccines.
Sars Covid two.
Or in vitro when the therapeutic modality is the delivery of a preformed protein.
Such as the monoclonal antibody a replacement enzyme or a protein based vaccine.
After the close of the quarter, we took a significant step.
Toward our forward, rather with our acquisition of spindle biotech.
When combined with our linear DNA I V T templates.
Spindles proprietary RNA polymerase offers the following advantages.
It gives us a differentiated offering with market advantages over conventional I V T mrna production.
It increases the commercial relevance of our platform to the growing pipeline of mrna therapeutics and development globally.
And.
It's substantially increases our mrna total addressable market with improved economics.
Yeah position translates to roughly a four fold increase in our mrna total addressable market made relevant through are now integrated all for it.
As we announced a few weeks ago, we have branded this new integrated platform linear are the tea with the tag line.
Better mrna faster.
As shown in this slide.
In a moment I'll ask clay to take you through our business development plan for this new exciting offering.
Our goal is to enhance further the platform's value proposition to mrna manufacturers and developers.
And acquire additional evaluation customers, while we bring online our cgmp quality production capacity to.
To support the demand for DNA at volumes relevant to both clinical and commercial stages.
My presentation today will also detail the non therapeutic linear DNA revenue opportunities being advanced alongside our mrna initiatives.
In the aggregate these opportunities represent compelling paths for growth.
Recall that at the start of the fiscal year, we announced the receipt of our largest single purchase order of linear DNA.
Which is where a diagnostic assay.
Now we can produce linear DNA today at a quality sufficient.
For commercial diagnostic applications.
These applications do not require the compliance of therapeutic DNA. Consequently, the cost to us of diagnostic DNA is less than that of a therapeutic DNA.
And as we are approaching the start of the cotton ginning season in the U S.
Some of our opportunities are also tied to our supply chain traceability business.
Catalyzed by the Weger forced Labor Protection Act.
Or U S. L P a.
Which is now entering its second year of enforcement.
I will now turn the call over to clay.
To offer his insights into our acquisition of spindle and <unk>.
Our path forward in messenger RNA.
Right.
Thank you Jim and good afternoon, everyone. We are very excited about our acquisition of biotech you feel there's integration with our linear DNA. He took place to create our new linear IV platform offers a compelling and differentiated offerings with mrna stakeholders addresses to me.
Pinpoint that mrna in any fashion, one you use the plasma DNA starting material.
The double stranded or D S Arnie.
When utilizing the customer's mrna production workflow, we believe our linear IV platform will produce a higher purity mrna product with a simplified workflow comparisons professional mrna production.
The mrna market continues to grow at a breakneck pace with approximately 350 therapy, either preclinical or clinical development.
<unk> target a wide range of indications ranging from infectious disease to oncology and genetics to garner with an increasing number of therapies, reaching late clinical trial.
Laurent a vaccine for common infectious diseases, such as RSV.
Or on the horizon and represent a very large mrna manufacturing.
It was these opportunities in mind, we have watched the linear I E.
Our linear IV key platform is built upon the integration of our linear DNA templates and the proprietary fusion RNA.
<unk> four already Pea that we acquired with the <unk>.
Novel RNA T developed by spindle the fusion protein gets this thing wildfire Q, seven RNA and DNA binding.
The DNA.
Binding domain has a high affinity for certain chemical compound that can be efficiently added to our linear DNA.
P S T R.
Our PCR based platforms unique ability to add these chemical modifications as efficiently and cost effectively is the enabling technology for single backbone, nothing, allowing us to extract the full benefit of the citadel or anything.
At the time of the acquisition spend on what pre commercial but has attracted it.
For a list of partners dropped in the upper tier of biotech.
So it was held back by the inability to manufacturer chemically modified IV.
Our PCR be linear DNA platform solve this issue and unlock the full value.
As Jim noted acquiring spindle and watching many of Ibp's platform.
Our mrna related total addressable market.
The stand alone basis, our linear ITT or excuse me a linear yes, I think he pathways are relevant to approximately 5% of the mrna in any fashion.
And only a limited amount of DNA template requires very large now.
With the ability the ability you see Nashville herd IV see exactly with the spirit of the Rit T under the linear item people.
We expect to have relevance over 20% of the mrna manufacturing value chain are there any cracks at Forex increased coffee.
Mrna related total addressable market.
As I noted our newly launched lineage <unk> T platform addressing a few key pain points interventional MRI.
But what do you use the plasmid DNA I used to have to wait and minimizing yes Arnie.
All while also providing simplified workflow.
On the top of slide now, which is the current slide.
Represents a conventional mrna production workflow that you'd want to flag.
Asthma, DNA and conventional wildfire Q seven.
The bottom of that slide represents a potential linear I can see mrna production what do you think the chemically modified many years he's.
And it's been already.
I will highlight a few important differences between them.
The first difference is the simplification of the front end the mrna.
The use of TBA or quad with Eni as a template causes long lead times required numerous steps in cost specific to issue, including Pennsylvania.
Great increased regulatory scrutiny and additional filtration steps.
Sorry, replacing plasma DNA with linear DNA and the bottom workflow these upstream related pain points for us.
Resulting in a simpler MRI.
We estimate that using linear DNA.
40% of yesterday and steps involved in conventional classes.
It's just the topic.
Second different isn't the streamlining of the back end.
Mrna manufacturing process by reducing yes, RNA contamination unique combination of chemically modified.
That's right and it's been to Arnie.
D S RNA contamination, if they buy it.
Product wildfire, she said that arent you all MRI.
Manufacturing T.
<unk> seven is used throughout the hour mrna industry due to its ability to create large amounts of RNA from a small amount of DNA.
But there are trade offs, including the.
Production of problematic.
D S RNA stimulatory and inflammatory byproduct that needs to be removed for tomorrow, which is the single it's around the construct before it can be used as a therapeutic.
Currently D S RNA.
And complex downstream purification.
Now due to the ability of our linear platform to significantly reduce our RNA contamination without sacrificing yield we believe the need for downstream purification will be reduced and further.
Further streamlining the MRA work load for our customers.
So in sum by simplifying both the upstream and downstream production.
Production, we believe our linear I V E platform can enable our customers to be better organized with reduced workflows with reduce peripheral steps and timeline.
Now shortly after we required spend all be kind of a key industry topic.
The reception to our new platform is very encouraging.
<unk> D N a N E S aren't any contamination pinpoint addressed by our ABC platform are felt across the industry and it's clear that that manufacturers and developers are seeking new and differentiated approaches to mrna production.
Equally encouraging is the mrna.
She lives are gaining strong traction with in Houston.
We are today is the highest number of evaluation customers.
The launch of IGT stuff with one year ago.
These customers range for free.
For preclinical mrna therapy developers to C. D N. Those two large therapy developers pursuing mrna vaccines for comedy respiratory illness.
Our future plans cgmp quality production capabilities are critical to converting these customers when the evaluation stage for large scale supply agreement and we remain committed to Washington capability in early calendar year 'twenty four.
Our business development efforts are focused on further elevating our profile in the marketplace and building a broader base of interest.
Our efforts will also set around continued optimization of the platform, but for both conventional mrna products as well as a growing number of self amplifying or assay mrna therapies.
At the same time, we are hard at work it up getting a feel of the market.
Materials to highlight the many Iot platforms.
Of course.
Finally, we remain committed to building our patent state around our linear.
Our <unk> products and services the acquisition of <unk>. They don't spend all brought with it a large portfolio in the U S and international patent applications covering the enzyme as well as various other modalities next generation harsh production.
In addition, the company continues to pursue patent protection.
Both the linear DNA.
E platforms now, let me turn the call back to Jim.
Well, thank you clay.
I'll now address the opportunities to drive revenue growth. In addition to linear I E T.
Beyond messenger RNA in central draw a long term vision for our linear DNA platform.
Is the ability to support the manufacturer of a host of genetic medicines currently subject to the drawbacks soup plasmid DNA.
Recent work conducted in collaboration with our partners demonstrated safety and Immunogenicity of an L. M. P that is a lipid nanoparticle encapsulated linear DNA vaccine candidate in mouse models.
Our approach combines the rapid design and manufacturing capabilities akin to mrna therapies with the thermal stability and relative manufacturing support simplicity of linear DNA for a potential new class of veterinary and human health.
<unk> therapeutics.
With this in mind, we expect to announce soon.
Establishment of a sponsored research agreement with the prestigious institution of veterinary medicine to accelerate the development of linear DNA based vaccine platform targeting diseases that impact high value animals.
Our long term roadmap for linear DNA for our linear DNA platform includes developing and out licensing veterinary therapeutics.
Our approach to veterinary therapeutics leverages, many developments necessary for mrna production.
And supports our human health or aspirations.
In addition to the opportunities discussed already our business segments have had other exciting development.
During the fiscal third quarter, we delivered the last shipment under our largest linear DNA contract today.
For context. This slide represents multiple shipments over the prior three quarters for a single amplicons and utilized as a control in one diagnostic assay.
The dollar values of these shipments.
I have tripled over the time as the customer has progressed, there I'll say through validation to commercial readiness.
Yes, a is today in the early stages of the customer's commercial rollout and as the assay is adopted.
We would expect recurring waters.
Okay.
This customer is also developing two additional linear DNA dependent says we expect this customer's demand for linear DNA will grow as they validate and commercialize these other assays.
Linear DNA is also being evaluated for other diagnostic use cases, including in an assay to test for the presence of heavy metals and water.
And another by a leading biotech company and a quality control us say for cutting edge therapeutic.
Yeah.
These latter two opportunities are in the early stages, but they are identical to that first application I described from a production perspective.
No. We are awaiting the New York State Department of Health approval of our pharma co genomics assay.
Meanwhile, we've been actively building our go to market plan.
We're in this for our company and our P. G X platform within the segment of potential institutional users and partners.
Yeah.
Now turning to our supply chain traceability business as the industry continues to adjust to the U S. L. P. A.
Compliance requirements we.
We're seeing ongoing demand.
For our source verification tools and steady growth and the associated revenues.
Since the launch of our textile verification service.
We have added over 50.
New customers.
As discussed on prior calls.
The value of source verification customers is as an initial customer base within which we can expand our offering to include complementary DNA tagging and geno typing.
Potentially higher margins.
Represented on this slide.
Discussions are ongoing with current source verification customers potentially migrating to DNA tagging.
And to new and existing DNA tagging prospects.
But in the aggregate represent potential revenue opportunities of millions of dollars.
This extends not only to U S brands and retailers retailers, but also to overseas manufacturers with supply chains that extend into India and Pakistan.
Before opening the call to questions. Let me briefly recap some key points that we've made today.
The combination of spindle biotechs proprietary RNA polymerase with our linear DNA I V T templates.
Significantly increases the commercial relevance of our integrated offering two mrna manufacturers and developers.
The acquisition also positions us to monetize a much larger segment of the mrna value chain sick.
Significantly increasing our total addressable market.
The industry's reception to the acquisition has been positive.
And it is helping us to advance discussions with existing evaluation customers.
While also attracting new prospective evaluation customers.
We remain committed to delivering C. G M T quality linear DNA at volume suitable for I V T use in clinical stages and commercial launch.
In early calendar 'twenty 'twenty four.
We continue to advance the work necessary to position our linear DNA platform for the manufacturer of next generation genetic medicines.
Our ability to deliver linear DNA for diagnostic applications gives us a path to incremental revenue opportunities.
Yeah.
We continued to see momentum.
In acquiring certainty source verification customers and we're starting to engage in discussions for DNA tagging opportunities.
Operator. This concludes my prepared remarks would you. Please open the call to questions.
We will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys.
Is it any time your question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
The first question today comes from Jason Mccarthy with Maxim Group. Please go ahead.
Hey team thanks for taking the questions just a couple related to linear.
I V. T can you guys talk a little bit about how pretty much teeth, seven arent out there baked into the process everybody uses it. So it's not so exotic is very common which is good for what you're doing.
And how having the fusion protein with a DNA binding domain.
Ken.
Separate out from.
Regular T. Seven years, I don't know, if I'm phrasing that correctly, but how it might get them asking how is easier to make that switch for an end user of your product.
Sure that's a great question, Jason Thank you.
The workflow process for both our fusion protein and for the Wild type T. Seven are virtually the same.
So in terms of the burden and existing mrna manufacturer, we feel there really is known.
However, we shorten the workflow process at the.
Beginning of the process and also at the end.
And build us a consequence in significant efficiency and the associated savings.
Perhaps more important.
Is the fact that.
The wild type to serve them.
As part of its processivity flu.
Forms double stranded RNA, which can have a very detrimental effect.
When delivered that is its both highly immunogenic, meaning that by the second time you use it you could be allergic to it.
And secondly, it's very inflammatory.
So with little effort.
We believe that the use of our platform can provide significant gain in value clay would you like to add anything to that.
I think that was a great answer Jim.
The platform is bill Jay since you essentially be plug and play into the lifting plasma based workflows right. So as Jim noted peaked out upstream downstream process steps, but because of the way that the.
Spindle arent app interact with our chemically modified linear DNA template. It allows us to alter the offer conditions of the IV. He reaction in a way that wild type <unk>.
What actually inhibitory for wild type keep that.
And that's what allows us to greatly mitigate or to a certain extent eliminate ESR.
Got it and now I'm just going to ask one more it's kind of a two part question and then I'll jump back into the queue.
So you'd call you'd mentioned Theres about 350 M RNA based therapies in preclinical or clinical development.
At any point along that process from a regulatory respective Ken a drug developer in mrna developer make this switch to linear I V T from whatever else that they're using conventionally that's one part and the other part is.
From a simple way to just plug and play to your point.
Does it make it much more attractive for contract manufacturers, who are probably all lining up in competing with each other and they are not that different from each other for a contract for like medallions vaccine for COVID-19 or something else does this.
Linear I V T really separate.
These contract manufacturers from one another and is that a market that you're targeting.
So you don't want me.
Oh sure go ahead, Jim I'll jump into the second question and leave the first question for you how is that.
Sounds good.
So Jason we believe that this is a great way for C. D M O to compete in a crowded.
Unit color marketplace, so that offering our platform.
And our license agreement too.
C D M O gives us the opportunity to.
To spread the effect to what was the benefit to their customers as well.
And clay would you like to speak to the first one.
Sure sure Yeah. So to your question of you know it being plug and play you know how much of it is part of the basket that is.
When we built the linear platform, we had a couple of options and we could have really turned ITT are ahead with some of the capabilities that the bingo concept can do and some of the IP that.
Progress, we couldn't really fell and I E versus two point out, but we chose not to do that because there's a huge existing CD amount of market out there as you noted and we wanted to be plug and play so using the concept of this locking key mechanism of action of spend all quad linear.
Your DNA and you kind of built a version 1.5, we're plugged into these existing Baffie IV IV tube manufacturing workflow then I think that's the advantage to the existing manufacturers, but down the line he.
You can pretty exotic things that you can do with chemically modifying DNA and you know having binding domains on the enzyme that can be used in maybe a new form of IV, but that is that is down the line.
Yeah.
Great. Thank you Paolo.
Okay. Thank you Jason.
As a reminder, if you wish to ask a question. Please press Star then one to be joined into the question queue.
The next question comes from <unk>, Chen with H C. Wainwright. Please go ahead.
Hey, everyone. This is Chad on behalf of your Chin.
And my apologies my signal was bad so if you've already answered. These questions. Please excuse me, but could you comment on the types of customers you're attracting.
With respect to the certainty authenticity platform I know you indicated that you have.
Over 50 customers added.
So are these textile manufacturing customers across the world any color on that would be very helpful and I'll show you our take on it.
Sure in the future from a revenue standpoint, thank you so much.
Sure happy to.
So you know our technology is relevant to every node in the supply chain and every node is impacted by the weak or forced labor Protection Act.
So even if you consider starting at the level of the farm.
The build continent.
Needs to be able to prove its origin, all the way through the supply chain or when it's D belt.
The spinner.
So we see we're seeing request for every from every element of the supply chain.
On the farm.
Two the spinner.
Two the Weaver.
Two the cut and sew operation to the brand owner to the retailer.
Each one has to be concerned with whether or not they can prove that their product is made without the benefit of forced labor. So not only are we seeing it integrated across every node in the supply chain, but we're seeing.
Seeing it effectively.
Relevant.
Across the entire world.
For the most part.
So we have exciting new opportunities in India and Pakistan.
We've got a long standing business are.
Dealing with American cotton.
And so.
This platform.
As of certainty is helping us become relevant to our global enterprise.
So that was your question.
It did it did thank you so much and one quick one on linear and my apologies if I missed it.
Earlier on but where are you with in terms of discussions with a prospect of evaluation customers.
Any color on the nature of discussions in this stage would be really helpful.
Thank you so much.
Clay would you like to handle that one.
Oh sure Yeah.
So we launched the linear DNA I V E template about one year ago, right and that is our Enzymatically produced Templating service about one month ago, we launched the linear platform, which is the integration of the linear DNA templates write it with discipline on that.
We have a good number of evaluation customers are really running the gamut from preclinical you know startup biotechs U C. D. M. O. Two large pharma are looking at are linear DNA templates, we have a fair amount of interest within our existing evaluation customers for.
The linear I E T spot.
Platform, which just launched last month, so our <unk>.
<unk> strategy is to leverage our existing relationships with these strong contacts in biotech and pharma for our template.
Get them to evaluate linear I think he platform.
In addition, we have just launched last month at the REIT Conference two weeks ago, we do have a fair amount of new contacts that wish to evaluating linear IV tea platform exclusively and we're seeing that mainly in the medium aerospace.
As a way to really mitigate against D. S. RNA and we're seeing a lot of interest in this platform for the potential manufacturer self amplifying mrna.
That seems to be where the industry is going and there are substantial manufacturing challenges with.
Without the mrna and we believe this platform can address many of us.
Excellent. Thank you so much.
Once again, if you have a question. Please press star then one to be joined into the question queue.
Star then one to enter the question queue.
This concludes our question and answer session I would like to turn the conference back over to Jim Hayward for any closing remarks.
Thank you so much well thank you all for joining us today.
Before I conclude the call I'd like to take an opportunity to say on behalf of all of the applied DNA.
That we were privileged to assist the city University of New York and keeping their community safe.
Which was really a success as judged both by the notes of gratitude, we received from the administration, including Hector Batista, The executive Chancellor, Vice Chancellor and C O O who stated.
Your tools and practical solutions empowered the university with real time data to make informed decisions that in turn kept our communities safe.
From the beginning of the pandemic, we recognize the importance of following the science and applied DNA was instrumental to helping us uphold the principle.
Yes.
But it's also noteworthy to recognize that throughout the course of our contract CUNY positivity rates remained at a fraction of the surrounding boroughs.
Well. Thank you again, and we look forward to updating you on our progress on our fiscal fourth quarter and year end. Thank you very much and have a good evening.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yes.
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