Applied DNA Sciences Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
December 7, 2023

Key Takeaways

  • Total revenues for Q4 FY2023 fell to $0.78 M from $3.6 M a year ago, driven by the expiry of the CUNY COVID-19 testing contract and reduced textile product sales.
  • Cash and cash equivalents declined from $10.8 M on June 30 to $7.2 M on September 30 and roughly $4.5 M by November 30, generating a Q4 monthly cash burn of $1.2 M and raising going concern risks without additional capital.
  • Received a NASDAQ non-compliance notice for failing to maintain the $1.00 minimum bid price, with 180 days to regain compliance or face delisting.
  • Accelerated pivot to biotherapeutic manufacturing via the Linea DNA platform and Spindle Biotech acquisition, securing over ten customers for DNA and three for combined DNA/IVT workflows in mRNA production.
  • Planning to launch GMP-grade mRNA starting material services in H1 CY2024 and aiming to convert early-stage users into long-term supply agreements, positioning for meaningful revenue growth in FY2024 and beyond.
AI Generated. May Contain Errors.
Earnings Conference Call
Applied DNA Sciences Q4 2023
00:00 / 00:00

There are 7 speakers on the call.

Operator

Good day, and welcome to the Applied DNA Sciences Fiscal 4th Quarter 2023 Financial Results Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Sanjay Hari, Head of Investor Relations.

Operator

Please go ahead.

Speaker 1

Thank you, Vishnavi. Good afternoon, everyone, and welcome to Applied DNA's conference call to discuss our Q4 fiscal 2023 financial results. 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 corporate website. Speaking on the call today are Doctor. James Hayward, our Judy Mara, our COO, will also be available to answer questions on the Q and A portion of today's call.

Speaker 1

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 2 of the presentation and our Form 10 ks 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 Jansen. Please go ahead, Beth.

Speaker 2

Thank you, Sanjay. Good afternoon, everyone. Thank you for joining us on our fiscal Q4 investor call. I will start this afternoon with an overview of our results for the quarter ended September 30, 2023. I will then turn the call over to Doctor.

Speaker 2

James Hayward, our President and CEO, who will update you on our ongoing business initiatives. We will then open the line for questions from our analysts and institutional investors. To preface the year over year comparison of our fiscal 'twenty three Q4 results, I highlight that the year ago period included robust COVID-nineteen testing related revenues as well as a cotton tagging revenue that are not present in the quarter being reported today. The cotton order for the current ginning season was received and shipped subsequent to ninethirty. 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 in the manufacturing of DNA for biotherapeutic applications.

Speaker 2

With this as a backdrop, total revenues for the quarter ended September 30, 2023 were $780,000 compared to $3,600,000 for the same period last year. The decrease in revenue of approximately $2,800,000 was due to an expected decline in COVID-nineteen testing services revenue of $2,400,000 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 $341,000 The decline in product revenue is primarily related to a decrease year over year in cotton tagging revenues within our textiles vertical. Gross profit was $79,000 or 10% compared to $417,000 or 12% in the prior fiscal period. The decline in gross margin was primarily due to a higher percentage of COVID-nineteen testing services and textiles revenue in the 3 months ended September 30, 'twenty two, that generated a higher gross profit compared to the 3 months ended September 30, 2023.

Speaker 2

Total operating expenses decreased to $4,200,000 compared to $4,700,000 in the prior fiscal year period, reflecting an approximate $445,000 decrease in SG The decrease in SG and A is mainly due to a reduction in payroll expenses of approximately $341,000 To a lesser extent, the decrease is due to a decline in insurance expense of $139,000 This decrease in SG and A was offset by a small increase in R and D expenses of approximately $26,000 With the unrealized gain on the change in warrant Fair values classified as a liability that are included in our net loss line, we highlight operating loss as best representing the company's operations. Our operating loss for Q4 'twenty three was $4,200,000 compared to $4,300,000 in the prior fiscal period. Excluding non cash expenses, adjusted EBITDA remained relatively flat at a negative $3,500,000 compared to a negative $3,400,000 in the prior fiscal year. Turning to our balance sheet. Cash and cash equivalents totaled $7,200,000 on September 30, compared to $10,800,000 on June 30.

Speaker 2

As of September 30, our accounts receivable balance stood at $256,000 the majority of which has been subsequently collected. For the fiscal year, our average monthly cash burn was $672,000 compared to 786,000 in the prior year. Our average monthly cash burn for the Q4 of fiscal 'twenty three was $1,200,000 and largely in line with our forecasted post CUNY contract expiry estimate. Our cash position on November 30 was approximately 4,500,000 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's 1st 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 concluded in November of this year via the filing of an equity distribution agreement and prospective supplement to empower an at the market facility grounded in our expectation for milestone driven fiscal 2024.

Speaker 2

To date, we have issued approximately 29,000 shares for net proceeds of about 26,000 under the ATM. Before concluding my remarks, I note that our just filed Form 10 ks includes a disclosure from our prior Form 10 Q of a substantial doubt of a going concern. Our ability to alleviate the going concern is dependent on our ability to further implement our business plan and generate revenues or raise capital. Finally, yesterday, we filed an 8 ks disclosing a notification letter received earlier this week informing us that we were not in compliance with NASDAQ listing rules that require listed securities to maintain a minimum bid price of $1 per share. For NASDAQ listing rules, We have 180 calendar days in which to regain compliance.

Speaker 2

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, we would 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 80 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.

Speaker 3

Thank you, Beth. Good afternoon, everyone, and thank you for joining us on our fiscal year end call. Fiscal 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 Linea DNA platform to deliver on our vision for enzymatically We produced Linea DNA as an alternative to plasmid DNA in the manufacture of genetic medicines, and a strong response has resonated across the industry.

Speaker 3

In 2023, our goal was to expand our presence in the marketplace for DNA with a focus on building a 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 to multi gram orders It was the sudden appearance of the COVID mRNA vaccines and then more broadly other RNA or therapeutics rather on the industry stage in the last two years that has 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 Linea IVT platform and we initiated our build out Now the 1st phase cGMP manufacturing footprint to produce critical messenger RNA starting materials And we acquired an enviable base of early phase customers for the rapid production of multi gram quantities of Linea DNA. Beyond messenger RNA templating, there are many needs for linear DNA. We have interest from and in some cases are already conducting large scale studies for companies developing Products in the areas of CRISPR, CAR T, tRNA therapies and other non therapeutic in vitro diagnostic applications.

Speaker 3

Our addressable market, therefore, is every therapy whose production begins with or utilizes DNA. My remarks this afternoon will center on our 1st market Deliverable. The migration of our early phase GLP grade customers to larger scale supply Agreements for Linea IVT Templates and our Linea RNA polymerase Manufactured under applicable GMPs to support their clinical messenger RNA aspirations. Given the opportunity before us, we anticipate signing supply agreements in fiscal 2024 Several current customers have indicated their intention to be developing their Oncology data or starting in the clinic in calendar 2024. 1 or more of these agreements would have obviously positive ramifications to this segment's growth curve in fiscal 2024 and beyond, although we're not yet able to discuss the slope of that curve.

Speaker 3

Now 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 Linea DNA and Linea IVT. This discussion will convey Linea IVT's 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. Now in our CertainT supply chain traceability business, Our repeat customers tagging of £15,000,000 of cotton this season is due to be completed this month.

Speaker 3

1 third of the DNA was shipped new this season with the balance from the customer Torey, 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. Related to forced labor. Now turning to our clinical laboratory and the approval of our pharmacogenomics or PGx assay and that testing service. Our submission to New York State Department of Health for Approval of our assay remains actively in review.

Speaker 3

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 our PGx assay, we are building awareness Now it's my pleasure to turn the call over to Clay, who is our Chief Legal Officer and the Executive Director of Business Development. Clay?

Speaker 4

Thank you, Jim, and good afternoon, everyone. As Sue stated, our decision in August 2022 position our Linea DNA platform to produce IVT And a critical starting material for mRNA therapeutic production was a water fed moment for LineaRx as it formed the foundation of the strong and growing customer demand we see today. Interest in our platform was further elevated in July of this year with the acquisition of Spindle Bio and the launch of our Linea IVT platform, specifically targeting large scale RNA production. Our goal for fiscal 2023 was initial customer engagement and a leading scientific and operational to support scale up and growth in fiscal 2024 and beyond. I am pleased to report that our team is very successful in meeting these goals.

Speaker 4

Our sales funnel is full with marquee repeat customers from biotech, pharma and CDMS. And the momentum continues to grow With orders in November 2023, tying the largest number of Linea DNA order monthly orders in the company's history. In addition, over the past year, we continue to own our enzymatic manufacturing process to increase efficiencies and to reduce costs, resulting in significant cost reductions as compared to just call MultiHop. And we are now building GMP around RFM's portfolio. We also had numerous important firsts over the past 12 months, including the first repeat order of Linea DNA IVT Templates, the first repeat order of Linea DNA for CRISPR related applications, The first customer shipment of Linea IVT template to produce itself an epithonic mRNA.

Speaker 4

The first customer shipment for The Linea IDT platform, including our newly acquired Linea Arnab, the first successful Manufacturer of self amplifying mRNA with the Linea iCT platform and the first customer shipment of Linea DNA used to produce Keyarna, a new therapeutic modality that enable genetic correction at the protein editing level. Our goal for fiscal 2024 is to convert our existing and new customers into larger and longer term commercial supply agreement. Now critical to achieving this goal is the launch of our GMP manufacturing capacity for mRNA starting materials, which is slated for initial operations in the first half of calendar year twenty twenty four. As I will talk about shortly, Our planned GMP capabilities are crucial to unlock the value of the HD and A. Now since acquiring Spindle Bio back in July and its proprietary RNase LENRIS or RNA as we call it, We successfully integrated its institutional knowledge into our company.

Speaker 4

Under this knowledge, our team is able to further optimize The Linea IBC platform to enable the manufacture of a wide range of mRNAs and self amplifying mRNAs, ranging from 1,000 base pairs all the way up to over 10,000 base pairs, all with significant reduction in double stranded or Df RNA as compared to conventional mRNA production platforms. As you recall, Linea IVT platform is a combination of our chemically modified enzymatically produced IVT template coupled with spindle proprietary on app, now marketed as linear. The platform leverages these 2 unique technologies to provide for a simplified mRNA production workflow with reduced dsRNA contamination, which is a problematic and highly immunogenic byproduct of conventional mRNA production. The dsRNA is defined by the World Health Organization as a manufacturer impurity that causes undesirable immune It's inflammatory responses and its presence must be mitigated in all mRNA therapies. Now as you can see on Slide 7, our recently updated data shows that the Linea IBC platform has the ability to reduce dsRNA production by between 10 fold and 50 fold depending on the RNA constructs without sacrificing the mRNA yield.

Speaker 4

Now this substantial reduction in dsRNA production coupled with the numerous benefits and expect to enter into a joint agreement with the CDML shortly to assess the platform's performance at clinical scale manufacturing. Encouraged by this rapid platform adoption, we actually plan to initiate a project in early In addition to conferring a clear market advantage, the platform also offers more advantageous economics to the company than selling ITC templates alone, representing approximately 3 fold improvement in the potential revenue per sponsored project. We believe that the unique revenue opportunities offered by the platform allows us to better modify the growing opportunity in mRNA starting material and differentiates us from other enzymatic and non enzymatic IVT separate manufacturers. Now as I noted before, our primary goal for fiscal 2024 is to secure long term supply agreements with existing and new customers. Now based on the market data and the public state of the mRNA pipelines, we believe that demand for mRNA Approximately 68% of mRNA therapeutic candidates are still in preclinical development, but many of those therapies will reach the clinic where large scale D and T manufacturing of mRNA starting materials is required.

Speaker 4

Due to that, several of our existing customers Our currently plan to enter the clinic in late calendar year 2024 or early calendar year 2025. In addition, several new mRNA therapies have Just been approved for our nearing potential approval by FLIP Well regulatory products, including the world's first self amplified mRNA approval in Japan And an mRNA vaccine against Part B for which the global regulatory documents were just filed. Moreover, And important for us as an enzymatic, we may manufacture the 1st investigational new drug application was recently approved in the U. S. That uses enzymatically produced starting materials or IVT satellites.

Speaker 4

So armed with our planned GMP capacity and our differentiated platform, we plan to capitalize on the churn demand. We as well as other industry experts think that the differentiation in MRA manufacturing will be critical in gaining market share Now finally, the ability to produce starting materials for the manufacture of mRNA under applicable GMPs is essential to our future success. In recent quarters, we have outlined our GMP plans, including the retention of engineering and compliance consultants and employees and are currently targeting a first half calendar year 'twenty four launch of service. As a pioneer in TCR based enzymatic reduction of IBC template, there is no pre existing model for us to follow. And I applaud our team for their ongoing hard work through this very important call.

Speaker 4

In the short term, we believe that the launch of our GEP manufacturing services coupled with the Longer term, our forward looking business plan calls for an upgraded and new separate facility under applicable G and Ps, People are producing DNA drug substance and drug products, which we believe will offer additional value valuable large scale manufacturing opportunities in gene therapy, gene editing and adoptive cell therapy, for which we see an increase in customer demand in the current fiscal year. So closing, fiscal 'twenty three was a significant and That's full year in the company's pivot to biotherapeutic manufacturing. We believe fiscal 2024 with a planned loss of GMP per IDT separately will result in the procurement of larger and longer term contracts, which will set the stage for significant growth in fiscal 2025 beyond. Jim, now back to you.

Speaker 3

Well, thank you, Clay. Our ability to bring a more rapid, cost efficient And qualitative process to creating DNA, we feel, places us firmly on a growth company trajectory with positive ramifications for long term shareholder value. And from Clay's remarks, it should be clear That our biotherapeutics manufacturing first growth strategy is the focus for Investment and Development Moving Forward. And as shown in this slide, let me briefly recap Our biotherapeutics expectations for fiscal 2024. Entering the year, our sales funnel is full with marquee repeat customers, and that momentum continues to build.

Speaker 3

Our goal this year is to convert customers into larger and longer term commercial supply agreements. Despite being launched only 6 months ago, we already count several large CDMOs as Linea IVT Evaluation customers, and we expect to enter into a joint agreement with a CDMO shortly to assess the platform's 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, critical starting materials provides us with the potential for the largest revenue and growth opportunity in our company's history. Now all of us here at Applied DNA are very excited about what is to come And we look forward to sharing fiscal 2024 milestones with you as they develop.

Speaker 3

And this concludes our prepared remarks. Operator, please open the call to questions. Thank you.

Operator

Thank you. We will now begin the question and answer session. Our first question comes from Jason McCarthy with Maxim Group. Please go ahead.

Speaker 5

Hey, Jim and Clay. Thanks for taking the questions. Just on a Technical question. Can you talk a little bit about something I think that was is a little bit being overlooked by people And that the spindle RNA polymerase that you acquired wasn't really intended to do Self amplifying. And there was a lot of things that your group had to leverage its expertise to get it to work.

Speaker 5

Can you just talk a little bit about that and what that means for the self amplifying aspect of what you're doing in the biotherapeutics world?

Speaker 3

Clay, would you like to pick up the gauntlet?

Speaker 4

Absolutely, sure. Hey, Jason. So absolutely, When we acquired Spindle back in July, the data showed it could manufacture DNA up to about 900 fee affairs. So we've taken it a very long way. Because of the mechanism of action of the parent enzyme and We weren't sure that the mechanism of action would allow for these But by optimizing So the buffer system is some other tricks.

Speaker 4

We were able to get it to work with these very large FA MRAs, which to us is a very promising sign, both for our IT portfolio, which protects several iterations of this modality, But also because of the growing market in FA mRNA, which does, like the recipe industry, have a dsRNA contamination

Speaker 5

Got it. And you had mentioned the first IND was Approved in the U. S. For enzymatically produced DNA. Can you talk a little bit about more a little more about who that is or what they're working on?

Speaker 4

Yes, absolutely. So to our knowledge, it's the first IND approved for mRNA using enzymatically produced the critical starting materials, which That was our competitor out of the UK, TushLight Genetics. But we think it's A very positive sign for us as FDA has shown that they're willing to engage on enzymatic DNA and that they're Willing to approve enzymatically produce a G and A at least at this point as a sorry to hear. So we view it as a very positive sign. We also think that our manufacturing technology is more cost effective and more expedient And our competitors, so we think that the product is of equal quality, but we do think we can make it faster and better.

Speaker 4

So We view it at a very responsive start.

Speaker 5

So can you just last question, because you use that for your Preclinical, I guess clientele, you said that 68% of mRNA candidates that are out there are 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 and kind of pave the way for them to go a little bit deeper with APDN's Technology and kind of getting yourselves baked into their development process?

Speaker 4

We think so. And it has been a very marketing tool in about like 30 days since the IND was approved. But the catalyst for us, of Of course, because we are an end to match manufacturer, it's not the same process, will be one of our clients bringing us through FDA, Right. That will be the catalyst that will open the floodgate. But this is a first start.

Speaker 4

There were some concerns in the industry that FDA would

Speaker 3

And Jason, just a further comment. FDA 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 RNAs as well.

Speaker 5

Got it. Thank you, Jim.

Operator

Our next question comes from Yi Chen with H. C. Wainwright.

Speaker 6

Could you comment on The revenue for clinical laboratory service in the fiscal Q4, do you think that Whether that has reached a baseline level or do you think that could continue to decline in future quarters?

Speaker 3

Sure. I would say the safest way to forecast that as most laboratories that are in the business of COVID Testing is to expect a decline, but Lord knows what will happen with COVID In the coming future, as it turns out, locally, 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 not, people have had 3 years of COVID and they're sick of it. And They are not willing to have it occupied a piece of their brain that it previously did. And so I think a decline is more likely

Speaker 6

than that. Yes. And is there a potential time as to whether or when the New York State Department of Health could Complete the review process?

Speaker 3

Well, our fingers are crossed. There's not much Anybody can do to accelerate things at the Department of Health, but their questions On our application, we're insightful and we were able to answer them thoroughly And I'm sure that dialogue will continue. And I'm hopeful that we'll hear from them Again, quite soon. And I'm also hopeful that we gain approval, but you never know.

Speaker 6

Got it. And would you be able to comment on how many customers have actually ordered from your linear IDT platform so far.

Speaker 3

Clay?

Speaker 4

Hi, Yi. I didn't quite hear that. I think you asked the number of customers we have for the Linea IVC platform. Is that correct?

Speaker 6

Correct.

Speaker 1

Yes.

Speaker 4

I'm trying to take off the top of my head. So first, we have 2 different Technologies that are closely related, Gabe, right? We supply IDT templates, which we manufacture via our large scale platform called Linea DNA, right. For those IVC separates, we have well over Ten customers, I would say 4 or 4 or 5 of them are recurring for our Linea IBP template that is a DNA only. For our linear IVC platform, which is a combination of the template plus the spindle enzyme, we currently have 3 evaluation customers expecting to shortly have a half of 4th.

Speaker 4

One of those customers we are expecting to So I'm a more substantive agreement with here in the near term, to see how the combined platform, the enzyme and the template Sales up in an actual or sale and manufacturing workflow.

Speaker 6

Okay. Do you feel that customer orders from the linear IVT platform could enable the company to demonstrate sequential growth in product and service revenue going forward?

Speaker 4

We do. And I think further to that end, we are hard at work Converting our customers that are currently only using our IBP template over to the linear IBP platform Because the economics for us of that platform are much more compelling as we talked about, right, in the call, But also it's a better platform for the customer. So

Speaker 1

to answer

Speaker 4

your question, the template economics can certainly Make that happen, but the economics of the combined platform would be much more advantageous.

Speaker 6

Okay. Last question, could you provide an update at the cash position after September, the end of September.

Speaker 2

Sure. So I said a little earlier in the call, our cash position at November 30 is approximately $9,000,000

Speaker 6

Okay. Thank you.

Speaker 2

You're welcome.

Speaker 3

Thank you,

Operator

As we have no further questions, this concludes our question and answer session. I would like to turn the conference back over to Doctor. Haybert for any closing remarks.

Speaker 3

Thank you very much. And thank you all for attending our call. And we look forward Keeping you updated on our progress as we move into this exciting period, And we wish you all Happy Holidays. Thank you.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may all now disconnect.

Powered by Quartr