BNB Plus Corp. (BNBX) Q4 2020 Earnings Report, Transcript and Summary

Good day, and welcome to the Applied DNA Sciences’ Fiscal Fourth Quarter and Full-Year 2020 Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note this event is being recorded. I would like now to turn the conference over to Sanjay Hurry. Please go ahead.

Thank you, Matt. Good afternoon, everyone, and welcome to Applied DNA's conference call to discuss our fiscal fourth quarter 2020 financial results and business updates. You can access the press release that was issued after market closed today and slide presentation accompanying this call by going to the Investor Relations calendar page of our Web site. Speaking on the call today are Dr. James Hayward, our CEO; and Beth Jantzen, our CFO. Before we begin, please note that some of the information you will hear today during our discussion may consist the forward-looking statements. I refer you to Slide 2 of the presentation and the company's Form 10-K filed today December 17, 2020, 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 is my pleasure to introduce our first speaker on today's call, Beth Jantzen. Please go ahead, Beth.

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 fourth quarter of fiscal 2020. Then, Dr. James Hayward, our President and CEO, will summarize the company's achievements in the year and outline our key initiatives for fiscal 2021. We will then open the call to questions from our analysts. The preface my review of our financial results for the fiscal quarter ended September 30, 2020, we continue to experience a decline in revenue from our tagging and related supply chain services business. That is primarily due to the shutdown of global supply chains at the onset of the pandemic. Specifically, the effect of the shutdown continues to adversely impact the textile industry that historically has been our largest contributor to revenue. In response, and as I detailed on our fiscal third quarter investor call, we shifted a significant percentage of our headcount and resources towards addressing the fight against COVID-19. As such, our financial results also reflect investments made in the build out of our COVID-19 testing products and services and to a lesser extent, our vaccine development program. However, as you will know, when I review the statement of operations in a moment, revenue for the fourth fiscal quarter does not include significant revenues from our COVID-19 testing products and services, as the first contracts were signed late in the fourth quarter, and they've continued to increase during our first quarter of fiscal 2021. Starting with the consolidated statement of operations, total revenues for the fourth quarter of fiscal 2020 declined to $314,000 from $1.7 million in the prior period. This year-over-year decrease in quarterly revenue is mostly attributed to a decline in product revenue associated with shipments of DNA concentrate to protect the cotton supply chain during the prior fiscal year. Products revenues declined to $123,000 for the fourth quarter of fiscal 2020, compared to $1.3 million in the prior period. Consequently, service revenue fell to $191,000 for the fourth quarter of fiscal 2020 from $423,000 in the prior period. Cost of revenue as a percentage of product revenue in the fourth quarter of fiscal 2020 increased to 126%, as compared to 26% for the prior period. The year-over-year increase reflects low fixed course cost absorption, given our reported product revenue. The increase is also due to the change in product sales mix, as the prior period was comprised primarily of cotton DNA product revenue that carries a higher gross margin. Total operating expenses increased 31%, or by $1 million to $4.2 million in the fourth quarter of fiscal 2020, compared with $3.2 million in the prior period. This increase was driven principally by greater SG&A and R&D expenditures. SG&A expenses for the fourth quarter of fiscal 2020 increased by $631,000 to $2.9 million from $2.3 million in the prior period. The increase reflects the addition of staff associated with the formation of our applied DNA clinical laboratory subsidiary and a reversal of voluntary salary reductions taken by members of senior management to reduce cash burn in prior years. R&D expenses for the fourth quarter of fiscal 2020 increased by $353,000 to $1.2 million from $887,000 over the prior period, reflecting the development of our linear COVID-19 diagnostic assets, as well as the write-off of certain development costs for tagging systems that are not expected to be used commercially in the cannabis market. Net loss for the fourth quarter of fiscal 2020 widened to $4.1 million, compared to $1.2 million in the year ago period. Net loss per share for the fourth quarter of 2020 improved to $0.82, compared to a net loss per share of $1.44 for the same period in fiscal 2019. Excluding non-cash expenses, consolidated adjusted EBITDA was negative $3.8 million for the fourth quarter of fiscal 2020 compared to a negative $1.6 million in the prior period. Turning to our balance sheet, cash and cash equivalents totaled $7.8 million on September 30. Our average monthly cash burn rate net of financing and warrant exercise proceeds for the 12 months ended September 30, 2020 was $980,000 compared to $465,000 for the year ago period, an increase of 111%. The increase is due to lower cash receipts, as a result of the decline in revenue period-over-period and increased spending due to the development and build out of our COVID-19 products and testing services discussed above. You will recall in May, that in May, we received a Paycheck Protection Program loan in the amount of $847,000, under the CARES Act. The FDA has begun to process applications for loan forgiveness. We submitted our loan forgiveness application in October of 2020 and is currently under review by the FDA. Total debt at fiscal year-end was $1.5 million comprised of our secured convertible notes. We repaid the full amount of these outstanding notes subsequent to September 30. I will provide more detail on this repayment shortly. Subsequent to September 30, we received three warrant exercises for our November 2019 warrants that have an exercised price of $5.25. The first warrant exercise occurred in October and total net proceeds of approximately $1.7 million. We utilized these proceeds to repay our outstanding secured convertible notes of $1.7 million that represents the full outstanding amount of the notes, plus interest through the note scheduled maturity. In accordance with the warrant exercise agreement, we issued approximately 159,000 replacement warrant with an exercised price of $7.54. This repayment resulted in the extinguishment of approximately $1.5 million of debts and liabilities from our balance sheet. As a result, with the exception of the PPP loan, we are now debt-free, which will be reflected in our quarterly report for the quarter ended December 31. We filed our fiscal 2020 10-K a short while ago, in which we disclosed that based on our historical financial results, there is substantial doubt about our ability to continue as a growing concern for one year from the issuance of the financial statements. Our ability to continue as a growing concern is dependent on our ability to raise additional working capital. Our cash position on November 30, was approximately 4 million. We received two additional exercises of the November 2019 warrants last week, that yielded total net proceeds to us of approximately 1.05 million. As a result of these exercises, in accordance with the warrant exercise agreement covering these warrants, we issued 100,000 additional replacement warrants with 50,000 of these warrants, having an exercised price of $6.57 and 50,000 of such replacement warrants having an exercise price of $6.46. Approximately 460,000, 2019 warrants are outstanding as of December 10, 2020. This concludes my prepared remarks. Thank you for joining us today. Have a happy and healthy holiday season. I will now turn the call over to Jim for his comments.

Thank you, Beth, and good afternoon, everyone. I hope you and your families are keeping well in these COVID times as many parts of the country endure rising infection rates, and as the first vaccinations of our frontline workers are underway. The subject of rising infection rates and specifically, the ability to detect and surveil for COVID-19 will be a recurring theme in my remarks today. In addition to the publication of our financial results for our fiscal fourth quarter and full year a short while ago, we also announced today a pooled surveillance testing award from the Suffolk County government local to us here on Long Island. This award has a maximum value of $2 million over the next six months and if fully realized would be our largest such contract today. The six-month term and the value of the award may be increased at the county's discretion to meet additional testing demands. I'll provide additional detail on this award shortly. At its core, this award reflects continued execution on our pivot towards COVID-19. I'll begin my remarks today with a brief review of how we respond to the pandemic that put us on a path to securing certain milestones in fiscal 2021. And as the world breathes a sigh of relief as EUA authorized vaccines make their way into the general population globally. I will discuss how we are currently preparing for a post COVID-19 world. Now since the outbreak of COVID-19 in China in late 2019, the SARS-CoV-2 virus has invaded every corner of the populated world. COVID-19 was declared pandemic by the World Health Organization in March 2020. A combination of travel restrictions, public shutdowns and China's national emergency response, effectively ground to a halt general business activity across global supply chains. And as Beth noted, especially injurious to us was the shutdown of the textiles supply chain that runs through Asia, and from which we have historically derived the greater portion of our revenue. Countries began to shut down and the pharmaceutical and biotech industry is mobilized to pursue diagnostic tests and vaccines against SARS-CoV-2 at speeds never before seen or imagined. And we seized on the opportunity to use our 15 years of PCR expertise to rapidly develop a PCR based molecular diagnostic and to promote the use of our LinearDNA platform for the development of nucleic acid-based vaccines. In February, we began development of LinearDNA based COVID vaccine candidates in collaboration with our Italian biotech partner Takis/Evvivax. As COVID-19 surged through Europe and especially Italy, Takis developed five plasmid-based COVID-19 vaccines that target the spike protein. Based on previously generated positive data from Takis applied DNA, LinearDNA cancer vaccine in animal models, it was our belief that the manufacturer of a linearized form of the vaccine candidates for COVID-19 would generate positive preclinical data sufficient to take to human trials. Equally important to us would serve as a real-time opportunity to prove our LinearDNA manufacturing platform as a true alternative to current plasmid-based vaccine manufacturing technology. Our initial preclinical LinearDNA COVID-19 vaccine results were very promising. Over the summer, we announced that all five of our joint vaccine candidates yielded strong antibody and T-cell responses even at very low doses of LinearDNA. Our results seen in mice echo those seen by Pfizer and Moderna in their human trials. Our initial hope, along with Takis was that the compelling data we offered with linearized DNA would attract partnerships with large pharmaceuticals. They investigated and our platform did work. Moreover, the expedience I mean, however, rather, the expedience required by operation warp speed and other pressures for speed, preempted the introduction of novel platforms such as ours, into the tried-and-true arena already dominated by DNA plasmids. And as I have stated in prior calls, among the benefits of LinearDNA, is its absence of exposure to bacterial contaminants, including unintended DNA mitogens, bacterial cell wall components and assorted toxins. We believe that some of these components may play a role in the rare allergic response to the mRNA vaccines. PCR produced LinearDNA from synthetic templates might lessen the allergic response to mRNA vaccines, an application we are currently investigating. Our goal remains to broadly commercialize our LinearDNA platform as an alternative to plasmid DNA manufacture. And we are well on our way to achieving this goal. As a company with a strong IP portfolio and a long history in the manufacturer LinearDNA, we look to establishing partnerships with nucleic acid-based therapeutic developers who have the financial and the regulatory expertise to support preclinical and clinical development of LinearDNA forms of their drug candidates. Our LinearDNA subsidiary is currently engaged with many customers in this regard. We are now using preclinical data for the COVID-19 vaccines to pursue the development of a LinearDNA candidate for veterinary use. The regulatory pathway for a veterinary candidate runs through USDA rather than FDA, and is a potentially much shorter and much less costly path to commercialization and would give our platform the validation we seek to translate eventually toward human vaccines. Our LinearDNA veterinary vaccine trial is currently set to launch in our March quarter, in Brewster, New York, with domestic cats, who are known viral reservoirs that transmit the virus rapidly to other cats. The goal of the trial is to evaluate the vaccine candidate as a strategy for the prevention of SARS-CoV-2 in feline companions to humans, that would mitigate the animals as a potential reservoir for infection in humans. The Brewster trials primary endpoint is to demonstrate safety and immunogenicity. Upon completion of the Brewster trial, we plan to initiate a challenge trial against COVID-19. At a biosafety level three facility using a second cohort of cats. In this follow-on trial, the cats will be dosed with the LinearDNA vaccine candidate and upon zero conversion, the vaccinated cats would then be placed among a COVID-19 infected cohort. The rates of transfer of COVID-19 among the vaccinated cats will be studied with a plan endpoint of revealing the vaccines candidates overall efficacy against active disease. We anticipate multiple updates for our veterinary LinearDNA COVID-19 candidate across our June and September fiscal quarters. If the primary endpoints are met for both trials, we and Evvivax expect to apply in our fiscal fourth quarter for a USDA APHIS conditional license that is very much akin to the EUA approval for human vaccines for our LinearDNA COVID-19 vaccine candidate for domestic cats. With at least 58 million domestic cats in the U.S. and a likely first mover advantage of veterinary vaccine could be extended to other animals such as mink. We have begun to see commercial partners already in the vaccine business. Now, if vaccine development was our overture against COVID-19. Our second act is the establishment of our diagnostic and surveillance testing programs. We swiftly designed and validated a novel real-time reverse transcription PCR tests for the detection of SARS-CoV-2. Most assays in the market target singular aspect of the SARS-CoV-2 genome, our assay targets two highly conserved sections of genes coding for the spike protein in an efficient multiplex assay that tests in a single step. Our molecular test obtained emergency use authorization from the FDA in May of 2020 for diagnostic use, and can be used on high throughput nucleic acid extraction in PCR systems. We believe our assays is best in breed with high sensitivity and high specificity. In fact, it can detect as little as two copies of the SARS-CoV-2 virus in a sample, which means that our assay potentially allows for very early detection of the infection. The faster we can identify an infected individual, the faster our clients can mitigate virus spread within their schools, corporations and government agencies. Our assays has been validated and implemented at Stony Brook University Hospital, our first significant customer and a very important ally in our community. We continue to secure amendments to our EUA that expand the installed base of equipment, enhancing high throughput and commercial relevance. Now we have multiple lines of revenue from our diagnostics. Firstly, we are the manufacturer with shipments to several labs for validation within their quality systems. Our pipeline for kits sales to certified diagnostic laboratories is increasing and today stands at more than 15 diagnostic laboratories. But the larger story is how we seize the opportunity to put our own diagnostics to work in fighting the virus in our own community in New York. Since the outset of the pandemic, there have been shortages of regional testing. Demand for testing is broader because of the remarkable role of asymptomatic spread. We constructed staff, established workflows and compliance in our Applied DNA clinical labs subsidiary in record time. Our long-term strategy is to attain full regulatory compliance as a CLEP- CLIA certified diagnostic lab, but we recognize the opportunity for impact was far greater as a provider of proactive surveillance testing. This mode of testing impacts more people more frequently and with a greater opportunity to curtail infection. This benefit comes from pooling patient samples carefully and at the appropriate pool size and frequently retesting established cohorts. Instead of testing a single diagnostic patient who passes through only once, our contracts offer extended periods that keep us in close contact with cohorts actively trying to keep the virus at bay. Pooled surveillance testing has been used in many situations and is different than diagnostic testing, as an individual patient result is not rendered. Instead, pooled surveillance testing is used to look at the infection rates within a specific population, such as a school or a workplace, a government agency, a family or college to identify potential early infections within the population, such that the infected population members can be referred for diagnostic testing, and medical care. Pooled surveillance testing is easy to implement, does not require private health information or a prescription and can be tailored for a client's specific needs. We were an early mover in the surveillance testing market and our efforts are certainly paying off both for a long island community and for the company. Now we have branded our pooled surveillance testing platform safeCircle, powered by our linear COVID-19 assay a second line of revenue for this platform, The safeCircle platform is serviced by our wholly-owned subsidiary, Applied DNA Clinical Laboratories. With infection rates climbing nationally and the promise of vaccines for the general population, the better part of a year away. We have quickly implemented process and automation to meet the demand we're seeing in the marketplace. We've also turned our safeCircle proprietary surveillance testing know-how and platform into a consulting and implementation service to help other laboratories into high throughput pooled surveillance centers using our linear assay. We have accomplished just this through our partnership with Stony Brook University Hospital, which has critical needs to keep staff and faculty at work safely. The Economics of pooled surveillance testing to us are very compelling, with one PCR reaction, analyzing up to five individuals instead of one. Our safeCircle testing uses fewer resources and materials and leaves open more capacity such that we can service large populations. We announced in October that we established an initial base of testing revenue which has continued to grow since that announcement and will be more fully evident in our first fiscal quarter 2021 results when they are announced in mid-Feb. We have targeted markets that provide good margins and are diversified. We believe we're in a strong position to grow safeCircle revenues in the coming quarters. To tap the market opportunity more fully for pooled surveillance testing and to further streamline the process for managing customers and enabling them to easily self-manage their own programs. We have partnered with CLEARED4 a digital health care company to offer a full solution. This morning Suffolk County award that was won in partnership with CLEARED4 is an excellent example of the value our two companies working together bring to our clients. SafeCircle will test Suffolk County government employees weekly in test pools of up to five samples utilizing our anterior nasal swab sample collection kits. As I mentioned previously, this award as 6-month term and a maximum value of $2 million. But Suffolk County has the option to extend the period of performance by an additional 6 months and has the option to include the participation of the county's entire 10,000-person workforce. Some of these employees such as Suffolk County, law enforcement are deemed an essential workforce, and cannot perform their duties by working from home. Ongoing, consistent, and proactive pool testing can help identify potentially infected members of the county workforce sooner and help protect co-workers, family members and communities. We also have been approached recently by other municipalities. We believe this award represents a tipping point for Applied DNA, representing an escalation in the markets awareness of our safeCircle offering and acting as a reference customer demonstrating to other counties facing the same pressure to deploy broad PCR based surveillance testing measures. From a financial perspective, this award has the potential to materially improve our consolidated financial performance. We continue to install robotics and expand our capacity. In summary, across both our COVID-19 vaccine programs and testing services, we have laid the groundwork for inflection points to our top-line in fiscal 2021. Even as we focus on the here and now of COVID-19, our LinearDNA platform has much broader applicability independent of COVID-19 vaccine development and diagnostics. The value proposition of our LinearDNA platform can be a benefit, not just for COVID-19 vaccines, but to every nucleic acid-based program under development for therapeutics today. our LinearDNA manufacturing platform is a proprietary process that enables large gram scale production of DNA through PCR. We believe that our platform is a cleaner and higher performing alternative to traditional DNA manufacture, and enjoys certain advantages including the speed of production, the potential for high level expression, the absence of antibiotics and their resistance genes, the absence of any bacterial contaminants, the purity of the results in DNA, simplicity of design and importantly, the stability during shipment requires no refrigeration. The economics of these messenger RNA vaccines themselves make for a compelling case. for LinearDNA. Vaccines typically require a cold chain were Moderna and Pfizer require a minus four degrees Fahrenheit and minus 94 degrees Fahrenheit respectively. 25% of all vaccines manufactured last year were thrown away because they degraded during transit due to failures in the cold chain. By one estimate, vaccine spoilage resulting from temperature mistakes are estimated at $34.1 billion annually. This figure is almost three times the $12 billion invested in COVID-19 vaccines to-date. The COVID-19 pandemic has shown that the general public and worldwide regulatory agencies are willing to accept nucleic acid-based vaccines. This fact has sharpened our focus on the development of our LinearDNA platform, which we believe will have broad utility to the nucleic acid-based vaccine market. One of our main goals for the coming years, the validation of our LinearDNA platform for vaccines and potentially other forms of nucleic acid-based therapeutics. Now it is still unknown whether COVID-19 will be a one course pandemic or become endemic, like influenza. We believe that the established mutations in SARS-CoV-2 that increase fitness of this virus are demonstrative of the potential this virus has for persistence through change. We further believe that our platform has the ability to evolve with COVID-19 and future pandemics. Today, we are proud to count leading biotechnology and pharmaceutical companies working in the field of nucleic acid-based medicines as contract research and development customers, As one would expect, however, COVID-19 has length in their ongoing evaluations of our constructs. With much of that evaluation based on sell models, this isn't the kind of work they can do from home. In the second half of the fiscal year and going into the first quarter of 2021. We've seen an uptick in contract research activity for bio therapeutic applications of our LinearDNA that we take to reflect the increasing value being placed on LinearDNA by drug developers. We are seeing activity in a broad range of therapeutic and diagnostic technologies. Ongoing activities with our LineaRX customers include the use of LinearDNA as a template for RNA production. Multiple projects investigating the use of LinearDNA as the necessary templates for recombinant adeno-associated virus production. Recent repeat orders for the use of LinearDNA for the study of T-cell transfection. We have a funded study to investigate the use of LinearDNA with lipid nanoparticles for delivery to T-cells. And we will continue performance under a long-term supply agreement for the use of LinearDNA in in-vitro diagnostics. As you can tell, we're very motivated by the strength of LineaRX and the attention we've garnered for the biotech and pharmaceutical industry. We expect the coming year to demonstrate the efficacy of LinearDNA in a variety of compelling therapeutic settings. With the formation of our clinical labs, were also executing on a strategy to expand our market reach through value-added services complimentary to a growing portfolio of diagnostic and surveillance assays. The clinical labs allow us to be a direct beneficiary of our own diagnostics development beyond the sales of kits to qualified laboratories, and provides the clinical sampling framework necessary to obtain the data required by state and federal regulatory authorities to develop and improve diagnostics and vaccines. One of our businesses that continues to receive clear testimony of value from our clients is our invasive circulating tumor cell or iCTC based platform for cancer diagnostics. In October of 2019, we reported that our iCTC platform demonstrated superior correlation over prostate specific antigen PSA, in an ongoing Phase 2 trial in recurrent prostate cancer that was conducted by TYME Technologies. Published studies have shown that the concentration of iCTCs in blood correlates with disease status across other hard tumors including metastatic sarcoma, pancreatic, ovarian, breast, longleng, colorectal cancers. We believe our proprietary platform can help diagnose these difficult cancers early and with superior predictive capability. In November 2019, we've signed a definitive agreement with TYME Technologies to supply our iCTC assay and associated services for use in their pivotal stage of the TYME ADA PANC clinical trial for patients with third line pancreatic cancer. We're moving to expand the commercial utility of our iCTC platform through the application of PCR-based methods to enhance the value of our iCTC testing to be commercially offered as a laboratory developed test. A cancer assay developed by CLEP-CLIA laboratory at Applied DNA and sold as a clinical lab service could be marketed to oncologist to both diagnose and follow the course of therapy for their cancer patients. Key to monetizing this in future lab developed tests in need for a CLEP-CLIA diagnostic laboratory. While we are disappointed with the speed with which we've progressed through the certification process. We are on track with milestones for certification in the first calendar quarter of 2021. Finally, we believe our proprietary safeCircle platform has broad applicability outside of surveilling for COVID-19. While we believe the market for COVID-19 surveillance testing will remain strong in the immediate future, there will thankfully become a point in time where the demand for COVID-19 surveillance testing will likely diminish. With this in mind safeCircle was built as an adaptable platform whose proprietary high throughput pooling testing techniques can be utilized to screen populations for a myriad of other respiratory viruses such as influenza, or viral pneumonia, and other moderate to severe respiratory illnesses that are of great public concern, especially to entities such as schools, municipalities, businesses, colleges and long-term care facilities. In addition, when a new SARS like virus emerges in the future, the safeCircle platform could be very quickly adapted to provide surveillance testing services for such a virus. With heightened awareness of the public health risks by respiratory viruses, we believe there is a strong future for the safeCircle platform in a post-COVID-19 world. With all hands on deck, focusing to serve our community with COVID-19 diagnostics and therapeutics, and the simultaneous shutdown of global supply chains. Just a quick note to let you know we have maintained our ongoing contracts in our tagging businesses. Bright spots appear to be the world's focus on wellness with continued engagement in dietary supplements, as evidenced with our Nutrition21 business, cosmetic trials underway, and pharmaceutical pipeline building with Colorcon as evidenced by their turning up the volume with their recent marketing promotions. In addition, during the current fiscal year, we obtained several issued patents that we believe greatly strengthen our tagging business in both cotton and cellulosic fibers. Now this concludes my prepared remarks. Operator, we're now open to questions from our listeners. Thank you.

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Yi Chen with H.C. Wainwright. Please go ahead.

Hi, thank you for taking my questions. My first question is regarding the contract with the Suffolk County Government. So could you clarify what roll does CLEARED4 play in this contract? And whether they share part of the 2 million contract?

Yes. CLEARED4 has a remarkably flexible platform for tracking information about the client base. And it is a platform that allows facile communication between the sponsor of a surveillance program and its members. We are very impressed with their adaptability, with their ability to pull in customers and they greatly facilitate the service, which we consider to be so important to maintaining our surveillance customer relationships. And yes, we pay them a fee for that service and we're very happy with it.

Okay. Got it. And the second question, could you tell us how many customers do you currently have on the safeCircle platform for pooled surveillance testing, and whether the revenue you would expect to receive in the current quarter would be sufficient to make up for the lost revenue in the textile industry?

Very good questions, Yi. Appreciate it. Thank you for asking them. So, our surveillance customer base includes multiple schools, businesses small and large, hospitals, wellness operations, a medical school, families, colleges, athletic teams and more. So there's very little risk concentration, it's very diversified customer base. And their compulsion to test is quite strong and very successful. It's certainly well over 30 customers at this stage. And in terms of -- we don't provide guidance. But certainly, the revenues we'll see from the safeCircle surveillance business would – will exceed the growth rate we were expecting for our tagging business, driven especially by textiles.

Got it. Thank you. And lastly, could you tell us whether the cat vaccine is still on track to -- the cat vaccine trials on track to be initiated? And what would happen for the human vaccine? When should we expect to have an update for the human vaccine?

Sure. We can see two roles in the human vaccine. I'll answer that question first. First of all, we hope that our progress with our veterinary vaccine sheds more light on the potential we can bring to the marketplace with our LinearDNA vaccine. Also, the public's appreciation of the demand for cold chain has increased the awareness of the value of LinearDNA, because once freeze dried into a formulation, that's rehydrated at the patient's side, that freeze dried powder is extraordinarily stable. I've joked that I would ship it across the Sahara without concern, but it is remarkably stable. We do expect the cat vaccine trial to stay on course. We have great partners in the execution of those trials, and we're really looking forward to it. We think that this is not simply an anecdotal kind of application. But that it's very important in the case of pandemic, such as caused by the SARS-CoV-2 virus that humans don't accommodate to keeping a reservoir of virus at their flip side. And the cure to that is to vaccinate cats and eliminate cats as a potential carrier of the virus in the household.

Okay, got it. Thank you.

Thank you.

[Operator Instructions] Our next question comes from Anthony Vendetti with Maxim Group. Please go ahead.

Thanks. So, Jim, just a little more on the Suffolk County Government contract, it's 2 million, you said that initially over six months. And the opportunity is to expand that after six months. Can you talk a little bit more about what that expansion would potentially be? Would that be for another $2 million? Or is the expansion beyond six months would have to be determined the dollar amount after the first six months would potentially be a different dollar amount, depending on the magnitude of the expansion?

Sure. First of all, I have to say that I'm astonished and wonderfully impressed by the agility of the Suffolk County Government. Their capacity for decision-making or response to events and to strategy is, I just have not seen before. And we as a company, find ourselves sprinting to keep up with their agility. It's really wonderful to see and restores your faith in government. The expansion could occur in real-time, it does not have to wait for the end of the six months, and is in part influenced by the reception of those we would be protecting by this surveillance campaign. And I can tell you from our first meetings with agencies and people, like the members of the police department and the Chief of Police, their reception is very strong, they're very anxious to participate. They ask whether or not their families can participate. And I think the opportunity for it to broaden is genuine. And, frankly, I think the wider and deeper it gets, the better job we can do it helping to protect Suffolk County. So I'm very optimistic and anxious to get going.

Great, sounds like that. Is that a significant opportunity that could continue to expand? You also mentioned on the call, Jim, that other municipalities have reached out or you've been in contact with other municipalities. Where would you say that those other municipalities are in terms of the pipeline? Are they close to making a decision? Or they're just not as nimble as Suffolk County, and it could take a while.

It's kind of hard for me to say with assurance, Anthony. We're seeing even in the schools that have to make decisions about, they look back in retrospect about the impact of the Thanksgiving holiday on infection rates, and can clearly see what inter-household visits did to the infection rates thereafter. And that was with a two-day holiday and a four-day weekend. With the coming holiday, we see the schools and many of the communities tacking as you would in a sailboat to ensure they're heading in the right direction. And we respond in real-time right with them. So, I think we could see a very significant increase in our activity in this area after the first of the year and I'm just hoping that people are wise about the way they visit one another and limit the opportunity for infection.

Yes. It makes sense. And then just done the veterinary opportunity. You said, everything's moving forward with the feline trial. What is that overall opportunity if everything goes well, in terms of a dollar amount, what do you think the market opportunity there is?

Well, I think it's broad enough on the basis of cats. We've seen estimates from the 58 million I quoted to well over 100 million, that's even in household camps. If you combine that with feral cats, there's a huge opportunity. But early on in the -- who workshops, the World Health Organization workshops, the ferret was identified as one of the best clinical, pre-clinical laboratory animals to work with. And the reason for that is because unlike cats, ferrets develop symptoms and many eventually die from the disease and ferrets are in the same family as minx. And as you know a very significant commercial business has been perhaps permanently impacted by the impact of this virus on minx. But we believe that if our vaccine is functional in cats, it would also be functional in some animals of very important commercial value like minx. And then, secondly, the data that we would get from these trials and use after approval, could very well be helpful in our potential COVID vaccine based on LinearDNA, as well as a host of other nucleic acid-based therapeutics that we're working on.

Okay. And then, just to switch gears a little bit, I think Beth mentioned during her opening remarks that there was a write-off for some development expenses, not expected to be utilized by the cannabis industry. Can you elaborate on that?

We have continued our close connection to the cannabis industry. And it's very clear that as it becomes approved more globally, that there is still a requirement to be able to track cannabis to its original source. And as the methods of harvesting and subsequently isolating distillates and other components becomes clearer, we realize that our initial methods may not be as relevant to tagging in the field as to tagging during the chemical processes early after harvest, where the material is still close to its starting point but very eligible for tagging.

Okay, okay. So bottom-line is, as you still see an opportunity there. It's the type of opportunity has shifted, is that correct?

Yes, exactly. So we've moved to tagging at another point in the supply chain, instead of while it's out in an open field.

Okay. And then, just the last question on the CLIA certification those deficiencies. What were they and I know, you said you were addressing them? Did you say you expect them to be addressed early in '21?

Yes. We believe we actually addressed most of those concerns already. And now documenting how we have addressed them and supplying those documents back to New York State Department of Health is the key issue. Most of the concern dealt with the flow of data in electronic systems typically and those systems have been implemented and are being improved as we speak.

Our next question comes from Matt Bullock with Maxim Group.

Hi, thanks for taking my question. Just a quick follow-up on from a modeling perspective. Any additional color on how you guys think about gross margin and SG&A expenses going into fiscal '21, and how that cadence might play out? Thanks.

Beth, you want to take that one?

Sure. Yes, I think we had, as we mentioned increased development costs in the fiscal fourth quarter, but then I would expect SG&A levels to be slightly down from where they were on this fiscal quarter. And almost remained fairly consistent as we kind of focus some efforts and move some of our resources from tagging and things like that over to the COVID-19 and the biotech sector.

Then on gross margin?

The gross margin really -- the gross margin is so poor in Q4 because we didn't absorb some of the fixed costs that are flowing through COGS with the low product revenue, but the gross margin on the surveillance testing is very good in some other, it's not better than like our textile industry. Same with the diagnostic kit itself.

This concludes our question-and-answer session. I would like to turn the conference back over to Dr. Jim Hayward for any closing remarks.

Okay. Well, thank you very much, and thanks to everybody for listening in. It's been a year clouded by anxiety, illness and fear. But we have found encouragement in the -- on unfaltering commitments of our employees and our colleagues, our investors, our development partners and our customers. As I said before, we are amazed at the agility of a tripartite and translational collaboration between government, academia and industry. And as we close this call and year, we have found strong reasons to be optimistic about our future as a company, as an industry and the country. And we wish you all peace and health. Thanks very much.

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