Applied DNA Sciences, Inc. (APDN) on Q2 2021 Results - Earnings Call Transcript
Operator: Good day, and welcome to the Applied DNA Sciences Second Fiscal Quarter 2021 Financial Results Call. Please note, this event is being recorded. I'd now like to turn the conference over to Sanjay Hurry. Please go ahead.
Sanjay Hurry: Thank you, Jason. Good afternoon, everyone, and welcome to Applied DNA's conference call to discuss our second fiscal quarter 2021 financial results and business updates. You can access the press release that was issued after market close today as well as the accompanying slide presentation to this call by going to the IR calendar page of our website. Speaking on the call today are Dr. James Hayward, our CEO; and Beth Jantzen, our CFO. Judy Murrah, COO and newly appointed Chief Legal Officer, Clay Shorrock, will also be available to take your questions on the Q&A portion of the call.
Beth Jantzen: Thank you, Sanjay. Good afternoon, everyone, and thank you for joining us. I will begin this afternoon with a review of our consolidated financial results for the second fiscal quarter of 2021. Dr. James Hayward, our President and CEO, will then update you on developments across our COVID-19 diagnostics and surveillance testing businesses, as well as progress being made in our biotherapeutic and supply chain security markets. We will then open the call to questions from analysts and investors. To begin, we are pleased to report significant revenue in the fiscal second quarter, both on a year-over-year and quarter-over-quarter basis, that was driven by demand for our Linea COVID-19 Assay Kits and safeCircle pooled COVID-19 surveillance testing service despite the ongoing impact of the pandemic on our supply chain security business. Starting with the consolidated statement of operations. Total revenues for the second fiscal quarter of 2021 increased to $2.7 million from $552,000 in the prior period. This year-over-year increase of 384% is primarily attributable to an increase in service revenue of $1.4 million, which was associated with safeCircle, that reflects a full quarter of testing for clients secured in the prior quarter. Second fiscal quarter revenues were up 65% as compared to first fiscal quarter revenues of $1.6 million. Product revenues increased to $965,000 for the second quarter of fiscal 2021 compared to $198,000 in the same period in the prior fiscal year. This increase is primarily due to sales of our COVID-19 Diagnostic Assay Kit. Cost of revenue as a percentage of product revenue in the first quarter fell - in the second quarter, fell to 37% compared to 91% for the prior period. The year-over-year improvement is due in part to a shift in product revenue mix as our assay kit sales are at a higher gross margin. The decrease is also the result of certain fixed costs that were not fully absorbed with the level of product revenues in the prior period as compared to the period we are reporting today.
James Hayward: Thank you, Beth, and good afternoon, everyone. Thank you for joining us on our quarterly call. I hope you and your families are keeping well. The seeds of our financial performance in the second quarter and in the first half of the year, really, were planted one year ago with the EUA for our Linea COVID-19 Assay Kit, which we secured in May. And the launch of safeCircle surveillance platform in our September quarter. While pleased with our execution of the commercialization of our diagnostics to fight SARS-CoV-2, we are equally pleased with the concurrent execution on our long-term goal to establish LinearDNA as a manufacturing platform and a disruptive alternative to today's DNA sourcing standard, which is plasmids. Before I begin, I'm happy to welcome back Clay Shorrock, to the Applied DNA team. Clay previously led our regulatory and IP efforts, both internally, and more recently as a valued external counsel. His return as a member of the management team highlights our pursuit of highly regulated markets with our LinearDNA platform that will be greatly informed by his expertise. COVID-19, while devastating to so many, has also triggered change, innovation and investment across the biopharmaceutical industry that will have benefit to society for years to come. It spurred profound change, allowing a role for many new drug mechanisms to be effective, whether it's messenger RNA or lipid nano particles or even viral vectors like AAV.
Operator: Our first question comes from Jonathan Aschoff from Roth Capital Partners. Please go ahead.
Jonathan Aschoff: Congrats on the progress. My first question is, what is your sense of the commercial appetite and thus, the partnership potential for a mink vaccine?
James Hayward: Without the vaccine, the mink industry can't return to its prior status. So it's the only way for the mink industry to come back. And we think that is the nearest term and greatest opportunity. The USDA is not currently accepting applications for domestic felines. But we hope that they revisit that issue as we've laid really the groundwork in domestic cats. I note also that the similarity of the clinical picture in affected minks, ferrets and humans and the effect - the efficient replication of SARS-CoV-2 in the mink upper respiratory tracks makes them a highly suitable model for evaluating human vaccine candidates. So I think the pivot to mink is perfectly timed and well suited for our future.
Jonathan Aschoff: Regarding relatively near-term revenue opportunities, can you update us on the cannabis tagging and the invasive CTC programs? I'm sorry if I missed this - I missed some of the call.
James Hayward: No, you didn't miss. I didn't really speak to the cannabis issue today. We see a tremendous amount of interest and some very creative business approaches. It's still very much an industry in flux, but it's definitely moving forward. State after state has made cannabis legal. And we think that we'll have opportunities, both at the level of state governments and at the corporations who are developing the products. So we are very excited about cannabis tagging.
Jonathan Aschoff: And then the invasive CTC, that seems to be a little more under your control, I would imagine.
James Hayward: Yes. And the - obtaining the CLIA certification will be a big help. So right now, our iCTC business is based on RUO platform or research-use-only. But in that context, we're working with oncologist and working with time pharmaceutics in a Phase 3 clinical trial on Stage IV pancreatic cancer patients. And we're excited about that study and it's yielding good data. We've learned we can develop organoids from these patients cell cultures, and that may be an opportunity for precision medicine in the future. And with the CLIA certification, we hope to develop a lab developed test that we can get approved by New York State Department of Health, and I think that oncologists would be very interested in the utility of that asset.
Jonathan Aschoff: But did you guys give any update to 2021 revenue with the CLIA certification and being able to test asymptomatic patients?
James Hayward: No. We've not provided any guidance at this stage, Jonathan.
Operator: Our next question comes from Anthony Vendetti from Maxim Group. Please go ahead.
Anthony Vendetti: Jim, you mentioned on the LinearDNA platform, you have two in the R&D stage working with some of these large pharmaceutical companies. And then you have one that's moving forward. I was wondering if you could, without giving their names, but just quantify the opportunity, what this could mean both from a business standpoint and then potentially from a revenue standpoint down the road?
James Hayward: Sure. Well, for the initial commercial effort that's already in the marketplace, that client is ordering grams of DNA effectively each quarter. And we have steadily delivered high-performing product. And that's really led them to develop two more for an equipment platform that's already being deployed all over the world. And so I think it's likely that those two in development will also succeed in the marketplace. And that's just a reflection of a single customer. And while that was our first customer in the sale of DNA to diagnostics, it parallels our development in the sale of DNA for therapeutics, for which we have dozens of customers.
Anthony Vendetti: So on the therapeutic side, you have dozens of potential customers at this point?
James Hayward: We have dozens that we're working with in a CRO modality, couple of which are really on the verge of becoming CMO customers. And they're part of the reason, part of the drive to ensure we have cGMP capability primed and ready to produce the product that they would need for higher animal studies or for the first human clinicals.
Anthony Vendetti: Okay. Great. And then just shifting gears. You said you anticipate a pickup in cotton as things return to normal. Do you have a time frame where you think that can start to pick up? Is that a - is that this quarter? Is that towards the end of this year? Or is that more of a 2022 - fiscal 2022 situation for you?
James Hayward: Yes. The timing can be a little difficult to estimate. The ginning season for cotton really doesn't begin in October - until October. and it begins in earnest really at the end of the calendar year. So we've seen orders before as early as June, but there's no telling really. Our estimation is that the kind of back pressure that's developed in consumers and their purchasing of cotton products is that this customer, this client is growing their cotton business quite well. And so we're hopeful that their needs will be strong.
Operator: Our next question comes from . Please go ahead.
Unidentified Analyst: Yes. The last 10 years that I've been a total believer in your company, Mr. Hayward, how do you see the next year in your mind versus the last 10?
James Hayward: Yes. This definitely feels like a transitional year. I mean, it has been already in such a short time. We spawned a brand new business, very relevant to our core capability, that is PCR. We've used PCRs as a diagnostic tool. We've achieved certification in the most difficult state in the union to do so, and we've built a business out of it. And so I think there's opportunity there, and it's perfectly matched with our therapeutic capabilities. So when you combine the ability to do diagnostics and the ability to develop therapeutics, you have, in the same location, the ability to steadily improve your approach to that therapeutic. So I think we're in great shape for a rapid change, and we've captured the attention of the biotech marketplace with our LinearDNA platform. More and more of those big players understand the value proposition we offered them originally two years ago, which is gradually becoming more and more visible.
Operator: Our next question comes from Anthony Vendetti from Maxim Group. Please go ahead.
Anthony Vendetti: Yes. Just a quick follow-up on the supplement side of the business, Jim, Nutrition21. Can you talk a little bit more about that opportunity, what that - the magnitude for what that could mean? Is that - is it early in terms of that market opportunity? Or could that develop into a significant market for you over time?
James Hayward: Sure. Well, Judy Murrah, our COO, has been spearheading this business? And I pass the question to her.
Judy Murrah: Okay. Thank you. Anthony, the Nutrition21 opportunity that we have is really the beginning. It has established a case study and validation of our tagging technology, for in the tagging and in managing their contract compliance with their customers, how much of their ingredient is being put into the products as well as IP protection. So the value proposition for them is very strong. They're very vocal about it, and we'll be able to use that into other markets - or into other customers within that segment. And just like we were talking about home goods, the pandemic has spawned the consumer interest in health and wellness. So the dietary supplement business itself is seeing pretty high-growth rates.
Anthony Vendetti: Okay. Great. And that seems like a good market opportunity because the supplement business isn't FDA regulated. So there's obviously plenty of instances that I've come across, and I'm sure you have as well, where a particular supplement says it has ex amount of this supplement or this chemical compound or mineral, and it really doesn't, right? So is this - the ability to tag it and make sure that it is adhering to compliance, so forth, it seems like a perfect match for what Applied DNA could do?
Judy Murrah: It is. And our molecular tag has certain benefits that other technologies of that sort, whether they're UV-based or other competitive things just can't do. So we have very high-resolution testing and the legal, forensic testing labs for - to help put some teeth behind it. The other thing is it's a nice use case to help to establish tagging in the pharmaceutical area as well. That's only just like one step away of a market. So we can use this as well.
Operator: There are no more questions in the queue. This concludes our question-and-answer session. I would like to turn the conference back over to Dr. James Hayward for any closing remarks.
James Hayward: Okay. Thank you very much. So our remarks today serve to highlight our focus on executing on the diverse opportunities that are ahead of us. We've had strong top line growth. And by demonstrating disciplined investment in our operations, we have the foundation for continued execution in the second half of the year. We have the financial means, the enhanced management depth and a singular focus to turn the promise of LinearDNA into reality. Well, thank you all, and stay safe.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
