Q4 2023 Applied DNA Sciences Inc Earnings Call
Okay.
Good day and welcome to the applied DNA Sciences fiscal fourth quarter 2020 financial results Conference call.
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After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on attached on phone to withdraw your question. Please press Star then two.
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 good.
Good afternoon, everyone and welcome to applied DNA conference call to discuss our fourth quarter fiscal 2023 financial results.
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 corporate website.
On the call today are Dr. James Hayward, our chairman President and CEO Beth Jantzen, our CFO in place for all of our Chief legal officer and head of business development.
Tony Mauro our CFO will also be available to answer a question on the Q&A portion of today's call.
Before we begin please note that some of the information you will hear today during our discussion.
Consist of forward looking statements.
Are you to slide two of the presentation and our Form 10-K 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 fourth quarter Investor call.
I will start this afternoon with an overview of our results for the quarter ended September 30th 2023.
I'll, then turn the call over to Dr. James Hayward, our president and CEO.
Well update you on our ongoing business initiatives.
We will then open the line for questions from our analysts and institutional investors.
The purpose of year over year comparison of our fiscal 'twenty three fourth quarter results.
I highlight that the year ago period included robust COVID-19 testing related revenues.
As well as a cotton tagging revenue that are not present in the corner being reported today.
The cotton order for the current ginning season was received and shipped subsequent to 930.
As clay and Jim will speak to later fiscal 2023 was an important building year for the company that we believe lays the foundation for our future growth.
And the manufacturing of DNA for Biotherapeutic applications.
But this is a backdrop.
Total revenues for the quarter ended September 30th 2023 with 780000.
<unk> to $3 6 million for the same period last year.
The decrease in revenue.
Approximately $2 8 million was due to unexpected decline in COVID-19 testing services revenue of $2 4 million.
Driven primarily by the expiry of our testing contract with the city University of New York.
In June 2023.
The decrease was also due to a reduction in product revenue of 341000.
The decline in product revenue is primarily related to a decrease year over year in cotton tagging revenues within our textile vertical.
Yeah.
Gross profit was 79000 or 10% compared to 417000 or 12% in the prior fiscal period.
The decline in gross margin was primarily due to a higher percentage of COVID-19 testing services and textiles revenue in the three months ended September 30th 22 that generated.
Higher gross profit compared to the three months ended September 30th 2023.
Total operating expenses decreased to $4 2 million compared to $4 7 million in the prior fiscal year period.
Reflecting an approximate $445000 decrease in SG&A expenses.
The decrease in SG&A is.
Mainly due to reduction in payroll expenses of approximately 341000.
To a lesser extent the decrease is due to a decline in insurance expense of 139000.
This decrease in SG&A was offset by a small increase in R&D expenses of approximately 26000.
With the unrealized gain on the change in warrant fair value is classified as a liability that are included in our net loss line, we highlight operating off that's representing the company's operation.
Our operating loss for Q4, 23 was $4 2 million compared to $4 3 million in the prior fiscal period.
Okay.
Excluding noncash expenses.
Adjusted EBITDA remained relatively flat at a negative $3 5 million compared to a negative $3 4 million in the prior fiscal year.
Turning to our balance sheet.
Cash and cash equivalents totaled $7 2 million on September 30th compared to $10 8 million on June 30.
As of September 30th our accounts receivable balance.
Stood at 256000, the majority of which has been subsequently collected.
For the fiscal year, our average monthly cash burn was 672000 compared to 786000 in the prior year.
Our average monthly cash burn for the fourth quarter of fiscal 'twenty three.
Was 1.2 million and large in line with our forecasted post CUNY contract.
Fiery estimate.
Our cash position on November 30th.
Was approximately $4 5 million.
As you will hear in greater detail from Jim and clay.
Our need for growth capital is clear and necessary to support our biotherapeutic manufacturing first growth strategy.
To that end, we are working closely with our board to explore all options to obtain the necessary growth capital.
The first stage of which was which was concluded in November of this year via the filing of an equity distribution agreement and prospectus supplement.
To empower and at the market facility grounded in our expectation for milestone driven fiscal 'twenty 'twenty four.
To date.
We have issued approximately 29000 shares for net proceeds of about 26000 under the ATM.
Before concluding my remarks I'd note that our just filed Form 10-K 10-K includes a disclosure from a prior Form 10-Q are they substantial doubt of a going concern.
Our belief ability to alleviate the going concern is dependent on our ability to further implement our business plan and generate revenue or raise capital.
Finally.
Yesterday, we filed an 8-K disclosing a notification letter received earlier this week and.
Informing us that we were not in compliance with NASDAQ listing rules that require listed securities to maintain a minimum bid price of one dollar per share.
Her NASDAQ listing rules, we have 180 calendar days in which to regain compliance.
If at any time during this 180 day period, the closing bid price of the company's security is at least $1.
For a minimum of 10 consecutive business days.
Should be considered in compliance.
Also we may be eligible for an extension of 180 calendar days.
If we do not regain compliance within the first 100 and call. It 180 calendar days allotted to us.
This concludes my prepared remarks.
Thank you for joining us today I will now turn the call over to Jim for his comments.
Thank you that's.
Good afternoon, everyone and thank you for joining us on our fiscal year end call.
For school 2023 was a very productive year for us at the start of the fiscal year.
Our plan was to lean into our biotherapeutic manufacturing strategy that we launched in the prior fiscal year.
And after years of development, we implemented our linear DNA platform to deliver on our vision for Enzymatically produced linear DNA as an alternative to plasmid DNA and the manufacturer genetic medicines.
And a strong response has resonated across the industry.
In 2023, our goal was to expand our presence in the marketplace for DNA with a focus on building our sales funnel acquiring customers scaling up our platform and integrating it into our customers' workflows.
These initiatives are supported by the transition of our manufacturing capacity from research use only milligram scale DNA template orders too.
Two multi right orders.
Capable.
Oh supporting customers early stage toxicology and clinical trials.
It was the sudden appearance of the Covid mrna vaccines, and then more broadly other RNA vaccines or therapeutics, rather on the industry's staged in the last two years sort of sparked a rush for therapy development by many in the industry.
In response to these industry developments.
We completed the strategic acquisition of spindle biotech.
Which helped to empower the launch of our linear RV T platform and.
We initiated our build out of our first phase cgmp manufacturing footprint to produce critical messenger RNA starting materials and.
We acquired it.
Enviable base of early phase customers for both our linear DNA and linear I V. T platforms. Several of these customers are today generating recurring orders.
And thereby affirming our capacity and timelines for the rapid production of multi gram quantities of linear DNA.
Yeah.
Beyond Messenger RNA town planning.
There are many needs for linear DNA, we have interest from and in some cases are already conducting loved skilled studies for companies developing.
Products in the areas of CRISPR.
Car T.
T RNA therapies.
And other known therapeutic in vitro diagnostic applications.
Our addressable market there for.
[laughter] is every therapy, whose production begins with or utilize his DNA.
My remarks this afternoon.
We will center on our first market deliverable.
The migration of our early phase G. L. P grade customers to larger scale supply agreements for lineage M E T templates and our linear RNA polymerase manufactured under applicable G M p's to support there.
Clinical messenger RNA aspirations.
Yeah.
Given the opportunity before us.
We anticipate signing supply agreements in fiscal 'twenty 'twenty for us.
Several current customers, who have indicated their intention to be developing their toxicology data or starting in the clinic in calendar 'twenty 'twenty four.
One or more of these agreements would have obviously positive ramifications to this segments growth curve in fiscal 'twenty 'twenty, four and beyond although we're not yet able to discuss the slope of the curve.
No in a moment.
Clay will offer insight into our plans to unlock the value of linear DNA and how we can substantially improve our customers' biologics manufacturing workflows with linear DNA and linear O N E T.
This discussion will convey linear IV to use clear advantages both from a biologics manufacturing perspective.
And from the vantage point of the economics to us.
Clay will also provide an update on our timeline to our initial GMP capacity.
But before turning the call to clay I'll brief you on our segments focused on supply chain traceability.
And on applied DNA clinical labs.
No in our certain T supply chain traceability business are repeat customers tagging of 15 million pounds of gotten this season.
This is due to be completed this month.
One third of the DNA was shipped new this season with the balance from the customer inventory.
Revenues forecast for Q2.
In parallel.
We continue pre commercial tagging with a new supply chain partner as planned and as reported in prior quarters.
This phase of the program will be completed in early January.
The overall demand in the cotton industry for traceability technologies remains quite strong due to federal and international legislation related to forced labor.
Now turning to our clinical laboratory and the approval of our pharmacogenomics, where P. G X.
And that testing service.
Our submission to New York State Department of Health for approval of RSA remains actively in review.
Our current Covid testing revenues largely cover all the direct variable costs for this segment.
As we await a final determination on the approval of bar P. G. Excess C. We are building awareness with physicians and health care providers and cultivating potential customers.
Now, it's my pleasure to turn the call over to Clay, who is our chief legal officer, and executive director of business development right.
Thank you Jim and good afternoon, everyone.
And as you stated our decision in August 2022.
Physician, our linear DNA platform to produce IV pathway and the critical starting material for mrna therapy.
Therapeutic production was a watershed moment for linear.
And that formed the foundation of a strong and growing.
Customer demand, we see today.
Interest in our classroom books further elevate in July of this year.
With the acquisition of single box and the launch of our linear platform, specifically targeting large scale.
Our goal for fiscal 2023 was initial customer engagement and a Lady scientific operational foundation to support scale and growth in fiscal Q4 and beyond.
I am pleased to report that our team was very successful in meeting these goals our sales funnel.
With Mark key repeat customers from biotech pharma.
No.
And the momentum continues.
But the orders in November 'twenty, three time, the largest number of linear DNA order monthly orders in the company's history.
In addition over the past year, we continued it isn't that the manufacturing process.
Increased efficiency and to reduce costs.
Resulting in significant cost reduction.
There to justify them.
And we are now building GMT around orphan.
We also had numerous important first over the past 12 months, including the first repeat order of linear DNA.
The first we pretty repeat order.
Linear DNA for Christopher related applications, the first customer shipment of linear IDT tough way to produce self amplifying.
The first customer shipment for the linear ibp's platform.
<unk>, our newly acquired now.
The first successful manufacture of self amplifying mrna.
He platform, we bought the first customer shipment of linear DNA used for tiara.
A new therapeutic modality and enable genetic correction at the protein.
Our goal for fiscal 'twenty four.
To convert our existing and new customers to larger and longer term commercial supply agreement.
Now critical to achieving this goal is the what's the bar GMP manufacturing.
Capacity for mrna.
Starting with Europe, which is slated for initial operation first half calendar year, 'twenty 'twenty, four and I will.
Talk about shortly our plans BMP capability are crucial to unlock the value of that.
Yeah.
No I think the clients.
Back in July and its proprietary artists now or is that definitely call.
We successfully integrated institutional piece.
Two our company armed with this knowledge our team was able to further optimize.
The linear RBC platform to enable the manufacturer of a wide range of that market.
And it's all down to buy anymore, ranging from a thousand base there all the way up to over 10000 users.
All with significant reduction in double stranded or yeah alright.
I think there are two conventional production platform.
As you recall linear RBC platform with a combination chemically modified isn't an athlete produce pizza place coupled with spend on for Patrick.
Now marketing media.
The platform Leverages, the unique technology to provide for a simplified and more production workflow.
Reduced DSO arent, making parish, which is a problem that is highly immunogenic byproduct of conventional anymore.
A D S arent as defined by the World Health organization.
As the manufacturer sure that causes undesirable immunity.
Inflammatory response.
And his presence is Muslim beauty, and all MRI and ERP.
Now as you can see in slide seven.
Our recently Athene.
This shows that the linear IDT platform has the ability to reduce.
DSI RNA production by between Tenfold 50 fold.
Depending on the RNA construct without sacrificing young.
Now this substantial.
Reduction of D. S Army production.
With the numerous act IV.
Yeah.
That's driven a large amount of interest in <unk>.
Classes.
Now displacing watch them six months.
We count.
Several large <unk> at the valuation.
And expect to enter into a joint agreement with it.
Jordan do assess the platform performance.
Nickel scale manufacturer.
Okay.
Encouraged by this rapid platform adoption, we actually plan to initiate a project in early 2024 with a third party manufacturer.
Optimize the manufacturing scale up of millennials.
To ensure we can meet our customer demand and to reduce our per unit costs.
Yeah.
In addition to confirm your market advantage. The platform also offers more applications you can all see the company, they're selling I E.
Representing approximately threefold improvement in the potential revenue per sponsored Clos.
We believe that the EU the unique revenue opportunities offered by the platform allows us to better monetize the growing opportunity and where I started.
It differentiates us from other informatics.
I V C.
Yes.
Now as I noted before our primary goal for Facebook smoked for ease of use.
Secure long term supply agreements with existing and new products.
The piece of the market data and the public state of the pipeline, we believe that demand for mrna manufacturing likely to rapidly grow in the near future likely starting sometime in calendar year 'twenty.
Currently approximately 8%.
These therapeutic candidates are still increased clinical development for <unk>.
Any of those therapies will be used to fund where large scale GMP manufacturing of MRC.
Is required.
And several of our existing customers are currently planned.
In late calendar year, 'twenty, four really kind of dig yourself.
In addition, W. Mrna therapies have just been approved or are nearing potential approval by applicable regulatory costs, including the world's first self amplifying mrna approval in Japan.
And an mrna vaccine against RSV for which the global regulatory documents with Jeff.
Moreover, and important for us.
They manufacture the first investigational new drug application was recently approved in the U S.
They either Ensign has enzymatically produced.
Starting materials for Igt's Atlas.
So armed with our plan of GMP capacity and our differentiated platform.
The capital will happen this year.
We as well as other industry expert.
Dedifferentiation mrna manufacturing will be critical in gaining.
Gaining market share at manufacturing increase.
Accordingly, we believe that our.
The platform is perfectly situated in a market that's a key enabling technology for the differentiator.
Okay.
Now finally here.
Utilities keepers due starting material for our true for manufacture mrna.
Most of you know Keith is essential.
I think just yourself.
Recent quarters, we've outlined our plans.
Including the retention of engineering plant people said boy and are currently targeting a first half calendar year 'twenty four awash of start ups.
As a pioneer in <unk> as an accurate.
Keep up with there is no pre existing borrowers as well.
I applaud our team for their ongoing hard work.
That's very important.
In the short term, we believe that the launch of our GPU manufacturing services, coupled with the anticipated near term growth man.
Starting with Europe.
Offers us, especially the largest revenue growth opportunity in the company's history.
Longer term.
Our forward looking business plan calls for an upgraded and new separate facility under a quick one here.
Our producing DNA drug substance and drug product, which we believe will offer.
If we believe will.
Offer additional value valuable large scale manufacturing opportunity in gene therapy gene editing and adopt that's out there.
But what can you see an increase in customer churn.
Fiscal year.
Oh absolutely.
Fiscal 'twenty three.
Yeah.
For the year.
Hey, Betsy biotherapeutics.
We believe fiscal 'twenty for the planned launch of GMP for IV seasonably.
And the procurement of larger and longer term.
Which will set the stage for significant growth in fiscal 'twenty and beyond.
Now back to you.
Well, thank you clay.
Our ability to bring a more rapid cost efficient and qualitative process to gritting DNA, we feel places us firmly on a growth company trajectory.
With positive ramifications for a long term shareholder value.
And from Clay's remarks, it should be clear that our bio therapeutics manufacturing.
First growth strategy is the focus.
For investment and development moving forward.
And as shown in this slide let me briefly recap our bio therapeutics expectations for fiscal 'twenty 'twenty four.
Entering the year, our sales funnel is full with marquee repeat customers and that momentum continues to build.
Our goal this year is to convert customers into larger and longer term commercial supply agreements.
Despite being launched only six months ago, we already count several large C. D M OS as linear I V T evaluation customers.
And we expect to enter into a joint agreement with a C. D. M O shortly to assess the platforms performance at clinical scale manufacturing.
Our GMP capacity should be online in the first half of this calendar year.
And coupled with the anticipated near growth in demand for the manufacturer of mrna Chris.
Critical starting materials provides us with the potential for the largest revenue and growth opportunity.
Our company's history.
Now all of us.
Here at applied DNA.
I'm very excited about what is to come.
And we look forward to sharing fiscal 'twenty 'twenty, four and milestones with you.
As they develop.
And this concludes our prepared remarks.
Operator.
Please open the call to questions. Thank you.
Thank you.
We will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
Do you think the speaker phone please pick up your handset focusing Vicky.
But any time your question has been addressed and we would like to withdraw your question. Please.
Star then two.
At this time Ivar pause momentarily to assemble our roster.
Okay.
Yeah.
Our first question comes from Jason Mccarthy with Maxim Group. Please go ahead.
Hey, Jim and clay. Thanks for thanks for taking the question just on that.
Technical question can you talk a little bit about something I think that was a little bit being overlooked by people.
And that the spindle.
RNA polymerase that you acquired it wasn't really intended to do self amplifying and yet there was a lot of things that your group had too.
To leverage its expertise to get it to work.
Can you just talk a little bit about that and what that means for the self amplifying aspect of.
What youre doing in the Biotherapeutics world.
Clay would you like to pick up the gondola.
Absolutely sure.
Hey, Jason.
Absolutely when we acquired spindle.
In July the data showed that the manufacture DNA up to about 900 feet there.
We've taken a very long way.
Because of the mechanism of action of the parent enzyme chemically modified.
We have a system that we have.
We werent sure that the mechanism of action will allow for these mall alright.
Faster without a buy.
Bye.
By optimizing.
So the buffer system as some of her right we were able to get it to work with these very large S. A M alright.
Which to US is a very.
Pharmacy side, both for our IP portfolio, which protects several iterations of this modality.
But also because of the growing market in SA mrna, which does look like the rest of the industry.
DSI RNA contamination.
Got it and then you had mentioned the first idea was approved in the U S. Friends of magically produce DNA can you talk a little bit about more a little more about who that is or what what theyre working on.
Yeah, absolutely so.
It's the first <unk>.
We accrued for mrna using enzymatically produce critical starting materials, which are IV see templates.
That was our competitor.
Generic.
But we think a.
A very positive sign for us.
He has shown that they're willing to engage an enzymatic DNA and that there are weather and your willingness to approve enzymatically produce like DNA at least at this point.
That's starting to occur so we view it as a very positive sign.
We also think that our manufacturing technology is more cost effective and more expedient than are our competitors. So we think that the product is of equal quality, but we do think we can make it faster or better so.
We review it.
Various problems down.
So can you just last question because if you use that.
For your preclinical I guess clientele, you said the 68% of mrna candidates that are out there.
Or in the preclinical stage and a bunch of your customers now are in that category does that IND clearance.
Can you leverage that and kind of show them in and kind of paved the way for them to.
Go a little bit deeper with a P. D ends technology and kind of getting yourselves baked into their development process.
We think that and it has been a very effective marketing tool in about 30 days since the I M D. One crew.
What's the catalyst for who are off of course, because we are in and manufacturers. It's not the same process will be one of our.
It's bringing off the rack right that that would be the catalyst that will open the floodgate.
But this is this is a first started there was some concern and you can see that FDA would have issues with asthmatic manufacturers.
Yes.
Okay.
Great. Thank you clay.
Jason just just a further comment F. D. A is an institution that works very much on the basis of precedent.
And we saw that in the Covid vaccines, we saw we're beginning to see that in the car T approvals and I'm sure that we'll see it also in the self amplifying RNA as well.
Got it thank you Jim.
As a reminder, if you have a question. Please press Star then one.
Our next question comes from <unk>, Chen with H C. Wainwright. Please go ahead.
Thank you for taking my questions.
Could you come in on.
Okay.
Revenue for our clinical laboratory services.
Fourth quarter do you think that.
Whether that has reached a baseline level or do you think that could.
<unk> two a decline.
Future quarters.
Sure I would say the safest way to forecast the most laboratories.
So over the testing is to expect a decline.
But lord knows [laughter].
What will happen with COVID-19 in the coming future.
As it turns out.
Locally, where we're seeing an increase in positivity. So it's kind of hard to say, but I would say the safest thing to do is to predict that.
Prevalent or no.
People have had three years of Covid and they're sick of it.
Hum.
They are not willing to have it occupies a piece of their brain than it previously did and so I think a decline is.
More likely.
More likely.
Yeah.
And is there a potential kind of them as to whether or when the New York state to part of the house could complete the review process.
Well you know our fingers are crossed there's not much.
But it can do to accelerate things up the department of health.
But their questions on our application, we're insightful and we were able to answer.
And so them thoroughly and I'm sure that dialogue will continue.
I'm hopeful.
We'll hear from them again quite soon and I'm also hopeful that we gain approval, but you never know.
Okay.
And would you be able to comment on how many customers have actually ordered from Europe.
Two platform so far.
Clay.
I didn't quite hear that I think you asked the number of customers we have.
The platform is that correct correct, yes.
Hmm.
I'm trying to think off the top of my head.
So we have two different technologies that are.
Closely related.
We supply.
E T template, which we manufacture via our large scale platform called linear DNA right.
IGT tablet, we have well over 10.
Certain customers I would say four or five of them are recurring for many of IGT.
Great.
Like DNA.
For our linear I E platform, which is a combination of the template left the spindle enzyme.
We currently have.
The re evaluation customary expecting shortly.
For us.
One of those customers, we are expecting to sign a more substantive agreement with here in the near term.
To see how the combined platform the enzyme and the template.
Sales up in a actual on a large scale manufacturing workflow.
Okay do you feel that a customer orders from the linear IBP platform could.
<unk> enable the company to demonstrate sequential growth in product and service revenue going forward.
We do.
I think <unk>.
Further to that that have that and we are hard at work at converting our customers that are currently only using our ICT template.
Over to the linear platform because the economics for off of that platform and much more compelling as we just talked about right.
But also with a better platform for the customer so.
And to your <unk>.
Question would be the template economics can certainly make that happened the economics of the combined platform would be much more advantageous.
Okay.
Well last question could you provide an update at the.
Cash position after September the end of September.
So as I said, a little earlier in the call our cash position November 30th is approximately $4 5 million.
Four five okay. Thank you.
Youre welcome. Thank you Ying.
Again as a reminder, if you have a question. Please press star then one can be joined into the queue.
Yeah.
Since we have no further questions. This concludes our question and answer questions I would like to turn the conference back over to Dr. Hayward for any closing remarks.
Thank you very much and thank you all for attending our call and we look forward to keeping you updated on our progress as we move into this exciting period.
And we wish you all happy holidays. Thank you.
The conference has now concluded thank you for attending today's presentation.
Yeah.